February Annual Meeting and CLE Programs

The Business Law and International Law Sections will hold their annual meetings and joint CLE program on Feb. 14 and 15 in Pinehurst.  This year’s program includes sessions about securities law, emerging technologies, indemnification of company owners and principals, GDPR, dispute resolution issues in international practice, and a host of others, including the Friday morning favorite, the N.C. case law update from Professor Tom Molony.  Ethics, substance abuse and statutory updates are included as well.

Click here to register for the joint CLE on Feb. 15 and here to register for the 2019 Business Law Institute on Feb. 14.

 

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Solution for Dilution Confusion

By J. Dain Dulaney, Jr.

Imagine this day for a moment: you are the CEO and announce to your investors and employees that the company is issuing additional equity ownership and that their equity ownership percentage is being diluted. Chaos ensues. You have panicked existing investors. Employees are up in arms. All because a new investment, or some other issuance of stock in an acquisition, is going to cause their ownership percentage in the company to be diluted. They feel cheated out of hard-earned company value because they have heard that dilution is a bad thing and automatically assume that this lower percentage ownership is going to make their stake in the company worth less. Who can blame them? Who wouldn’t rather own 5% of a company instead of only 3% of a company?

Do not despair! If the company is issuing equity at a higher valuation, the below explanation should help calm this fear.

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To Dissolve or Not to Dissolve

By Benjamin W. Baldwin

The North Carolina Court of Appeals recently addressed a claim asserting a shareholder’s right to a judicial dissolution of a business corporation in Brady v. Van Vlaanderen, 2018 WL 3977437 (N.C. Ct. App. August 21. 2018).

In Brady, the plaintiff was a shareholder in a family business, United Tool & Stamping Company of North Carolina, Inc. (“United Tool”). At the time the plaintiff’s claims arose, and after giving effect to a conversion of nonvoting stock to voting common stock, all of the voting common stock of United Tool was divided among the plaintiff, her siblings and her in-laws, and the plaintiff held a one-third interest in this voting stock, which regularly paid substantial dividends over the years.

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NC Loan Broker Act Remains an Important Lending Statute and Litigation Tool

By Adam Altman

The North Carolina Loan Broker Act was enacted in 1979 “to protect the public from unscrupulous loan brokering practices.”  Brief of Amicus Curiae Roy Cooper, Attorney General of North Carolina at 4, Printing Services of Greensboro, Inc. v. American Capital Group, Inc. 361 N.C. 347, 643 S.E.2d 586 (2007).

The North Carolina Loan Broker Act (the “Act”), codified in Article 20 of Chapter 66 of the General Statutes, requires that loan brokers provide prospective borrowers with a disclosure statement, obtain a surety bond or establish a trust account, and file certain disclosures with the North Carolina Department of the Secretary of State.  See N.C.G.S. §§ 66-107, 66-108, 66-109.  The Act prohibits loan brokers from collecting an advance fee from prospective borrowers prior to the closing of the loan.  See N.C.G.S. § 66-108(c).  There are several categories of persons and entities that are expressly excluded from the provisions of the Act.  See N.C.G.S. § 66-106(b).  If loan brokers fail to comply with the Act, prospective borrowers may void the loan brokerage contract and sue for damages, recover attorney’s fees, and obtain treble damages.  See N.C.G.S. § 66-111.  The treble damages component is available because the violation of any provision of the Act “shall constitute an unfair trade practice under G.S. 75-1.1.”  N.C.G.S. § 66-111(d).

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Involuntary Transfer Considerations for Operating Agreements in Bankruptcy

By Peter H. Webb

Transfer restrictions in operating agreements serve an important function in assuring that the members of limited liability companies (“LLCs”) are able to control the admission and withdrawal of their fellow members.  Members view these controls as fundamental to the business relationship, as they do not want to be forced into business with an unknown party without their consent.  Indeed, the right to freely choose with whom to associate is enshrined in the U.S. Constitution.[1]  However, the ability of members to approve or deny membership to others can be challenged in the context of an involuntary assignment by a fellow member’s bankruptcy estate to a creditor under the Bankruptcy Code (the “Code”).

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Negotiating LLC Operating Agreements: Representing Minority Members

By Jennifer Weaver

Negotiating on behalf of minority members of an LLC requires careful attention to their unique position.  The minority (“Minority”) may include those who have no voting rights at all or limited rights to participate in voting, or those who have a vote but not enough to control.  Although the Minority may not have voting control, the Minority may have other leverage in negotiating the deal, such as being a key manager or bringing key knowledge, controlling the deal or access to the opportunity, or owning the business but selling a majority position.  As with any negotiation, understanding the leverage is key.  Counsel should focus on (i) the Minority’s access to information, (ii) limiting risks to the Minority, and (iii) ensuring that there are few opportunities for mischief on the part of the majority.

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Effects Of GDPR Extend Beyond EU to NC Companies

By Anderson Ellis

Have you ever used a search engine to look for something, only to find that every subsequent website is advertising that item on sale? Have you ever mentioned some far-flung vacation locale to a friend, only to receive an unsolicited advertisement on your smartphone about cheap flights to that place? These targeted ads are the result of data-mining – the process by which websites you visit collect, store, and use your personal data to customize advertising in the hopes that you will click and buy. Most online users have become so accustomed to this practice that they barely bat an eye. But the value of personal data, and the scope of which it is being collected and stored, caused the European Union to recently enact strict privacy regulations (the General Data Protection Regulation, or “GDPR”), which are causing ripples for North Carolina companies far from European shores.

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Asset Management: The Case For Global Talent

This post highlights an area of immigration law that we think will be of interest to business attorneys.

By Jennifer Cory

On April 18, 2017, President Trump signed the Buy American and Hire American (BAHA) Presidential Executive Order.  The mandate is designed to create higher wages and employment rates for U.S. workers by administering and enforcing federal immigration laws.  BAHA directs those federal agencies responsible to propose new rules and new guidance.

Of the temporary work visas available, President Trump singled out the H-1B visa category as ripe for reform to ensure H-1B visas are awarded to the most skilled or highest paid foreign workers, and to prevent fraud and abuse.  But is such reform needed, and why should employers care?

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NC Secretary of State Cracks Down on Cryptocurrency-Based Security

By Andrew Steffenson

As cryptocurrencies, blockchain technologies, and virtually all things containing the words “crypto” or “blockchain” continue to experience a meteoric rise in popularity, regulators face an abundance of issues related to the classification and regulation of cryptocurrencies and activities related to cryptocurrencies. Likewise, investors and consumers are besieged by an ever increasing number of fraudulent and exploitative individuals and companies attempting to defraud investors and consumers by capitalizing on the frenzied enthusiasm and excitement surrounding cryptocurrencies and blockchain technology. The North Carolina Secretary of State Securities Division (the “Division”) recently cracked down on one such company, which operated under the name Power Mining Pool. The Division found that Power Mining Pool was, among other things, selling securities in violation of the North Carolina Securities Act (N.C.G.S. §78A) (the “Act”).

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New Tools for Your Corporate Law Toolbox in Recent Changes to the North Carolina Business Corporation Act

By David B. Clement

The General Assembly of North Carolina recently approved changes to the North Carolina Business Corporation Act, Chapter 55 of the General Statutes (the “NCBCA”), which the Governor signed into law on June 22, 2018 and which will take effect on October 1, 2018.[1]

The bill enacted into law (the “Act”) makes significant enhancements to North Carolina corporate law, the net effect of which is to:

  • eliminate any perceived advantage certain jurisdictions may have over North Carolina as business-friendly jurisdictions;
  • attract and retain qualified businesspersons as officers or board members of North Carolina corporations;
  • facilitate the efficient discharge of board duties, particularly for public companies subject to the Sarbanes-Oxley Act;
  • facilitate efficient corporation reorganizations and acquisitions; and
  • protect the reasonable expectations of shareholders with respect to their investments.

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