Public companies are required to provide, on a regular basis, extensive information about their businesses and financial condition. All of that information is readily available to shareholders and others. Conversely, similar information regarding private companies is generally not available, even to its shareholders. For that reason, the laws of virtually every state give private company shareholders limited rights to receive non-public information regarding a private company in which they own an equity interest.

The laws of each state vary somewhat. As to certain types of information (rights to a list of shareholders), they are often quite clear. In other areas (financial information), they are often more subjective. However, in virtually all cases the requesting shareholder is required to make a written request which enumerates the requested information and sets forth a “proper purpose” for the request; that is, one that is reasonably related to the person’s interest as a shareholder.

It has become increasingly common for minority stockholders of private companies to request confidential company information. When that occurs, the company’s board of directors or LLC managers need to understand the company’s rights and obligations.

In his latest business advisory, PLDO Partner William F. Miller, details a recent decision by the Delaware Chancery Court in the case of Bizzari v. Suburban Waste Services Inc., and provides analysis of the Court’s “credible basis” standard used to strike a balance between granting shareholders access and protecting the corporation “from wasteful fishing expeditions based entirely on curiosity.” Attorney Miller also provides practical tips private companies should consider to pre-empt disputes or costly litigation in the article entitled, Shareholder Demands for Confidential Company Information. Regarding shareholder requests for company information or other business matters, contact Attorney Miller at 866-353-3310 or email wmiller@pldolaw.com.

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"POWERED FOR BUSINESS SUCCESS" — OWNERSHIP AGREEMENTS

In the second article of PLDW’s “Powered for Business Success” information series, PLDO Managing Partner Gary R. Pannone addresses the importance of carefully drafting and clearly stating the conditions and provisions included in ownership and shareholder agreements of an enterprise.

When two or more individuals join forces to form a business, other than making certain the name is available, the parties must first address ownership of the enterprise in a shareholder agreement for corporations, or an operating agreement for limited liability companies.

If the entity is an S corporation, which provides for a single level of taxation at the shareholder level and is a fairly common corporate structure, profit and loss must be split in accordance with the stock ownership of the company. The limited liability company structure provides greater flexibility. In this structure, the agreement should carefully outline each owner’s initial capital contribution to the company, his or her relative ownership interests and share of profits and losses, and the order of preference or priority in making distributions. If it is contemplated that the limited liability company may require additional capital, it is important that the operating agreement also provide what each owner is required to contribute and under what circumstances. Thus, it is common for a limited liability company’s operating agreement to include a contingent requirement of additional capital contributions, which helps to ensure the company’s financial security and assure its continuance.

The shareholder agreement and/or operating agreement should also include specific provisions addressing who will manage, operate, and control the company. In an S corporation, the board of directors and officers are charged with operating the business, while in a limited liability company, managers or the managing members typically control the operations. In either case, the agreement often provides that major business decisions, such as the decision to acquire a new business, sell substantially all of the assets of the company, or to enter into loan agreements, will require a majority or a super-majority (i.e., something more than 51%) of the owners to approve before such action may be taken. Whatever is agreed upon by the founders must be carefully drafted and clearly stated in order to resolve disputes, and avoid litigation, if at all possible.

For more information, please contact Attorney Pannone, who was named Rhode Island’s 2017 Lawyer of the Year by Best Lawyers for his business law practice, at 401-824-5100 or email gpannone@pldolaw.com.

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THE WHO, WHAT, WHEN AND WHERE OF TRADEMARK PROTECTION

Individuals and business owners are faced with a number of options when considering whether, where and when to formally protect the name of their business, products and services and the logos they use in connection therewith.  The answers depend on the circumstances unique to each business, and it is important for owners to assess of the pros and cons of each option before filing for trademark protection.

Determining whether to file for trademark protection depends on the business owner’s plans for their business and whether trademark protection is important to him or her.  Once a trademark registration is obtained, no other business can use a similar name or logo that is likely to create confusion among potential customers.  Therefore, if the possibility exists that other businesses may have a name or logo that would confuse customers about the source of the product or service, trademark protection may be a good idea.

Once a business owner has determined that trademark protection is right for her business, the next step is to determine where to file.  A trademark can be filed with the United States Patent & Trademark Office (“USPTO”) and/or with a Secretary of State, depending on whether protection throughout the United States, or within a particular state or states, is important or desired.  For example, if the business owner plans to or is operating in multiple states, a trademark through the USPTO may be the best decision.  A trademark obtained through the USPTO provides broad protection of the name or logo throughout the entire country.  Alternatively, a business owner may not have plans to operate in more than one state and may only be concerned about ensuring that other businesses in that state do not use a name or logo similar to theirs.  In that case, trademark protection can be obtained from the Secretary of State and will be limited to that particular state.

Determining when to file for trademark protection is also a decision unique to each business.  Whether a business owner chooses to file for trademark protection immediately upon formation of her business and before she has an established customer base, or wait until the business is more established, depends on the circumstances.  Such circumstances include whether the market in which the business operates is crowded and the potential for competition is high, and whether the business has the financial resources to spend on a trademark filing.  For example, a new business owner who is initially only operating in one state, may not choose to expend the time and money necessary to obtain a trademark through the USPTO.  She may instead initially choose to file for a state trademark and consider broader protection at a later date, or she may opt not to file until she is confident about how the business will expand and where she will operate.  Alternatively, notwithstanding that a business may be newly established and unsure about the future, the owner may want to lock-in her broad based protection as soon as possible, and therefore file for a trademark through the USPTO right away.  Business owners should be mindful that the USPTO trademark approval process typically takes several months, or longer, before full registration can be achieved, but the date of the initial application is the date from which protection begins. 

Further, even if a business is not using its trademark in the market yet, but the owner wants to obtain trademark protection immediately, trademark protection can be obtained through the USPTO on an intent to use basis.  By filing on an intent to use basis, the business owner attests that it has a good faith intention of using the trademark in commerce in the near future.  This allows the business to set the date that trademark protection begins (i.e., the date of the trademark application) before they even begin selling their product or service in the market.

Certainly businesses have a number of options when deciding whether, where and when to seek protection of their names and logos.  Thankfully, business owners do not have to make the decision on their own.  PLDO’s corporate attorneys can advise and guide businesses and individuals in their decision about whether, where and when to file for trademark protection.  If you are considering filing for trademark protection or have questions about the process, please contact Managing Partner Gary R. Pannone at 401-824-5100 or email gpannone@pldolaw.com.

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OBAMACARE ON "LIFE SUPPORT"

As of December 19, 2016, Donald J. Trump is officially the President-elect. The country’s Electoral College cast their ballots, and Americans are gearing up for what is expected to be a sea change of policy decisions under this new Republican administration and Congress.

Even though campaign rhetoric did not concentrate solely on the Affordable Care Act (“ACA”), it appears that the announcement of an increase in health care costs just prior to Election Day may have had an impact on the outcome. Dean Rosen, who is a Republican lobbyist, sums up what he and others observed in an interview with Modern Healthcare magazine that was published in the December 17, 2016 edition. The 2016 Year in Review: It all looks so different now...reports Mr. Rosen as noting that “Healthcare wasn't the top issue that dominated…But it was always there…”

The results of a Kaiser Family Foundation survey conducted shortly after the election supports the position. As the magazine article reports, Kaiser found that almost 50% of Trump voters wanted the ACA, while 29% wanted it scaled back significantly despite the fact that this legislation has been credited with expanding coverage to nearly 20 million Americans, while reducing the rate of uninsured Americans to approximately 9% from the 16% margin that existed prior to enactment.

On another front, with victory in the rear-view mirror for Mr. Trump, the public is certain to hear from the President-elect’s nominee for Secretary of the U.S. Department of Health & Human Services, Dr. Tom Price. Among other changes to health care policy under his consideration, the Modern Healthcare article reports that Dr. Price is expected to move forward with aggressive action to repeal or dramatically restructure Medicare and Medicaid.

The Democrats’ efforts to push legislation prior to the election that was unfavorable to employers caused business owners and public companies to gear up for major infrastructure changes. However, the perfect storm leading to Mr. Trump’s election will likely reverse most of those plans. The landscape has totally changed with this Republican President-elect who has vowed to offer change and a Republican-controlled Congress hoping for change as well. In the coming months, look for the Trump health care plan to include high-deductible plans, Health Savings Accounts, Medicare and Medicaid modifications, and more choice for patients. PLDW will continue to monitor health care law and related issues going forward and report on further developments as they unfold. For more information, contact Managing Partner Gary R. Pannone at 401-824-5100 or email gpannone@pldolaw.com.

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