The SEC’s longstanding position has been that a broker in a private M&A deal that was structured as a stock sale needed to be registered as a broker-dealer. This requirement did not apply in the context of a sale structured as a sale of assets, since there wasn’t any sale of securities involved, but the eventual structure of a sale is not always known at the beginning of the transaction. And, in any event, brokers have needed to be registered to be able to handle all acquisitions, however structured.
My clients are often under the impression that I have at the ready a library of forms such that drafting an agreement for a particular deal is pretty much a matter of filling in the client’s name and the date of the agreement. In reality, while in most cases the drafting of an agreement means using one or more existing agreements or forms as a starting point, there is usually too much factual variation between different deals to avoid having to engage in some active, brain-taxing drafting.
I don’t often get emotional one way or the other about corporate laws, but one requirement that truly irritates me is New York’s “publication” requirement for limited liability companies. LLCs that are formed in New York, or LLCs formed elsewhere that are qualifying to do business in New York, are required to publish an advertisement in the county where the LLC is located for a period of time. Depending on the county, this can be an expensive undertaking, and it exceeds the state filing fees associated with the formation itself. The requirement does not apply to corporations.
Attorneys are often mocked for what seems to outsiders as excessive caution in making definitive statements. A typical legal opinion rendered by a corporate attorney is approximately 10% opinion and 90% caveats, exclusions and limitations. The one caveat I think I have provided to every single one of my clients at one time or another is “but I’m not a tax attorney and am not providing tax advice.” Even though I took courses in basic income tax and corporate tax in law school, this area of the law is uniquely complex, and I’ve always been careful to defer to the experts. My uncle got an LLM degree in tax law and practiced in the areas of tax, corporate, real estate and trusts and estates. That sort of generalization isn’t really possible anymore, as all of those areas are exponentially more complex today, so most corporate lawyers today are like me very reticent about making grand pronouncements about tax matters.
Mergers and acquisitions (M&A) in their usual form are done in a single closing. Sometimes there is some delay between signing the definitive agreement and closing, and sometimes it is simultaneous, but the closing itself is typically a singular event. From the buyer’s perspective, unless the buyer is huge and the purchase price small, it is a large risk to take on an entire company at once. To be sure, M&A attorneys have developed strategies to mitigate risk, including conducting due diligence before closing, but sometimes target company problems only become apparent after the buyer owns the company, even after a thorough due diligence investigation. And post-closing purchase price adjustment mechanisms do not always fully compensate the buyer for these problems.