Have you ever signed up for a free online product where all you had to do was enter your credit card information to pay a small shipping fee, or perhaps you purchased a weight loss supplement because it was endorsed on social media by a famous celebrity, only to find out that it was a scam and you didn’t receive the product, or the supplement was just a placebo? These promotions are created by scammers with new technology called deepfakes. A deep fake is an image, video or audio recording created with artificial intelligence (AI) to look and sound like a real person or object.

HOW DEEP FAKES ARE PRODUCED

• Statistical Learning: Computer software algorithms scan hours of real audio or video footage to learn and store the facial movements and expressions, voice tone, and movements of a person to create artificial intelligence (AI).
• Integration: The AI then generates a new image of the person’s likeness and pastes it onto a different body or creates a realistic voice clone.
• Evolving Technology: New generative AI produces real-time, high-definition face images and voice cloning that are greatly improved over previous versions and very hard to distinguish.
• Ease of Operation: Corporations have the equipment and the knowledge to create AI, which makes it easier to create voice and image deepfakes.

WHAT HARM CAN DEEP FAKES PRODUCE

Common Uses and Risks

• Entertainment: The technology to create deep fake images and sounds is put to legal and safe use in movies, video games, and dubbing.
• Fraud and Scams: Cybercriminals use deep fake video or voice calls to trick employees into transferring money or sharing private company passwords.
• Misinformation: Deep fakes of political figures can spread false news or influence public opinion during elections.
• Harassment: Non-consensual deep fakes cause explicit embarrassment and jeopardize private individuals and celebrities.
• Emotional Manipulation: Deep fakes can be designed to stimulate extreme anger, shock, or fear resulting in foolish action before thinking critically.
• Victim Trafficking: Naïve young and elderly people can be lured into dangerous and captive situations.

According To Research:

• Number of Incidents: 25.9% of executives report that their organizations have experienced one or more deep fake incidents.
• Financial Loss: 92% of companies have experienced economic loss due to a deep fake.
• Availability: Accessibility of generative AI technology is only growing, lowering barriers to entry for deep fake creation.

WHO CAN BE HELD RESPONSIBLE FOR DEEPFAKES

Corporate Resources to Detect Deep Fakes

• Modern corporations have the technology, equipment, and access to industry-wide threat intelligence to implement identity verification processes.
• Deep fake videos of corporate managers could impact market perception and create securities risks.

Corporate Obligation to Protect Its Customers

• Corporations process online payments from their customers.
• Technology makes traditional scams more sophisticated and harder to detect.

Potential Litigation

• Fraudulent deep fakes create the potential for consumer protection litigation.
• Courts are more willing to hold corporations responsible for third-party fraud against customers.

Deep fakes created by AI are an evolving issue. Corporations and courts are working to find solutions that will protect customers without placing an unreasonable burden on corporations. The corporate lawyers at Corporate Securities Legal LLP are following the latest developments so they can adequately advise and protect their clients.

Reasons a Company May Prefer to Remain Private

Reduced Public Disclosure: Privately held companies generally are not required to disclose publicly the same extensive information required of SEC reporting companies. Subject to applicable law and contractual obligations, they may have greater confidentiality regarding their financial performance, executive compensation, business strategy, material agreements, and operations.

Private status does not, however, eliminate all disclosure obligations. A private company may still be required to provide information to shareholders, investors, lenders, regulators, and taxing authorities.

Lower Compliance Burden: Public reporting companies must devote substantial financial and management resources to SEC filings, audited financial statements, internal controls, shareholder communications, and, if exchange-listed, applicable stock-exchange requirements. SEC reporting commonly includes annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K for specified events. (sec.gov)

Potentially Lower Liability Exposure: Directors and officers of both private and public companies can face liability for breaches of fiduciary duty, fraud, self-dealing, and violations of applicable law. Public companies, however, face additional exposure under the federal securities laws for materially false or misleading statements, material omissions, insider trading, reporting violations, and failures to comply with other public-company obligations. The SEC recognizes that a company and its management may face liability if public-company obligations are not satisfied. (sec.gov)

Greater Management Flexibility: Public companies are subject to federal securities laws, SEC rules, and—if listed—stock-exchange requirements. Certain transactions may also require shareholder approval. These requirements can reduce management flexibility and increase the time and expense involved in corporate decision-making.

Greater Control Over Ownership: A private company may have more control over how and to whom its shares are issued, subject to corporate law, securities laws, existing agreements, and shareholder rights. Remaining private can therefore help founders and existing investors manage dilution and changes in voting control.

Reduced Short-Term Market Pressure: Public companies are closely monitored by investors, analysts, and the financial media. Market expectations concerning quarterly performance can create pressure to prioritize near-term results. Remaining private may allow management to pursue longer-term strategies without the same degree of public-market scrutiny.

Access to Private Capital: Venture capital, private equity, growth-equity funds, strategic investors, family offices, and other private financing sources can enable a company to raise substantial capital without conducting an IPO. Private financing can nevertheless involve significant dilution, investor consent rights, board representation, liquidation preferences, and other negotiated restrictions.

When a Private Company May Become Subject to SEC Reporting

Under Section 12(g) of the Securities Exchange Act of 1934, a company may be required to register a class of equity securities with the SEC even if it has not completed an IPO.

For most companies, registration may be required if, on the last day of the company’s fiscal year:

1. The company has more than $10 million in total assets; and
2. The relevant class of equity securities is held of record by either:
   • 2,000 or more persons; or
   • 500 or more persons who are not accredited investors. (sec.gov)

These calculations are subject to important definitions and exceptions. For example, certain securities issued under employee compensation plans may be excluded from the holder-of-record calculation. Conditional exemptions may also apply to qualifying Regulation Crowdfunding and Regulation A securities. Banks, bank holding companies, and savings and loan holding companies are subject to different holder thresholds. (sec.gov)

Crossing the applicable threshold does not require the company to conduct an IPO or list its shares on a stock exchange. It may, however, require the company to register the relevant class of securities and begin filing periodic reports with the SEC. The company could therefore become a public reporting company while its shares remain unlisted and relatively illiquid.

Once subject to Exchange Act reporting, a company may be required to file annual, quarterly, and current reports and make information concerning its financial condition, operations, management, material agreements, executive compensation, and specified corporate events publicly available. The precise disclosure requirements depend on the company’s circumstances and filer status; eligible emerging growth companies and smaller reporting companies may use scaled disclosure requirements. (sec.gov)

A company approaching the Section 12(g) thresholds should evaluate its capitalization table, holder-of-record count, investor accreditation information, applicable exclusions, and reporting alternatives before the end of its fiscal year.

Potential Benefits of Going Public

Access to Capital: A registered public offering can raise substantial capital for expansion, research and development, debt repayment, acquisitions, and other corporate purposes. Public-company status may also broaden opportunities for future financing. (sec.gov)

Potential Liquidity: A public trading market may allow founders, employees, and investors to sell shares more easily. Liquidity is not guaranteed, however, and sales may be limited by lockup agreements, securities-law restrictions, company trading policies, market conditions, and the availability of buyers.

Acquisition Currency: Publicly traded shares may be used as consideration in mergers and acquisitions, potentially reducing the amount of cash required for a transaction. (sec.gov)

Employee Recruitment and Retention: Public-company equity and stock options may help a company attract, compensate, and retain employees. (sec.gov)

Visibility and Credibility: An IPO and public listing may increase brand awareness, publicity, and market recognition. (sec.gov)

Transparency and Investor Information: Public reporting provides investors with standardized financial and operational information that may assist them in evaluating the company. This transparency, however, also gives competitors and other third parties access to information that a private company might otherwise keep confidential. (sec.gov)

Conclusion

The decision to remain private, become an SEC reporting company, or pursue an IPO requires careful consideration of the company’s capital needs, shareholder base, financial condition, growth strategy, governance structure, and tolerance for regulatory and disclosure obligations.

Counsel from experienced securities lawyers can help a company monitor its Section 12(g) status, structure private financing transactions, manage its capitalization table, prepare for SEC reporting obligations, and evaluate whether and when a public offering is appropriate. Corporate Securities Legal LLP can advise companies, founders, directors, and investors on these considerations.

However, Section 10(b) of the Securities Exchange Act of 1934, which is enforced through Rule 10b-5, says it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, to:

• Employ any device, scheme, or artifice to defraud
• Make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading
• Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security

The United States Court of Appeals for the Ninth Circuit clarified the relationship between marketing slogans and the reasonable investor standard for reliance and materiality. The court held that a company slogan used in investor presentations was not misleading to reasonable investors, especially in light of accompanying disclosures.

The pharmaceutical company at the center of this case had developed an opioid medication that could be administered under the tongue rather than intravenously, like other opioids. To highlight this advantage, the company developed the marketing slogan “Tongue and Done.” In addition to complying with U.S. Securities and Exchange Commission (SEC) regulations, the Food and Drug Administration (FDA) required the company to create a Risk Evaluation and Mitigation Strategy (REMS) that restricted the use of their opioid to certain healthcare settings and licensing protocols.

At investor conferences, the company CEO gave speeches which included the product’s limited use to medically supervised settings and a broad description of the process for administering the product, as well as company displays that:

• Used its slogan in posters, banners, and brochures
• Directed investors to additional information at the booths
• Provided product safety warnings
• Highlighted the REMS plan

Although the CEO did not include in his speeches every detail of administering the opioid, the Court ruled that it is necessary to consider the full context in which a statement or omission is made — including any other available information — to determine if it would mislead investors. The Court decided that a reasonable investor would understand the need to look at the “total mix” of information, rather than any isolated phrase or document.

As an additional point, the Court noted that there was no “strong inference of Scienter” — which is when a person acted with knowledge of wrongdoing or with a reckless disregard for the truth.

The experienced securities lawyers at Corporate Securities Legal LLP will make sure your advertising is in full compliance with all regulatory restrictions, with full disclosures about risks, restrictions, and market realities in your consumer-facing materials and in referenced websites.

• Safeguard investments
• Define ownership rights and management responsibilities
• Ensure fair treatment
• Outline the fair and legitimate pricing of shares and transfer restrictions
• Prevent future management disputes
• Establish decisions about what outside parties may become future shareholders
• Provide safeguards for minority positions
• Ensure clarification of what the parties originally intended

Unlike company bylaws — which work in conjunction with a company’s articles of incorporation to form the legal backbone of the business and govern its operations — shareholders agreements focus on active shareholder rights and obligations. They ensure fair treatment, safeguard minority positions, and provide clarity in transactions involving shares.

Included Provisions in Common Shareholders Agreements

• Share Valuation & Transfers: Creates rules for how shares are bought or sold, formulas for determining the value of shares, and the “Right of First Refusal” and pre-emption rights to maintain ownership of shares within control of the existing group. This is designed to prevent unwanted outside influence on company operations. Pre-emption rights give existing shareholders the first right to buy shares before they are offered to outsiders. Drag-along rights allow majority shareholders to force minority owners to join in the sale of the company to a third party. Tag-along rights protect minority shareholders by allowing them to join in on the sale of a majority stake, ensuring they get the same deal.
• Management & Voting: Details the appointment and removal of the board of directors with their powers and duties, voting majorities required for major corporate decisions, and specific veto powers granted to minority shareholders to prevent oppression. Establishing the management structure and decision-making processes enables business decisions to be made with appropriate authority and oversight, including specific decisions that require shareholder approval, such as mergers, acquisitions, or significant borrowing.
• Dispute Resolution: Designates jurisdiction laws and establishes clear procedures for resolving conflicts — usually mediation or arbitration — to resolve deadlocks or conflicts among shareholders without resorting to costly litigation.
• Exit and Amendment Clauses: Outlines exactly what happens if a shareholder dies, becomes disabled, goes bankrupt, or wishes to leave the company. Buy-sell agreements and valuation methods ensure a fair process for shareholders and continuity of the company. Clearly defining how the agreement can be amended should represent the consensus of the majority. A well-written termination clause outlines how the relationship between shareholders can be fairly concluded.
• Financing & Capital Contributions: Clarifies the rules for initial capital investments, including the amount and the type, whether cash or assets. Future funding obligations include methods for raising additional capital to ensure the company is adequately financed and that all shareholders understand their financial commitments.
• Dividend Policy: Balances the need for profit distribution with rules for reinvesting profits back into the business. This ensures that shareholders’ expectations for returns are aligned with the company’s growth objectives.
• Restrictive Covenants: Non-compete and confidentiality clauses protect sensitive company information by preventing shareholders from sharing sensitive information or starting a competing business. Specific safeguards clarify what actions are acceptable.

How We Can Help

Drafting well-written and effective shareholders agreements requires a comprehensive approach and is much less complicated if done at the time of incorporation. The business lawyers at Corporate Securities Legal LLP focus on the corporate structure best suited to their clients’ needs and all potential issues that can arise. This approach helps shareholders avoid uncertainty and establish a trusting relationship with current and future shareholders. Give them a call to arrange a consultation.

Key Issues in IP Licensing Include

• Generative AI Training Data: The legality of using copyrighted materials to train AI large-language models remains a major battleground. Generative AI systems require vast amounts of text, images, and audio to learn how to produce realistic content. The dispute centers on whether companies are scraping publicly available data without obtaining proper authorization, or exercising their rights under the legal doctrine of fair use, which permits limited use of copyrighted material without permission under certain circumstances. The key legal question is whether AI-generated content constitutes “derivative work” under the Copyright Act.
• Vague Licensing Scope & Royalties: A common mistake in license agreements is poorly defining the scope of the license. It is difficult to collect royalties from foreign users of domestic software. Every detail should be clearly explained, including the IP being licensed, the current version and status of future updates, the country or territory where the license is valid, and the limitations of use. A comprehensive agreement will cover the entire financial picture, including how royalties will be calculated, whether payment terms will be based on net sales, gross revenue, or a per-unit fee, the frequency of payments, late charges, penalties and interest charges, the currency used, and licensing rights across different jurisdictions.
• Vague or Non-Existent Exit Strategies and Termination Clauses: A well-drafted agreement should include clear termination clauses that outline how and when the relationship can be dissolved, what constitutes a breach of contract, the licensee’s post-termination obligations such as ceasing all use of the IP, returning any confidential materials, and disposing of any remaining inventory, as well as how much notice is required to terminate the agreement.
• Digital Media & Non-Fungible Tokens (NFTs): The metaverse, virtual goods, and NFTs have severely challenged traditional IP frameworks. Courts are currently grappling with how to apply existing copyright and trademark laws to intangible, digital-only assets.

Successful license agreements are built on clarity to help you understand the common pitfalls of licensing negotiations and how to avoid them, foresight to focus on achieving your long-term business objectives, a solid legal foundation to protect your business interests, and flexibility to mandate periodic review of terms or establish a process for renegotiating specific elements and handling improvements or derivative works.

The Benefit of Licensing Agreements

A current solution to these legal challenges is licensing agreements between AI companies and content creators. This is how the digital music streaming industry solved the problem — streaming services adopted licensing models that compensated artists and record labels, creating a sustainable system for digital music distribution.

At Corporate Securities Legal LLP, we strive to help you understand how state-specific regulations may apply to your agreements, adding another layer of protection. Fair trade practices and consumer protection laws can also interfere with licensing in franchising or distribution deals. Contact us today to discover how our firm can assist you. We understand and can apply well-established contract law, which plays a key role in governing license agreements and resolving complex commercial disputes.

The process to document and prove responsibility for those actions is recorded with organizational resolutions — or corporate resolutions, as they are more commonly known. An organizational resolution is a formal, legally binding document adopted and used by a corporation’s board of directors to officially authorize specific company actions such as:

• Authorizing the beginning of legal business operations
• Appointing officers
• Opening bank accounts
• Authorizing the issuance of shares to the stockholders
• Hiring directors
• Adopting the bylaws
• Signing major contracts
• Protecting the business’s assets and limited liability status
• Approving the purchase of real estate, loans, or business mergers

Well-written organizational resolutions establish the foundation for legal compliance and good corporate governance.

While LLCs aren’t legally required by states to create corporate resolutions, they often draft similar documents, usually called LLC resolutions or member resolutions. Instead of board meetings, LLC members use these documents to formally record major decisions, like buying property, and authorizing specific actions, like opening a bank account or taking out a business loan.

Structure of a Resolution

The accepted form of any organizational resolution should include these key elements:

• Title & Heading: Clearly labeled as an organizational resolution on company letterhead
• “Whereas” Clauses: Statements explaining the background, necessity, and purpose of the resolution
• “Resolved” Clauses: The exact actions, permissions, or authorities being granted by the board
• Authorized Signatures: Signatures of authorized individuals (such as the corporate secretary) and the date to legally bind the document

Common Organizational Resolutions to Authorize These Functions

• Designate a registered agent to receive service of process
• Adopt the corporate bylaws, which govern the internal management of the corporation
• Authorize the hiring and appointment of directors
• Name the initial corporate officers (e.g., President, Treasurer, Secretary)
• Adopt a corporate seal
• Authorize the issuance of initial shares to stockholders and adopt a form of stock certificate
• Select the corporate fiscal year
• Establish the principal executive office
• Secure a federal employer identification number (EIN) and state tax IDs
• Select times for board of directors meetings
• Select the time for the annual meeting of shareholders
• Authorize the opening of corporate bank accounts and designate authorized signers for checks and funds
• Authorize the payment of incorporation expenses
• Ensure securities law compliance
• Direct the maintenance of the corporate minute book, which will contain the certificate of incorporation, bylaws, and all meeting minutes and resolutions

Protect Yourself and Your Personal Assets with Complete Documentation

Organizational resolutions document that the board of directors is upholding its fiduciary duty to act responsibly and in the best interest of the corporation and its shareholders. They demonstrate that the company is properly organized and observes all necessary corporate formalities, and they create an audit trail of who made what decision and when — which is essential for audits, tax purposes, and future legal or financial due diligence.

The corporate lawyers at Corporate Securities Legal LLP can provide continuing compliance with organizational resolutions that protect you and your company.

• Designate who manages the company and how decisions are made. Explicitly outline the scope of the manager’s power and specify which high-level transactions must still be approved by the members. Designate where members and managers’ meetings will be held, and the authority of the officers and/or managers. Ensure that the LLC complies with the applicable tax rules.
• Establish the relationship between the owners. It is a binding internal contract that dictates financial stake, management structure, decision-making authority, and rules for ownership transitions. It prescribes the standards by which to measure the performance of the contractual obligation of good faith and fair dealing.
• Dictate ownership percentages and profit sharing. Proportional allocation of distributions according to the value of initial capital contributions is common, but special arrangements are sometimes made to satisfy select investors or for the benefit of the business.
• Outline procedures for buying out an owner. Well-defined trigger events — such as departure, disability, death, divorce, default, or misconduct — along with valuation and transition rules, prevent business disruption, ensure fair pricing, and protect control when an owner leaves.
• Create a method for resolving disputes. Specific rules and safeguards can require negotiation, mediation, and arbitration as alternatives to costly litigation, which can ruin a business by draining assets and shifting focus away from the purposes and goals of the business.
• Prohibit transferring ownership to a third party outside the LLC. Specific transfer rules outline conditions under which a transfer may be made. Alternative types of authorization include absolute prohibition, authorization by unanimous or majority approval of members, and right of first refusal.
• Plan for unforeseen events between owners or in your business. It is difficult to foresee all possible disruptive events, but partner departures, ownership transfers, and deadlocks are common critical issues. Addressing these issues in the operating agreement can protect the business from forced partnerships, court intervention, and operational gridlock.
• Written with family values in mind. A good place to start is by drafting a dedicated preamble that outlines your family’s mission, and balance it with strict legal protections for your family’s core principles, such as fairness, transparency, and unity.
• Flexible future planning to fit the personalities of your family members. In addition to considering where the LLC is now, you should always consider the long-term goals of the LLC as well, to eliminate the need for substantially modifying the operating agreement if expansion is successful.

LLC owners are called members, and they have some of the same duties, responsibilities, and rights as shareholders, but they also play a more active role in the operation and direction of the company.

Operating agreements are only required in five states: California, Delaware, Maine, Missouri, and New York. No state requires an LLC to file its operating agreement with the state government — it is only required to be kept in the company’s own records. If an LLC does not have an operating agreement, it must be governed according to the default rules of that state.

Consulting with an experienced attorney at Corporate Securities Legal LLP will help you set rules and plan for the various arrangements between you and your business partners in a way that works for everyone. Operating agreements eliminate uncertainty and unnecessary strain within companies when multiple parties are involved.

The situation becomes different, however, when you are buying the entire company and you will be making critical operational decisions. You want to know all the details about the company as the owner of all stock shares. This would also be the case if you only purchase a significant amount of the company shares, such as buying the shares of a departing partner, a substantial outside investor, or as a venture capitalist investor. You may not have complete control over the critical decisions, but you do have a significant say so.

This is when you need to document the purchase with a Share Purchase Agreement (SPA). It is a legally binding contract that outlines the terms and conditions for buying or selling ownership shares in a company. It acts as the master blueprint for a transaction and serves two primary functions:

• Establish the purchase price
• Define the obligations and rights of each party

Key Elements and Clauses of a Share Purchase Agreement

• Parties Involved: Clearly identify the buyer and seller by their legal names and addresses
• Recitals: Outline the background of the transaction and the intent of the parties to buy and sell the shares
• Definitions: Define key terms that could be ambiguous with specific terminology used in legal and financial transactions
• Shares Being Sold: Specify the company name and exact number and class of shares being transferred
• Purchase Price and Payment Terms: Detail the total amount the buyer will pay for the shares, the method of payment (e.g., cash, stock swap), the currency and timing of payments, and any provisions for adjustments, earn-outs, or funds held in escrow
• Representations and Warranties: The statements of fact made by both parties, including the seller’s assurances about the company’s financial status, assets, liabilities, contracts, and compliance with laws, and the buyer’s assurances about the availability of funds to complete the transaction
• Covenants: The promises made by the parties to do or refrain from doing certain things between the signing of the SPA and the closing of the transaction
• Conditions Precedent to Closing: The specific conditions that must be satisfied by both parties before the obligation to complete the transaction becomes effective
• Indemnification: Outlines how one party will compensate the other for losses arising from breaches of representations, warranties, or covenants, or for specific identified liabilities
• Closing Procedures: Detail the date, time, and location of closing, documents to be exchanged, and actions to be taken at closing
• Termination Rights: Specify the conditions for either party to legally terminate the agreement before closing
• Governing Law and Jurisdiction: Designates which jurisdiction and laws will interpret the agreement and where any legal disputes will be resolved
• Dispute Resolution: Outlines the process for resolving disagreements, such as mediation, arbitration, or litigation
• Miscellaneous Clauses: Standard legal clauses covering how notices should be given, whether the agreement can be assigned to another party, whether any terms can be waived, and confirmation that the SPA constitutes the entire agreement between the parties

Making sure the SPA is accurate and complete will give you protection against unforeseen issues. That is the work of the business lawyers at Corporate Securities Legal LLP — to help their clients be successful in all their business ventures.

However, sometimes you will want to inform the public and the press about something noteworthy or of material significance, such as:

• A new product
• A quarterly earnings report
• An impending merger
• Any other material information

You are required to file periodic reports about your company details with the U.S. Securities and Exchange Commission (SEC), but only a select category of investors take the time to read those reports, and they do it to consider becoming one of your company’s owners, not one of its customers.

Putting information about a public company in a press release is subject to the scrutiny of the SEC. It is important to only include facts and eliminate information that cannot be proven in a company’s financial statements and business operations. There are no specific rules or restrictions on press releases, but content cannot sound like an inducement to invest in the company or promise a result that is still only speculative. Subjective adjectives such as “greatest” or “only” are borderline and can lead to an investigation by the SEC.

How Press Releases Violate Securities Laws

• False Statements or Material Omissions: Statements regarding earnings, product developments, or contracts are material to investor decisions and must be accurate and complete
• Misleading Impressions: Misleading commentary about technically accurate financial data creates a false picture of performance. This type of fraud makes companies and executives legally liable
• Regulation FD Violations: Sharing material nonpublic information by executives before the company has disclosed it to the public can lead to insider trading
• Illegal Solicitation: There are specific conditions about publishing public, marketing-oriented information about general solicitation in private offerings
• Misleading Forward-Looking Statements: Financial projections must provide a reasonable basis for the results or a safe harbor declaration in the event of failure to achieve the promised outcome
• Negative News Concealment: Full transparency is vital to press releases. Issuing positive, unrelated, or distracting information to obscure negative information can be viewed as deceptive
• Use of Non-GAAP Measures: Earnings releases that highlight non-GAAP financial figures are deceptive without giving reconciliations to GAAP results

Consequences of Violations

• SEC Enforcement Actions: The SEC can take legal action against the company and individual officers for fraudulent or misleading statements, resulting in heavy fines
• Trading Suspension: The SEC may halt trading to protect investors
• Investor Lawsuits: Investors can sue for damages caused by misleading statements

How Legal Counsel Can Help

You should have a securities lawyer review all press releases, especially those containing forward-looking statements (projections) or financial data, to ensure they are legally compliant, avoid liability, and prevent the disclosure of material non-public information.

At Corporate Securities Legal LLP, we consider the risks associated with press releases very seriously. We work to keep our clients safe while they provide valuable information to their shareholders and the market in general.

The value and effectiveness of a board auditing committee depend on its governing charter. A well-drafted committee charter keeps the committee in line, and a well-run committee keeps everyone in the corporation in line. It defines the specific purpose, authority, composition, and operating procedures of the committee and aligns members with organizational goals. Trust of employees is built in multiple ways, but is still fragile and subject to varying interpretations — but for the auditing committee, figures and reports that reflect those figures never lie.

Key Components of an Auditing Committee Charter

• Purpose/Mission: The financial reporting, internal controls, independent auditor relationships, prevention of waste in assets, protection against excessive and unnecessary liabilities, the wise allocation of resources, and accuracy in reporting all financial matters
• Authority: The scope of the committee’s areas of recommendations to the full board and the binding effect of its final decisions
• Composition: Qualifications for committee membership, term limits, degree of independence, and professional expertise requirements
• Procedures & Operations: Meeting schedules, quorum requirements for rule making, how minutes are recorded, and reporting procedures and deadlines expected by the full board

Duties and Responsibilities of the Auditing Committee

• Recommending to the board the selection, retention, or termination of the outside auditor
• Defining the scope, fee, risk factors, and general extent of the outside auditors’ annual audit. No limitations should be placed on the scope or nature of their audit procedures
• Reviewing the corporation’s accounting and financial reporting controls and requiring an annual report from outside auditors on the adequacy of the corporation’s accounting and financial reporting controls
• Reviewing with the COO and outside auditors generally accepted accounting and reporting principles, practices, and procedures applied by the corporation in preparing its financial statements
• Verifying the independence of the outside auditors and obtaining formal written statements explaining all relationships between the outside auditors and other consulting work being performed for the corporation
• Conducting annual reviews of conflict-of-interest statements by the auditing staff
• Reviewing the annual auditing report with the president and CEO and the outside auditors to verify that the outside auditors received cooperation during their audit, including access to all requested records, data, and any other information pursuant to current accounting standards relating to the conduct of the audit

The work of the auditing committee may not monitor the performance of all the employees or their capacity to perform their assigned duties, but it will safeguard the financial and property assets of the corporation and point out any mishandling of those assets. The effectiveness of the auditing committee is established by the charter document that sets up the committee and guides its work. To make sure your auditing committee charter is complete, you should contact the corporate lawyers at Corporate Securities Legal LLP. Their experience and expertise in corporate governance will give you peace of mind that your corporate assets are well protected.

Types of Risk Metrics

Failure to comply with those requirements can result in:

• Legal challenges to items not on the agenda
• Violation of the company’s bylaws
• Failure to meet quorum requirements
• Questions about the validity of any votes taken
• A petition to a court to invalidate the defective proceedings

The best solution to ensure full compliance is to conduct the meeting by following a well-prepared shareholders meeting script. It is a prepared, step-by-step guide for the meeting chairperson to officially conduct an annual or special meeting. It dictates exactly what to say and the sequence of events to ensure the company follows legal requirements.

Key Components of a Script

• Call to Order & Welcome: The chairperson formally announces the start of the meeting
• Proof of Notice & Quorum: The corporate secretary states that meeting notices were legally distributed and that enough shares are represented to establish a quorum so business can be conducted
• Approval of Previous Minutes: A motion is made and voted on to accept the minutes from the last shareholder meeting
• Management Presentations: Company leadership presents annual reports, financial updates, and future outlooks
• Voting/Proposals: Shareholders vote on official matters, such as electing the board of directors, appointing auditors, reviewing executive compensation, and properly submitted proposals under SEC Rules
• Other Authorized Business: Any other specific matters detailed in the proxy solicitation materials
• Q&A Session: An open floor for shareholders to ask questions about the company
• Adjournment: A final motion and vote to formally close the meeting

Why a Script Is Used

• Maintains Compliance: It covers all agenda items and ensures that mandatory corporate formalities are satisfied
• Prevents Disputes: It protects against any challenges to the validity of votes or voting procedures
• Manages Disruptions: It gives pre-approved, legally correct language to maintain orderly proceedings, and to handle objections, shareholder questions, and meeting disruptions
• Aligns with Minutes: It is the precursor to the meeting minutes and a check against the accuracy of the meeting’s actions

Legal and Procedural Statutes

• State Corporate Law: Governs the statutorily required topics of electing directors, the date of the meeting, notice periods, and voting standards
• Corporate Bylaws: Determine who chairs the meeting, procedural rules, and the contents of the agenda
• SEC Regulations: Require public companies to file annual meetings and proxy requirements documents

When you are dealing in a regulated industry like equity in public companies, whose shares are traded on public exchanges, it is foolish to risk not being in compliance with all the statutes and regulations. The consequences of non-compliance are too devastating. That is why the professional counsel from securities lawyers at Corporate Securities Legal LLP is a gold standard for making wise choices in this critical industry.

To protect their professional reputation and to make sure they have complied with generally accepted accounting principles, your outside auditors need to account for any contingencies of liability by the company that may have a negative impact on the financials. To do that, as part of the audit process, they will send a letter to your company attorney asking for information about any contingent company liability based on pending or threatened litigation loss. The letter must be signed by an authorized company officer or board member to authorize the attorney’s response. The letter is only needed when the potential financial loss is material, which is decided between the auditor and the company.

This situation puts you in a difficult position between a rock and a hard place. You need to report your financial status to your investors, including an account for any litigation, claims, and assessments against the company, but the attorney’s response to the audit letter presents a problem of the potential waiver of the attorney-client privilege. Generally, any disclosure to a third party of otherwise privileged information acts as a waiver of the attorney-client privilege. There are limited exceptions to this rule. The attorney’s response is critical and delicate and needs to be prepared in consultation with you as the client.

The American Bar Association dealt with this problem by issuing guidelines for the appropriate scope of a lawyer’s response to the auditor’s request. A lawyer may properly respond to the auditor’s request for information concerning loss contingencies if:

• The client has authorized the disclosure
• The disclosure would not reveal any attorney-client confidence
• The client has been informed of the legal consequence of the disclosure
• The response is limited to the scope of the engagement and the items to which the representation pertains
• The client has already disclosed information regarding pending litigation, contractual obligations, or an unasserted claim
• The attorney does not express any opinion or judgment as to outcomes
• Disclosure is limited to materiality
• It is clearly included in the response that any disclosure does not act as a waiver of attorney-client privilege

The securities lawyers at Corporate Securities Legal LLP have been responding to audit litigation letters for many years. They vigorously protect communications with their clients while giving disclosure to auditors that satisfies their professional obligations. They understand the delicate situation their clients face in meeting the needs of their investors and achieving full compliance with all SEC regulations. They understand that professional standards for both lawyers and auditors are only there to protect their clients.

There are several other sources for a business to obtain financing. They include:

• Mergers & Acquisitions (M&A) is teaming up with another company and its resources
• Capital Markets (IPOs, Secondary Offerings) raise money from investors based on required prospectus documents which you file as an accurate representation of the status of your company
• Private Equity & Venture Capital receives money from specialized investors who take stock in your company and demand certain voting rights so they can have a say in the operations of the company. Their goal is to help your company grow fast so they can sell their stock and make a healthy profit
• Equity Financing involves selling shares of stock in your company and diluting your share of the ownership and control of your company
• Hybrid Securities start as a loan but can convert into equity
• Derivatives are hedges against market fluctuations in interest rates or commodity prices, including futures, options, and swaps
• Government Grants do not require repayment but they come with strict compliance requirements and usage limitations

All these alternative forms of business financing deal with money from other parties and carry significant risks. They are strictly governed by statutes relating to securities, taxes, contracts, and corporate governance. Violation of these laws takes the forms of debt default, breach of contract, misrepresentation, and regulatory non-compliance. Violations result in various consequences, including:

• Acceleration of Debt and Penalties
• Seizure of Collateral
• Personal Liability for Debts
• Lawsuits and Judgments
• Forced Bankruptcy
• Loss of Equity and Control
• Regulatory Fines
• Contractual Disputes

Why Legal Expertise Matters

The legal complexities of business financing can be overwhelming to anyone who does not fully understand the risks associated with the different types of financing. Missteps can create severe financial consequences, legal disputes, or loss of business control. Risks can be mitigated in a variety of ways that are sound and legal. The experienced business finance lawyers at Corporate Securities Legal LLP specialize in business finance law and can assist you in securing and managing your business finances effectively.

It involves vetting issues that affect the business by being proactive, rather than reactive, in response to problems. It can reveal opportunities, uncover hidden risks, and go beyond the basics, evaluating context, culture, long-term risks, and whether the pursuit aligns with the organization’s values.

Key Aspects of Due Diligence

• Risk Mitigation: Identifying issues early and establishing solutions to avoid lawsuits, regulatory fines, or reputation damage
• Verification: Confirming the accuracy of reported income, assets, and liabilities
• Strategic Alignment: Evaluating if the proposed deal aligns with long-term business goals

Due Diligence Can Focus on a Variety of Business Issues

• Technology development
• Cyber networks
• Supply chain
• Financial reports
• Regulatory compliance
• Environmental, social, and governance issues
• Legal status
• Real estate claims
• IT licensing
• Market position
• Customer database

Common Procedures to Conduct the Due Diligence Process

• Define goals for the relationship
• Set roles and responsibilities
• Develop a questionnaire
• Audit company documents and/or processes
• Assess risk management policy
• Report on findings
• Monitor and mitigate risk

Why Due Diligence Is Important

• It verifies the accuracy of seller representations
• It uncovers undisclosed liabilities such as:

    ◦ Pending lawsuits

    ◦ Tax liens

    ◦ Environmental violations

    ◦ Contract breaches

• It provides a basis for future planning by:

    ◦ Revealing operational issues

    ◦ Key customer dependencies

    ◦ Employee concerns requiring attention

How Lawyers Can Help

Due diligence is always enhanced by obtaining outside expertise from lawyers with professional experience. The business lawyers at Corporate Securities Legal LLP, with their experience and comprehensive knowledge of business operations, can identify and resolve red flags in financial, legal, contractual, operational, and tax compliance issues. They will help you define what you need to know, why it matters, and how the findings will influence your business decisions. The process involves:

• Setting clear workflows for collecting and analyzing information
• Integrating technology and automation to streamline the collection of information
• Organizing findings by risk level — low, moderate, and high — and assessing both likelihood and impact under various scenarios
• Keeping a clear audit trail by documenting key findings and any unresolved questions in a final report for executive decisions and post-deal action plans
• Continuing to monitor by establishing procedures to ensure compliance, performance, and alignment with your values and goals

Now you are ready to expand your business to serve more customers and increase your profits. You are now an experienced businessman so you should be able to do it yourself by just working harder. You won’t need your lawyer this time, right? Hold on. Not so fast. There are four different ways to expand your business, and each one has its own challenges and legal risks. They focus on increasing existing market share, entering new markets, developing new products, or expanding into entirely new business areas.

Deciding which type of expansion is right for you is critical. The best strategy is the one that aligns with your company’s current position, long-term vision, resources, goals, financial standing, and appetite for risk.

Here are the four key directions for business expansion:

Market Penetration

This option involves increasing sales of your current products or services in your existing market. This involves:

• Sharpening your marketing by targeting the demographics who are most likely to choose your products
• Enhancing customer service through customer feedback
• Adjusting pricing to boost market share
• Studying your customers’ loyalty and purchasing behavior

Market Development

This option involves entering new markets with your existing products or services. This involves:

• Opening a new location
• Targeting new demographics
• Evaluating your competitors’ strengths and weaknesses

Product Development

This option involves developing new products or services to reach new or existing markets. It involves:

• New products or services to sell to your existing customer base
• Creating add-ons
• Innovating to solve different customer needs

Diversification

This option involves offering new products or services in a new market that complement your existing offerings. It involves:

• Entering a new market with a new product, which is the highest-risk strategy but offers the highest potential reward
• Entering new industries or business lines unrelated to your current products

Supporting Expansion With Help From Others

• Partner with other businesses to expand your reach or product range
• Purchase or merge with another business to rapidly expand market share or capabilities
• License your business model to others to expand to new locations without high capital investment
• Expand by taking control of your supply chain (moving backward) or distribution (moving forward)

You Don’t Have to Do It Alone

Expanding your business can be a lot like when you started the business. Even the best-laid plans can sometimes fail. Before making any business decision, you should consult a business lawyer who can advise you, based on your individual situation. He will identify financial, operational, and regulatory risks early to find ways to mitigate them and protect your business as it expands. The business lawyers at Corporate Securities Legal LLP have successfully helped clients expand their business for many years.

The second reason one comprehensive contract is a bad idea is that if there is a breach of even a minor part of the contract it could void the entire contract and put you back to square one. The solution is one principal contract giving general provisions, then several ancillary documents that cover all the necessary details.

Ancillary legal documents are supplementary agreements, certificates, or instruments that support and accompany a primary legal document to ensure all details of a transaction or plan are fully executed. They are subordinate to the main contract and are designed to fill in gaps, address specific “what if” scenarios, or facilitate the transfer of assets.

There are different types of ancillary documents to cover multiple categories necessary to complete the purchase or merger transaction.

Post-Closing Commercial Arrangements:

• Supply agreements assure the dependability of supply chain arrangements
• Distribution agreements assure the reliability of customer dependence
• Service agreements mitigate transition risks and define post-closing obligations
• Disclosure schedules provide specific exceptions to the general representations and warranties made in the main agreement
• Settlement statements summarize the financial transactions, including the final purchase price, adjustments, and prorated costs
• Secretary’s certificate certifies that the board of directors and shareholders have authorized the transaction and all conditions have been met

Restrictive Covenants:

• Non-competition, non-solicitation of employees or clients to protect the buyer from the seller starting a competing business
• Non-Disclosure Agreements (NDAs) protect confidential information before and after closing by either party
• Resignation letters from the target company’s current directors and officers

Asset/IP Transfers:

• Bills of sale transfer title to tangible personal property like equipment or furniture
• Intellectual property assignments transfer rights to trademarks, patents, copyrights, and domain names
• Real property leases, quitclaim deeds, deeds of trust, promissory notes, and title insurance policies
• Assignment and assumption agreement transfers specific contracts, leases, and licenses from the seller to the buyer

Employment & Transition:

• Consulting agreements contract key employees or former owner to stay on for a period
• Escrow agreements govern a portion of the purchase price funds set aside by a third party to satisfy post-closing indemnification claims

Operational Support:

• Transition Services Agreements require the seller to provide temporary support (like IT or accounting) to ensure the business stays operational after the sale
• Lien Releases confirm that secured debts are paid off at closing

Avoiding costly court intervention or litigation is the work of the lawyers at Corporate Securities Legal LLP by drafting all necessary and appropriate ancillary documents, and watching out for potential red flags in a proposed merger or acquisition.

Cost optimization is a strategic approach to balancing expenses while automating applications, processes, and services to improve business value and performance. Business value is built upon favorable customer experience, profitable growth, and sustainability. Cost optimization involves:

• Analyzing operational and financial activities, then reducing unnecessary expenses and maximizing the value of every dollar you do spend
• Identifying inefficiencies that don’t align spending with your business goals, to enhance strategies that expand both cost efficiency and business outcomes
• Optimizing technology, processes, and vendor contracts to ensure sustainability without compromising quality
• Auditing software, automating tasks, leveraging cloud services, and renegotiating vendor contracts to support long-term growth, productivity, and customer satisfaction

What Is The Difference Between Cost Optimization and Cost Reduction?

• Cost optimization aligns costs with business objectives to achieve efficiency, so quality and performance are not compromised
• Cost reduction is used to achieve short-term financial goals through savings. It involves eliminating non-essential expenses, which can sometimes lead to reduced quality or diminished value

Why Cost Optimization Is Important

• Strategic sustainable growth results when companies have financial flexibility to reallocate savings toward innovation and projects that fuel growth
• Operational efficiency optimizes automation processes to deliver value, reduces waste, improves workflows, and minimizes human error to significantly increase the company’s bottom line
• Resilience in market fluctuations and economic downturns is achieved with a strong, long-term focused balance sheet
• IT & vendor management reduces waste from unused software licenses and improves vendor agreements
• Improved resource allocation enables organizations to identify financial, technological, and human inefficient areas and redirect resources to higher-value business priorities

Cost Optimization Applies to Multiple Functions

• Contract negotiation to analyze vendor proposals for built-in scalability and volume discounts
• Reducing redundant subscriptions to identify duplicate functionalities and consolidate tools into single platforms
• Optimizing payment terms with vendors to extend payment cycles or secure early payment discounts can improve cash flow and cost savings
• Usage-based cost management ensures the company isn’t overpaying for unused services or unnecessary capacity
• Strategic vendor consolidation can streamline procurement operations and unlock bulk discounts

You may wonder why lawyers are concerned about cost optimization in running your business. Having the tools and experienced lawyers on your side when starting your new business is critical. Starting a business requires making strategic decisions from the beginning. These early choices can shape the course of the enterprise for years to come. Financial strategies also come into play, both in funding the business and providing for its continued growth. With more than 50 years of pooled experience — and as business owners themselves — our lawyers understand the legal, financial, and practical challenges of starting a business. We enjoy helping entrepreneurs avoid common pitfalls and build toward a thriving future. The lawyers at Corporate Securities Legal LLP stand ready to help you.

Financial institutions used to close customer accounts or refuse to open customers’ accounts based on subjective reasons such as:

• Mitigating risks related to regulatory compliance
• Money laundering
• Fraud
• Terror financing
• Operational risks
• Religious or political views
• Avoiding reputational damage to the bank
• High-risk or politically sensitive industries

In 2011, federal regulators began issuing informal guidance encouraging banks to consider these subjective standards. This practice gave regulators great latitude to be biased against certain industries which they considered to be too risky and to warn banks against doing business with them.

Banks are heavily regulated and can only operate when in good standing with the regulators. Banking regulators are more than a strong influence on bank operations. They can direct and control bank activities.

President Trump’s August 7, 2025, Executive Order, “Guaranteeing Fair Banking for All Americans” (EO 14331), requires banks to ensure that decisions to restrict or terminate accounts (debanking) are based on individualized, documented, objective, and risk-based criteria, rather than political or religious beliefs.

Key Details of the Executive Order and Implementation

• Purpose: To eliminate “politicized or unlawful debanking” by financial institutions
• Requirements: Financial institutions must base decisions on documented, objective, and risk-based analyses
• Regulatory Actions: Federal regulators (OCC, FDIC, Fed, NCUA, CFPB) are instructed to review institution policies, take remedial action (fines, consent decrees) against those engaging in illegal debanking, and remove “reputational risk” as a justification for terminating accounts
• Scope: Protects against discrimination based on political views, religious beliefs, or lawful business activities
• Enforcement: The OCC (Office of the Comptroller of the Currency) announced actions to enforce this order, including reviewing bank performance under the Community Reinvestment Act (CRA)

Legislative Efforts

Congress passed the Ensuring Fair Access to Banking Act to further solidify these requirements into federal law. This law places restrictions on certain banks, credit unions, and payment card networks if they refuse to do business with a person who complies with the law. Restrictions on financial institutions for violations include prohibiting the use of electronic funds transfer systems and lending programs, termination of an institution’s depository insurance, and specified civil penalties. It establishes the right for a person to bring a civil action for a violation of this bill.

Government officials used to encourage banks to debank customers primarily to mitigate perceived risks related to money laundering, terrorism financing, and fraud. Using initiatives like “Operation Chokepoint” and “Know Your Customer” (KYC) rules, regulators have pushed banks to close accounts for high-risk or politically disfavored industries (such as gun manufacturers, crypto, and energy companies) under the guise of “reputational risk”.

Neither the Constitution nor any Congressional statute grant powers to the regulators to decide which lawful businesses deserve access to banking services. If you have been the victim of debanking, please consult the lawyers at Corporate Securities Legal LLP to review your rights and protect your financial reputation.

“The third-party litigation financing industry is not specifically regulated under U.S. federal law. However, some states regulate consumer funding by, for example, limiting the fees funders can charge. There also is no nationwide requirement to disclose litigation funding agreements to courts or opposing parties in federal litigation, although courts have required disclosures of funding arrangements in some instances”. The Litigation Funding Transparency Act and HR 1109, which seek to expose potential conflicts of interest and reduce risks of prolonged, funded litigation was introduced in Congress in February of 2026 but is still moving through the process to become law.

Common Complaints and Risks

• Lack of Transparency: TPLF agreements are usually confidential, and not subject to discovery, although that rule is slowly changing. The objective is to increase transparency and mitigate risks in the justice system. Defendants are put at a disadvantage if they do not know if a third-party investor is pulling the strings in a lawsuit.
• Control over Litigation: Although funders are investors, they may require contractual control over case decisions, including veto power over settlements.
• Foreign Influence: Many foreign entities are using TPLF to attack U.S. companies and gain access to sensitive information.

How TPLF Impacts Commercial Businesses

• Rise in “Nuclear Verdicts”: The influx of outside capital allows plaintiffs to pursue high-stakes, prolonged litigation, often resulting in massive, excessive jury awards that exceed $10 million.
• Increased Litigation Frequency: TPLF incentivizes the filing of non-meritorious or “questionable” claims, as plaintiffs are shielded from the risks of losing.
• Harder Settlement Negotiations: Because funders prioritize maximizing their investment returns, they may push for higher payouts, rejecting reasonable, early settlement offers that businesses often prefer.
• Rise in Specific Areas: TPLF is common in large commercial disputes.
• Operational Strain: Businesses face higher insurance premiums, tighter coverage terms, and increased legal fees defending these cases.

Although federal and state regulation of TPLF is slow in coming, businesses can take steps themselves to mitigate risks through contractual arrangements and other possible legal positions. The lawyers at Corporate Securities Legal LLP have many years of experience dealing with difficult threats to business operations, both for startups and for public companies.