Business Startup

Shareholder Meetings in Washington State

As a shareholder in a corporation it is important to know your rights. One of those rights is the right to attend shareholder meetings. Today we will discuss the frequency and type, notice requirements, and voting protocol of shareholder meetings in Washington State.

Washington corporations are governed by the Washington Business Corporation Act, which is codified in RCW 23B. Shareholder meetings are specifically outlined in RCW 23B.07.

Frequency and Type of Shareholder Meeting

The two types of meetings that shareholders attend are “annual” and “special” meetings. RCW 23B.07.010 lays out the requirements for annual shareholder meetings and is summarized as follows:

1) Corporations must hold an annual shareholder meeting;

2) Meetings can be held in or out of state but if the place is not...

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Mergers & Acquisitions

Five Key Securities Issues in Due Diligence of M&A Deals

In business acquisitions, and especially in business acquisitions structured as stock purchases, there are a number of securities issues you’ll want to be on the lookout for. For the purposes of this post, you can think of a security as the stock or other equity interest in a company like an option or warrant. (You can check out this post for a more detailed discussion of what a security is.) Below I’ve listed 5 key securities-related due diligence issues for you to consider when purchasing a business.

We’ll start with the two key issues that are important for acquisitions of both stock and assets; we’ll finish with three key issues that primarily affect stock acquisitions:

Issues for acquisitions of either stock or assets

Two issues are of...

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Business Startup

Can You Convert Your Company Into a Social Purpose Corporation?

Yes, an existing Washington business entity can convert into a social purpose corporation (“SPC”). In this blog post, we’ll discuss how an existing traditional corporation can become a social purpose corporation.

To convert a corporation into an SPC, the company needs to take a few steps. First, the board of directors has to recommend the corporate action to the shareholders. The action must pass by at least two-thirds of the votes of the voting group entitled to vote on the corporate action. Further, the action must pass by two-thirds of all other shares voting as separate voting groups. Essentially, the SPC conversion statute controls over any existing arrangement in the corporation’s governing documents. So the corporate action to convert to an...

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Business Startup

Why You Should Consider a Social Purpose Corporation When Choosing Your Business Entity Type

Prior to the emergence of the Washington social purpose corporation (“SPC”) and similar corporate forms in other states, entrepreneurs who wanted to build for-profit companies with specific social values faced a dilemma. They could create a business structured to focus primarily on profits, a corporation. Alternatively, they could create a business focusing on a social mission, a non-profit corporation. But the non-profit corporation could not operate for profit. So if they wanted to be profitable, they couldn’t as effectively capitalize on the socially responsible reputation that non-profits achieved, even if it was an important part of their business identity. However, SPCs can now bridge that gap. In today’s blog post we discuss how an SPC allows a company to more...

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Business Startup

Shareholder Inspection Rights for Washington Corporations

Becoming a shareholder in a Washington corporation comes with certain statutory rights, including the right to inspect the company’s records. These shareholder inspection rights may not be included in the company’s articles or bylaws, and many shareholders are not aware the shareholder inspection rights exist. But it can be very important to understand what documents you have a right to see as a shareholder. Below, we’ve highlighted the ins and outs of shareholder inspection rights in Washington and the procedural requirements for requesting records.

Who can request corporate records?

Under RCW 23B.16.020, shareholders of a corporation are entitled to inspect and copy a corporation’s records at the company’s office and during normal business hours if the shareholder gives that corporation at least...

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Corporate Finance & Securities

Hedge Fund Side Pocket Accounts

This is our fourth post in our series on understanding hedge funds. Today, we will be discussing hedge fund “side pocket accounts.”

Generally, a side pocket is an account that is established by a hedge fund to segregate certain assets or investments from the fund’s general portfolio. Often, side pockets are used to hold less liquid securities such as real estate and private equity investments. Hedge fund formation documents may specifically permit the use of side pockets, which are used by fund managers to isolate investments often until market conditions improve and the assets can be sold at prices that better reflect their intrinsic value.

The side pocket account is simply an entry on the hedge fund’s books that is tracked separate...

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Business Startup

Understanding the Cumulative Voting System

When you form a company, there are several key decisions that you need to make upfront to make sure you protect your interests and position your company for long-term success. Sorting out the voting system for electing directors is one of those key decisions. Today’s post highlights cumulative voting in director elections and why it might make sense for your company.

What is Cumulative Voting?

Cumulative voting is a type of voting system that allows shareholders to vote their shares cumulatively, which is to say that the shareholders can vote all of their shares for a single director candidate. For context, in a “normal” voting system assuming one vote per share, each shareholder can vote only as many shares as they have...

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Corporate Finance & Securities

GoPro—An Illustration of the Importance of Investor Lockup Provisions

Here’s an example of a commonly overlooked provision in a term sheet coming into play. Recently, news broke that there was a “loophole” in GoPro’s lockup provision, and the company’s shares subsequently tumbled almost 13%.

What is a lockup provision? A lockup provision is an agreement that the shareholders will not sell their shares for a specified period of time—often 180 days—following a company’s initial public offering. The point of the lockup provision is to keep existing shareholders from flooding the market and depressing prices in the company’s offering. There are two primary types of lockup agreements. The first is an agreement between the investors and the company during a private offering.

A standard industry term sheet has the following lockup provision:

Investors shall...

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Corporate Finance & Securities

Understanding Private Funds — 3(c)(1) Funds

Investment companies–sometimes called private funds, pooled funds, or hedge funds–are regulated by both federal and state governments. In today’s post, I’ll discuss some of the federal regulations. In particular, I’ll discuss the Investment Company Act, why fund managers want to avoid running afoul of the Act, and  3(c)(1) funds (which are exempt from large portions of the regulations imposed by the Act).

The Investment Company Act of 1940 Investment companies operating in the United States are subject to the regulations contained in the Investment Company Act of 1940. An investment company is defined as a company that “is or holds itself out as being engaged primarily or proposes to engage primarily, in the business of investing, reinvesting or trading securities.”

A...

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Corporate Finance & Securities

From Fan to Shareholder: Buy Shares in Your Favorite Athlete

The leaves are beginning to turn beautiful fall colors. The temperature is beginning to dip below 40 degrees. And football season is in full swing. I am as guilty as the rest of you spending countless hours on Saturdays and Sundays watching football, updating my fantasy football scoreboard, and rooting on my favorite team (Go Hawks!) and athletes. Soon you can root for your favorite athlete in a whole new way, as a shareholder in that athlete’s future financial performance.

Fantex Holdings Looks to Expand the Possibilities Yesterday, Fantex Holdings—a start-up company offering the first registered trading platform that lets you buy and sell stock linked to the value and performance of a pro athlete—announced its new trading exchange for investors. The...

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