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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Shareholder Inspection Rights for Closely Held Corporations

By Peter Webb

The North Carolina Business Court recently strengthened the hands of minority shareholders in closely-held corporations.  N.C. Gen. Stat. § 55-16-02(b) affords qualified shareholders the right to “inspect and copy: (1) [r]ecords of any final action taken with or without a meeting of the board of directors . . . ; (2) [a]ccounting records of the corporation; and (3) [t]he record of shareholder.”  In the recent case of Sharman v. Fortran Corp., the Business Court not only enforced the minority shareholder’s right to inspect and copy corporate and accounting records, but also awarded attorneys’ fees and court costs to the shareholder plaintiff.[1]  The decision sends a strong message to the directors of closely held corporation: Shareholders have a right to know how you are running the corporation.[2]

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You May Want To Give Nondisclosure Provisions Another Look

By Anderson Ellis

Whether in the context of an M&A transaction or the hiring of a key employee, business attorneys often find themselves drafting three standard contractual provisions aimed at protecting the business interests of their clients: noncompetition, nonsolicitation, and nondisclosure. While noncompetition and nonsolicitation provisions have long been scrutinized because of their inherent effect as restraints on trade, nondisclosure provisions have generally been subject to less judicial prejudice. However, a recent North Carolina Business Court decision may cause practitioners to reconsider the purpose and usefulness of nondisclosure provisions as they relate to the business interests their clients wish to protect.

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Business Section Members: Welcome to Your New Blog

By Stephen Later

This announcement marks a major turning point for the Business Law Section as we transition from our traditional newsletter to our new blog.  Jim Beckwith edited our newsletter for many years and, with his retirement, we decided to switch to a vehicle that will, we hope, offer more frequent delivery of news including updates on caselaw and legislative developments, Section business, and other matters of interest to our members.

The board of editors of our blog—Ben Baldwin, Abbie Baynes, Dave Clement, Ryan Coffield, Jonathan Jenkins, Bob Saunders, Andrew Steffensen, Jennifer Weaver, and Peter Webb—will rotate two-week periods of responsibility for blogs content.  We welcome additions to the board of editors as well as blog posters, so, if you are interested in joining the rotation or contributing an article or have ideas for topics, please reach out to Abbie Baynes, the chair of the board of editors, at [email protected]. Our success will, of course, depend upon the support and engagement of our members, so, if your inner Hemingway is searching for an outlet for expression, please reach out to Abbie or any of the other editors.

Thank you for your membership in the Business Law Section and, again, we welcome and encourage your participation in the blog or on a committee.  Our Section depends upon its members, so we hope that you take the opportunity to participate, and you will not be disappointed.

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