Wednesday, April 22, 2015

Fall Business Law Conference in Venice

Marco Ventoruzzo (Penn State Law) alerts us to the upcoming international conference for the sixtieth anniversary of the Rivista delle società, which will be held in Venice, on San Giorgio Maggiore, on 13-14 November 2015. The title of the conference is "Rules for the Market and Market for Rules. Corporate Law and the Role of the Legislature." The program and information on how to register (and other logistics) can be found here.  It looks like only an Italian version of the program is available on the website as of the time this is being posted, but I have an English version.  So, please just contact me if you want one.

Marco notes that the conference, organized every ten years by the Rivista, is one of the major events for corporate law scholars and practitioners in Italy (and probably in Europe as a whole). He anticipates well over 300 participants from several European countries, the U.S., and elsewhere. He notes that, as an additional incentive to participate, the venue is probably one of the most spectacular that can be imagined.  San Giorgio is a tiny island in the Venice lagoon, just in front of Saint Mark's Square, that overlooks the entire Venetian waterfront. On the island, inhabited since Roman times, the conference will be hosted in a monastery partially designed by Andrea Palladio in the XVI century.

Hat tip to Marco for this announcement.

April 22, 2015 in Business Associations, Conferences, Corporate Governance, Corporations, Joan Heminway | Permalink | Comments (2)

The Continuing Job Search for 3Ls

There's good news and no news from me on the 3L job search front.

First, the good news.  One of the talented 3L business law students whom I have been mentoring in the Quest for Employment (Q4E) recently secured a position that is perfect for him.  He is a great fit for the firm and the position, and the firm is lucky to get him.  Yay for our team!

The rest of the news on the Q4E front is same-old, same-old.  Two other terrific 3L business law students who have had career/life changes that have led them to seek employment in new markets better suited to their professional or personal objectives are still on the market.  Of course, this is nothing new in Knoxville and much of the rest of the State of Tennessee, where many law firms cannot really assess their needs until much closer to the bar exam/hiring start date.  And these two promising lawyers-to-be are getting bites at the line.

Haskell earlier wrote a great post here on resumes and interviews, and I earlier wrote a companion post on cover letters.  But what happens after you've sent the cover letter and resume and have not been granted an interview?  Give up on the Q4E with those folks?  No way!  At least, that's not my advice . . . .

Continue reading

April 22, 2015 in Joan Heminway, Jobs, Law School | Permalink | Comments (0)

Wednesday, April 15, 2015

Makin' Tennessee For-Profit Benefit Corporation Sausage

"Laws, like sausages, cease to inspire respect in proportion as we know how they are made." -- John Godfrey Saxe

This is a brief legislative update on the progress of Tennessee's current bills, introduced in the house (HB0767--amendment not yet filed) and senate (SB0972), to institute the benefit corporation as a distinct for-profit business corporation in the State of Tennessee.  The links provided are to the current versions of the bill, which reflect a significant amendment, as described below.

As you may know from my prior posts (including here and here), I am a benefit corporation skeptic.  Please read those posts for details.  And within the Tennessee Bar Association (TBA) Business Law Section Executive Council and Business Entity Study Committee (our state bar committee that vets changes to Tennessee business associations and other business laws), I am not alone.  We have rejected bills of this kind several times over the past few years when the matter has been put to us for review by the TBA.  This year was no different.  We opposed the benefit corporation bills that were introduced in Tennessee this year, too.

What was different this time around, was that the folks at B Lab had gotten the attention of the Chamber of Commerce and Industry in Tennessee, who appear(ed) to have some misunderstandings about the current state of Tennessee corporate governance law and came to push for adoption of the bill in committee in both houses of the legislature. Given that we were late to the party and that the members of our TBA Council and Committee are very busy lawyers, our efforts to re-educate members of the relevant committees were not as effective as we would have liked.  But we ultimately were afforded two weeks to attempt to write an amended bill--one that better reflected Tennessee law and norms.

Now, any of you who have worked on a project like this before know that two weeks is not enough time to do a professionally responsible job in spotting and tracking down all of the issues that the introduction of a new business form routinely and naturally raises.  Heck.  We couldn't even get all the constituents around the table that we would want around the table to debate and review the legislation in two weeks!  [It seems hardest to find a plaintiff's bar lawyer to sit in with us, but we found a great one for our recent work on the Tennessee Business Corporation Act (TBCA).]  Our requests for more time to work on the proposed legislation were, however, rejected.

So, we set out to make a better sausage . . . .

Continue reading

April 15, 2015 in Business Associations, Corporate Governance, Corporations, Haskell Murray, Joan Heminway, Social Enterprise | Permalink | Comments (0)

Wednesday, April 8, 2015

Media Coverage of Business Combinations

For thirty years, I have had a pet peeve about the media's routine reporting on mergers and acquisitions.  I have kept this to myself, for the most part, other than scattered comments to law practice colleagues and law students over the years.  Today, I go public with this veritable thorn in my side.

From many press reports (which commonly characterize business combinations as mergers), you would think that every business combination is structured as a merger.  I know I am being picky here (since there are both legal and non-legal common parlance definitions of the verb "merge").  But a merger, to a business lawyer, is a particular form of business combination, to be distinguished from a stock purchase, asset purchase, consolidation, or statutory share exchange transaction.

The distinction is meaningful to business lawyers for whom the implications of deal type are well known.  However, imho, it also can be meaningful to others with an interest in the transaction, assuming the implications of the deal structure are understood by the journalist and conveyed accurately to readers.  For instance, the existence (or lack) of shareholder approval requirements and appraisal rights, the need for contractual consents, permit or license transfers or applications, or regulatory approvals, the tax treatment, etc. may differ based on the transaction structure.

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April 8, 2015 in Business Associations, Corporate Finance, Corporations, Joan Heminway, M&A, Securities Regulation, Teaching | Permalink | Comments (1)

Saturday, April 4, 2015

Assistant Director of the Center for Transactional Law and Practice - Emory Law School

Emory Law School seeks an Assistant Director of the Center for Transactional Law and Practice to teach in and share the administrative duties associated with running the largest program in the Law School.  Each candidate should have a J.D. or comparable law degree and substantial experience as an attorney practicing or teaching transactional law.  Significant contacts in the Atlanta legal community are a plus.

Initially, the Assistant Director will be responsible for leading the charge to further develop the Deal Skills curriculum.  (In Deal Skills – one of Emory Law’s signature core transactional skills courses – students are introduced to the business and legal issues common to commercial transactions.)  The Assistant Director will co-teach at least one section of Deal Skills each semester, supervise the current Deal Skills adjuncts, and recruit, train, and evaluate the performance of new adjunct professors teaching the other sections of Deal Skills.

As the faculty advisor for Emory Law’s Transactional Law Program Negotiation Team, the Assistant Director will identify appropriate competitions, select team members, recruit coaches, and supervise both the drafting and negotiation components of each competition.  The Assistant Director will also serve as the host of the Southeast Regional LawMeets® Competition held at Emory every other year.

Additionally, the Assistant Director will be responsible for the creation of two to three new capstone courses for the transactional law program.  (A capstone course is a small, hands-on seminar in a specific transactional law topic such as mergers and acquisitions or commercial real estate transactions.)  The Assistant Director will identify specific educational needs, recruit adjunct faculty, assist with curriculum design, and monitor the adjuncts’ performance.  

Besides the specific duties described above, the Assistant Director will assist the Executive Director with the administration of the transactional law program and the Transactional Law and Skills Certificate program.  This will involve publicizing the program to prospective and current students, monitoring the curriculum to assure that students are able to satisfy the requirements of the Certificate, and counselling students regarding their coursework and careers.  The Assistant Director can also expect to participate in strategic planning, marketing, fundraising, alumni outreach, and a wide variety of other leadership tasks.

APPLICATION PROCEDURE:  

Emory University is an equal opportunity employer, committed to diversifying its faculty and staff.  Members of under-represented groups are encouraged to apply.  For more information about the transactional law program and the Transactional Law and Skills Certificate Program, please visit our website at:  

http://law.emory.edu/academics/academic-programs/center-for-transactional-law-and-practice/index.html

To apply, please mail or e-mail a cover letter and resumé to: 

 

Kevin Moody

Emory University Law School

1301 Clifton Road, N.E.

Atlanta, GA  30322-2770

sue.payne@emory.edu.

 

APPLICATION DEADLINE:  April 30, 2015

 

[Hat tip to Bobby Ahdieh for this post]

April 4, 2015 in Joan Heminway, Jobs, Law School, Teaching | Permalink | Comments (0)

Thursday, April 2, 2015

Why Do Social Enterprise Entrepreneurs Want Benefit Corporations?

In connection with the current legislative debate on benefit corporations in Tennessee (which has been gathering momentum since I last wrote on the topic), I have repeatedly asked about the impetus for the bill.  Of course, there is the obvious "push" for benefit corporation legislation by the B Lab folks, who have gotten the ear of folks at the Chamber, convincing them that the legislation is needed in Tennessee to protect social enterprise entities from the application of a narrow version of the shareholder wealth maximization norm (a conclusion that I dispute in my earlier post).  But what else?  What real parties in interest in Tennessee, if any, have expressed a desire that Tennessee adopt this form of business entity?

There is anecdotal information from one venture attorney that some Tennessee entrepreneurs have indicated a preference for the benefit corporation form and have specifically requested that their business be organized as a Delaware benefit corporation.  Leaving aside the Delaware versus Tennessee question, why are these entrepreneurs looking to organize their businesses as benefit corporations?  Where does this idea come from?

Continue reading

April 2, 2015 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Entrepreneurship, Haskell Murray, Joan Heminway, Social Enterprise | Permalink | Comments (4)

Wednesday, March 25, 2015

Flipping Roles in the Securities Regulation Classroom

Today, part of the assignment for my Securities Regulation students was to read a chapter in our casebook and, as assigned by me, come to class prepared to teach in  a three-to-five-minute segment a part of the assigned reading.  The casebook is Securities Regulation: Cases and Materials by Jim Cox, Bob Hillman, and Don Langevoort.  The chapter (Chapter 7, entitled "Recapitalization, Reorganizations, and Acquisitions") covers the way in which various typical corporate finance transactions are, are not, or may be offers or sales of securities that trigger registration under Section 5 of the Securities Act of 1933, as amended (the "1933 Act").  I have used this technique for teaching this material before (and also use a student teaching method for part of my Corporate Finance course), and I really enjoy the class each time.

I find that the students understand the assigned material well (having already been through a lot of registration and exemption material in the preceding weeks) and embrace the responsibility of teaching me and each other.  I am convinced that they learn the material better and are more engaged with it because they have had to read it with a different intent driven by a distinct objective. For their brief teaching experience, each student needs to understand both the transaction at issue and the way in which it implicates, does not implicate, or may implicate 1933 Act registration requirements.  They do not disappoint in either respect, and I admit to being interested in their presentations and proud of them.

I also find that changing my role principally to that of a listener and questioner refreshes me.  I organize and orchestrate the general structure of the class meeting and come to class prepared with the knowledge of what needs to be brought out during the session.  But since I cannot control exactly what is said, I must listen and react and help create logical transitions and other links between the topics covered.  In addition, I can create visuals on the board to illustrate aspects of the "mini-lectures" (as I did today when a student was explaining a spin-off transaction).  I honestly have a lot of fun teaching this way.

There are, no doubt, many ways in which we can engage students in teaching course material in the classroom that may have similar benefits.  What are yours?  When and how do you use them to make them most effective?  Teach me!  :>)

March 25, 2015 in Corporate Finance, Joan Heminway, Securities Regulation, Teaching | Permalink | Comments (3)

Monday, March 23, 2015

The Illogic of Crowdfunding Resale Restrictions

The JOBS Act requires the SEC to create an exemption for small, crowdfunded offerings of securities. That exemption, if the SEC ever enacts it, will allow issuers to raise up to $1 million a year in sales of securities to the general public. (Don’t confuse this exemption with Rule 506(c) sales to accredited investors, which is sometimes called crowdfunding, but really isn’t.)

The crowdfunding exemption restricts resales of the crowdfunded securities. Crowdfunding purchasers may not, with limited exceptions, resell the securities they purchase for a year. Securities Act sec. 4A(e); Proposed Rule 501, in SEC, Crowdfunding, Securities Act Release No. 9470 (Oct. 23, 2013). Unlike the resale restrictions in some of the other federal registration exemptions, the crowdfunding resale restriction serves no useful purpose. All it does is to increase the risk of what is already a very risky investment by reducing the liquidity of that investment.

Enforcing the “Come to Rest” Idea

Some of the resale restrictions in other exemptions are designed to enforce the requirement that the securities sold “come to rest” in the hands of purchasers who qualify for the exemption.

Rule 147, the safe harbor for the intrastate offering exemption in section 3(a)(11) of the Securities Act, is a good example. To qualify for the intrastate offering exemption, the securities must be offered and sold only to purchasers who reside in the same state as the issuer. Securities Act sec. 3(a)(11); Rule 147(d). This requirement would be totally illusory if an issuer could sell to a resident of its state and that resident could immediately resell outside the state. Therefore, Rule 147(e) prohibits resales outside the state for nine months.

The resale restrictions applicable to the Rule 505 and 506 exemptions have a similar effect. Rule 506 only allows sales to accredited investors or, in the case of Rule 506(b), non-accredited, sophisticated investors. Rules 506(b)(2)(ii), 506(c)(2)(i). These requirements would be eviscerated if an accredited or sophisticated purchaser could immediately resell to someone who does not qualify.

Rule 505 does not limit who may purchase but, like Rule 506, it does limit the number of non-accredited investors to 35. Rules 505(b)(2)(ii), 501(e)(1)(iv). If an issuer could sell to a single purchaser who immediately resold to dozens of others, the 35-purchaser limitation would be meaningless.

To enforce the requirements of the Rule 505 and 506 exemptions, Rule 502(d) restricts resales in both types of offering.

Preventing an Information-less Resale Market

Rule 504 also includes a resale restriction, Rule 502(d), even though it does not impose any restrictions on the nature or number of purchasers. A resale would not, therefore, be inconsistent with any restrictions imposed on the issuer’s offering.

However, Rule 504 does not impose any disclosure requirements on issuers. See Rule 502(b)(1). Because of that, people purchasing in a resale market would not have ready access to information about the issuer. But the Rule 504 resale restriction does not apply if the offering is registered in states that require the public filing and delivery to investors of a disclosure document. Rules 502(d), 504(b)(1). In that case, information about the issuer is publicly available and there’s no need to restrict resales. People purchasing in the resale market would have access to information to inform their purchases.

The resale restrictions in Rule 505 and 506 offerings could also be justified in part on this basis. If issuers sell only to accredited investors in those offerings, there is no disclosure requirement. If they sell to non-accredited investors, disclosure is mandated, but even then there’s no obligation to make that disclosure public. See Rule 502(b). People purchasing in the resale market therefore would not have ready access to public information about the issuer.

This lack-of-information justification is consistent with the lack of resale restrictions in Regulation A. To use the Regulation A exemption, an issuer must file with the SEC and furnish to investors a detailed disclosure document. Rules 251(d), 252. Because of that, information about the issuer and the security will be publicly available to purchasers in the resale market.

The Crowdfunding Exemption

Neither of these justifications for resale restrictions applies to offerings pursuant to the forthcoming (some day?) crowdfunding exemption.

The come-to-rest rationale does not apply. The crowdfunding exemption does not limit the type or number of purchasers. An issuer may offer and sell to anyone, anywhere, so no resale restriction is necessary to avoid circumvention of the requirements of the exemption.

The information argument also does not apply. A crowdfunding issuer is required to provide a great deal of disclosure about the company and the offering—as I have argued elsewhere, probably too much to make the exemption viable. See Securities Act sec. 4A(b)(1); Proposed Rule 201 and Form C. The issuer is also obligated to file annual reports with updated information. Securities Act sec. 4A(b)(4); Proposed Rule 202. All of that information will be publicly available. Even if one contends that the information required to be disclosed is inadequate, it will be no more adequate a year after the offering, when crowdfunding purchasers are free to resell. Securities Act sec. 4A(e); Proposed Rule 501.

Some people, including Tom Hazen and my co-blogger Joan Heminway, have argued that resale restrictions may be necessary to avoid a repeat of the pump-and-dump frauds that occurred under Rule 504 when Rule 504 was not subject to any resale restrictions. As I have explained, Rule 504, which requires no public disclosure of information, fits within the information rationale. Such fraud is much less likely where detailed disclosure is required. There will undoubtedly be some fraud in the resale market no matter what the rules are, but public crowdfunding will be much less susceptible to such fraud than the private Rule 504 sales in which the pump-and-dump frauds occurred.

Conclusion

The resale restrictions are consistent with neither the come-to-rest rationale nor the information rationale for resale restrictions Forcing crowdfunding purchasers to wait a year before reselling therefore serves no real purpose. The only real effect of those resale restrictions is to make an already-risky investment even riskier by reducing liquidity.

March 23, 2015 in C. Steven Bradford, Corporate Finance, Entrepreneurship, Joan Heminway, Securities Regulation | Permalink | Comments (1)

Wednesday, March 18, 2015

Avantages de Participation à des Conférences Internationales Interdisciplinaires (Benefits of Attending Interdisciplinary International Conferences)

Greetings from Lyon, France, where I am presenting a work-in-process at an international conference on microfinance and crowdfunding organized by the Groupe ESC Dijon Borgogne (Burgundy School of Business) Chaire Banque Populaire en Microfinance.  As the only legal scholar, the only U.S. researcher, and the only presenter with an orange-casted arm (!), I stand out in the crowd.  So what is a one-armed U.S. law professor like me, with limited French language skills, doing in a place like this on my spring break?  Among other things, I am:

  • Broadening my academic and practical view of the world of business finance;
  • Making new connections, personally and substantively;
  • Getting different, pointed feedback on my ongoing crowdfunding work; 
  • Offering assistance and new perspectives (U.S.-centric, legal, regulatory, etc.) to scholars and industry participants from a spectrum of countries; and
  • Securing potential partners and resources for future projects.

Although most of the participants speak English, I am still living at the edge of my socio-lingual comfort zone.  It helps that I am an off-the-charts extrovert.  Regardless, however, the benefits of attendance have been immediate and meaningful.

Questions for our readers:

Do you participate in interdisciplinary research conferences?  

If not, why not?  

If so, what scholarly traditions were emphasized?  What did you find most beneficial . . . or most difficult?

Have you attended international research conferences?  

If not, is it because of cost, personal discomfort, or another reason?  

If so, how (if at all) have you benefitted from your attendance?  What insights can you offer those considering doing the same?

March 18, 2015 in Conferences, Corporate Finance, Entrepreneurship, Joan Heminway | Permalink | Comments (0)

Wednesday, March 11, 2015

Women on Board(s): New Perspectives from Crowd Theory?

As someone who likes to write from time to time on women on corporate boards, I sometimes feel like I am writing about last year's "news."  In other words, not much seems to sound new.  So, I am always in search of a novel problem to explore or a different vantage point through which fresh insights can be obtained.

My most recent contribution in this regard is a symposium piece that looks at women on boards through the lens of the literature on crowds--whether they be mad or wise.  Boards can be crowds (albeit small ones), based on prevailing definitions.  Moreover, crowd behaviors can be gendered.  So, it seemed like a reasonable idea.

The fruit of this labor is my most recent article, Women in the Crowd of Corporate Directors: Following, Walking Alone, and Meaningfully Contributing.  The substantive portion of the abstract is as follows:

With the thought that new perspectives often can be helpful in addressing long-standing unresolved questions, this article approaches an analysis of women’s roles on corporate boards of directors from the standpoint of crowd theory. Crowd theory — in reality, a group of theories — explains the behavior of people in crowds. Specifically, this article describes theories of the crowd from social psychology and applies them to the literature on female corporate directors, looking at the effects on both women as crowd members and boards as decision-making crowds.

Unfortunately, while the crowd theory perspective provides some insights, they are not altogether conclusive. Specifically, while women may bring distinct ideas and experience to boards of directors when they become board members, crowd theory does not provide a clear picture of the nature or extent of those differences or how they may contribute to productive, efficient board decision making. More work still is needed in this area. However, existing research does indicate that women encourage productive board development activities — activities that may include, for example, introducing the board to structures and policies that may promote board wisdom. This is a useful insight that should be further explored.

This is, as the abstract indicates, a preliminary exploratory piece.  But it does at least represent a change from the current literature in the field, which focuses on (among other things) the search for an alternative to gender quotas (see, e.g., here and here).

I had the opportunity to present the paper at William & Mary a few weeks ago.  Unfortunately, the school was closed that morning as a result of a snow storm the day before.  Since I was already in Williamsburg (but could not stay to present the paper later in the day), current and incoming editors of the William & Mary Journal of Women and the Law invited me to deliver the paper to them over breakfast in a local restaurant.  The impromptu forum turned out to be a lovely way to discuss the paper with the students--a number of whom had read the piece carefully and had interesting questions and observations.  I hope that some of you enjoy the article as much as those students did!

March 11, 2015 in Business Associations, Corporate Governance, Corporations, Joan Heminway | Permalink | Comments (0)

Monday, March 2, 2015

Darian Ibrahim on Equity Crowdfunding: A Market for Lemons?

As many of you know, both I and my co-blogger Joan Heminway have written several articles on crowdfunding. My articles are available here and Joan’s are available here. I think that a properly structured crowdfunding exemption (unfortunately, not the exemption Congress authorized in Title III of the JOBS Act) could revolutionize the finance of very small businesses. 

Professor Darian M. Ibrahim, of William & Mary Law School, has posted an interesting and important new paper on crowdfunding, Equity Crowdfunding: A Market for Lemons? It’s available here.

Professor Ibrahim discusses two types of “crowdfunding” approved by the JOBS Act: (1) sales to accredited investors pursuant to SEC Rule 506(c), adopted pursuant to Title II of the JOBS Act; and (2) sales to any investors pursuant to the crowdfunding exemption authorized by Title III of the JOBS Act, but not yet implemented by the SEC. I don’t think the former should be called crowdfunding, but many people call it that, so I’ll excuse Professor Ibrahim.

Title II “Crowdfunding”

Professor Ibrahim points out that traditional investing by venture capitalists and angel investors is characterized by contractual controls and direct personal attention to the business by the investors. This allows the investors to monitor the investment and control misbehavior, and the investors’ participation and advice also provides a benefit to the business.

Ibrahim argues that Title II (506(c)) “crowdfunding” has been successful because it mimics what angel investors have been doing all along. It’s not really revolutionary, just making the existing model of angel investing more efficient by moving it to the Internet.

Title III Crowdfunding

Title III crowdfunding, on the other hand, is revolutionary; it doesn’t resemble anything that currently exists in the United States. If the SEC ever adopts the required rules, issuers will be selling to unaccredited investors who lack the knowledge and sophistication of venture capitalists and angel investors. It’s less obvious how they will judge among the various offerings and protect themselves from misbehavior by the entrepreneur.

Some have argued that the new crowdfunding exemption will appeal only to those companies that are too low quality to obtain traditional VC or angel funding, leaving unaccredited investors with the bottom of the barrel. Ibrahim disagrees, arguing that Title III crowdfunding will appeal to some high-quality entrepreneurs—those who need less cash for their businesses or are unwilling to share control with VCs or angel investors.

But how are we to avoid a “lemons” problem if the unsophisticated investors likely to participate in crowdfunding cannot distinguish good companies from bad? Ibrahim poses two possible answers. The first is the “wisdom of crowds,” the idea that the collective decision-making of a large crowd can approximate or even exceed expert judgments. Possibly, although I’m not completely sure. Collective judgments by non-experts can equal or surpass the judgments of experts, but I'm still unsure that the necessary conditions for that to happen are met on crowdfunding platforms. At best, I think the wisdom of the crowd is only a partial answer.

Ibrahim’s second answer is for the funding portals who host crowdfunding offers to curate the offerings—investigate the quality of the offerings and either provide ratings or limit their sites to higher-quality offerings. I think this is a good idea, but, unfortunately, the SEC’s proposed regulations would prohibit funding portals from doing this. Funding portals required to check for fraud, but that’s all they can do. Any attempt to exclude entrepreneurs for reasons other thanfraud or to provide ratings would go beyond what the proposed regulations allow and subject the portals to regulation under the Investment Advisers Act. Ibrahim has the right solution, but it’s going to require congressional action to get there.

Abstract of the Paper

Here’s the full abstract of Professor Ibrahim’s article:

Angel investors and venture capitalists (VCs) have funded Google, Facebook, and virtually every technological success of the last thirty years. These investors operate in tight geographic networks which mitigates uncertainty, information asymmetry, and agency costs both pre- and post-investment. It follows, then, that a major concern with equity crowdfunding is that the very thing touted about it – the democratization of investing through the Internet – also eliminates the tight knit geographic communities that have made angels and VCs successful.
Despite this foundational concern, entrepreneurial finance’s move to cyberspace is inevitable. This Article examines online investing both descriptively and normatively by tackling Titles II and III of the JOBS Act of 2012 in turn. Title II allows startups to generally solicit accredited investors for the first time; Title III will allow for full-blown equity crowdfunding to unaccredited investors when implemented.

I first show that Title II is proving successful because it more closely resembles traditional angel investing than some new paradigm of entrepreneurial finance. Title II platforms are simply taking advantage of the Internet to reduce the transaction costs of traditional angel operations and add passive angels to their networks at a low cost.

Title III, on the other hand, will represent a true equity crowdfunding situation and thus a paradigm shift in entrepreneurial finance. Despite initial concerns that only low-quality startups and investors will use Title III, I argue that there are good reasons why Title III could attract high-quality participants as well. The key question will be whether high-quality startups can signal themselves as such to avoid the classic “lemons” problem. I contend that harnessing the wisdom of crowds and redefining Title III”s “funding portals” to serve as reputational intermediaries are two ways to avoid the lemons problem.

It’s definitely worth reading.

Andrew Schwartz at the University of Colorado is also working on a paper that addresses the problems of uncertainty, information asymmetry, and agency costs in Title III crowdfunding. I have read the draft and it’s also very good, but it’s not yet publicly available. I will let you know when it is.

March 2, 2015 in C. Steven Bradford, Corporate Finance, Entrepreneurship, Joan Heminway, Securities Regulation | Permalink | Comments (4)

Monday, February 23, 2015

Benefit Corporations: What am I Missing--Seriously?

I serve on the Tennessee Bar Association Business Entity Study Committee (BESC) and Business Law Section Executive Committee (mouthfuls, but accurately descriptive).  The BESC was originated to vet proposed changes to business entity statutes in Tennessee.  It was initially populated by members of the Business Law Section and the Tax Law Section, although it's evolved to mostly include members of the former with help from the latter.  The Executive Committee of the Business Law Section reviews the work of the BESC before Tennessee Bar Association leadership takes action.

Just about every legislative session of late, these committees of the Tennessee Bar Association have been asked to review proposed legislation on benefit corporations (termed variously depending on the sponsors).  A review request for a bill proposed for adoption for this session recently came in.  Since I serve on both committees, I get to see these proposed bills all the time.  So far, the proposals have pretty much tracked the B Lab model from a substantive perspective, as tailored to Tennessee law.  To date, we have advised the Tennessee Bar Association that we do not favor this proposed legislation.  Set forth below is a summary of the rationale I usually give.

Continue reading

February 23, 2015 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Haskell Murray, Joan Heminway, Social Enterprise | Permalink | Comments (18)

Monday, February 16, 2015

So . . . You Think You Want a Business Law Job . . . .

It may just be my students, but it seems there is a renewed interest in business law careers among law students.  Several of my students this year who had originally started down a path toward a career in another area of law have happily and passionately settled, somewhat late in the game, on being business lawyers.  Somehow, after taking Business Associations and other foundational business law courses, they've been bit by the business law bug.  And they are incredibly talented students--high up in their class in terms of rank and well worthy of employment in a firm or business or government.  One is my research assistant.

We have been working together and with the folks in our Career Center to identify relevant geographical and employer markets.  But I am seemingly engaged in a continuous struggle to help each of them (a) to enhance his resume to reflect his new-found business law passion (given that each already had accepted a second summer job somewhat or totally outside the business law area when he refocused on business law as a career path) and (b) to make the new connections that he needs to make in order to successfully pursue his revised career path.  How can a middle-aged academic almost 15 years out of practice help a 3L business law job-seeker to make his resume more relevant, his contact list deeper, and his interviews more effective?

Continue reading

February 16, 2015 in Business Associations, Joan Heminway, Jobs, Law School, Teaching | Permalink | Comments (6)

Thursday, February 12, 2015

“We Just Can’t Get Enough of Business Associations”

My seventy business associations students work in law firms on group projects. Law students, unlike business students, don’t particularly like group work at first, even though it requires them to use the skills they will need most as lawyers—the abilities to negotiate, influence, listen, and compromise. Today, as they were doing their group work on buy-sell agreements for an LLC, I started drafting today’s blog post in which I intended to comment on co-blogger Joan Heminway’s post earlier this week about our presentation at Emory on teaching transactional law.

While I was drafting the post, I saw, ironically, an article featuring Professor Michelle Harner, the author of the very exercise that my students were working on. The article discussed various law school programs that were attempting to instill business skills in today’s law students. Most of the schools were training “practice ready” lawyers for big law firms and corporations. I have a different goal. My students will be like most US law school graduates and will work in firms of ten lawyers or less. If they do transactional work, it will likely be for small businesses.  Accordingly, despite my BigLaw and in-house background, I try to focus a lot of the class discussion and group work on what they will see in their real world.

I realized midway through the time allotted in today’s class that the students were spending so much time parsing through the Delaware LLC statute and arguing about proposed changes to the operating agreement in the exercise that they would never finish in time. I announced to the class that they could leave 10 minutes early because they would need to spend at least another hour over the next day finishing their work. Instead most of the class stayed well past the end of class time arguing about provisions, thinking about negotiation tactics with the various members of the LLC, and figuring out which rules were mandatory and which were default. When I told them that they actually needed to vacate the room so another class could enter, a student said, “we just can’t get enough of business associations.” While this comment was meant to be a joke, I couldn’t help but be gratified by the passion that the students displayed while doing this in-class project.  I have always believed that students learn best by doing something related to the statutes rather than reading the dry words crafted by legislators.  My civil procedure students have told me that they feel “advanced” now that they have drafted complaints, answers, and client memos about Rule 15 amendments.

I am certainly no expert on how to engage law students, but I do recommend reading the article that Joan posted, and indeed the whole journal (15 Transactions: Tenn. J. Bus. L. 547 (2014). Finally, please share any ideas you have on keeping students interested in the classroom and prepared for the clients that await them. 

 

February 12, 2015 in Business Associations, Business School, Conferences, Corporations, Delaware, Joan Heminway, Law School, LLCs, Marcia Narine, Negotiation, Teaching, Unincorporated Entities | Permalink | Comments (1)

Monday, February 9, 2015

Hot Off the Press: Heminway and Narine on Teaching Business Law!

With Marcia's blessing, I am promoting a recently published transcript of a conference panel on which she and I presented last spring.  The title of the published transcript?  "Representing Entities: The Value of Teaching Students How to Draft Board Resolutions and Other Similar Documentation."  Here's the top line from the SSRN abstract:

This edited transcript comprises a panel presentation and related Q&A at "Educating the Transactional Lawyer of Tomorrow," Emory University School of Law's biennial transactional law conference held June 6-7, 2014. The transcript includes Professor Heminway's talk and a separate presentation by Professor Marcia Narine on "How to Make Transactional Law Less Terrifying and a Bit More Interesting." The panel, "Transactional Drafting: Beyond Contracts," features approaches to teaching transactional business law courses. 

Enjoy!

February 9, 2015 in Business Associations, Conferences, Corporate Governance, Corporations, Joan Heminway, Marcia Narine | Permalink | Comments (0)

Monday, February 2, 2015

The Importance of Communication - Student-Initiated Intrastate "Crowdfunding" Legislation

On December 22 and again on January 9, I posted the first two installments of a three-part series featuring the wit and wisdom of my former student, Brandon Whiteley, who successfully organized a student group to draft, propose, and instigate passage of Invest Tennessee, a state crowdfunding bill in Tennessee.  The first post featured Brandon's observations on the legislative process, and the second post addressed key influences on the bill-that-became-law.  This post, as earlier promised, includes Brandon's description of the important role that communication played in the Invest Tennessee endeavor.  Here's what he related to me in that regard (as before, slightly edited for republication here).

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February 2, 2015 in Business Associations, Corporate Finance, Current Affairs, Entrepreneurship, Joan Heminway, Law School, Securities Regulation, Teaching | Permalink | Comments (0)

Monday, January 26, 2015

In Memory of Meowth (1998-2015): Choice of Entity for Veterinary Medical Practices

As some of you know, my beloved cat, Meowth (yes, named after the Pokemon character) has been battling squamous cell carcinoma.  Today, he went on to the everlasting life beyond this Earth.  This post is dedicated to his memory.  Here he is, meowing with me and my daughter a bit over a week ago.

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One of the things that we have been blessed with over the years--in Massachusetts and here in Knoxville--is great veterinary medical care.  Since The University of Tennessee's College of Veterinary Medicine (CoVM) is located on the West (agricultural) campus in Knoxville, it is a stone's throw from the College of Law, where I teach.  We have been assisted in various ways, including with Meowth, by veterinarians and veterinary technicians from the CoVM.   The CoVM also boast a veterinary social work program, and we were helped in Meowth's end-of-life care by one of the veterinary social workers in the CoVM program.  Many of the local veterinarians were trained at our CoVM.  We have worked with several private practice groups in Knoxville.

All this interaction with veterinarians has made me wonder how private veterinary medical practice groups are organized, from a legal entity point of view.  (Yeah, I know.  I am a true law nerd.  I admit that.)  My impression (although many practice groups are not very transparent about their form of legal organization) is that many of these practice groups are professional corporations (PCs) or professional limited liability companies (PLLCs).  I suppose this makes sense to me.  

But it reminds me of a question commonly asked by astute Business Associations students: "Why do professionals form professional business entities, given that the owners of limited liability entities already enjoy protection from liability for the obligations of the entity?"  I am sure many of you have been asked this same question.  If not, you soon may be.

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January 26, 2015 in Business Associations, Joan Heminway | Permalink | Comments (5)

Monday, January 19, 2015

Reflecting on MLK and Legal Education

Today, unlike most Mondays during the school year, I will not be in the classroom.  The University of Tennessee is closed in celebration of the life of Martin Luther King, Jr., our nation's iconic non-violent civil rights leader.  Today also is the day that my daughter is in transit back to her college in New York for her last semester as an undergraduate.  It seemed only fitting, honoring both occasions, to go out on Friday night with my daughter and my husband to see the movie Selma.

Despite its historical inaccuracies (which have been played out in the public media, e.g., here), the movie is a successful one.  Among other things, it spoke to me of the amazing amount that one man can accomplish in a mere 39 years with focus, action, and perseverance.  I admittedly felt a bit lazy and ineffectual by comparison.

Selma also reminded me, however, of the near daily opportunities that King had to speak out on matters of public importance.  I wondered if there was anything in his teachings that would speak directly to me today.  Specifically, I wondered if I could find something he'd said that helped to guide me as a business law professor in the current business law or legal education environment.

Of course, King spoke out against  Jim Crow laws, which provided for legal segregation of the races in both businesses and education.  But I was looking for something a bit more personal.  Then, I found this quotation:  "The function of education . . . is to teach one to think intensively and to think critically. . . .  Intelligence plus character--that is the goal of true education."  

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January 19, 2015 in Joan Heminway, Law School, Teaching | Permalink | Comments (0)

Monday, January 12, 2015

Female Directors and Crowd Theory

I recently was afforded the opportunity to draft a short article for the William & Mary Journal of Women and the Law that combines my research on crowd theory (from the crowdfunding space) and my research on women and corporate governance.  The opportunity arose out of a celebration of the 20th anniversary of the journal, for which I had been a published author in the past.  (The journal published my article on women as investors in the context of securities fraud, Female Investors and Securities Fraud: Is the Reasonable Investor a Woman?, back in 2009.)

I just posted the recently released final version of the 20th anniversary article, entitled Women in the Crowd of Corporate Directors: Following, Walking Alone, and Meaningfully Contributing, to the Social Sciences Research Network.  My application of crowd theory to the gender composition of corporate boards of directors in this article does not provide significant new insights on the decision making of female corporate directors.  However, it does result in the observation that women on corporate boards may foster the establishment of new board structures and policies that have the potential to favorably impact board decision making.  The bottom line?  More--and more novel--research still is needed on the presence and contribution of women on corporate boards of directors.

My article represents a brief exploration, but I may well continue my work in this general area.  Accordingly, I would be interested in knowing about others doing similar or related research.  Let me know in the comments or by email message if you would like to alert me to your relevant research and writing.

January 12, 2015 in Business Associations, Corporate Governance, Corporations, Joan Heminway | Permalink | Comments (0)

Friday, January 9, 2015

Key Influences on Invest Tennessee - Student-Initiated Intrastate "Crowdfunding" Legislation

A few weeks ago, I described to you a really special extracurricular project undertaken by one of my students, Brandon Whiteley, now an alum, this past year.  The project?  Proposing and securing legislative passage of Invest Tennessee, a Tennessee state securities law exemption for intrastate offerings that incorporates key features of crowdfunding.  The legislation became effective on January 1.

In that first post, I described the project and Brandon's observations on the legislative process.  This post highlights his description of the influences on the bill that became law.  Here they are, with a few slight edits (and hyperlink inserts) from me.

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January 9, 2015 in Business Associations, Corporate Finance, Current Affairs, Entrepreneurship, Joan Heminway, Law School, Securities Regulation, Teaching | Permalink | Comments (4)