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Think It's Found Money? Better Do It Right When Raising Investment Capital
When a business needs to raise money it may consider hiring a 'finder,' which is normally a consultant who helps the company find investors in the business. The company should proceed with caution in retaining a finder due to the regulated nature of its business, and there are several 'market' terms in a written Finder's Fee Agreement that the company should insist upon.
Generally, a 'finder' or 'placement agent' receives a 'finder's fee' depending upon the amount of capital it introduces to the company. The Securities and Exchange Commission ('SEC') has long regulated this practice and, depending upon a facts and circumstances test (known as the 'Issuer Exemption'), requires finders to be registered as broker-dealers under '15(a)(1) of the Securities Exchange Act of 1934. The factors the SEC considers for a finder to fall under the Issuer Exemption include:
- Whether the finder is an employee or independent contractor of the company;
- Will the finder's compensation be linked to the amount of securities sold or is it a fixed compensation;
- Does the finder devote a substantial portion of his or her time to rendering services for the company that are not related to the sale of securities;
- Does the finder intend to remain with the company after completion of the offering; and
- In the past, has the finder participated, or will the finder in the future participate, in other offerings by this or other companies?
The rationale for exempting finders from registration is that the finder is not a broker because he or she is not 'effecting' transactions for others. That is, the finder's activities are limited to identifying potential investors and introducing them to the company. The negotiation of the investment terms, the theory goes, is strictly between the company and the investor.
More likely than not, however, the 'finder' answers at least some of the foregoing questions in a manner requiring registration as a broker-dealer. What does this mean to the issuing company that hires an unregistered finder? It could mean that its exemption from registration of the offering is blown, and the company is in violation of federal and state securities laws. It could also mean that the company is not allowed to accept the investments by the investors identified by the unregistered broker. In any case, it could mean that state and federal securities regulatory agencies are investigating the business and affairs of the company, which could be quite uncomfortable for even the cleanest of businesses.
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Removing Restrictive Covenants In New York
In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?