Agreeing with Benjamin Franklin that there is nothing certain except death and taxes, Sketch Wood and his partner Minnie Brix, owners of Wood & Brix, and their 200 employees are certain that the new tax law will affect them, but they are a bit overwhelmed. Looking for an overview, Sketch asked his favorite non-tax lawyer to hit some of the high points of the first significant reform of the U.S. tax code since 1986. Continue Reading New Tax Law – Impacting Your Small Business and You

Frustrated with the high number of employees that did not show up for work in the fall and winter last year, Jim Duncey, the owner of Duncey’s Caps, Inc., issues a memo to all employees that they must provide proof that they got a flu vaccine shot by January 1, 2018 or they would be fired.  Tommy Goinmyownway protests, saying that his religious beliefs prohibit him from getting vaccinations.  New Year’s Day comes and Tommy is fired after he doesn’t provide the required proof.  As he is escorted out of the plant Tommy threatens to sue Duncey’s for discrimination.  Does he have a claim? Continue Reading Sticking it to Your Employees During Flu Season

Frazzled by the incessant demands for her company Acne Brick’s financial records from her husband’s divorce lawyer Ditcher Quick, company president Annie Acne was wondering what her next maneuver might be when her Information Technology officer walked into her office. The subpoena that he was holding demanded production of all Acne email communications between Annie and (i) her divorce lawyers and (ii) her attorney brother who helped her rearrange just a few things. Annie immediately called her attorney Elle O’Quent to ask, “Can Acne Brick be ordered to produce Annie’s emails from Acne’s computer?” Continue Reading Is Your Company Email to Santa Protected?

Board of directors member Y.I. Gnough, who is also president of Algae Company, is in a pickle. Although denying any knowledge of sexual harassment and misconduct by the company founder and deal-maker Iam Algae, three co-board members resigned fearing for their reputational and financial survival. Employees are fueling the rumors of women who complained of unwanted touching, sexual harassment and other over-the-line behavior. Even Algae’s former counsel discloses that several years ago the board and the company were told of three or four confidential settlements with women. Company investors suggest that Y.I. and fellow officers and directors breached their fiduciary duty. Should Y.I. be concerned about his pocketbook and his reputation?

Continue Reading Am I My Director’s Keeper?

“Big” Bob Brothers is concerned that his company, Big Brothers Security Systems, is losing out on customers because his salesmen and installation teams are slacking when they are out of the office.  Brothers reads a newspaper article about another company that is putting microchip implants containing radio-frequency identification tags (RFID) into his employees in order to make sure they aren’t doing “off the clock” stuff while on the clock.  Brothers sends a memo to employees explaining that they will all be chipped the next month, and anyone refusing to chip will be terminated.  Can Brothers “big brother” his employees like that?   

Continue Reading Can I “Chip” Away at my Employees’ Privacy?

A number of years ago John Drane, owner of Drane Plumbing & Supply, executed a Power of Attorney (POA) naming his eldest daughter LaTrina Drane as his attorney in fact. John’s debilitating stroke last weekend risks placing him in rehabilitation for months. Determined to continue the family business that offers its customers “Let Us Drain Your Swamp,” LaTrina dusts off John’s POA. Will Latrina have any problems? Continue Reading Returning “Power” to the Power of Attorney

For over a decade On the Skware Toy Soldiers and its owners, Boo & Woo, the Skware brothers, have enjoyed the shopping traffic brought to their retail store that’s located in the same shopping center as Athletics Authoritiez, a popular sporting goods retailer. However, over the last couple of years the Skware brothers have seen their overall numbers of shoppers go down and, with slowing traffic, their gross sales revenue has dropped by over 15% – straight off the bottom line. Now, blaming E-Commerce woes, the news media (supported by local scuttlebutt) is suggesting that Authoritiez is on the ropes and may close its store. Can Boo & Woo do anything to save On the Skware? Continue Reading E-Commerce Disruption – Tenant’s Tizzy

Business people joining hands in circleBeginning as a part-time college job walking friends’ dogs, Cary Barker’s full time business now employs over 30 college students to walk neighborhood dogs and to deliver them for daily activities to and from his Barkingham Palace Doggie Day Care Center, LLC. Although not yet ready to seek investors and begin franchising, Cary wants to grow Barkingham Palace, protect its blind spots, get alternative perspectives from other’s experiences and expand his network of friends. Cary’s friend Bayh Lawz suggests that Cary should select a board of directors. Should he? Continue Reading Selecting an Advisory Board – Do’s & Don’ts

Crowdfunding money jar full of coinsSpurred by the frenzy of mid-century modern furniture of the 1950s and 1960s returning in popularity, a growing number of collectors are investing in and holding vintage furniture. Capitalizing on that craze, N. Stile Sune’s start-up Mothbalz Antiques cannot grow fast enough to meet demand. To buy more old warehouses and re-fit them into climate controlled spaces, N. Stile must raise over $2 million and is willing to give his investors an equity interest. Can N. Stile use crowdfunding or must he go the old fashioned route of a private placement memorandum (PPM)?

Due to Sune’s $2 million in capital needs (and more) crowdfunding is not a viable option.

Crowdfunding

The JOBS Act 2012 (Jumpstart Our Business Startups) was designed to encourage funding of U.S. small businesses and to ease various U.S. securities regulations affecting business investment. Enticingly entitled the “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012,” Title III of the JOBS Act had visions of giving small individual investors access to early-stage investment and the enhanced ability to raise money beyond “friends and family,” through social media and from unknown investors like other sites such as Kickstarter.

When compared to other forms of private placements, crowdfunding is not a feasible option for our friend N. Stile Sune and Mothbalz Antiques. As explained in Forbes, here are ten reasons why:

  1. Issuers are capped to raising $1 million in any 12-month period.
  2. Shares issued are subject to a one-year restricted period.
  3. Crowdfunding is capped over a 12-month period at amounts depending upon net worth / income.
  4. Crowdfunding must be done through a registered broker-dealer or registered “funding portal.”
  5. The disclosure document (PPM) must be filed with the SEC prior to first sale and N. Stile Sune would have to file audited financial statements.
  6. Unlike JOBS Act changes affecting accredited investors, crowdfunding does not allow advertising except in narrow exceptions.
  7. Annual reports and possibly more frequent reports must be filed with the SEC.
  8. Legal prospectus liability applies to disclosures.
  9. Extensive due diligence is required, including background checks on management and large stockholders.
Tilting the Scales in Your Favor

Beware. Crowdfunding is far from a start-up fund raising panacea. You can still be sued for fraud for an actual or perceived misrepresentation or omission. One of the best ways to legally protect yourself and your business is also one of the most effective means for garnering serious investor interest.  Disclose as much information as possible about your business, ensuring that if things begin to fall apart and investors threaten to sue for securities fraud or other issues, you can use your disclosure as a powerful defense – through the traditional Private Placement Memorandum – or PPM for short.

For more information on private equity funding, check out our Gray Reed attorneys David Earhart and Mark Wigder.

Confidential folder isolated on a white backgroundGrowth in the DFW metroplex is booming, and the City of Flourish is one of the driving forces. Unfortunately, the City has had a difficult time keeping up its infrastructure with the growing population.  Recently the City selected a bid from Slab Mixer Co., a concrete pipe manufacturer, for culverts for a project widening some of the City’s streets.  After the City and Slab signed their contract, a group of Flourish citizens, concerned with how the City’s spending might affect their taxes, requested a copy of the contract under the Texas Public Information Act (TPIA).  When the City notified Slab of the request, Slab asserted that some of the terms in the contract needed to be redacted because they would give Slab’s competitors an advantage in future contracts.  Does Slab have the right to do that?

Background on the Texas Public Information Act

The Texas Public Information Act provides the public with the right to access information the government collects, subject to approximately 60 exceptions.  Tex. Gov’t Code §§ 552.221, 552.101-.154.  One exception is “information that, if released, would give advantage to a competitor or bidder.”  Id. at § 552.104(a).  Historically, the Texas Attorney General’s Office, which is charged with interpreting the Act and maintaining its uniformity, has taken the position that this exception only protects the governmental body, and not a private party.  In other words, the AG believed the Act only allowed a governmental body to protect information that would place it at a disadvantage with other governmental bodies inside and outside of the State of Texas.

Do Private Parties Have a Right to Protect Their Bid Information? 

Yes.  In 2015 the Texas Supreme Court in The Boeing Company et al. v. Paxton held that “a private party may assert the exception to protect its competitively sensitive information.”  The Court found that the plain language of the exception was not limited to a governmental body’s right to protect that information.  It also noted that the governmental body had the right to defer to the private party to assert its competitive interests were at stake and request that the competitively sensitive information be withheld.  Thus, Boeing had standing to assert the exception, but would have to show that the information requested, “if released, would give advantage to a competitor or bidder.”

What about Citizens’ Right to Know How Much Their Government is Spending? 

Some have claimed the Texas Supreme Court’s decision in Boeing has given governmental bodies a carte blanche loophole to avoid turning over any information about their contracts.  According to these critics, the Court’s decision allows the governmental bodies to assert that disclosing that information would give an advantage to the successful bidder’s competitors in the future.

While it’s a superficially appealing position from a taxpayer’s perspective, it ignores another argument that the governmental bodies assert to protect disclosure of this information.  As mentioned above, the governmental bodies have asserted the exception protects disclosure of sensitive information that the body believes will give other governmental bodies an advantage.

For example, the Boeing case points out that the Attorney General ruled the exception protected disclosure of information concerning the Texas Governor’s marketing meetings with businesses in other states because the State is competing with other states to recruit those businesses to relocate. The release of that information would give other states the advantage to approach those businesses with competing or better incentives.

Proposed Legislation

Companion bills (HB 792 and SB 407) have been filed in the Texas House and Senate to address the Texas Supreme Court’s decision in Boeing.  If enacted, the legislation would make clear that the exception only allows a governmental body to protect information that it believes would harm its competitive interests.  It would also apply an “exception to the exception” that would require governmental bodies to disclose that competitive information after the body awards the contract.  HB 792 was recently referred to committee. SB 407 was referred to committee, where it was discussed but not voted upon yet.

Tilting the Scales in Your Favor

That depends on how your business has been affected by the competitive bidding process.  If you have won bids in the past, and your proposals contain proprietary information that gives you a competitive advantage, you should ask the governmental body to redact that information if anyone requests it under the TPIA.  On the other hand, if your business has consistently lost out in the bidding process, you may want to press the Legislature to pass HB 792 and SB 407 this session so that you can see your competitor’s proposals and try to figure out how you can match, or beat, them in the future.