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...

Capital Markets / Securities

NYSE Rule Change For Dividends and Distributions

Readers listed on the NYSE will want to note a recent rule change. Effective immediately, notification of public announcements regarding dividends or stock distributions must be provided to the NYSE at least ten minutes prior to public release, even after market close. Read more in the post from our partner Jason Brenkert here: https://governancecomplianceinsider.com/nyse-rule-change-requires-ten-minutes-advance-notice-of-public-announcement-of-dividends-or-stock-distributions/

Capital Markets / Securities

Interesting Facts About U.S. Private Placements

This week the SEC Division of Economic and Risk Analysis published a new report including a wealth of data regarding recent trends in public offerings and private placements of securities. The report includes a number of interesting facts about U.S. private placement practice, including: In the last few years, issuers have raised 2-3 times more capital through Regulation D than through Rule 144A. Rule 506(b) remains the most popular way to raise capital under Regulation D, with 97% of all funds raised under Rule 506 being raised under Rule 506(b), rather than the newer Rule 506(c), with issuers choosing not to take the additional steps required by Rule 506(c) to generally solicit investors. Only...

Benefits / Securities / Tax

Unexpected Risks of Early Exercise Incentive Stock Options

Canadian companies and their outside counsel occasionally ask about the ability to grant early exercise incentive stock options (“ISOs”) to limit the impact of the U.S. alternative minimum tax (“AMT”) to their U.S. employees. However, due to fairly counterintuitive U.S. federal tax regulations, structuring options in this manner may expose optionees to negative tax consequences in the event of a disqualifying disposition (defined below). This post reviews the tax effects of early exercise ISOs and compares the tax results to alternative structures. Early Exercise ISO Tax Consequences With any early exercise option, the optionee is permitted to initially exercise their entire stock option by paying the full option exercise price, but will receive...

Natural Resources

Trump Seeks to Uproot the Obama Climate Change Agenda

Citing concerns over economic harm, President Trump has targeted his predecessor’s climate change agenda. He has sought reversal of a number of key Obama regulations, directives, and other actions, including the Clean Power Plan and the U.S. participation in the Paris accords. The overall blueprint for these actions is found in his March 2017 Executive Order on Promoting Energy Independence and Economic Growth. This order lays out for the Environmental Protection Agency and Department of Interior, as well as other agencies, specific actions to take to promote the development and use of domestically produced oil, gas, coal, and nuclear power. The agencies are only now beginning to undertake these actions, which could have...

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...

Employment / Litigation

Damages: Making Anti-Harassment Policies Work in the United States

Harassment has been in the news a lot lately in the United States, with several high-profile terminations at well-known companies. Companies are losing millions of dollars, not just in settlements and verdicts, but in lost customers and bad publicity. The Equal Employment Opportunity Commission, or EEOC, is the administrative agency responsible for enforcing laws prohibiting workplace harassment in the United States. The EEOC has issued new guidance suggesting that conventional anti-harassment training isn’t enough. So what is an employer to do? Maintaining an effective harassment reporting procedure is simple, but not always easy. Often, it means a willingness by the company to put its money where its mouth is. This involves taking the...

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...

Litigation

Exporting Products Across the Border – Avoiding Product Liability and Other Litigation Risks in the United States

Canadian companies exporting products across the border into U.S. markets face significant risks of litigation or regulatory action arising from products sold and distributed in the United States. In a recent article, our colleague Kent Schmidt outlines ideas for managing these risks and creating a litigation risk profile around the four key areas of vulnerability: product liability claims, breach of warranty claims, false advertising and consumer protection claims, and claims related to collection, use, or compromise of consumer data and personal information. The full text of Kent’s article is available at www.dorsey.com/newsresources/publications/articles/2017/05/avoiding-unnecessary-us-litigation. For a more thorough discussion on how Canadian companies can avoid product-related claims in the United States, we invite you to...

International Trade

Trump Administration Announces NAFTA Renegotiation

After months of public pronouncements on the future, including threatened withdrawal from, the North American Free Trade Agreement (NAFTA), the Trump Administration announced on May 18, 2017, its intention to begin negotiations with Canada and Mexico. Signed by Robert Lighthizer, the newly confirmed U.S. Trade Representative, the notification letters to Congressional leaders do not contain any details on specific targets for negotiations. The letters describe instead broad aims for discussions with U.S. Congressional leaders and industry constituents, and the administration’s intention to begin negotiations with Canadian and Mexican counterparts in mid-August or later. President Trump previously railed against NAFTA and its alleged impact on the U.S. manufacturing sector. However, the agreement’s impact has...