Firm News Feed May 2019 00:00:00 -0800firmwise't Lose Your Spouse's Unused Estate and Gift Tax Exemption that you have filed (or extended) income taxes, it is time to think about your estate taxes! Specifically, for high net worth couples, it is necessary to do a little bit of future planning in order to maximize your potential Federal estate tax exemptions.<br /> <br /> In the past, advisors recommended that couples evenly divide their assets and hold such assets individually &ndash; &ldquo;asset balance&rdquo; &ndash; so that spouses would not lose all or a portion of their partner&rsquo;s federal exemption. That did not cover every situation though, particularly where estates grew following the passing of one spouse. Since 2010 though, the &ldquo;portability&rdquo; rule allows any unused lifetime federal estate tax exemption of a deceased spouse to be transferred to the surviving spouse if the proper elections are made. The Federal individual exemption recently was increased to $11.4 million which is a significant tax-free amount to risk losing all or part of.<br /> <br /> Now with portability, a married couple has a total federal estate tax exemption of $22.8 million. However, portability is not automatic. Any unused exemption is only ported if you take certain steps to take advantage of portability. First, the executor must make an election in the estate&rsquo;s tax return of the first spouse to pass away. This can be problematic because very few estates actually have to file tax returns, and the portability election is not something typically considered, so unused exemptions can easily be lost rather than transferred to the surviving spouse. Furthermore, a couple&rsquo;s revocable trusts should contain formulas to effectuate the ability to port. Trusts that were set up too long ago will not have such formulas because portability became available in 2011, and was only made permanent in 2013. Finally, couples must carefully consider state law and taxes. In Massachusetts, spouses should consider funding their revocable trusts with $1 million in order to take advantage of Massachusetts&rsquo; $1 million exemption that cannot be ported.<br /> <br /> Federal (and state) estate taxes and planning are very complicated, and making sure that you and your spouse are prepared to take advantage of portability is one of the most significant things you can do to prepare. Rich May estate planning attorneys can advise and assist couples on portability and other estate planning and probate matters.<br /> <br /> Anyone with questions, or in need of assistance in any probate matter, can contact Rich May, P.C. attorneys <a href=";A=7726&amp;format=XML&amp;p=5324">Danielle Justo</a> and <a href=";A=9323&amp;format=XML&amp;p=5324">Nathaniel Donoghue</a>.<br /> <br /> &copy; 2019 by Rich May, P.C. All rights reserved.<br /> Disclaimer: This summary is provided for educational and informational purposes only and is not legal advice. Any specific questions about these topics should be directed to attorney Nathaniel Donoghue.<br />Blog13 May 2019 00:00:00 -0800 MA Probate Law Permits Conversion of Conservator to Personal Representative have a disabled friend or relative who needs your help &ndash; perhaps they have had a stroke or suffer from dementia. They are no longer capable of paying their bills. When an adult is disabled and requires a substitute decision maker to handle their finances, the Massachusetts Probate and Family Court may appoint someone called a Conservator to take on the role of managing that disabled person&rsquo;s finances. The court-appointed Conservator is ultimately responsible for the proper management of the Protected Person&rsquo;s income and assets. <br /> <br /> Now, once you have been appointed, what happens if your loved one passes away? Sometimes, the Conservator is the same person who will bear the ultimate responsibility of distributing the Protected Person&rsquo;s estate. This position is called the Personal Representative (formerly Executor/trix) of the estate. There is a statute that allows a convenient conversion from the role of Conservator to Personal Representative. <br /> <br /> Ordinarily, when seeking to be appointed as Personal Representative, a person must petition the Probate and Family Court. Even with formal and informal processes, there are notice, publication and accounting requirements. This can all add up to be quite a burden at an already confusing and emotional time. However, we have assisted our clients through a process laid out in the Massachusetts Uniform Probate Code, codified at MGL c. 190B, s. 5-424(e), which can shortcut some of that process. After complying with certain conditions, and ideally after obtaining certain consents, a Conservator may apply to exercise the powers and duties of a Personal Representative directly. Our clients have found this to be an effective way to expedite matters at what can be a trying time.<br /> <br /> Of course, having an estate plan in place can help your loved one avoid the need for a Conservator in the first place. Rich May is available to assist with your estate plan and capable of assisting where such future planning was not done.<br /> <br /> Anyone with questions, or in need of assistance in any probate matter, can contact Rich May, P.C. attorneys <a href=";A=9323&amp;format=XML&amp;p=5324">Nathaniel Donoghue </a>and <a href=";A=7726&amp;format=XML&amp;p=5324">Danielle Justo</a>.<br /> <br /> &copy; 2019 by Rich May, P.C. All rights reserved.<br /> <br /> Disclaimer: This summary is provided for educational and informational purposes only and is not legal advice. Any specific questions about these topics should be directed to attorney Nathaniel Donoghue.<br />Blog08 Mar 2019 00:00:00 -0800 Duties of Stockholders in Closely-Held Massachusetts Businesses of the common questions we get from owners&mdash;particularly those in the minority&mdash;in family businesses and other closely-held entities is what their rights are when they believe they aren&rsquo;t being treated fairly by those who control the company.<br /> <br /> Unlike other states, Massachusetts not only recognizes the special relationship between ownership and management in a closely-held corporation, but provides a heightened fiduciary obligation for the owners of such corporation to deal fairly with one another. This obligation is distinct from general duties to the corporation itself, such as the duty of an officer or director to act with reasonable prudence to achieve the best interests of the corporation. Note that this obligation is not unique to corporations, but also applies to LLCs.<br /> <br /> Massachusetts courts have found that a closely-held corporation is one where (i) there are a small number of shareholders, (ii) there is generally no readily-available market to buy and sell the stock of the corporation, and (iii) there is substantial shareholder participation in the management, direction and operations of the corporation. Such corporations more resemble a partnership than a traditional corporate structure, and therefore some of the heightened obligations applicable to partners in a partnership are also applied to shareholders of closely-held corporations.<br /> <br /> This unity of identity of shareholders and management provides an ideal arena for majority shareholders/management to impose their will on the minority and marginalize or freeze them out of having a say in the corporation. In such situations, a minority shareholder, who has no voting power or managerial authority to stop such actions, could be trapped with no recourse.<br /> <br /> To protect minority shareholders, Massachusetts law imposes a duty on all shareholders in a closely-held corporation to treat each other with the utmost good faith and loyalty. This duty is higher than the standard duty that shareholders and directors of all corporations must adhere to. The only way for a shareholder to defeat a claim that he has not dealt with the other shareholders using the utmost good faith and loyalty is if he can demonstrate a legitimate business purpose for the conduct giving rise to the claim.<br /> <br /> Although all actions of the shareholders in a closely-held Massachusetts corporation are subject to this heightened scrutiny, one of the most common types of claims raised by minority shareholders is when a majority shareholder wants to sell his stock back to the corporation. Because such a scenario would require the use of funds/assets from the corporation which may otherwise be available for distribution to the shareholders, including the minority shareholders, Massachusetts law steps in to protect the minority shareholders by requiring the corporation to also offer to purchase a pro rata amount of the minority shareholders&rsquo; shares at the identical price that the majority shareholder would get. If the majority shareholders do not use their control of the corporation to make such an offer to the minority shareholders, there is a presumption that they have breached their duty of utmost good faith and loyalty to the minority shareholders.<br /> <br /> The rationale for this requirement is that the majority should not be allowed to use their control of the corporation to obtain special advantages and benefits that are disproportionate from their share ownership. In other words, setting an unnaturally high price for the shares and using corporate funds (that the minority shareholders would otherwise be entitled to) to buy them.<br /> <br /> On the other hand, a sale of shares by a majority shareholder to an independent third party does not necessarily give rise to a claim by other shareholders because typically corporate assets are not being used to pay for the stock and the price is presumably negotiated at arm&rsquo;s length by the buyer. Also, corporate constituent documentation such as the bylaws, charter or a shareholders&rsquo; agreement can govern the mechanics, rights of other shareholders to make offers on the stock first, and even pricing of such sales.<br /> <br /> So what is a majority owner of a Massachusetts closely-held corporation or LLC to do, given this heightened duty? The most practical advice is to always give full disclosure of corporate actions to other shareholders, particularly the minority holders. Think in terms of, and frame decisions in the best interests of, the company, which will often naturally then indirectly benefit those minority holders.<br /> <br /> &copy; 2019 by Rich May, P.C. All rights reserved.<br /> <br /> Disclaimer: This summary is provided for educational and information purposes only and is not legal advice. Any specific questions about these topics should be directed to attorney <a href=";A=9312&amp;format=XML&amp;p=5324">Arvid von Taube</a>.<br />Blog07 Mar 2019 00:00:00 -0800 Amendments to the Massachusetts Rules of Appellate Procedure Approved by SJC Massachusetts Supreme Judicial Court recently approved <a href=" 2019 Amendments to the MRAP - Strikethrough.pdf">amendments to the Massachusetts Rules of Appellate Procedure</a> (the &ldquo;Rules&rdquo;). This marks the first time since 1974 that the Rules have been fully reviewed and revised &ndash; all other changes in the past 44 years being isolated and narrow. The approved amendments were the result of work that began in 2015 by a subcommittee appointed by the Supreme Judicial Court Standing Advisory Committee on the Rules of Civil and Appellate Procedure, in conjunction with the Standing Advisory Committee on the Rules of Criminal Procedure. After public comments in 2017 led to additional revisions, the amendments were submitted for approval.<br /> <br /> In general, the amendments are designed to make the Rules more easily understood, better facilitate the just and expeditious resolution of appeals, clarify and simply filing and formatting requirements, incorporate existing practices and procedures, and facilitate new paperless processes. While the subcommittee intentionally retained much of the existing language, style, and procedures, practitioners will note that certain amendments track updated Federal rules.<br /> <br /> Certain global changes were made throughout the Rules. These global changes include: gender neutral phrases were favored over traditional gendered pronouns (e.g. converting &ldquo;his&rsquo; to &ldquo;the party&rsquo;s&rdquo;), provisions dealing with obsolete technologies and processes were removed, lengthy paragraphs and sentences were broken out into smaller segments, and sections were renumbered for consistency.<br /> <br /> Two of the global changes to the Rules were more significant than the others. First, deadlines are now mostly in increments of 7 days. This means that most 10-day deadlines are now 14-day deadlines, and most 20-day deadlines are now 21-day deadlines. These changes decrease the likelihood that deadlines will fall on weekends, and generally increase time permitted for filings. For example, in Rule 11(c), a response to an application for direct appellate review is now due 14 days (not 10) after the filing of the application.<br /> <br /> The second most notable global change is that the new Rules favor word count limits with proportionally spaced fonts as an alternative to page limits. For example, Rule 20(a)(2)(A) now limits the length of principal briefs to &ldquo;not contain more than 50 pages, or be produced in a proportionally spaced font and not contain more than 11,000 words.&rdquo; Rule 16(k) now requires that the traditional certification &ldquo;shall specify how compliance with the applicable length limit of Rule 20 was ascertained&hellip;&rdquo; and provides two methods for complying with said certification. The subcommittee&rsquo;s preference for word count limits is intended to eliminate the considerable time parties spend using formatting devices solely to comply with the current page limits and is consistent with the approach of the Federal courts. The new limits allow roughly the same amount of content in briefs as the current Massachusetts rules permit.<br /> <br /> In additional to these global changes are extensive changes to most of the individual Rules. A few of the more notable amendments include:<br /> <ul> <li>Rule 1(c). Expanded the definition of &ldquo;first class mail&rdquo; to include &ldquo;or its equivalent.&rdquo; This allows for the common practice of using third-party commercial carriers.</li> <li>Rule 3(a). The phrase &ldquo;with service upon all parties&rdquo; is added to clarify the appellant&rsquo;s duty to serve all parties when filing a notice of appeal, even though the clerk is still required to serve notice on the parties as well.</li> <li>Rule 4(a)(2)(C). Clarifies that only a motion under Rule 60(b), and not Rule 60(a), will toll the time period for filing an appeal.</li> <li>Rules 4 and 13. Establish the &ldquo;inmate mailbox rule&rdquo; for pro se litigants confined in an institution, recognizing their inherent limited ability to effectuate a &ldquo;mailing&rdquo; on a certain day.</li> <li>Rules 8 and 9. These rules were heavily revised to modernize and streamline the record assembly and transcript production process. Appellants must file with the clerk and serve on all parties within 14 days an order of all relevant proceedings to be transcribed. Appellees must order the transcript of any additional proceedings within 14 days of the appellant&rsquo;s order. There is also now a 21 day deadline for the clerk of the lower court to complete the assembly of the record, and the new Rules provide a checklist of items the lower court clerk must include.</li> <li>Rule 10(d). Clarifies that if counsel does not intend to represent a client on appeal, counsel must file a motion to withdraw. Preferably this motion would be filed in the lower court but after the appeal has been docketed it must be filed at the appellate court.</li> <li>Rule 13. Allows for electronic filing, and for electronic service through or email with the consent of the party being served. The requirements of the certificate of service have been modified as well to reflect these new procedures.</li> <li>Rule 15. Encourages parties to state in their motions whether the motion is assented to or opposed, and if opposed, whether opposing party intends to file a response.</li> <li>Rule 16. Reorganized extensively into a thorough checklist of what parties should include in their briefs. Notably, appellees must now include an addendum even if the materials included were already included in the appellant&rsquo;s addendum (see 16(b)), a party may only file one brief in response to multiple briefs meaning it may not file separate response briefs to each brief (see 16(j)), and there is now a rule for filing amended briefs (see 16(n)).</li> <li>Rules 17 and 18. Revised extensively to include checklists for what should be included in an Amicus Curiae brief and an Appendix, respectively. Rule 17 is further revised to clarify deadlines for and information which must be included in an Amicus Curiae brief.</li> <li>Rules 18(b)(5) and 18(g). Specifies that no supplemental appendix or amendment to an appendix shall be permitted without making a motion for the same.</li> <li>Rule 20(a)(3). Increases the page/word limit on an appellee/cross-appellant&rsquo;s brief to account for the fact that they must reply to the appellant&rsquo;s brief as well as lay out their own cross-appeal.</li> <li>Rule 26(d). Added language indicating that certain administrative and convenience fees would be charged for electronic filings.</li> </ul> The new Rules take effect on March 1, 2019, but parties are invited to begin filing compliant documents immediately on a voluntary basis.<br /> <br /> Anyone with questions can contact Rich May, P.C. attorney <a href=";A=9323&amp;format=XML&amp;p=5324">Nathaniel Donoghue</a>.<br /> <br /> &copy; 2018 by Rich May, P.C. All rights reserved.<br /> <em><br /> Disclaimer: This summary is provided for educational and informational purposes only and is not legal advice. Any specific questions about these topics should be directed to attorney Nathaniel Donoghue.</em>Blog20 Nov 2018 00:00:00 -0800 You Should Consider a Gifting Program Over the Next Eight Years you have a significant estate, one likely to surpass eleven million dollars individually, or twenty-two million per couple, you should consider gifting assets to your children over the next eight years rather than passing them through your will. <br /> <br /> With the federal estate tax law changes that took effect in December 2017, the federal estate tax exemption was increased from $5.29M to $11.18M per individual. This resulted in many people thinking that they should take advantage of the increased exemption amount. However, on January 1, 2026 the $11.18M threshold &ldquo;sunsets&rdquo; and will revert back to $5M, indexed for inflation. <br /> <br /> Except that the Patriots will be in the Super Bowl next year, we cannot predict the future. Another administration may make this increase permanent, raise it higher, let it revert to $5M, or eliminate it altogether. However, if an estate is under $11.18M, it makes sense to consider gifting using the $11.18M exemption while it is in place. Why? For two reasons: 1) These assets are likely to appreciate over time. Therefore, getting assets (such as stock, real estate, or ownership interests in the family business) out of your estate and to your children &ldquo;saves&rdquo; any future estate tax on the appreciated amount. 2) The window to use this increased exemption is likely to close, and the legislature is not talking about &ldquo;clawing back&rdquo; any gifts made during the timeframe, over the 8-year period. Alternatively, you could also make gifts to your kids using the annual exclusion only (for 2018, you and your spouse could jointly gift $30,000 to each child), essentially &ldquo;tax-free&rdquo; if properly documented. <br /> <br /> On the other side of the coin, there are some negatives to consider. You will lose control of the assets given away and the income produced from those assets. You will also lose the tax advantage of a step-up in basis at death in determining gain when gifted property is sold. For purposes of determining gain, the basis of property acquired by gift is the same as the donor&rsquo;s basis (i.e., a carryover basis). In many cases, gifts would have to appreciate substantially to equal the benefit of obtaining a step-up in basis to fair market value at death. For example, a fully depreciated real estate interest used for a gift with a zero-cost basis would have to appreciate by 100% to equal the benefit of holding the property until death.<br /> <br /> Of course, your gifting program would need to be properly documented by an estate planning attorney. It should be accompanied by appraisals using reasonably discounted valuation methods, as well as gift tax returns filed by your accountant for each year during which you employ the gifting program.<br /> <br /> Disclaimer: This summary is provided for educational and information purposes only and is not legal advice. Any specific questions about these topics should be directed to attorneys <a href=";A=7726&amp;format=XML&amp;p=5324">Danielle Justo</a> and <a href=";A=5081&amp;format=XML&amp;p=5324">Gerald May</a>.<br /> <br /> &copy; 2018 by Rich May, P.C., Danielle Justo, and Gerald V. May. All rights reserved.<br /> <br type="_moz" />Blog29 Oct 2018 00:00:00 -0800 Launches Division To Engage With Public on Blockchain and Other FinTech Questions U.S. Securities and Exchange Commission (&ldquo;SEC&rdquo;) has launched a new division and web portal intended to help those in the financial technology space navigate the regulatory landscape. This prominently includes assisting companies developing blockchain applications, cryptocurrency trading solutions, and startups launching initial coin offerings. <br /> <br /> The new Strategic Hub for Innovation and Financial Technology (<a href="">FinHub</a>) has an explicit mandate to &ldquo;serve as a resource for public engagement on the SEC&rsquo;s FinTech-related issues and initiatives, such as distributed ledger technology (including digital assets), automated investment advice, digital marketplace financing, and artificial intelligence/machine learning.&rdquo; The site provides links to the SEC&rsquo;s existing guidance and publications relating to the above and other topics. It also provides a means to request a meeting with SEC staff for further guidance on these subjects. <br /> <br /> FinHub will be led by Valerie A. Szczepanik, Senior Advisor for Digital Assets and Innovation and Associate Director in the SEC&rsquo;s Division of Corporation Finance, and staffed by representatives from the SEC&rsquo;s divisions and offices who have expertise and involvement in FinTech-related issues.<br /> <br /> The SEC&rsquo;s move is likely intended to bring clarity to a rapidly evolving space where the application of existing laws and regulations to nascent technologies is seen by many as a gray area. On some matters, such as the determination of whether an initial coin offering constitutes an offering of securities (which I have discussed in an earlier <a href=";an=74692&amp;format=XML&amp;p=5328">blog</a>) the area is not actually as gray as many promoters and investors might like to think. However given the number of recent enforcement actions involving unlawful ICOs by both the SEC and state securities authorities, the analysis of what constitutes a security continues to be poorly understood (or at least selectively ignored). On FinHub, one of the specific subjects on which one can request a meeting with the SEC is &ldquo;Determination of Instrument as a &lsquo;Security.&rsquo;&rdquo; Other topics are broader and involve a range of services and technologies including robo-advisors, digital asset trading platforms, and artificial intelligence.<br /> <br /> In a statement accompanying the announcement of FinHub, Ms. Szczepanik said: &ldquo;SEC staff across the agency have been engaged for some time in efforts to understand emerging technologies, communicate the agency&rsquo;s stance on new issues, and facilitate beneficial innovations in the securities industry. By launching FinHub, we hope to provide a clear path for entrepreneurs, developers, and their advisers to engage with SEC staff, seek input, and test ideas.&rdquo;<br /> <br /> The SEC&rsquo;s announcement may be seen as an encouraging signal to entrepreneurs and companies working in the cryptocurrency, blockchain, or other developing FinTech space. Rather than focusing purely on its role in enforcing existing regulations, the SEC seems to be taking a proactive, collaborative approach to working with market participants. Such an approach could be the key to encouraging the development of these new technologies in line with applicable legal requirements, rather than stifling them with an aggressive enforcement focus. Of course, many of these technologies are subject to regulation by different, and often multiple, government agencies&mdash;and it remains to be seen whether those agencies will take a similar approach.<br /> <br /> Anyone having questions about the regulations applicable to blockchain products, cryptocurrencies, or other FinTech businesses may contact Rich May attorney <a href=";A=5075&amp;format=XML&amp;p=5324">David Glod</a>.<br /> <br /> <em>Disclaimer: This summary is provided for educational and information purposes only and is not legal advice. Any specific questions about these topics should be directed to attorney David Glod.<br /> </em><br /> &copy; 2018 by Rich May, P.C. and David Glod. All rights reserved.<br type="_moz" />Blog22 Oct 2018 00:00:00 -0800 Permits LLCs to Divide into Separate LLCs August 1, 2018, new <a href="">Section 18-217</a> of the Delaware Limited Liability Company Act (&ldquo;DLLCA&rdquo;) became effective, which allows an LLC formed domestically in the State of Delaware to divide into two or more separate LLCs. Each divided LLC will then hold its own assets and be responsible for its own liabilities, separate from the original LLC and any other resulting LLCs, much like each series in a Delaware Series LLC.<br /> <br /> A Delaware LLC wishing to effect a division shall adopt a plan of division and file a certificate of division with the Delaware Secretary of State.<strong> The plan of division shall set forth the following:</strong><br /> <ol> <li>The terms and conditions of division, including any conversion or exchange of LLC interests and the allocation of assets, rights, liabilities and duties among the resulting LLCs.</li> <li>The name of each resulting LLC and whether the original LLC shall survive.</li> <li>The name and business address of the &ldquo;division contact&rdquo;, which is a natural Delaware resident or a Delaware LLC or other domestic entity that shall maintain a copy of the plan of division for a period of at least six years from the effective date of the division.</li> </ol> The plan of division is not filed with the Delaware Secretary of State but must be maintained by the identified division contact.<br /> <br /> A certificate of division must be filed with the Delaware Secretary of State along with a certificate of formation (pursuant to <a href="">Section 18-201</a> of the DLLCA) for each new resulting LLC. <strong>The certificate of division shall state the following:</strong><br /> <ol> <li>The name of the original LLC and whether it is surviving. <em>Practice tip</em>: if the original LLC is not surviving, the certificate of division acts like a certificate of cancellation and a separate filing is not necessary.</li> <li>The date of the original LLC&rsquo;s certificate of formation with the Delaware Secretary of State.</li> <li>The name and business address of the division contact; that the plan of division is on file with the division contact; and that a copy of the plan of division will be furnished on request without cost to any member of the original LLC.</li> <li>The effective date and time of the division.</li> <li>That the proposed division has been approved in accordance with the DLLCA. <em>Practice tip</em>: a limited liability company agreement may provide that the LLC shall not have the power to divide.</li> </ol> Powerfully, the DLLCA states that effective immediately upon the division of the LLC, (i) the distinct, resulting LLCs shall come into existence, (ii) if the original LLC is not surviving, it shall cease to exist, (iii) all of the properties and assets shall be vested in the resulting LLCs, (iv) all liabilities, debts and obligations shall only be enforceable against the respective, resulting LLCs, and (v) all liens shall remain attached and be unimpaired; all in accordance with the plan of division and without any further action necessary by the parties. Arguably, this means that traditional transfer documents such as an assignment and assumption agreement and bill of sale are not needed. However, creditors may wish to update any lien perfection instruments, such as UCC filings, to refer to the correct debtor name.<br /> <br /> A few cautionary notes. With respect to creditors, absent a possible fraudulent transfer, each resulting LLC shall only be responsible for those liabilities allocated to it under the plan of division. However, if a court finds that the transfer of assets pursuant to a plan of division constitutes a fraudulent transfer, the original LLC and each resulting LLC shall be jointly and severally liable on account of such fraudulent transfer. However, the validity of the division shall not otherwise be affected. Any debts and liabilities that are not accounted for in the plan of division shall be the joint and several debts of the original LLC and each of the resulting LLCs, provided that, as a practical matter, one does not need to itemize each asset or debt in the plan of division but can refer to them in a blanket or omnibus manner.<br /> <br /> For any LLCs formed prior to August 1, 2018 (the effective date of the new DLLCA section permitting divisions) that are a party to a contract also entered into prior to August 1, 2018, that prohibits transfers of assets or liabilities by the LLC, including in connection with mergers or acquisitions, such restrictions shall apply to effectively block divisions. As of August 1, 2018, parties wishing to restrict divisions must specifically state so in the contract.<br /> <br /> <em>Disclaimer: This summary is provided for educational and information purposes only and is not legal advice. Any specific questions about these topics should be directed to attorney <a href=";A=9312&amp;format=XML&amp;p=5324">Arvid von Taube</a>.<br /> <br /> &copy; 2018 by Rich May, P.C. and Arvid von Taube. All rights reserved.<br type="_moz" /> </em>Blog01 Oct 2018 00:00:00 -0800 Enacts Innovative Consumer Privacy Law June 28, 2018, just days after being introduced into the California Legislature, Governor Jerry Brown signed into law the <a href="" target="_blank">California Consumer Privacy Act</a> of 2018 (the &ldquo;Act&rdquo;). The Act goes into effect on January 1, 2020, although amendments are possible before then. The Act gives fundamental privacy rights to California residents with respect to how certain companies doing business in California handle personal information. <br /> <br /> <div style="text-align: center;"><u>Who Does the Act Regulate?<br /> </u></div> <br /> The Act applies to all for-profit companies that (1) do business in the State of California, (2) collect personal information of California residents and (3) meet one of the following criteria: (a) have annual gross revenues in excess of $25 million, (b) annually buy, receive for commercial purposes, sell or share for commercial purposes, the personal information of 50,000 or more California residents, households or devices or (c) derive 50% or more of their annual revenues from selling California residents&rsquo; personal information.<br /> <br /> The Act specifically excludes those companies whose commercial conduct takes place entirely outside the State of California and those companies that operate on a not-for-profit basis. The Act assumes that all commercial conduct occurs outside the state if (1) the business collected the personal information from the California resident in question while he or she was outside California, (2) no part of any sale of his or her personal information occurred in California and (3) no personal information collected while the consumer was in California, is sold.<br /> <br /> <div style="text-align: center;"><u>Who Does the Act Protect and what are their Rights?</u></div> <br /> The Act protects any natural persons who are California residents for <a href=";originationContext=documenttoc&amp;transitionType=DocumentItem&amp;contextData=(sc.Default" target="_blank">tax purposes</a>. The Act gives those persons the following basic rights with respect to personal information: <ol> <li><strong>The right to know what personal information is being collected about them</strong>. The regulated company must disclose to the resident the categories of personal information that are collected and the purpose for which such personal information is used. Such company cannot collect information outside of those categories disclosed to the resident.</li> <li><strong>The right to know whether their personal information is sold or disclosed and to whom, and the right to opt out of such sales or disclosures</strong>. This information must be provided to the resident free of charge and may be delivered by mail or electronically.</li> <li><strong>The right to request that the company delete any personal information about the resident that the company has collected from the resident.</strong> The Act provides for certain exceptions to this requirement, such as allowing the company to retain the information to complete the transaction or perform a contract for which the information was collected, to comply with other applicable laws, or internal use in a lawful manner that is compatible with the context in which the resident provided the information.</li> <li><strong>The right to receive equal service and price, even if the resident exercises his or her privacy rights under the Act.</strong> However, this does not prohibit a company from charging a resident a different price or rate, or from providing a different level or quality of goods or services to the resident, if that difference is reasonably related to the value provided to the resident by the resident&rsquo;s data.</li> </ol> <div style="text-align: center;"><u>What is Personal Information?</u></div> <br /> The Act defines personal information as any information that &ldquo;identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household&rdquo; and includes a non-exhaustive list of examples such as name; alias; postal address; unique personal identifier; Internet Protocol address; email address; account name; social security number; driver&rsquo;s license number; passport number; commercial information, including records of personal property; products or services purchased obtained, or considered, or other purchasing or consuming histories or tendencies; biometric information; internet or other electronic network activity information, including, but not limited to, browsing history, search history, and information regarding a consumer&rsquo;s interaction with a website, application, or advertisement; geolocation data; audio, electronic, visual, thermal, olfactory, or similar information; and professional or employment-related information.<br /> <br /> However, California residents should be aware that personal information does not include any information that is lawfully made available from federal, state or local government records. For example, if a resident includes his email address on a filing made with a governmental entity and that filing shows up on a docket that is available for searching by the public on the web, the email address would presumably no longer be protected by the Act. As of the publication of this blog post, the State of California has not adopted any regulations to help interpret the Act, but those will be forthcoming and may address how personal information can lose, and correspondingly regain, its protected status.<br /> <br /> <div style="text-align: center;"><u>What are the Practical Implications for a Company Located Outside of California?<br /> </u></div> <br /> Unless a business outside of the State of California does not meet the applicability thresholds or is certain that it has no contact with California residents, it should seek to comply with the Act. The good news is that if such business has already undertaken to comply with the European Union&rsquo;s new <a href=";an=78277&amp;format=XML&amp;p=5328" target="_blank">General Data Protection Regulation</a> (the &ldquo;GDPR&rdquo;), a lot of the required changes may already be in place. Please review our recent <a href=";an=78277&amp;format=XML&amp;p=5328">blog post</a> on the GDPR for those recommendations, which include creating or updating privacy policies to clearly state what information is collected from users and for what purpose, creating an opt-in system for collection of data, and tracking such data by user for opt-out and deletion requests.<br /> <br /> There are two ways that a company can be punished for failure to comply with the Act. The first is by the California Attorney General, who can enforce violations, subject to a thirty day cure period, with a penalty of up to $7,500 per violation. The second is by a resident who can bring a private right of action under the Act seeking statutory damages ranging from $100 to $750 per incident, or actual damages suffered. An &ldquo;incident&rdquo; isn&rsquo;t defined under the Act so it is unclear what the actual monetary ceiling might be. However, before a resident may file a private lawsuit under the Act, he or she must give notice to the California Attorney General who can step in and file the lawsuit instead, or who can require the resident to refrain from filing it altogether.<br /> <br /> These fines do not appear to be as hefty as those that can be levied under the GDPR, however the private right of action may spur a new era of California civil litigation.<br /> <br /> Disclaimer: This summary is provided for educational and information purposes only and is not legal advice. Any specific questions about these topics should be directed to attorney <a href=";A=9312&amp;format=XML&amp;p=5324">Arvid von Taube</a>.<br /> <br /> &copy; 2018 by Rich May, P.C. and Arvid von Taube. All rights reserved.<br />Blog22 Aug 2018 00:00:00 -0800 Law Alert: New Massachusetts Non-Competition Law Effective October 1, 2018 Friday, August 10, Governor Baker signed new legislation limiting the enforcement of non-competition agreements against employees and independent contractors who reside in Massachusetts. Though Massachusetts courts have long imposed reasonableness limitations on non-competition agreements <a href=";an=75276&amp;format=XML&amp;p=5328">as recently discussed on our blog</a>, this new legislation is the result of years of debate and numerous proposals. <br /> <br /> Under the new law, which will take effect on October 1, employers will only be able to enforce a non-compete by paying a former employee. Payment may be agreed upon by the parties, but the default requirement is payment of at least fifty percent of the employee&rsquo;s highest base salary during the prior two years for the term of the non-compete&ndash; known as &ldquo;garden leave.&rdquo;<br /> <br /> In addition to this expense, employers will also face hurdles in drafting non-compete provisions. For example, on the procedural side, if a non-compete is signed at the commencement of employment, the provision must be presented to the employee at the time of the employment offer or ten days prior to beginning work. If the agreement is signed after employment, consideration of outside continued employment must be provided. Moreover, the legislation codifies substantive reasonableness limits, including limited scope of activity and geography and typically a maximum duration of only one year. <br /> <br /> For certain employees, non-competes are entirely unenforceable. These include minors, undergraduate and graduate student employees, and non-exempt employees under the Fair Labor Standards Act. The new legislation also prohibits enforcement against a laid off employee or someone terminated without cause. <br /> <br /> While the new legislation reflects the public policy in favor of allowing individuals to work without unreasonable restrictions, certain contractual covenants are specifically excluded from the definition of non-compete&mdash;allowing employers to protect their customer, client, and vendor lists from solicitation. A non-compete is therefore appropriate only where no less restrictive means are available to protect a legitimate business interest, like an employer&rsquo;s trade secrets, confidential information, or good will. <br /> <br /> All employers of Massachusetts residents should review their existing contractual arrangements to ensure compliance with the new law on October 1. For some existing non-competition agreements, re-execution in line with the legislation&rsquo;s procedural requirements may be appropriate. For others, an alternative strategy such as protection using non-solicitation agreements may be advisable. <br /> <br /> This summary is provided for educational and informational purposes only and is not legal advice. Any specific questions about compliance with the new legislation or revisions to existing agreements should be directed to attorneys <a href=";A=5084&amp;format=XML&amp;p=5324">J. Allen Holland</a> or <a href=";A=13837&amp;format=XML&amp;p=5324">Jennifer Lang</a>. <br /> <br /> &copy; 2018 by Rich May, P.C. and Jennifer Lang, Esq. All rights reserved.<br />Blog13 Aug 2018 00:00:00 -0800's Office of Compliance Inspections and Examinations Announces Common Best Execution Issues SEC Office of Compliance Inspections and Examinations (&ldquo;OCIE&rdquo;) recently issued a risk alert with respect to information concerning the most common deficiencies that the staff has cited in recent examinations of advisers&rsquo; compliance with their best execution obligations under the Investment Advisers Act of 1940 (the &ldquo;Advisers Act&rdquo;) <a href=" Risk Alert - IA Best Execution.pdf">(Link Here)</a>.<br /> <br /> The most common best execution deficiencies cited include:<br /> <br /> <div style="margin-left: 40px;"><u><strong>Not performing best execution review </strong></u><br /> The staff observed advisers that could not demonstrate that they periodically and systematically evaluated the execution performance of broker-dealers used to execute client transactions. <br /> <br /> <u><strong>Not considering relevant factors during best execution review</strong></u><br /> The staff observed advisers that did not consider the full range and quality of a broker-dealer&rsquo;s services in directing brokerage &ndash; including execution capability, financial responsibility, and responsiveness to the adviser.<br /> <br /> <u><strong>Not seeking comparisons from other brokers </strong></u><br /> The staff observed advisers that did not solicit input from traders and portfolio managers; made no quality or cost comparisons with other broker-dealers; and/or used a single broker upon only a cursory review.<br /> <br /> <u><strong>Disclosure issues<br /> </strong></u>The staff observed advisers that failed to disclose best execution and soft dollar practices.<br /> &emsp;<br /> <strong><u>Soft dollar allocation issues</u></strong> <br /> The staff observed advisers that failed to allocate mixed-use products and services. <br /> <br /> <u><strong>Weak policies and procedures</strong></u><br /> The staff observed advisers that failed to adopt or follow best execution policies and procedures.<br /> &nbsp;</div> OCIE took the opportunity to remind advisers that as a fiduciary, when an adviser has the responsibility to select broker-dealers and execute client trades, the adviser has an obligation to seek to obtain &ldquo;best execution&rdquo; of client transactions, taking into consideration the circumstances of the particular transaction. An adviser should consider the full range and quality of a broker-dealer&rsquo;s services including, among other things, the value of research provided as well as execution capability, commission rate, financial responsibility, and responsiveness to the adviser. &ldquo;[T]he determinative factor [in an adviser&rsquo;s best execution analysis] is not the lowest possible commission cost but whether the transaction represents the best qualitative execution for the managed account.&rdquo; Advisers should therefore periodically and systematically evaluate the execution quality of broker-dealers executing their clients&rsquo; transactions. <br /> <br /> OCIE further noted that soft dollar arrangements (where an adviser receives brokerage and research services) can also implicate best execution issues. Under Section 28(e) of the Securities Exchange Act of 1934, an adviser may pay more than the lowest commission rate in soft dollar arrangements without breaching its fiduciary obligation, provided that certain specified conditions are met. Where a product or service obtained with client commissions also serves other functions that are not related to the making of investment decisions, an adviser should make a reasonable allocation of the costs of the product or service according to its use and keep adequate books and records concerning such allocation. Advisers must disclose soft dollar arrangements and must provide more detailed disclosure when the products or services they receive do not qualify for Section 28(e)&rsquo;s safe harbor. <br /> <br /> In concluding, OCIE indicated that typical adviser responses include amending their disclosures regarding best execution or soft dollar arrangements, revising their compliance policies and procedures, or otherwise changing their practices regarding best execution or soft dollar arrangements.<br /> <br /> Disclaimer: This summary is provided for educational and information purposes only and is not legal advice. The websites and companies mentioned herein are for illustrative purposes only, and the author and Rich May, P.C. do not recommend any services or products that they may offer. Any specific questions about these topics should be directed to attorneys&nbsp;<a href=";A=5098&amp;format=XML&amp;p=5324">Thomas Bilodeau, III</a>, <a href=";A=5095&amp;format=XML&amp;p=5324">Scott Stokes</a>, or <a href=";A=5075&amp;format=XML&amp;p=5324">David Glod</a>.<br /> <br /> &copy; 2018 by Rich May, P.C., Thomas Bilodeau, III, Scott Stokes, and David Glod All rights reserved.<br /> <br />Blog19 Jul 2018 00:00:00 -0800