Interesting Reads of the Week

Starting now, I’m introducing a new (hopefully weekly) feature of this blog, where I provide a few links to some outside articles and blog posts that I found interesting.  Here goes:

  • Announcements of acquisitions of public companies lead to near-automatic shareholder lawsuits.
  • An account of (apparently) the first Regulation D offering using general solicitation under the new rules.
  • The SEC issued a report mandated by the JOBS Act on disclosure requirements under Regulation S-K, which applies to public company filings under the Securities Act of 1933 and Securities Exchange Act of 1934.
  • A useful reminder that Form Ds, the form filed to report private offerings conducted under Regulation D, are publicly available when filed with the SEC.

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Regulation A+ Proposed Rules

Continuing its implementation of rules mandated by the JOBS Act, the SEC has proposed rules for the expansion of offerings under Regulation A.  Here is the SEC’s handy press release and fact sheet.  Commentators have dubbed the new rules “Regulation A+” because of the greatly increased maximum offering amount under the new rules (and not as a reference to the average grade at Harvard).  As with the recent crowdfunding proposal, these rules are not effective until after the SEC issues final rules following a comment period. …

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The SEC’s Crowdfunding Proposal

The SEC has, at long last, issued its proposed rules on crowdfunding as mandated by the JOBS Act.  It is a massive, 585-page behemoth.  If you’re pressed for time, here is the SEC’s press release with a handy fact sheet.

I wrote about the SEC and crowdfunding a few weeks ago, noting the SEC’s apparent hostility to the concept and the paternalistic attitude toward non-accredited investors underlying it.  Now we have the proposal, and the SEC has apparently held its nose and essentially proposed the framework as contemplated by the JOBS Act.  Nothing is final until the SEC receives comments and issues a final rules release, but it appears that crowdfunding will get its chance to prove the doubters right or wrong.

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Crowdfunding and SEC Paternalism

One of the provisions of the JOBS Act that has many in the investment community excited is the new crowdfunding exemption to the registration requirements.  When effective, these offerings will permit sales of securities to anyone – not just accredited investors – for up to $1 million in the aggregate in each 12 month period.  This represents a radical democratization of private offerings, which currently are, for the most part, marketed just to the wealthy.  The SEC, however, does not share the private sector’s enthusiasm and has seemingly been slow-walking its efforts to enact rules that are required before these offerings can be introduced.

Crowdfunding SEC Paternalism | Andrew Abramowitz

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Use of General Solicitation and Advertising in Rule 506 Offerings

Generally, the terms “public offering” and “private offering” have the meanings that the words imply: a public offering of securities is made to hundreds or thousands of investors who may have no connection to the company, and a private offering is made to a select group of investors known to the company or its broker. Historically, private offerings made under widely-used SEC Rule 506 (part of Regulation D) were required to be completed without the use of any “general solicitation or general advertising.” However, a provision of the federal JOBS Act, enacted in 2012, blurred the lines between private and public offerings by permitting general solicitation or advertising in Rule 506 offerings, subject to conditions imposed by the SEC. The SEC has now done its imposing, establishing rules to become effective in September 2013.

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Will I Be Replaced by ChatGPT?

After reading about it for months, I finally signed up for the free version of Open AI’s ChatGPT and decided to ask it the following basic question that has come up frequently in my law practice:

If I am forming an LLC to purchase real property in New York, should I organize the LLC in New York or Delaware?

I received the following response after a few seconds:

The decision to organize your LLC in New York or Delaware depends on your specific circumstances and goals. Both states have their own unique advantages and disadvantages. Here are some factors to consider:

Organizing in New York:

  • If you plan to operate the LLC in New York, it may be more straightforward to organize the LLC in New York as well.
  • New York does not require annual reports, but does require a biennial statement, which is a report on the status of the LLC, and has higher filing fees compared to Delaware.
  • New York has a higher annual franchise tax than Delaware, which may be a factor if you have a high valuation or net worth.
  • If you plan to purchase and hold real property in New York, there may be additional state and local filing requirements, such as transfer taxes or mortgage taxes.

Organizing in Delaware:

  • Delaware is a popular choice for LLCs due to its favorable business laws and court system, which is well-established and familiar with corporate law.
  • Delaware does not impose state income tax on corporations that do not operate in Delaware, but it does impose an annual franchise tax that is based on the number of authorized shares of the LLC.
  • If you plan to raise capital or eventually go public, organizing in Delaware may be advantageous due to its established legal system and business-friendly environment.
  • If you plan to hold real property in New York, you may need to register as a foreign LLC in New York and comply with New York state and local filing requirements.

In summary, it is important to weigh the benefits and drawbacks of each state and consult with a knowledgeable attorney or accountant before making a decision.

Then, I pasted the exact same question into Google, and the first non-sponsored link was to this LegalZoom article.

It’s immediately apparent in looking at both results that the ChatGPT response is far more tailored to my question than the article identified via Google, which doesn’t even mention New York LLCs. (To be clear, this is not a criticism of the article, which seems fine, but the point is that it wasn’t written to be directly responsive to my question; it’s just the web page that the Google algorithm thought was closest to what I was seeking.)

So, would I be able to simply pass along the ChatGPT response to my client without modification? No. It doesn’t mention, for example, the annual cost to a New York client forming a Delaware LLC of engaging a registered agent in Delaware, which wouldn’t be an issue if the LLC was just formed in New York. However, this response absolutely would be a useful starting point for me if I hadn’t already answered it for clients before. It’s clear that that this will be a significant time-saver for lawyers as it gets refined.

Attorneys, and other white-collar professionals, have been hand-wringing in the months since ChatGPT was introduced about how their jobs could be eliminated in the long-run by AI. However, the story of the last 100 years or more is that the introduction of a new technology has initially triggered this “replaced by robots” fear, but then somehow people manage to find remunerative work in the subsequent years. Lawyers, in particular, have worried for years about developments like document review software for litigators and form purveyors (like LegalZoom) for transactional attorneys. But here we are, and as of late last year, the unemployment rate for attorneys was a microscopic 0.1%.

If past is prologue, then, these AI tools will improve and become incorporated into attorneys’ practices, without replacing the job category. If I’m wrong, well, I guess I’ll get much better at golf in the coming years.

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Lawyers: Would You Encourage Your Children to Become Lawyers?

My son is graduating college this spring, and he will then start work at a law firm in New York as a paralegal, to give him an opportunity to see law in action and decide whether he wants to apply to law school. My wife and I have been aggressively neutral as far as trying to shape our children’s career choices. We’ve been careful not to push them into law, but we’re not discouraging it either.

Should Aspiring Lawyers Take Career Advice from Older Lawyers?

In talking to other parents over the years, some are neutral like me, but a significant number who are themselves lawyers say they strongly discourage their children from entering the law. I can’t think of anyone I know at the other extreme, who affirmatively try to push their children into a legal career, which is a contrast to the more intrusive parental approach of many years ago. (Though I should point out that when I was growing up, my trial lawyer father and novelist mother took a neutral and supportive role as I now have.)

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How to Think about Selecting a Law School

Yale Law SchoolI 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.

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Why Robots Won’t Replace Lawyers Anytime Soon

Ezra Klein, writing in Vox, argues that at least over the short to medium-term, robots won’t be taking our jobs. Stating that most jobs a hundred years ago involved the production of food and collection of water, he goes on to note that:

Compared to those ancestors, humans today are a massive useless class. What sort of job is “editor of an explanatory journalism web site” next to “farmer”? Would our ancestors value the work of psychologists or customer service representatives or wedding planners or computer coders?

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Why Do Corporate Lawyers Want to Move to the Business Side?

Use of Debt Financing by Law FirmsIt has long been a common career path for corporate and securities attorneys to move to in-house legal positions after some training at a large firm. Many of those who do so eventually make another transition within their corporate employer: from attorney to non-attorney, assuming some sort of business role within the company. These ex-lawyers often justify the move by saying that the business work is more central to what the corporation does and more interesting than legal work. I’ve always been skeptical of these claims, however, hopefully not just because I’m trying to justify to myself my decision to remain an attorney.

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