Friday, July 24, 2020

Do Black Entrepreneurs Matter?

Yesterday, I had the pleasure of moderating a panel of Black entrepreneurs sponsored by the Miami Finance Forum, a group of finance, investment management, banking, capital markets, private equity, venture capital, legal, accounting and related professionals. When every company and law firm was posting about Black Lives Matter and donating to various causes, my colleague Richard Montes de Oca, an MFF board member, decided that he wanted to do more than post a generic message. He and the MFF board decided to launch a series of webinars on Black entrepreneurship. The first panel featured Jamarlin Martin, who runs a digital media company and has a podcast; Brian Brackeen, GP of Lightship Capital and founder of Kairos, a facial recognition tech company;  and Raoul Thomas, CEO of CGI Merchant Group, a real estate private equity group.

These panelists aren't the typical Black entrepreneurs. Here are some sobering statistics:

  • Black-owned business get their initial financing through 44% cash; 15% family and friends; 9% line of credit; 7% unsecured loans; and 3% SBA loans;
  • Between February and April 2020, 41% of Black-owned businesses, 33% of Latinx businesses, and 26% of Asian-owned businesses closed while 17% of White-owned business closed;
  • As of 2019, the overwhelming majority of businesses in majority Black and Hispanic neighborhoods did not have enough cash on hand to pay for two weeks worth of bills;
  • The Center for Responsible Lending noted that in April, 95% of Black-owned businesses were tiny companies with slim change of achieving loans in the initial rounds of the Paycheck Protection Program;
  • Only 12% of Black and Hispanic business owners polled between April 30-May 12 had received the funding they requested from the stimulus program. In contrast half of all small business had received PPP funds in the same poll.

Because we only had an hour for the panel, we didn't cover as much as I would have liked on those statistics. Here's what we did discuss:

  • the failure of boards of directors and companies to do meaningful work around diversity and inclusion- note next week,  I will post about the spate of shareholder derivative actions filed against companies for false statements about diversity commitments;
  • the perceptions of tokenism and "shallow, ambiguous" diversity initiatives;
  • how to get business allies of all backgrounds;
  • the need for more than trickle down initiatives where the people at the bottom of the corporation/society don't reap benefits;
  • the fact that investing in Black venture capitalists does not mean that those Black VCs will invest in Black entrepreneurs and the need for more transparency and accountability; 
  • whether the Black middle class still exists and the responsibility of wealthier Black professionals to provide mentorship and resources;
  • why it's easier for entrepreneurs to get investments for products vs. services, and a hack to convince VCs to invest in the service;
  • whether a great team can make up for a so-so product when a VC hears a pitch; 
  • why there are so many obstacles to being a Black LGBTQ entrepreneur and how to turn it to an advantage when pitching; and
  • whether reparations will actually help Black entrepreneurs and communities.

If you want to hear the answers to these questions, click here for access to the webinar. Stay safe and wear your masks!

July 24, 2020 in Corporations, CSR, Current Affairs, Entrepreneurship, Family Business, Management, Marcia Narine Weldon, Private Equity, Service, Shareholders, Technology, Venture Capital | Permalink | Comments (0)

Monday, July 13, 2020

U.S. Securities Crowdfunding: A Way to Economic Inclusion for Low-Income Entrepreneurs in the Wake of COVID-19?

Earlier today, I submitted a book chapter with the same title as this blog post.  The chapter, written for an international management resource on Digital Entrepreneurship and the Sharing Economy, represents part of a project on crowdfunding and poverty that I have been researching and thinking through for a bit over two years now.  My chapter abstract follows:

The COVID-19 pandemic has exacerbated and created economic hardship all over the world.  The United States is no exception.  Among other things, the economic effects of the COVID-19 crisis deepen pre-existing concerns about financing U.S. businesses formed and promoted by entrepreneurs of modest means.

In May 2016, a U.S. federal registration exemption for crowdfunded securities offerings came into existence (under the CROWDFUND Act) as a means of helping start-ups and small businesses obtain funding.  In theory, this regime was an attempt to fill gaps in U.S. securities law that handicapped entrepreneurs and their promoters from obtaining equity, debt, and other financing through the sale of financial investment instruments over the Internet.  The use of the Internet for business finance is particularly important to U.S. entrepreneurs who may not have access to funding because of their own limited financial and economic positions. 

As the pandemic continues and the fifth year of effectiveness of the CROWDFUND Act progresses, observations can be made about the role securities crowdfunding has played and may play in sustaining and improving prospects for those limited means entrepreneurs.  A preliminary examination indicates that, under current legal rules, securities crowdfunding is a promising, yet less-than-optimal, financing vehicle for these entrepreneurs.  Nevertheless, there are ways in which U.S. securities crowdfunding may be used or modified to play a more positive role in promoting economic inclusion through capital raising for the innovative ventures of financially disadvantaged entrepreneurs and promoters.

I value the opportunity to contribute to this book with scholars from a number of research disciplines and countries.  I have been looking for ways to concretize some of my ideas from this project in a series of shorter publications, and this project seems like a good fit.  Nevertheless, I admit that I have been finding it challenging to segment out and organize my ideas about how securities crowdfunding may better serve entrepreneurs and investors, especially in the current economic downturn.  As always, your ideas are welcomed.

July 13, 2020 in Books, Corporate Finance, Crowdfunding, Entrepreneurship, International Business, Research/Scholarhip, Securities Regulation | Permalink | Comments (0)

Monday, June 1, 2020

2021 AALS Annual Meeting - Section on Agency, Etc. Call for Papers

Call for Papers
AALS Section on Agency, Partnership, LLCs & Unincorporated Associations 

Entrepreneurship and the Entity 

January 5-9, 2021, AALS Annual Meeting 

The AALS Section on Agency, Partnership, LLCs & Unincorporated Associations will sponsor a panel on “Entrepreneurship and the Entity” at the 2021 AALS Annual Meeting in San Francisco, California. This panel will showcase scholarship on subjects relating to business law and entrepreneurship, including entity choice throughout a company’s evolution, financing alternatives, and how legal rules promote and discourage different kinds of entrepreneurship. Scholars are encouraged to interpret the subject of the Call for Papers broadly and creatively. 

SUBMISSION PROCEDURE: Scholars should send a summary of a work or a work-in-progress of no more than 600 words to Professor Sarah C. Haan at haans@wlu.edu on or before Friday, August 21, 2020. The summary should be a pdf or Word document that has been stripped of information identifying the author; only the cover email should connect the author to the submission. The subject line of the email should read: “Submission—[author name & title].” Papers will be selected through an anonymous review by the Section’s Executive Committee. 

SPECIAL NOTE: Interested parties are encouraged to submit even if they are not certain at this time that they will attend the AALS Annual Meeting in person. 

ELIGIBILITY: Scholars at AALS member law schools are eligible to submit. Pursuant to AALS rules, faculty at fee-paid non-member law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit. Please note that all program presenters are responsible for paying their own annual meeting registration fees and, for those attending the AALS Annual Meeting in person, travel expenses. 

Any inquiries about the Call for Papers should be submitted to: Professor Sarah C. Haan at haans@wlu.edu. 

June 1, 2020 in Agency, Call for Papers, Conferences, Entrepreneurship, Joan Heminway, LLCs, Partnership | Permalink | Comments (0)

Monday, March 30, 2020

When Your Former Students Make You Proud . . . And Make You Laugh

COVID-19's effects on financings and M&A, as well as contracts more generally (as covered here, here, and here among many other places), the rapid adoption of the Coronavirus Act, Relief, and Economic Security Act, a/k/a the “CARES Act” (key terms summarized briefly here and elsewhere), and the President's invocation of the Defense Production Act have me feeling like I am drinking business law water out of a fire hose this past week.  Anyone else feeling that way?  Whew!

I am still sorting through it all.  I am sure that I will have more to say on some of this as time passes.  However, earlier today, in the process of reading online resources and watching and listening to others talk about the many legal aspects of the current pandemic, I came across this YouTube video, done by one of my former students, a local attorney who works with entrepreneurs, start-ups, and small businesses.

I have not fact-checked this video.  And he jumps in to correct himself.  But what I like about it is that it represents unvarnished, even humorous, boots-on-the-ground legal public service.  He does not want businesses in the local community to miss out or waste time/money shooting in the dark--or in the wrong direction.  

Sometimes, our students do great things after they leave the hallowed halls of law school.  Many times, those good deeds go unrecognized.  Haseeb has always been passionate.  It makes me so happy to see him using his passion to help the local business community.  I want to offer a "shout out" to him here.  (And his dog, Simon, is the cutest! ♥)

March 30, 2020 in Current Affairs, Entrepreneurship, Joan Heminway, Legislation | Permalink | Comments (0)

Monday, March 2, 2020

The Health Care Crisis Through A Business Law Frame

I recently had occasion to offer background to, and be interviewed by, a local television reporter about a publicly traded firm that owns several health care facilities in East Tennessee and has been financed significantly through loans from and corporate payments made by a member of its board of directors.  The resulting article and news clip can be found here.  Since the story was published, a Form 8-K was filed reporting that the director has resigned from the board and the firm is negotiating with him to cancel its indebtedness in exchange for preferred stock.

In reviewing published reports on the firm, Rennova Health, Inc., I learned that it had been delisted from NASDAQ back in 2018.  The reason?  The firm engaged in too many stock splits.

I also came across an article reporting that another health care firm, a middle Tennessee skilled nursing provider, Diversicare Healthcare Services, Inc., had been delisted in late 2019.  The same article noted two additional middle Tennessee health care firms also were in danger of being delisted from stock exchanges.  One was subsequently delisted. 

Health care mergers and acquisitions also have been in the news here in Tennessee.  A Tennessee/Virginia health care business combination finalized in 2018 is one of two under study by the Federal Trade Commission.  The combining firms, Mountain States Health Alliance and Wellmont Health System, avoided federal and state antitrust merger approvals and challenges through the receipt of a certificate of public advantage (COPA) under Tennessee law and a coordinated process in Virginia.  The resulting firm, Ballad Health, is an effective health care monopoly in the region and has had well publicized challenges in meeting its commitment to provide cost-effective, quality patient care.

I can only assume that these health care corporate finance issues in Tennessee are a microcosm of what exists nationally.

All of this has made me interested in the U.S. healthcare industry as an engaging and useful lens through which one could teach and write about the legal aspects of corporate finance . . . .  Many of the current business law issues in U.S. health care firms stem from well-known financial challenges in the industry and the related governmental responses (or lack thereof).  With public debates--including in connection with this year's presidential caucuses, primaries, and election--over the extent to which the federal government should provide financial support to the health care industry under existing conditions and whether the health care industry has become too big to fail, health care examples and hypotheticals seem very salient now, in the same way that banking or telecomm examples and hypotheticals may have had pedagogical and scholarly traction in corporate finance in the past.  

Some of the business law issues facing U.S. health care firms may be quite the same as they are for firms in any other industry.  Yet, some also may be unique to the health care industry and worth further, individualized exploration in the classroom or in the research realm.  For example, innovation and entrepreneurship--intricately tied to corporate finance--may be different in the health care space, as currently configured in the United States.  This article makes arguments in that regard.

In all, it seems there is a synergy worth examining in the connections between the U.S. health care crisis and business law teaching and research.  Unless and until something fundamental changes in the U.S. health care delivery system, corporate finance lawyers and professionals are likely to have important (if somewhat hidden) roles in ensuring that health care firms survive while providing cost-effective care to those who need it.  Business law analyses and innovations are sure to play strong roles in this environment, making business law professors key potential contributors. Time for us to step up and take the challenge!

March 2, 2020 in Corporate Finance, Current Affairs, Entrepreneurship, Joan Heminway, M&A, Research/Scholarhip, Teaching | Permalink | Comments (0)

Monday, November 11, 2019

Celebrating Veterans, Including Veteran Entrepreneurs

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The above photo honors my father's U.S. Army service and my father-in-law's U.S. Army service, in each case, in the Korean War.  I took a pause today to respect what they and so many others have done to serve our country.  I hope that all veterans and their families and friends have enjoyed a Happy Veteran's Day.

With veteran legal service projects (some through student organizations, like our award-winning Vols for Vets organization at UT Law, a nonprofit supported by many in our community), including full-fledged law clinics (e.g., here and here and here and here and here), emerging across the country, I wondered whether there was any assistance outside the law school context, specifically for veterans who are entrepreneurs.  I did find, through a page on the U.S. Veterans Administration (VA) website, that the Office of Small & Disadvantaged Business Utilization has a program for Veteran-Owned Small Businesses.  Under the program, a veteran who owns a small business "may qualify for advantages when bidding on government contracts—along with access to other resources and support—through the Vets First Verification Program."  A number of additional entrepreneurship programs exist under the auspices of the same VA office.  Many can be found on the website for the Office of Small & Disadvantaged Business Utilization (noted above).

In my web travels, I also found a nifty national veteran's entrepreneurship program at the University of Florida Warrington School of Business.  And at one of our sister UT system schools, the The University of Tennessee at Chattanooga, the business school--the Gary W. Rollins College of Business--has a Veterans Entrepreneurship Program.  And it seems there is quite a bit more out there in the educational setting.

This all seems like a good start.  I am sure with more digging, I could find more.  I was admittedly gratified, however, to see that Forbes published a piece on free support programs for veteran entrepreneurs.  I was hoping to see a bunch more of that kind of thing . . . .  Maybe next year?

Again, I send abundant and heartfelt thanks to all of our veterans for their service.

November 11, 2019 in Entrepreneurship, Joan Heminway | Permalink | Comments (2)

Monday, August 19, 2019

Motivation from Knoxville's Female Entrepreneurs and CEOs

Apropos of my post last week on female founders and leaders of beauty unicorns (and women-founded unicorns more generally), I want to highlight this recent piece from our local paper here in Knoxville.   The women featured in the article range from high school students to holders of advanced degrees in their respective fields.  Their businesses are all technology driven and have received significant start-up funds through competition awards and grants.  None may become unicorns.  Their growth and exit strategies may not take them there.  Regardless, their ideas have apparent traction and their businesses are experiencing early-stage success.  I found each woman and her ideas totally inspiring.

Speaking of inspiring, I also will note that a day earlier, the same news outlet published an article that focused on women-led businesses in our community--and more specifically, on advice that local female CEOs desired to offer to others who are starting or managing their own businesses.  Their counsel (which includes, among many other things, encouragement to step away from business operations to achieve greater business success, as well as life balance) is priceless.  So are some of the observations these businesswomen make along the way.  Here are a few of my favorite quotes, each of which is a great lesson in leadership:

  • “I want everybody to be continual learners, and to continue to grow and take chances and do things they didn’t think they could do . . . .”
  • “Never underestimate the power of sheer determination . . . ."
  • "If you take a group of subject matter experts in whatever they do, that are mission focused, put their egos out the door and they're really interested in solving whatever the problem is, whatever the situation is in front of them, that you are going to come up with more innovative, robust, diverse, comprehensive solutions because of that diversity, because you're coming together as a team . . . ."

Great stuff.

Knoxville hosts a lot of business formation and development activity.  UT Law's business and trademark law clinics engages with some of the related legal services work.  As someone who practiced in BigLaw and worked predominantly with publicly held and larger privately owned firms, I have found my work in the Knoxville community over the past nineteen academic years to be a welcome change and, overall, very rewarding.  As I enter my twentieth year of law teaching this week, I plan use all of the goodwill that work has generated (as well as the inspiration offered by the two articles I link to above) to motivate my teaching.  I look forward to a happy and productive semester!  And if you are a law teacher (or a teacher of any kind, for that matter), I wish you the same.

August 19, 2019 in Entrepreneurship, Joan Heminway, Teaching | Permalink | Comments (2)

Monday, August 12, 2019

Unicorns Built by and for Women

BeautyClipart

We hear a lot about unicorns in technology, finance, and the sharing economy.   But many of us do not realize that a number of unicorns are owned by women and a number of those focus on make-up and skin care--products geared to a female audience.  Female-owned beauty unicorns are all around us . . . .

Why should we care?  Well for one thing, female-owned businesses have historically been somewhat rare.  (In 1972, women-owned businesses accounted for only 4.6% of all firms, e.g.)  And for another, it has been noted that women often have a tough time financing their businesses. (See this 2014 U.S. Senate Committee report and other sources cited below for some details.) Also, it may be interesting to some (it is to me) that a business in such a traditional space can succeed so well in private capital markets given the competitive dominance of major conglomerates (most of which are publicly traded). Also, as I note in closing below (for those teaching in the business law area), the facts and trends in this space may be fodder for great exercises and exam questions.

Women-owned businesses are beginning to catch up in the race for space in commercial and capital markets.  The National Association of Women Business Owners (NAWBO) represents on its website (based on data from an American Express report, updated here) that "[w]omen-owned firms (51% or more) account for 39% of all privately held firms and contribute 8% of employment and 4.2% of revenues."  The Women's Business Enterprise National Council (WBENC) notes that "From 2007 – 2018, total employment by women-owned businesses rose 21%, while employment for all businesses declined by 0.8%."  Women Owned, a WBENC initiative and WEConnect International, asserts that "[o]ver the past 20 years, the number of Women Owned businesses has grown 114 percent compared to the overall national growth rate of 44 percent for all businesses."  More relevant to the matter of female-led unicorns, however, the NAWBO reports that "[o]ne in five firms with revenue of $1 million or more is woman-owned" and that "4.2% of all women-owned firms have revenues of 1 million or more."

Yet, unicorns owned by women are the exception rather than the rule in women-owned businesses.  Overall, according to the WBENC, the revenues generated by businesses owned by women contribute only 4.3% of the total revenues of private sector firms, despite the fact that they constitute almost 4 of every 10 privately held businesses. WBENC also reports that "88% of women-owned businesses generate less than $100,000 in revenue," noting that "[t]his group is growing at a rate that is faster than the growth rate for larger women-owned companies." So, women still have some work to do in producing gender equity through the creation of large, independent, private firms--whether in the beauty industry or another sector.

Why would an investor fund a female-owned beauty unicorn?  Here's an answer from one who did--Glossier, well-known by me for its lip glosses, founded by Emily Weiss:

“A category that is mostly acceptable price points with high margins and consumable products—that’s a pretty good business setup,” says Green, who was the first person to back Glossier. Green points out that the momentum women like Weiss and Soare [Anastasia Soare, founder of Anastasia Beverly Hills, a leader in eyebrow products, including its famously popular Brow Wiz®] have created has forced investors to reevaluate what has historically been considered a niche women’s space but is on track to grow to $750 billion by 2024. It has also unleashed a harras of unicorn foals—entrepreneurial hopefuls working to emulate this kind of megawatt success in the cosmetics industry and beyond. “Beauty companies have never been considered companies that are changing the world,” says Weiss. But they are changing the dynamics of who’s in the boardroom.

Venture firms go where the money is, and it appears the beauty market is not yet saturated.  One needs only note the soaring popularity of Korean beauty products in the United States to understand that this is a big market.  Women are credible business leaders in this industry as key, long-term consumers of beauty products.

There is much more data out there on various aspects of women-owned businesses and unicorns.  I plan to poke at these topics more from time to time in this space.  Information about these types of firms--as part of a growth economy--may be useful to both law academics and legal practitioners--especially those working with, or engaged with issues relating to, entrepreneurs, start-ups, or small businesses.  

The mainstream business news media already has taken note.  Witness this article on Glossier in Forbes and this one in Business Insider on Anastasia Beverly Hills, the two firms mentioned above.  And, of course, the fashion retail media and blogosphere are awash with information on these firms. That's where I learned about these beauty unicorns in the first place.  Some super exercises and exams questions may come out of this space.  I already base an experiential exercise on Urban Decay, which once was a privately held female-owned beauty business.  See this case for details.  Other ideas for how to use the information and trends presented here are, of course, invited.  Leave a comment to share yours.

August 12, 2019 in Entrepreneurship, Joan Heminway, Teaching, Venture Capital | Permalink | Comments (0)

Friday, July 5, 2019

Call for Papers - The Dark Side of Entrepreneurial Finance

Screenshot 2019-07-05 15.51.43

The dark side of entrepreneurial finance

Editors: Arvind Ashta, Olivier Toutain

Theme of the special issue

Whether we are talking about start-ups, more recently "grow up" or more broadly about company creation-takeover, entrepreneurial finance attracts a lot of attention, from the entrepreneurs' side and from the side of private and public financing organisations and the media. Entrepreneurial finance includes Founder's equity, Love Money, Business Angel, Venture Capital, LBO Funds, banks, IPOs and various alternative financing treated as shadow banking: micro-credit, loan sharking, leasing, crowdfunding, Initial Coin Offerings, among others (Block, Colombo, Cumming, & Vismara, 2018; Wright, Lumpkin, Zott, & Agarwal, 2016).

Financing is considered as an inherent dimension of the entrepreneurial development process (Panda, 2016; Yunus, 2003). Without financing, there is no investment and, therefore, little chance of starting a business with adequate production tools and an organization capable of absorbing the trials and tribulations of starting and developing entrepreneurial activities. Without funding, the risk of lack of legitimacy is also high: what does it mean in the entrepreneurial ecosystem not to have the support of one or more funding agencies? More so in the start-up world! Is that conceivable? Finally, can the entrepreneur now free himself from financial support, even if he does not really need it to start his business? If the reasoning is pursued further, does the entrepreneur have a choice? In other words, is it possible to create and develop your company without mobilizing the financial resources of the territory? Without entering into a financial system and ecosystem that regulates the creation and takeover of companies in a territory? Or a system that pushes the entrepreneur to finance so much that the system itself collapses by bringing forth a financial crisis (Boddy, 2011; Diamond & Rajan, 2009; Donaldson, 2012; Guérin, Labie, & Servet, 2015; Mishkin, 2011).

Applying for funding today is often considered as a difficult adventure: is it really a fighter's path given the particularly numerous mechanisms in France? But are they also numerous in Europe? In the world? Is the cost of financing transparent or hidden (Attuel-Mendes & Ashta, 2013)? In any case, to adventure is to walk and remove obstacles while following a guide... often at the funder's request... which is often called coaching or mentoring. Or following the guide, sometimes - or often, depending on the reader's appreciation – results in respecting rules, imposed steps, in short, to adopt a good conduct... to such an extent that the entrepreneur can lose track of his North Star, or at least part of his project, modified by "pitching" and integrating the comments, suggestions, strong suggestions of potential funders... In other words, if we push the reflection further, the accompanying logic proposed in the form of good intentions by the funders of an ecosystem, are they not likely, by force, to respond to external constraints, to generate effects opposite to expectations: inhibited entrepreneurs, whose project has lost its originality, vitality and excellence through the coaching or mentoring of initially imagined value creation (Collewaert, 2009)? Isn't the finance injected into the support systems finally a Dr Jekyll and Mr Hyde of entrepreneurship? In other words, if it constitutes an unprecedented measure of support for entrepreneurial growth in the world, does it not at the same time generate "antipreneurial" effects? Normative and highly biased, do financial actors deserve such a place in the creative process? What is it that basically legitimizes their central place? (Bateman, 2010; Sinclair, 2012) What is the hidden face of entrepreneurial finance (Henderson & Pearson, 2011; Krohmer, Lauterbach, & Calanog, 2009; Toe, Hollandts, & Valiorgue, 2017)?

The purpose of this issue is to extract itself from the normative fields and discourses that highlight, in the vast majority of cases, the important role of finance in the development of entrepreneurship, whether purely economic, social or environmental. In other words, we are asking ourselves here about the secondary, even hidden, effects of finance on the emergence and development of new companies in France and around the world.

The proposals will address, among other things, the following topics:

  • What place does finance occupy today in the feeling of success and accomplishment of an entrepreneurial activity?
  • How do entrepreneurs interact with potential funders?
  • How do funders dialogue with each other?
  • How do funders make their investment decisions? Rationality, Short termism, information asymmetry....
  • How do entrepreneurs and funders negotiate? On which elements of the project or company? Are there any losers? What is lost in the process?
  • How does the relationship between entrepreneurs and funders change over time?
  • Can finance harm the value creation produced by entrepreneurial activity? Can it affect entrepreneurial freedom?
  • Is it possible to free oneself from financing circuits? How?

Finally, what is the dark side of entrepreneurial finance?

Timeline:

Submission of texts: By April 30, 2020 at the latest

Publication: March 2021

[I have omitted here the list of references supporting the text citations.  Please contact me by email if you would like a .pdf copy of the call for papers that includes the list.  There is more information after the jump.]

Continue reading

July 5, 2019 in Call for Papers, Corporate Finance, Entrepreneurship, Joan Heminway, Research/Scholarhip | Permalink | Comments (0)

Monday, June 17, 2019

Grunin Center Conference 2019

GruninBanner_2019_0

Earlier this month, I attended and presented at the 2019 Legal Issues in Social Entrepreneurship and Impact Investing–in the US and Beyond conference co-organized by the Impact Investing Legal Working Group and the Grunin Center for Law and Social Entrepreneurship at the NYU School of Law.  My friends Deb Burand and Helen Scott (also my Corporations and Securities Regulation professor when I was at NYU Law) co-direct the Grunin Center.  They organized a super conference this year.  Each year, the conference draws more folks--and with good reason.

I presented as part of a panel that compared and contrasted the use of different forms of entity for social enterprise businesses.  My role was (perhaps predictably, given that I wrote this piece) to defend the use of traditional for-profit corporations for this purpose.  I got some love from the panel and the audience, but so did others with different views . . . .

One of the nifty features of this conference is the use of lunchtime slots for "table talks" (roundtable discussions) and workshops.  I attended a table talk entitled "Gender Lens Investing: A Year in Review and A Look Ahead" and a workshop on "Re-Designing Legal Education for Lawyers, Social Entrepreneurs, and Impact Investors in the US and Beyond."  (The latter, which involved a design-thinking exercise to work on a course plan/syllabus, has spawned an ongoing informal working group that met again earlier today on Zoom.)  The conference attracts both lawyers and folks from industry.

For me, a wonderful part of this conference--and the scholar convening that followed on the day after the conference--was the inspiration of a new ideas for research and writing.  In my view, a good conference routinely does that, without fanfare. I hope to report out on the details of some of those ideas in the future.

During the week before the Grunin Center conference, I was at the Law and Society Association Annual Meeting.  I presented my ongoing insider trading research at that meeting.  I will again be presenting that work (with some updates) at the National Business Law Scholars Conference later this week.  I hope to see many of our readers there and share my insider trading research in later posts.

June 17, 2019 in Conferences, Entrepreneurship, Social Enterprise | Permalink | Comments (0)

Tuesday, April 16, 2019

Petition to Create AALS Section Community Economic Development

My friend and colleague, Priya Baskaran, asked me to post the following, which I am happy to do: 

Over the past year, a critical mass of law school faculty and staff have expressed interest in establishing an AALS Section on Community Economic Development (CED). The proposed section will provide a dynamic, collaborative environment to enhance the scholarship, activism, and direct legal work of CED-focused faculty and professional staff. Notably, the section will help bridge existing gaps between various actors in the CED universe by increasing opportunities for networking and enabling greater synergy and collaboration between scholars and experts in various substantive subjects and disciplines related to CED. Interested faculty and professional staff are invited to read the full petition.

I think this is a great idea, and I will be signing the petition (here).  I have been working with an interdisciplinary group on my campus, WVU Center for Innovation in Gas Research and Utilization (CIGRU). We are a multidisciplinary group of researchers who are experts in science, engineering, environmental, policy, law, and finance. The CIGRU conducts research and services relevant to gas, oil, and chemicals. Our experimental research includes broad areas covering catalysis, reaction engineering, material science, power generation, and gas turbine. The CIGRU undertakes U.S. government- and industry-funded research projects developing clean and renewable energy technologies. Our services include air emission control, regulatory and policy, law and finance relevant to shale gas.

I have been leading CIGRU's Economic and Community Development Group for the past few years.  About 18 months ago, CIGRU earned a five-year seed grant awarded by the West Virginia Higher Education Policy Commission, under its Research Challenge Grant program. The WVU gas utilization team includes eight CIGRU researchers, working in partnership with Marshall University, the WVU Energy Institute, the WVU Bureau for Business and Economic Research, the West Virginia Chemical Alliance Zone, Morgantown’s National Energy Technology Laboratory and the Mid-Atlantic Technology, Research and Innovation Center. So, this idea resonates with me. I think this is a great idea, and it has my support. If you agree, I hope you'll sign on, too.  

For anyone interested, CIRGUs grant announcement and a description of the program are available after the jump. 

Continue reading

April 16, 2019 in Conferences, Current Affairs, Entrepreneurship, Joshua P. Fershee, Law School, Service | Permalink | Comments (0)

Monday, January 28, 2019

Visiting Clinical Assistant Professor, BU/MIT Startup Law Clinic (Boston University School of Law)

Boston University School of Law is seeking to hire a full-time attorney in its Startup Law Clinic (the “Clinic”). The Clinic is part of BU Law’s Entrepreneurship, Intellectual Property, and Cyberlaw Program, which is a unique collaboration between BU Law and the Massachusetts Institute of Technology.

The Clinic represents current students at MIT and BU on matters related to a wide range of legal issues faced by early-stage business ventures. The attorney would be expected to help law students counsel clients and represent students in transactional settings. Clients often present questions of law involving for-profit and nonprofit entity formation, allocations of equity, startup financing, employment and independent contractor issues, ownership of intellectual property, privacy policies, terms of service and other third-party contractual relationships, and trademark and copyright matters. Experience representing startup ventures is considered a plus.

The attorney’s primary responsibility will be to supervise and assist students with direct client representation matters. The attorney will also assist the Clinic Director and Assistant Director in preparing and teaching a year-long seminar for students enrolled in the Clinic, including developing materials, performing research, and coordinating classroom activities and guest presentations. The position is a year-round position and the attorney also would work with student fellows hired to continue the work of the clinic during the summer. As time allows, the attorney would also work with the Clinic Director and Assistant Director to develop generalized legal resources and informational material to inform MIT and BU students on the legal aspects of forming and operating for-profit and nonprofit entities.

The ideal candidate is a member of the Massachusetts bar or is eligible for membership via admission by motion, with at least two years of experience advising clients in a transactional setting, and a willingness to support the work of creative and innovative young clients. Teaching experience or a strong interest in developing as a clinical faculty member is also considered a plus. Exceptional writing, editing, organizational, and managerial skills are required.

The attorney will be hired as a Visiting Clinical Assistant Professor to a two-year contract. The ideal start date is May 28, 2019 or sooner.

Boston University School of Law is committed to faculty diversity and welcomes expressions of interest from diverse applicants.

For more information, see here.

January 28, 2019 in Clinical Education, Entrepreneurship, Joan Heminway, Jobs | Permalink | Comments (0)

Thursday, November 29, 2018

Observations from a Financial Regulation Academic on Carreyrou's Bad Blood

I’d like to thank the Business Law Prof Blog for the opportunity to be a guest blogger!  In this first post, I build on a subject of previous posts (here, here, and here): Theranos, a now defunct Silicon Valley health-care start-up.

I rely heavily on the Financial Times to follow developments in one of my main research areas: financial market clearing and settlement (I’ll plan to report next week on the upcoming December 4th meeting of the Market Risk Advisory Committee, sponsored by CFTC Commissioner Rostin Behnam).  The FT recently announced that Wall Street Journal investigative reporter John Carreyrou’s book, Bad Blood: Secrets and Lies in a Silicon Valley Startup, had been named the FT/McKinsey Business Book of the Year 2018.  Having immensely enjoyed reading past winners, I wasted no time in ensuring that Amazon Prime speedily delivered it to my doorstep. 

Bad Blood is a riveting tale of Theranos’ spectacular rise and fall, and well-worth the reader’s time.  A fun fact is that a pathologist blogger, Adam Clapper (founder of the former Pathology Blawg), tipped Carreyrou onto the Theranos story (Chapter 19).  Additionally, in the months after Bad Blood’s publication, its founder and CEO, Elizabeth A. Holmes, and former COO, Ramesh “Sunny” Balwani, were charged by the Justice Department with wire fraud.    

I know little about the health-care industry.  Yet in reading Bad Blood, I was struck by links to and concerns shared with the financial industry (an area about which I know more).  Below, I make a few observations and invite reader comments on their importance in these and other industries.

Post-financial crisis, rock-bottom interest rates acted as a “key ingredient” to a new Silicon Valley boom (p.82).  Similarly, these low rates have also been a key ingredient for the many years of increasing stock market prices post-financial crisis.  Indeed, recent equity market declines made at least a temporary rebound yesterday after comments by Federal Reserve Chairman Jerome Powell at the Economic Club of New York.     

The increasing expansion of private markets enables companies such as Theranos to “avoid the close scrutiny” (p.178) to which public companies are subject (nevertheless, Theranos and Holmes settled fraud charges with the SEC).  Given current regulatory structures, it also risks severely limiting retail investment opportunities.  And it adversely impacts financial journalists’ access to information!  

When I teach Banking and Financial Institutions Law, the term “regulation-induced innovation” tends to amuse students.  The Theranos tale demonstrates, however, that such practices aren’t a laughing matter.  For example, its business strategies appeared to include: maneuvering in regulatory “gray zones” between the FDA and Centers for Medicare and Medicaid Services (p.88), exploiting “gap[s] spawned by outdated statutes” (p.125), and “operat[in]g in a regulatory no-man’s-land” (p.260).  Such practices can be troublesome enough in financial markets.  However, in Theranos’ case, the stakes (patient health) were much higher.    

Finally, who doesn’t love a good story?  Carreyrou, a two-time Pulitzer Prize-winning journalist, is an expert storyteller.  His portrayal of Holmes suggests that she too profoundly understood the power of stories, and that she had a bewitching talent for telling them.  Clearly, untruthful, non-fictional narratives are generally unethical and, depending upon the context, might also be illegal.  However, taking a cue from Holmes on the importance of stories and honing one's ability to tell them could assist financial market policymakers.  Indeed, several years ago, the FT’s Gillian Tett wrote an opinion piece entitled, “Central bank chiefs need to master the art of storytelling.”  Enhanced storytelling capabilities could also assist academics researching financial market regulation.  For both, the ability to compellingly communicate with the public about issues in financial markets and their broad-based importance is critical.  Even so, constructing a fascinating narrative about clearing and settlement along the lines of Bad Blood would be no small feat!  

November 29, 2018 in Books, Current Affairs, Entrepreneurship, Financial Markets | Permalink | Comments (4)

Tuesday, October 30, 2018

Should You Ever Pierce the LLC Veil to Let a Member Recover? Probably Not.

Tom Rutledge, at Kentucky Business Entity Law Blog, writes about a curious recent decision in which the Kentucky Court of Appeals overrule a trial court, holding that the law of piercing the veil required the LLC veil to be pierced. Tavadia v. Mitchell, No. 2017-CA-001358-MR, 2018 WL 5091048 (Ky. App. Oct. 19, 2018).

Here are the basics (Tom provides an even more detailed description):

Sheri Mitchell formed One Sustainable Method Recycling, LLC (OSM) in 2013. Mitchell initially a 99% owner and the acting CEO with one other member holding 1%. Mitchell soon asked Behram Tavadia to invest in the company, which he did.

He loaned OSM $40K at 6% interest from his business Tavadia Enterprises, Inc. (to be repaid $1,000 per month, plus 5% of annual OSM profits).  There was no personal guarantee from Mitchell.  OSM then received a $150,000 a business development from METCO, which Tavadia personally guaranteed and pledged certain bonds as security.

Two years (and no loan payments) later under the original $40,000 loan, Tavadia agreed to delay repayment. OSM and Tavadia the created a second loan for $250,000, refinancing the original $40,000 and a subsequent Tavadia $12,000 loan.  This loan provided Tavadia a 25% ownership interest in OSM, but there was still no personal guarantee on the loan. Mitchell claimed this loan was needed to purchase essential equipment (no equipment was purchased). OSM then received a $20,000 loan from Fundworks, LLC, which was secured by Mitchell, who signed Tavadia’s name for OSM and she signed a personal guarantee in Tavadia’s name (both without permission).

Not surprisingly, in October 2015, OSM stopped operations, the equipment was sold, and more than half of the sale proceeds were deposited in Mitchell’s personal bank account, with the rest going to OSM’s account. OSM (naturally) defaulted on the Fundworks’ loan, which Tavadia learned about when Fundworks demanded repayment. The METCO loan also defaulted, and Tavadia was asked to provide funds from the bonds he provided as collateral.

Okay, so it sounds like Mitchell took advantage of Tavadia and engaged in some elements of fraud. What I can’t figure out from this case is why we’re talking about veil piercing.

First, the court states: “The evidence presented at trial demonstrated that Mitchell diverted OSM assets into her own account.” Tavadia v. Mitchell, No. 2017-CA-001358-MR, 2018 WL 5091048, at *5 (Ky. Ct. App. Oct. 19, 2018). So that money Mitchell owes to OSM, which owes money to Tavadia.  The court noted that at least half the funds from the sale of OSM equipment went into Mitchell’s personal account. That needs to go back to OSM, and if veil piercing has value, then a simple order of repayment should be, too. 

Second, the Fundworks loan, which Mitchell signed for, is really her loan, not Tavadia’s. He did not know about it until they sought payment, so it wasn’t ratified, and there is no other indication she has authority to enter into the contract. 

At a minimum, these funds are owed Tavadia (or OSM) and should be itemized as such.  Presumably, that is not enough money to make Tavadia whole. And I don’t know he should be. To the extent there were legitimate (if poorly executed) business attempts, he is on the hook for those losses. As such, I don’t see this as a veil-piercing case.

Instead, Tavadia should be able to sue Mitchell for her fraudulent actions that harmed him directly. And Tavadia should be able to make OSM sue Mitchell for improper transfers and fraud. 

Maybe there are other theories for recovery, too, but veil piercing should not be one. Mitchell did not use the entity to commit fraud. She committed fraud directly. Just because there is an entity, plus an unpaid loan, it does not make this a veil-piercing case. In fact, because Tavadia is a member of the LLC, I think there is a reasonable argument that (absent truly unique circumstances) veil piercing cannot apply. 

I am sympathetic that Tavadia was taken advantage of, and I think that Mitchell should have a significant repayment obligation to him, but I just don’t think this claim should be rooted in veil piercing.  At a minimum, like in administrative law, one should have to exhaust his or her remedies before proceeding to a veil-piercing theory. 

October 30, 2018 in Contracts, Entrepreneurship, Joshua P. Fershee, Litigation, LLCs | Permalink | Comments (1)

Tuesday, October 23, 2018

Employee Stock Options in Unicorns: Scholarship At the Intersection of Securities Law and Employee Benefits

Friend of the Business Law Prof Blog Anat Beck recently posted a draft of her article entitled Unicorn Stock Options - Golden Goose or Trojan Horse? on SSRN.  I heard presentations on earlier versions of this piece, which I personally find quite intricate and interesting.  An excerpt fro the SSRN abstract follows:

This article examines a contemporary puzzle in Silicon Valley – is there a shift in unicorn employees expectations that results in labor contracting renegotiations? It explores the challenges faced by unicorn firms as repeat players in competitive technology markets. It offers the following possible solutions. First, new equity-based compensation contracts, and critiques them. Second, alternatives to the traditional liquidity mechanisms, and critiques them.

It concludes with proposals to remove legal barriers to private ordering, and new mandatory disclosure requirements.

The article has been picked up by the Harvard Law School Forum on Corporate Governance and Financial Regulation and linked to in a Matt Levine column for Bloomberg.  This is a good read, especially for those of you interested in entrepreneurial business law (which is Anat's speciality).

October 23, 2018 in Employment Law, Entrepreneurship, Joan Heminway, Securities Regulation | Permalink | Comments (0)

Sunday, August 12, 2018

Why Lawyers, Law Professors, and Judges Should Care About Blockchain

We’re a month away from our second annual Business Law Professor Blog CLE, hosted at the University of Tennessee on Friday, September 14, 2018. We’ll discuss our latest research and receive comments from UT faculty and students. I’ve entitled my talk Beyond Bitcoin: Leveraging Blockchain for Corporate Governance, Corporate Social Responsibility, and Enterprise Risk Management, and will blog more about that after I finish the article. This is a really long post, but it’s chock full of helpful links for novices and experts alike and highlights some really interesting work from our colleagues at other law schools.

Two weeks ago, I posted some resources to help familiarize you with blockchain. Here’s a relatively simple definition from John Giordani at Forbes:

Blockchain is a public register in which transactions between two users belonging to the same network are stored in a secure, verifiable and permanent way. The data relating to the exchanges are saved inside cryptographic blocks, connected in a hierarchical manner to each other. This creates an endless chain of data blocks -- hence the name blockchain -- that allows you to trace and verify all the transactions you have ever made. The primary function of a blockchain is, therefore, to certify transactions between people. In the case of Bitcoin, the blockchain serves to verify the exchange of cryptocurrency between two users, but it is only one of the many possible uses of this technological structure. In other sectors, the blockchain can certify the exchange of shares and stocks, operate as if it were a notary and "validate" a contract or make the votes cast in online voting secure and impossible to alter. One of the greatest advantages of the blockchain is the high degree of security it guarantees. In fact, once a transaction is certified and saved within one of the chain blocks, it can no longer be modified or tampered with. Each block consists of a pointer that connects it to the previous block, a timestamp that certifies the time at which the event actually took place and the transaction data.

These three elements ensure that each element of the blockchain is unique and immutable -- any request to modify the timestamp or the content of the block would change all subsequent blocks. This is because the pointer is created based on the data in the previous block, triggering a real chain reaction. In order for any alterations to happen, it would be necessary for the 50%-plus-one of the network to approve the change: a possible but hardly feasible operation since the blockchain is distributed worldwide between millions of users.

In case that wasn’t clear enough, here are links to a few of my favorite videos for novices. These will help you understand the rest of this blog post.

To help prepare for my own talk in Tennessee, I attended a fascinating discussion at SEALS on Thursday moderated by Dean Jon Garon of Nova Southeastern University Shepard Broad College of Law called Blockchain Technology and the Law.

For those of you who don’t know how blockchain technology can relate to your practice or teaching, I thought I would provide a few questions raised by some of the speakers. I’ve inserted some (oversimplified)links for definitions. The speakers did not include these links, so if I have used one that you believe is incomplete or inaccurate, do not attribute it to them.

Professor Del Wright, University of Missouri-Kansas City School of Law;

Del started the session by talking about the legal issues in blockchain consensus models. He described consensus models as the backbones for users because they: 1) allow users to interact with each other in a trustless manner; 2) ensure the integrity of the ledger in both normal and adversarial situations; and 3) create a “novel variety of networks with extraordinary potential” if implemented correctly. He discussed both permissioned (e.g. Ripple) and permissionless (Bitcoin) systems and how they differ. He then explained Proof of Work blockchains supported by miners (who solve problems to add blocks to the blockchain) and masternodes (who provide the backbone support to the blockchain). He pointed out how blockchains can reduce agency costs and problems of asymmetrical information and then focused on their utility in financial markets, securities regulation, and corporate governance. Del compared the issues related to off-chain governance, where decisionmaking first takes place on a social level and is then actively encoded into the protocol by the developers (used by Bitcoin and Ethereum) to on-chain governance, where developers broadcast their improvement protocols on-chain and then, once approved, those improvements are implemented into the code. He closed by listing a number of “big unanswered issues” related to regulatory guidance, liability for the performance of the technology and choice of consensus, global issues, and GDPR and other data privacy issues.

Professor Catherine Christopher, Texas Tech University School of Law;

Catherine wants to help judges think about smart contracts. She asked, among other things, how judges should address remedies, what counts as substantial performance, and how smart contract audits would work. She questioned whether judges should use a consumer protection approach or instead follow a draconian approach by embracing automation and enforcing smart contracts as drafted to discourage their adoption by those who are not sophisticated enough to understand how they work.

Professor Tonya Evans, University of New Hampshire School of Law (follow her on Twitter; see her blog on blockchain here);

Tonya focuses on blockchain and intellectual property. Her talked raised the issues of non-fungible tokens generated through smart contracts and the internet of value. She used the example of cryptokitties, where players have the chance to collect and breed digital cats. She also raised the question of what kind of technology can avoid infringement. For more on how blockchain can disrupt copyright law, read her post here.

Professor Rebecca Bratspies, CUNY School of Law;

In case you didn’t have enough trust issues with blockchain and cryptocurrency, Rebecca’s presentation focused on the “halo of immutability” and asked a few central questions: 1) why should we trust the miners not to collude for a 51% attack 2) why should we trust wallets, which aren’t as secure as people think; and 3) why should we trust the consensus mechanism? In response, some members of the audience noted that blockchain appeals to a libertarian element because of the removal of the government from the conversation.

Professor Carla Reyes, Michigan State University College of Law- follow her on Twitter at Carla Reyes (@Prof_CarlaReyes);

Carla talked about crypto corporate governance and the potential fiduciary duties that come out of thinking of blockchains as public trusts or corporations. She explained that governance happens on and off of the blockchain mechanisms through social media outlets such as Redditt. She further noted that many of those who call themselves “passive economic participants” are actually involved in governance because they comment on improvement processes. She also noted the paradox that off chain governance doesn’t always work very well because participants don’t always agree, but when they do agree, it often leads to controversial results like hard forks. Her upcoming article will outline potential fiduciaries (miner and masternode operators for example), their duties, and when they apply. She also asked the provocative question of whether a hard fork is like a Revlon event.

Professor Charlotte Tschider, William Mitchell College of Law (follow her on Twitter);

As a former chief privacy officer, I have to confess a bias toward Charlotte’s presentation. She talked about blockchain in healthcare focusing on these questions: will gains in cybersecurity protection outweigh specific issues for privacy or other legal issues (data ownership); what are the practical implications of implementing a private blockchain (consortium, patient-initiated, regulatory-approved); can this apply to other needed uses, including medical device applications; how might this technology work over geographically diverse regulatory structures; and are there better applications for this technology (e.g. connected health devices)? She posited that blockchain could work in healthcare because it is decentralized, has increased security, improves access controls, is more impervious to unauthorized change, could support availability goals for ransomware attacks and other issues, is potentially interoperable, could be less expensive, and could be controlled by regulatory branch, consortium, and the patient. She closed by raising potential legal issues related to broad data sharing, unanswered questions about private implementations, privacy requirements relating to the obligation of data deletion and correction (GDPR in the EU, China’s cybersecurity law, etc); and questions of data ownership in a contract.

Professor Eric Chason, William & Mary Marshall-Wythe School of Law;

Eric closed by discussing the potential tax issue for hard forks. He explained that after a hard fork, a new coin is created, and asked whether that creates income because the owner had one entitlement and now has two pieces of ownership. He then asked whether hard forks are more like corporate reorganizations or spinoffs (which already have statutory taxation provisions) or rather analogous to a change of wealth. Finally, he asked whether we should think about these transactions like a contingent right to do something in the future and how that should be valued.

Stay tuned for more on these and other projects related to blockchain. I will be sure to post them when they are done. But, ignore blockchain at your peril. There’s a reason that IBM, Microsoft, and the State Department are spending money on this technology. If you come to UT on September 15th, I’ll explain how other companies, the UN, NASDAQ, and nation states are using blockchain beyond the cryptocurrency arena.

 

August 12, 2018 in Commercial Law, Compliance, Conferences, Contracts, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Human Rights, Law School, Lawyering, Legislation, Marcia Narine Weldon, Research/Scholarhip, Securities Regulation, Shareholders, Teaching, Technology, Writing | Permalink | Comments (0)

Tuesday, July 10, 2018

Energy and Business Nexus: Decarbonizing Light-Duty Vehicles

I am both a business law professor and an energy law professor, which is sometimes surprising to people. That is, some folks are surprised that have a research focus in two areas that are seemingly very distinct.  In one sense, that's true, at least in the academic realm.  Most energy law scholars tend to have a focus on more close related disciplines, such as environmental law, administrative law, and property law.  And business law scholars tend to trend toward things like commercial law, bankruptcy, tax, and contracts.  

There is substantial overlap, though, in the energy and business law spaces, as I have noted on this blog before. I am even working on some research that looks specifically at the role laws and regulations have on business and economic development.   My work with the WVU Center for Innovation in Gas Research and Utilization builds on this energy and business nexus. 

I am pleased to share a newly published article I wrote with Amy Stein from the University of Florida's Levin College of Law. The piece is called Decarbonizing Light-Duty Vehicles, and it appears in the July issue of Environmental Law Reporter. It is available here. This article is based on our forthcoming book chapter that will appear in Legal Pathways to Deep Decarbonization in the United States (Michael B. Gerrard & John C. Dernbach eds.) and published by the Environmental Law Institute.  The book expands on the U.S. work of the Deep Decarbonization Pathways Project, and was prepared in collaboration with that organization. Following is an excerpt that gives a sense of how energy and business law and policy sometimes intersect. 

    A last challenge surrounds the existing business models that revolve around the [internal combustion vehicle (ICV)]. First, a number of states have a strong incentive to maintain a core of ICVs due to their heavy reliance on the gasoline tax to fund highway infrastructure in their respective states. The gasoline tax has been in place since 1956 to help pay for construction of the interstate highway system.  Since that time, Congress has directed the majority of the revenues from this tax to the Highway Trust Fund (HTF).  At the federal level, Congress has not increased the tax in more than 20 years, leaving it at 18.4 cents a gallon.  As of July 2015, state taxes on gasoline averaged 26.49 cents a gallon, bringing the total tax on gasoline to about 45 cents per gallon.  All efforts to reduce reliance on gas-dependent vehicles therefore stand in sharp contrast to efforts to maintain a healthy highway fund. The interplay between fuel economy and the dependence on gasoline tax revenues should not be overlooked, as well as the conflicting demands placed on legislators.

    Second, dealers, mechanics, and gas stations have a strong incentive to maintain the dominance of ICVs. Dealers may not be as familiar with [alternative fuel vehicles (AFVs)] and so are less likely to be able to demonstrate specifics about available incentives, nor be able to exude confidence about charging, range, and battery life-span.  More importantly, dealers may also be hesitant to sell AFVs for some of the same reasons that customers may be inclined to purchase them—specifically, the expectation of reduced maintenance costs. These misaligned incentives exist because an essential part of a dealer’s business model relies on post-sale revenues related to the sale of used cars, oil changes, and engine maintenance repairs, avoided costs for AFV owners.  More car dealers may need to explore options that evolve with the technology, including maintaining and repairing fleets of autonomous vehicles.

    In short, although the United States has begun the transition to AFVs, there are a number of obstacles, financial, psychological, and cultural, that stand in the way of a greater shift to AFVs.

Amy L. Stein & Joshua Fershée, Decarbonizing Light-Duty Vehicles, 48 Environmental Law Reporter 10596 (2018) (footnotes omitted). 

July 10, 2018 in Current Affairs, Entrepreneurship, Joshua P. Fershee, Legislation, Research/Scholarhip | Permalink | Comments (0)

Wednesday, December 20, 2017

European Academy of Management - Sharing Economy - Call for Participation

Our colleagues and friends at the Burgundy School of Business have informed me about an opportunity to participate in the European Academy of Management (EURAM) conference to be held in Reykjavik, Iceland from June 20-23.  (Note: these dates overlap with the 2018 National Business Law Scholars Conference.)  The Strategic Interest Group on Entrepreneurship (GIS 03) for the EURAM conference has established a sub-track on the "Sharing Economy" at the EURAM 2018 meeting. Djamchid Assadi of the Burgundy School of Business is coordinating this part of the program.

Djamchid is looking for both paper submissions and reviewers for the Sharing Economy sub-track.  Paper submissions are due by January 10 (2:00 pm Belgium time) and applications to serve as a reviewer are due December 31.  (Paper presenters are required to review at least two papers at the conference.)  Information about the conference can be found here.  The reviewer application form is available here.

Please contact Djamchid at Djamchid.Assadi@bsb-education.com if you are interested in submitting a paper.  He can tell you how to designate the paper for GIS 03.  Apparently, in GIS 03, you can declare your interest in the "The Sharing Economy" subtract.  Please feel free to use my name in any communications with Djamchid.

December 20, 2017 in Call for Papers, Conferences, Entrepreneurship, Joan Heminway | Permalink | Comments (0)

Tuesday, December 19, 2017

Washington Marijuana Law Has Entity Type Quirks (And LLCs Are Still Not Corporations)

A recent case in Washington state introduced me to some interesting facets of Washington's recreational marijuana law.  The case came to my attention because it is part of my daily search for cases (incorrectly) referring to limited liability companies (LLCs) as "limited liability corporations."  The case opens: 

In 2012, Washington voters approved Initiative Measure 502. LAWS OF 2013, ch. 3, codified as part of chapter 69.50 RCW. Initiative 502 legalizes the possession and sale of marijuana and creates a system for the distribution and sale of recreational marijuana. Under RCW 69.50.325(3)(a), a retail marijuana license shall be issued only in the name of the applicant. No retail marijuana license shall be issued to a limited liability corporation unless all members are qualified to obtain a license. RCW 69.50.331(1)(b)(iii). The true party of interest of a limited liability company is “[a]ll members and their spouses.”1 Under RCW 69.50.331(1)(a), the Washington State Liquor and Cannabis Board (WSLCB) considers prior criminal conduct of the applicant.2

LIBBY HAINES-MARCHEL & ROCK ISLAND CHRONICS, LLC, Dba CHRONICS, Appellants, v. WASHINGTON STATE LIQUOR & CANNABIS BOARD, an Agency of the State of Washington, Respondent., No. 75669-9-I, 2017 WL 6427358, at *1 (Wash. Ct. App. Dec. 18, 2017) (emphasis added).  
 
The reference to a limited liability corporation appears simply to be a misstatement, as the statute properly references limited liability companies as distinct from corporations. The legal regime does, though, have some interesting requirements from an entity law perspective. First, the law provides:
 
(b) No license of any kind may be issued to:
 
. . . .
 
(iii) A partnership, employee cooperative, association, nonprofit corporation, or corporation unless formed under the laws of this state, and unless all of the members thereof are qualified to obtain a license as provided in this section;
Wash. Rev. Code § 69.50.331 (b)(iii) (West). It makes some sense to restrict the business to in-state entities given the licensing restrictions that state has, although it is not clear to me that the state could not engage in the same level of oversight if an entity were, say, a California corporation or a West Virginia LLC. 
 
The state's licensing requirements, as stated in Washington Administrative Code 314-55-035 ("What persons or entities have to qualify for a marijuana license?") provide: "A marijuana license must be issued in the name(s) of the true party(ies) of interest." The code then lists what it means to be a  “true party of interest” for a variety of entities. 
True party of interest: Persons to be qualified
 
Sole proprietorship: Sole proprietor and spouse.
 
General partnership: All partners and spouses.
 
Limited partnership, limited liability partnership, or limited liability limited partnership: All general partners and their spouses and all limited partners and spouses.
 
Limited liability company: All members and their spouses and all managers and their spouses.
 
Privately held corporation: All corporate officers (or persons with equivalent title) and their spouses and all stockholders and their spouses.
 
Publicly held corporation: All corporate officers (or persons with equivalent title) and their spouses and all stockholders and their spouses.
Multilevel ownership structures: All persons and entities that make up the ownership structure (and their spouses).
Wash. Admin. Code 314-55-035. 

This is a pretty comprehensive list, but I note that the corporation requirements are missing some noticeable parties: directors. The code states, for both privately and publicly held corporations, that all "corporate officers (or persons with equivalent title)" and their spouses and all stockholders and their spouses must be qualified. Directors are not "equivalent" in title to officers. Officers, under Washington law, are described as follows:
 
(1) A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.
(2) A duly appointed officer may appoint one or more officers or assistant officers if authorized by the bylaws or the board of directors.
(3) The bylaws or the board of directors shall delegate to one of the officers responsibility for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation.
(4) The same individual may simultaneously hold more than one office in a corporation.
Wash. Rev. Code § 23B.08.400. Directors have a different role. The statute provides:

Requirement for and duties of board of directors.

(1) Each corporation must have a board of directors, except that a corporation may dispense with or limit the authority of its board of directors by describing in its articles of incorporation, or in a shareholders' agreement authorized by RCW 23B.07.320, who will perform some or all of the duties of the board of directors.
(2) Subject to any limitation set forth in this title, the articles of incorporation, or a shareholders' agreement authorized by RCW 23B.07.320:
(a) All corporate powers shall be exercised by or under the authority of the corporation's board of directors; and
(b) The business and affairs of the corporation shall be managed under the direction of its board of directors, which shall have exclusive authority as to substantive decisions concerning management of the corporation's business.
Wash. Rev. Code § RCW 23B.08.010.
 
The Code, then, seems to provide that directors are, as a group, exempt from the spousal connection. The code separately provides:
 
(4) Persons who exercise control of business - The WSLCB will conduct an investigation of any person or entity who exercises any control over the applicant's business operations. This may include both a financial investigation and/or a criminal history background. 
Wash. Admin. Code 314-55-035.  This provision would clearly include directors, but also clearly excludes spouses. That distinction is fine, I suppose, but it is not at all clear to me why one would want to treat directors differently than LLC managers (and their spouses).  To the extent there is concern about spousal influence--to the level that the state would want to require qualification of spouses of shareholders in a publicly held entity--leaving this gap open for all corporate directors seems to be a rather big miss (or a deliberate exception).  Either way, it's an interesting quirk of an interesting new statute.   
 
 
 
 
 
 

December 19, 2017 in Corporations, Current Affairs, Entrepreneurship, Family Business, Joshua P. Fershee, Legislation, Licensing, LLCs, Management, Nonprofits, Partnership, Shareholders, Unincorporated Entities | Permalink | Comments (0)

Monday, December 11, 2017

Law and Entrepreneurship - Association Call for Papers - Near-Term Deadline!

The twelfth annual meeting of the Law and Entrepreneurship Association (LEA) will occur on February 9, 2018 at the University of Alabama School of Law

The LEA is a group of legal scholars interested in the topic of entrepreneurship—broadly construed. Scholars include those who write about corporate law and finance, securities, intellectual property, labor and employment law, tax, and other fields related to entrepreneurship and innovation policy.

Our annual conference is an intimate gathering where each participant is expected to read and actively engage with all of the pieces under discussion. We call for papers and proposals relating to the general topic of entrepreneurship and the law.

Proposals should be comprehensive enough to allow the LEA board to evaluate the aims and likely content of papers they propose. Papers may be accepted for publication but must not be published prior to the meeting. Works in progress, even those at a relatively early stage, are welcome. Junior scholars and those considering entering the legal academy are especially encouraged to participate.

To submit a presentation, email Professor Mirit Eyal-Cohen at meyalcohen@law.ua.edu with a proposal or paper by December 31, 2017. Please title the email “LEA Submission – {Name}.”

For additional information, please email Professor Mirit Eyal-Cohen at meyalcohen@law.ua.edu.

December 11, 2017 in Conferences, Entrepreneurship, Joan Heminway | Permalink | Comments (0)