West Virginia has a long tradition as a center for energy and manufacturing industries, such as coal, oil and gas, and chemicals. But in recent years, billions of dollars in new business investments enabled the growth of a new business sector, information technology (IT).
According to the West Virginia Development Office in Charleston, WV, many large IT firms are attracted to West Virginia due to our skilled workforce and positive business climate.
Protecting Intellectual Property
Data Security and Privacy
Equipment and Software Acquisition
Contract Review, Development and Negotiation
Business Entity Formation
Exit Plan for Closely Held Businessess
Contracts and Agreements
Negotiations and Mediation
Acquisition of a Business
Sales of a Business
Alternative Dispute Resolution
Typically, directors who conduct the corporation’s business must exercise the care that an ordinarily prudent person would exercise in the management of his or her own affairs under similar circumstances. This “ordinary” standard of care has been adopted by a majority of states and enacted in their corporation statutes. However, courts consistently interpret the culpability standard for the duty of care as one of gross negligence. As one Delaware court stated, gross negligence is “the proper standard for determining whether a business judgment reached by a board of directors was an informed one.” Thus, a director whose breach of the duty of care rises to the level of ordinary negligence is generally protected by the business judgment rule. In those states that do not recognize the business judgment rule, simple negligence is the standard of liability.
The definition of “gross negligence” differs greatly from state to state, but it is interpreted by some courts (notably Delaware courts) as encompassing reckless corporate conduct. The Delaware courts’ designation of recklessness as a subset of gross negligence represents a departure from the majority view. The term “recklessness” may also be variously defined, but it typically is denoted as the “careless disregard of a substantial and justifiable risk” or “careless disregard of the corporation’s best interests.” In Delaware, a plaintiff will likely have to produce evidence that a director acted cavalierly without considering the corporation’s best interests in order to prove that the conduct was grossly negligent.
Following Delaware’s lead, many states have enacted statutes that additionally protect directors from personal liability. Delaware’s corporation statute eliminates or limits a director’s personal liability to the corporation or its shareholders for money damages that arise from a breach of a fiduciary duty as a director. Thus, directors (governed under Delaware law) are shielded by statute from personal liability for a breach of the duty of care that rises to the level of gross negligence. Delaware courts have not yet clearly indicated whether the statute also limits or eliminates personal liability for a breach of the duty of care that rises to the level of recklessness. Clearly, the statute does not protect a director who does not act in good faith. The Sixth Circuit, interpreting Delaware law, has concluded that the duty of good faith can been breached when a director consciously disregards his corporate duties and causes the stockholders to suffer. The Seventh Circuit Court of Appeals has also concluded that the statute does not protect directors from liability that arises from reckless conduct.
Generally, corporate directors and officers will not be held individually liable for torts or crimes committed by the corporation solely by virtue of their status as corporate directors and officers. However, personal liability for corporate liability may attach when the individual’s conduct causes a violation of a law or regulation. A director or officer likely will be found personally liable for corporate torts where the director or officer actively participated or acquiesced in the commission of the tort. In many cases, a key issue is whether the director or officer was the “central figure” in a wrongful activity or scheme. Liability also may attach upon proof that the corporation was under the direction or control of the officer or director when the tort was committed. The degree of involvement in the tortious act often dictates whether a court will pierce the corporate veil and impose personal liability. Another factor is whether the director or officer knew or had reason to know of the wrongful conduct or activity.
An officer can be held personally liable for injuries sustained by persons to whom the corporation owes a duty of care when the corporation has delegated that duty to the officer. In Texas, corporate officers were absolved of any personal liability for injuries sustained by company employees where the corporation was not functioning as the officers’ alter ego. Additionally, there was insufficient proof that the officers had breached the delegated duty of care other than the duty to provide the employees with a safe workplace.
A corporation can be held liable for torts and wrongful criminal acts committed by directors, officers, and employees who are acting within the scope of their corporate authority. There are numerous federal laws under which directors and officers may be held both criminally and civilly liable, such as the Racketeer Influenced and Corrupt Organizations Act and the Sherman Anti-Trust Act.
The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case or has not paid a debt that was discharged in the case.
The law prohibits the following forms of governmental discrimination: terminating an employee; discriminating with respect to hiring or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.
An employer can’t discriminate against an employee because a credit background check revealed that the employee sought protection under the Bankruptcy Act. What this means is that an employer can’t deny employment or a job promotion or a reassignment solely because of bankruptcy or the bad debts one had before claiming bankruptcy.
If an employee has been fired without a good reason or in violation of federal or state law, it may be a wrongful discharge and the employee can challenge the firing. The laws regulating firings vary from state to state. If the employee succeeds, employers can be made to pay back wages, fines, and possibly punitive damages or the employee could be returned to his or her job.
While each company decides what its executives are paid, the amounts and types of compensation paid to the top executives of public companies is considered material information that the Securities and Exchange Commission has determined must be disclosed to the public.
Information concerning executive compensation required to be made public under federal securities laws can be found in a public company’s annual proxy statement or annual report filed with Securities and Exchange Commission Form 10-K or in registration statements filed by the company with the Securities and Exchange Commission when seeking to sell its shares to the public.
A public company must disclose in its annual proxy statement the amount and type of compensation paid to the chief executive officer of the company and to the four other executive officers who are paid the most. The public also must be informed regarding how the executives’ pay is determined and regarding the extent to which there is any relationship between the amount of compensation and the company’s performance.
The disclosure required by the Securities and Exchange Commission includes a Summary Compensation Table that is designed to provide a summary overview of material information regarding a public company’s executive compensation practices. The table sets out information for the past three fiscal years on compensation for the chief executive officer and the next four highest paid executives. Additional tables follow with information about the types of compensation provided within the last fiscal year such as stock options, pension plans, and employment contracts.
Compensation of public company executives is set by the company’s board of directors, of which a majority must be independent directors. Setting compensation may be delegated by the board to the company’s executive compensation committee, which generally must be made up of independent directors.
Brokers and dealers engaging in securities transactions are required to maintain various records for varying periods under Securities and Exchange Commission rules. For example, “blotters” reflecting all purchases and sales of securities must be retained for six years. Copies of sale or purchase confirmations must be kept in an easily accessible place for two years and then for an additional year thereafter.
Investors will need records of the securities transactions for tax and accounting purposes and possibly for proof of the transactions in the event of any claim concerning the transactions. However, if the investor has not maintained account statements, trade confirmations, and other securities transactions records, the broker or dealer that the investor dealt with may have such records. Securities Exchange Act Rule 17a-3 describes records to be made by members of exchanges and brokers and dealers, and Securities Exchange Act Rule 17a-4 describes how long and in what manner records must be preserved.There are 22 Categories of Records Described in 17 C.F.R. ¤ 240.17a-3 That Must be Maintained
Blotters (or other records of original entry) containing an itemized daily record of all purchases and sales of securities, all receipts and deliveries of securities (including certificate numbers), all receipts and disbursements of cash and all other debits and credits.
Ledgers (or other records) reflecting all assets and liabilities, income and expense and capital accounts.
Ledger accounts (or other records) itemizing separately as to each cash and margin account of every customer all purchases, sales, receipts, and deliveries of securities and commodities for such account and all other debits and credits to such account.
Ledgers (or other records) reflecting the following:
Securities in Transfer
Dividends and Interest Received
Securities Borrowed and Securities Loaned
Moneys borrowed and moneys loaned (together with a record of collateral and any substitutions in such collateral)
Securities that failed to be received or failed to be delivered
All long and all short securities record differences arising from the examination, count, verification, and comparison (by date of examination, count, verification, and comparison showing for each security the number of long or short count differences)
Repurchase and reverse repurchase agreements
A securities record or ledger reflecting separately for each security as of the clearance dates all “long” or “short” positions.
A memorandum of each brokerage order, and of any other instruction, given or received for the purchase or sale of securities, whether executed or unexecuted.
A memorandum of each purchase and sale for the account of the member, broker, or dealer.
Copies of confirmations of all purchases and sales.
A record for each cash and margin account.
A record of all puts, calls, spreads, straddles, and other options.
A record of the proof of money balances of all ledger accounts.
A questionnaire or application for employment executed by each “associated person.”
A record as to each associated person of each written customer complaint received.
A record as to each associated person listing each purchase and sale of a security attributable, for compensation purposes, to that associated person.
A company that decides to sell its shares to the public normally must file a registration statement with the Securities and Exchange Commission. Before the company may sell the shares, the staff of the Commission must declare the registration statement effective. The basic registration form (Form S-1) includes two parts, a prospectus or selling document and additional information required by the Commission that is publicly available but does not have to be provided to investors.
Commission rules describe extensive information about various items that must be provided in the standard registration statement. However, small businesses, or those companies that qualify as a “small business issuer,” may file a simplified registration form (SB-1 or SB-2) that does not require as much information as the basic registration form. Thus, registration through use of the simplified forms is not as expensive as a normal registration.
A “small business issuer” is defined as a United States or Canadian company issuing stock that had less than $25 million in revenues in its last fiscal year and that has outstanding publicly held stock worth no more than $25 million. If a company qualifies as a small business issuer, it then has the option to file Forms SB-1 or SB-2 to sell stock to the public.
Small business issuers that plan to offer up to $10 million worth of securities to the public within a 12-month period may use the SB-1 form. That form allows the company to provide information in a question-and-answer format and essentially fill in the blanks of the form. This is in contrast to the S-1 basic registration form that requires various narrative statements containing information required by the Commission. Although the SB-1 form is simpler to use, a small business issuer still must include audited financial statements with its registration statement.
Form SB-2 is available for a small business issuer to file and re-use to raise capital above $10 million up to any amount so long as the company remains a small business issuer. Completion of Form SB-2 is considered simpler because Regulation SB which describes what must be disclosed in the form is written in non-legalistic terminology. Form SB-2 is less burdensome by requiring the issuer to provide audited financial statements for only two years rather than the three fiscal years required for basic registration Form S-1. Also, less extensive narrative disclosure is required in Form SB-2 regarding the description of the company’s business and executive compensation when compared to disclosure requirements for Form S-1.
Once the commission’s staff examines the registration forms filed by the company seeking to go public, the staff will either inform the company that the statement is incomplete or inaccurate and allow the company to file amendments or the staff will declare the registration statement effective. Once the registration statement is declared effective, the company may begin to sell its shares to the public.