TheCorporateCounsel.net

Just ahead of today’s SEC and PCAOB Section 404 Roundtable, there have been three recent notable commentaries:

1. On Monday, the GAO issued a report entitled “Consideration of Key Principles Needed in Addressing Implementation for Smaller Public Companies,” which found that there is a disproportionate cost of compliance for smaller public companies to implement Section 404 but expresses concern over the Small Business Advisory Committee’s recommendation that smaller companies be exempt from Section 404.

2. On Monday, SEC Commissioner Cynthia Glassman gave a speech entitled “Internal Controls Over Financial Reporting – Putting Sarbanes-Oxley Section 404 in Perspective.”

3. Last Thursday, PCAOB Board Member Charlie Niemeier gave a speech entitled “Confronting the Challenges of Change in the World of Financial Reporting,” which includes comments on the rise in cost of capital when a company fails to have adequate internal controls as well as some interesting stats on foreign listings by US companies.

The FEI’s “Section 404 Blog” describes comment letters submitted to the SEC for the purposes of today’s roundtable. And yesterday, the SEC and four banking regulators issued a revised draft policy statement on complex structured finance activities of financial institutions – which includes internal controls and risk management procedures – to make it more principle-based, among other changes.

NYSE Proposes to Eliminate Treasury Share Exception

Last Friday, the NYSE submitted a proposal to the SEC that would eliminate the “treasury share exception” from the requirement for shareholder approval under Section 312.03 of the NYSE Listed Company Manual. From reading this blog, it’s clear what the history is on this. The proposal has not yet been published for comment by the SEC and could still be changed.

Although Section 312.03 requires that companies obtain shareholder approval before issuing stock in certain situations or in significant amounts, the calculation of whether the amount of shares issued triggers the shareholder approval requirement doesn’t apply to the reissuance of treasury stock in some cases (i.e., previously issued and listed shares that previously were reacquired by the company). In particular, the NYSE proposal would:

– Eliminate the treasury share exception entirely
– Require that companies notify the NYSE regarding issuances of treasury shares; and
– Clarify that the shareholder approval requirements for issuances to related parties cover a “series of related transactions”

In its proposal, the NYSE clarifies that companies may continue to rely on the treasury share exception until the SEC approves the rule change. But note on page 5 of the proposal: “Issuances effective on or after that date will be unable to utilize the treasury share exception, even if the issuer had contracted for the issuance prior to that effective date.” In other words, the NYSE states that once the SEC approves the rule change, the treasury share exception is not available for any transaction – even if contracted for prior to the rule change.

This could hurt those companies that may have contacted the NYSE and obtained their blessing that shareholder approval isn’t necessary, contracted for the arrangement, and then the arrangement is effected after the SEC approves the rule proposal; in this situation, shareholder approval would still be necessary despite the NYSE’s prior acquiescence.

Developments for LLCs Doing Business in New York

Significant developments for any LLC that does any business in New York. In this podcast, Monica Lord of Kramer Levin provides analysis of changes in the laws – that are effective on June 1st – impacting limited liability companies doing business in New York (here is more information on these new laws), including:

– What are the latest developments for LLCs doing business in New York?
– What are the consequences of noncompliance?
– Can you tell us more about the new requirement to disclose the identity of the top ten members?
– Are there any exemptions?
– What should LLCs do now in anticipation of these changes?
– I hear that a revision to the law is being considered in Albany. Might all this change?