The political website Axios, not known, at least to me, as a source of breaking business news, reports that the music streaming service Spotify has filed papers with the SEC on a confidential basis to go public via direct listing. [Read more…]
Securities offerings that are exempt from the SEC’s registration requirements often hinge on whether some or all of the investors are “accredited investors.” There are various categories of accredited investors for business entities, but for individuals, the categories relate to the investor’s annual income, net worth or whether the individual is a director or executive officer of the issuer.
The underlying policy of the current definition of accredited investors is that rich people (a term not used in the actual rules, obviously) can be assumed to have a level of financial sophistication such that they would conduct adequate due diligence before making an investment. Accordingly, accredited investors require less disclosure about proposed securities offerings. This assumption is, shall we say, not attuned to human reality. The obvious group of accredited investors that are not necessarily sophisticated is heirs and spouses of wealthy business people, who may have no background at all in finance and investment matters. But even for those accredited investors who have directly earned the money that grants them that status, plenty are in fields such as sports and entertainment where the particular skill that is remunerative to them has nothing to do with investing. Additionally, many white collar professionals such as doctors, engineers and even some attorneys may be highly educated, but they are not able to make heads or tails of a balance sheet and income statement. [Read more…]
I graduated from law school over 20 years ago and accordingly don’t spend as much time thinking about law school admissions as I did in the past. However, as the parent of a high school senior currently in the throes of the college application process, I’ve recently again been considering the right approach for a student to take while applying to undergraduate and graduate programs. In either case, there are myriad good options to select from, and the thought process used to narrow them down can be scattershot.
My wife, Leslie, pursued an entrepreneurial venture mid-career like me, founding Leslie’s Leashes, provider of pet care services like dog walking and sitting to grateful animals on the North Shore of Long Island. There are only so many half-hour time slots for pet visits in a day, especially when everyone wants theirs to be at noon, so Leslie has hired walkers as demand for her services grew. However, some of the more particular clients specifically want Leslie to be the walker.
Carolyn Elefant, writing (sensibly) in Above the Law, argues in favor of loosening restrictions in the U.S. against ownership of law firms by non-attorneys. She focuses on the increasing need for small firms to partner with non-lawyer professionals and how the inability to compensate these professionals by sharing profits makes it unnecessarily difficult to function. Regardless of a firm’s reasons for wanting to bring in non-lawyer equity holders, it’s worth considering the policy rationale underlying the current restrictions.
The general fear is that non-lawyer equity holders would interfere with legal decisions that should be left to the lawyers. This is a reasonable concern. To take a concrete example, suppose I had an outside non-lawyer investor in my firm, and suppose further that I was advising a cash-poor startup company who was negotiating with an outside investor on terms that I found to be inadvisable for the client. Now, it would be in my pure financial interest (short-term anyway) to downplay my concerns and let the client proceed with the investment, since it would mean my firm would get paid. But I’m constrained by ethical obligations that require me to put the client’s interests first. If my firm’s investor, however, became aware of this issue, the investor would be expected to push me to withhold my sound advice to the client.