THIS ISSUE'S HEADLINES

RI Legalizes Recreational Use of Marijuana Ð Final Bill Gives Licensed Cultivators the Expanded Right to Manufacture

Avoiding Common Legal Mistakes Made by Startups

More on the Impact of Current Market Conditions on Acquisition Transactions

Piercing the Corporate Veil

Stay Informed — PLDO COVID-19 Resource Library


RI LEGALIZES RECREATIONAL USE OF MARIJUANA

Final Bill Gives Licensed Cultivators the Expanded Right to Manufacture

ItÕs official - Rhode Island has become the 19th state to legalize recreational marijuana. On May 25, 2022, the Governor signed into law a bill that not only allows adults over 21 to possess, use and grow cannabis but critically, a new framework for sales and taxation of marijuana at state-sanctioned stores. The most significant development for industry participants is arguably the material addition of a last-minute amendment to the bill, allowing cannabis cultivators the expanded right to manufacture cannabis products in the highly lucrative recreational marketplace. Without this additional language, only the three compassion centers would have potentially been able to manufacture cannabis products.

PLDO Partner Benjamin L. Rackliffe has been at the forefront of advising businesses on state and federal cannabis law and policy landscape in both medical and recreational markets throughout New England and elsewhere, including being instrumental in the final Rhode Island legislation. To learn more, read Attorney RackliffeÕs Advisory, RI Legalizes Recreational Use of Marijuana Ð Final Bill Gives Licensed Cultivators the Expanded Right to Manufacture. If you have questions on cannabis legal matters, please contact Attorney Rackliffe at 401-824-5100 or email brackliffe@pldolaw.com.

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AVOIDING COMMON LEGAL MISTAKES MADE BY STARTUPS

As a startup company, the decisions you make when forming and organizing your business can have significant consequences that are difficult or expensive to remedy when you have an investment deal on the line. Outlining the roles and responsibilities of the founders and the time commitment they are expected to contribute is paramount in maintaining consistency and succession. Failure to check this box could lead to expensive litigation and major issues with potential investors.

Read PLDO Managing Principal Gary R. PannoneÕs advisory, Avoiding Common Legal Mistakes Made by Startups, to learn about the other key issues to address early on in the process, including:

  • Equity & Vesting;
  • Compliance;
  • Tax;
  • Operations and Payroll; and
  • Governance

Investing in proper planning and professional assistance will provide a better opportunity for success, as will having a predetermined game plan to address issues that may occur in the future. For further information on starting a business, please contact Attorney Pannone at 401-824-5100 or email gpannone@pldolaw.com.

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MORE ON THE IMPACT OF CURRENT MARKET CONDITIONS ON ACQUISITON TRANSACTIONS

Two months ago, PLDO Partner William F. Miller published a Client Advisory discussing the anticipated impact of current market conditions on acquisition transactions (ÒM&A TransactionsÓ). These included a likely increase in earn-outs and sign and close transactions, more restricted availability of debt financing, and sellersÕ willingness to accept deferred payments that are unsecured. Now, as summer approaches, inflation is continuing at a rate not seen in decades and the experts do not see an end in sight.

In his latest advisory, More on the Impact of Current Market Conditions on Acquisition Transactions, Attorney Miller dives into more detail on how the current rate of inflation is further impacting M&A Transactions, particularly as it relates to escrow arrangements, and the types of different approaches the parties in a particular transaction may use to minimize any negative impact on the security an escrow holdback would otherwise afford the buyer in an M&A Transaction.

If you have further questions on M&A transactions or other business matters, please contact Attorney Miller at 508-420-7159 or email wmiller@pldolaw.com.

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PIERCING THE CORPORATE VEIL

The concept of Òpiercing the corporate veilÓ continues to be misunderstood and a highly litigated issue. As a general rule of law, corporations are legal entities separate from its shareholders and responsible for its obligations. However, under certain circumstances, if a court pierces a company's corporate veil, the owners, shareholders, or members of a corporation or LLC can be held personally liable for the liabilities of the corporate entity.

Courts have employed multiple reasons for imposing liability on shareholders for the acts of the corporate enterprise, including undercapitalization; failure to follow corporate formalities; co-mingling of funds or overlapping of corporate or personal records; misrepresentations; lack of substantive separation of shareholder and entity (which would include parent-subsidiary); and use of the entity as an instrumentality of its shareholders. However, whether a Court makes a determination to permit a creditor to seek relief from shareholders differs from state to state.

Courts will always scrutinize the relationship of a parent corporation and its subsidiaries. The decision to pierce the veil of a corporation to protect creditors is fact-driven and requires an examination of multiple factors. PLDO Managing Principal Gary R. Pannone shares how liability has been determined in specific court cases and discusses the importance of keeping parent companies and their various entities completely separate in his advisory entitled, Piercing the Corporate Veil.

For further information on creating a corporate entity or other form of business, please contact Attorney Pannone at 401-824-5100 or email gpannone@pldolaw.com.

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STAY INFORMED – PLDO COVID-19 RESOURCE LIBRARY

PLDOÕs team of attorneys continue to add updates and advisories regarding the pandemic and its impact on families, businesses and organizations. To access our COVID-19 Resource Library, click here.

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