Lecture 20 Blaw 3312 -001
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This page Class Notes was uploaded by loveena Cherukunnathu on Thursday November 12, 2015. The Class Notes belongs to Blaw 3312 -001 at University of Texas at Arlington taught by John D Dowdy in Summer 2015. Since its upload, it has received 77 views. For similar materials see Law II in Business at University of Texas at Arlington.
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Date Created: 11/12/15
Lecture 20 111215 Chapter 38 other organizational forms for small business note emphasis on limited liability companies LLCB limited liability companies These state statues to make all these up are based on uniform act Each statue has a particular prevision from Uniform LLC act that says quotthe failure of an LLC to observe any particular formalities relating to the exercise to its powers or management of its acts is not ground to imposing liability from members or managers or the debts obligations or future liabilities of the company Example in Wyoming there was an green hunter LLC with one member sole priorp and there was green hunter energy The Green hunter energy was the member of the green hunter LLC Law suit filed by western eco system tech inc Western EST inc was a consulting company 0 A whole lot of wondering if the death nail has sounded on the use single member LLC as a asset protecting strategy 0 There was substantial amount of consulting fees got by LLC the amount wasn t paid The plaintiff sued LLC LLC wasn t capitalized at all even bills weren t paid Fundamental equity has to be paid by the owner because he wasn t prepared An exception to the statue Test 4 Material Ch 42 Securities Law and Corporate Governance VI Securities Regulation and Investor Protection Example you have an alien that crashed into planet Earth That crash happens into a federal court house and rests where all the law books are Alien randomly takes one book of the securities acts of 1933 and reads it He keeps reading because he is interested in those books What will the alien conclude about the history of the country 0 He will think something happened to cause the legislatures to make all these laws The cause could have been stock market crash great depression Securities Act of 1933 After great depression passed securities act of 1933 0 Deals with what has to happen before a security can be offered to the public for sale 0 Registration statement is the main point of this act This is a document that has to be filed with securities exchange commission before a security can be offered Example You have this issuer an entity like a corporation Board of directors have voted to issue stock o Closely owned and closely held corp don t get into these Securities are no publically traded in that 0 That issuer has to file a registration statement with securities exchange commission Registration statement is all about disclosure and it s detailed very long 0 Once registration statement is complete then it s filed with SCC That is also filled with all kinds of details 0 SCC is only going to determine if the registration statement will comply with the statue 0 After the registration statement has to be filed it has to be effective It becomes effective at the end of the waiting period it starts as soon as it is filed Waiting period is a 20days period during which the registration statement is continuously on file If something is wrong they will write a letter saying what is wrong with the registration statement and you have to correct and refile or leave the offer Once they correct and refile waiting period starts over 0 What if there was a false statement after it was passed someone failed to pick up Someone will get sued Plaintiffs will be buyers The issuer gets sued also under righters legal opinion person lawyer if financial is wrong accountants etc Plaintiff can sue the defendant for negligence plaintiff doesn t have to prove negligence defendant has to prove not negligent o The plaintiff doesn t have to prove that heshe relied of that specific false statement just have to prove that they did it with the registration with the false statement 0 Intrastate operation Example XYZ corp is a Texas corporation and they are going to make a public offer they are not done across Stateline Commerce law triggers Stateline law Intrastate is only in Texas law If it s intrastate law registration statement might not be required Securities Exchange Act of 1934 Just because you have the financial statement and it s part of registration statement and it s waiting time Auditor has an ongoing duty just because you finished your work doesn t mean you re done You have an ongoing duty to monitor the conditions during that waiting period and you discover something since the registration was filed you have the duty to bring that to attention Securities exchange act of 1934 which has to do with subsequent trading of securities and that will be an issued concern And both statues have disclosure requirements There are certain types of securities and certain type of transactions Securities statues are in the state level not federal except for securities 1933 and 1934 acts If you have a strict intrastate it s going to be based on a state law It can even be exempt from securities 19331934 acts 0 State securities statues are sometimes referred to as blue sky laws It refers to the fact that buying a worthless securities is like buying a piece of the sky Even though it can t be register in the federal law it can be registered with the state Either way talking about public offerings o If it s not public no registration requirement at all there In term of allegations what does it usually involve Insider trading Section 10b and SEC Rule 10b 5 Section 103 of 1934 statue antifraud prevention Concept of fraud in common law fraud in execution and fraud in inception and Fraud in the inducement You have a false representation of fact which is material and is made with fraudulent intent This is where you get in difference between actual fraud and constructive fraud Insider can be even an independent contractor or attorney who has access to inside information 1934 statue fraud includes the common law fraud but it includes more 0 Manipulation put down something that has influence on the market 0 Trading in material that is nonpublic insider trading This can result in civil liability and maybe even criminal Insider reporting and trading Section 16b Under Section 16B 0 Shortswing profit purchase and sale of the company s security by an insider When the purchasesale occur within 6months o nsideronly under section 16B officers directors or certain major shareholders o If an insider makes a shortswing profit that shortswing profit has to be paid back to the company I 1St rule loses don t offset gains I 2quot l rule purchase and sale in determining the profit does not have to occur in any particular order 0 Example a director of this company November 1St purchases 100 shares at 100 January 5th sells 100 shares at 90 April 1St purchases 100 shares at 85 He owes the company 500 because there is a 500 lose 0 Even though its separate transactions it was within 6 months And he realized a shortswing profit He lost money but 1St rule applies 0 For this to apply no fraud has to be involved He was probably innocent without realizing what he did but still he did it This just illustrates how the federal statue takes an insider
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