Category: Corporate

Corporate / Securities

Inline XBRL for Foreign Private Issuers – New SEC Guidance

Yesterday, the SEC published guidance regarding Inline XBRL. The SEC adopted rules for Inline XBRL in June 2018. For those of you whose first question is “what is Inline XBRL?”, Inline XBRL allows the XBRL data to be embedded directly into an “EDGARized” HTML document. This eliminates the need to prepare a separate XBRL exhibit. The goal of Inline XBRL was to simplify the XBRL process for issuers and to improve the usability of XBRL data for investors. As a reminder, foreign private issuers will be required to comply with Inline XBRL at the following times: Basis of Accounting Filer Status Fiscal Periods Ending On or After: U.S. GAAP Large accelerated filers June...

Capital Markets / Corporate / Securities

SEC Proposes to Greatly Expand Exemption from SOX 404 Auditor Attestation Requirement

The SEC has proposed revisions to the definition of an “accelerated filer” that would exempt most companies that have both a public float of common equity of less than $700 million and annual revenues of less than $100 million from the requirements of Section 404 of the Sarbanes-Oxley Act (SOX 404). If adopted, these revisions would exempt many Canadian cross-reporting companies from the SOX 404 auditor attestation requirement, thereby reducing the cost of cross-border reporting. The proposal is subject to a 60-day public comment period. Additional information is available in the SEC’s press release regarding the proposed new amendments here: sec.gov/news/press-release/2019-68.

Capital Markets / Corporate / Litigation / Securities

The SEC’s Recent Settlement with Tesla and Elon Musk Teaches Us a Valuable Corporate Governance Lesson

The SEC’s settlement with Tesla and Elon Musk teaches us some important corporate governance lessons on monitoring and vetting executive use of social media. As background, on August 7, 2018, the markets were surprised by a series of tweets initiated by Elon Musk, the CEO of Tesla, Inc., in which Musk mused about taking Tesla private at $420 per share (a significant premium to the then-market price), with funding secured. The stock price jumped, trading in Tesla stock was halted, and Tesla rushed to catch up with official announcements. The deal didn’t happen, and it was questioned whether Musk was really serious, and whether funding was really “secured.” The SEC commenced an investigation....

Corporate / Litigation / Securities

SEC Guidance on Cybersecurity Disclosure and Policies – Recap of Dorsey Webinar Presentation

Earlier this week, a panel of Dorsey attorneys presented a webinar on the SEC’s recent guidance on cybersecurity disclosures and policies, which included a detailed walk-through of the SEC’s 2018 guidance, including issues related to enhanced disclosure, insider trading, and Reg FD policies. The panel also discussed the impact of the SEC’s guidance within the changing landscape of cybersecurity and current developments in shareholder litigation, SEC enforcement actions, and other regulatory and legislative initiatives such as the GDPR. The Equifax data breach is used as a case study to illustrate how the SEC’s guidance might play out in this broader context. The webinar recording and presentation materials are available on our website at...

Corporate / M&A / Securities

U.S. Subsidiaries of Canadian Companies Face Imminent Reporting Deadline For Federal Survey

Canadian companies with U.S. subsidiaries and investments should note upcoming deadlines for filing reports required by U.S. Department of Commerce rules. These mandatory reports are required to be filed with the Bureau of Economic Analysis (“BEA”) within the U.S. Department of Commerce by May 31, 2018, if made by hardcopy, or by June 30, 2018, if made electronically. The affected U.S. subsidiary companies are those in which a non-U.S. person owns or controls, directly or indirectly, 10 percent or more of the company’s voting securities if the U.S. subsidiary company is incorporated, or in which a non-U.S. person holds that same degree of ownership or control through other means if the U.S. subsidiary company is...

Corporate / Natural Resources / Securities

Foreign Corrupt Practices Act Requires More Than a Policy

The recent settlement agreement between Kinross Gold Company and the Securities and Exchange Commission is a reminder to Canadian cross-listed companies that it is not enough to adopt a parent-company level anti-corruption policy designed to promote compliance with the Foreign Corrupt Practices Act (FCPA). Effective implementation and monitoring at the operating level is also needed. In Kinross’ case, the SEC charged, in effect, that Kinross had acquired two African mining operations from a third party, was aware of deficiencies in the mines’ controls at the time of acquisition, failed to timely put in place appropriate controls, and then failed to maintain them once implemented. Specifically, SEC alleged that Kinross awarded a logistics contract...

Corporate / Tax

Loans to U.S. Subsidiaries Should Be Carefully Structured and Documented to Obtain U.S. Tax Benefits

Canadian companies should carefully structure and document loans and advances to their U.S. subsidiaries. If loans to U.S. subsidiaries are not properly structured and documented, such loans may be recharacterized as equity investments for U.S. federal income tax purposes, and important U.S. tax benefits will be lost. Properly structured loans are treated as debt for U.S. federal income tax purposes with favorable tax treatment. The U.S. subsidiary may deduct interest paid in computing taxable income. Such interest payments to its Canadian parent corporation are generally not subject to U.S. withholding tax under the Canada – U.S. income tax treaty. Repayment of the principal amount is generally not subject to U.S. tax for both...

Corporate / Tax

Delaware Corporations – Don’t Authorize Too Many Shares, or “No Par Value” Shares

Occasionally, we will see Canadians or Canadian companies assume that they can authorize as many shares for issuance as they want when forming a Delaware corporation, or that they can authorize shares without par value. That’s technically true, but Delaware will make you pay dearly for it, up to $180,000 per company per year. A Delaware corporation must pay the state an annual franchise tax. This tax is initially based on the number of authorized shares. Provided the authorized shares have a stated par value, the tax assessment can be re-calculated on an assumed par value basis using a formula that involves the number of shares authorized for issuance by the certificate of...

Corporate / Securities

Foreign Private Issuer Calculation Date for Calendar Year-End Foreign Issuers is June 30, 2017

As a reminder to all foreign issuers that have a December 31 fiscal year end, the upcoming end of their second fiscal quarter, June 30, 2017, will be the calculation date for their status as a foreign private issuer (“FPI”) for purposes of both the United States Securities Act of 1933, as amended (the “Securities Act”) and the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”). We recommend that issuers begin the analysis early to determine whether actions should be taken prior to the June 30th date to avoid an unintentional loss of FPI status. An early determination of the business nexus test (as described below) is also needed to...

Capital Markets / Corporate

Cross-Border Loan Transactions: Supplementing Canadian Law Governed Loan Documents with Collateral and Guaranty Documents Governed by U.S. Law

Many cross-border loan transactions involve subsidiaries that are organized in the United States and/or U.S. based collateral. To the extent that the underlying loan is made to a Canadian borrower by a Canadian lender, these transactions are typically documented with loan agreements governed by Canadian law (often under the law of the Province where the primary Canadian borrower is organized, but sometimes based on the law of a Province selected by the Canadian lender). In many of these transactions, in addition to the Canadian law governed documents, the Canadian lenders will also require the use of U.S. law governed documents for guarantees provided by U.S. organized subsidiaries and Security Agreements for collateral owned by U.S....