For decades, the United States has had a reputation as the place to go for bad actors looking to launder money and fund criminal activities. Attempting to rectify this situation, Congress spent years drafting legislation to serve as a deterrent. The product, the Corporate Transparency Act (CTA), was the culmination of years of work by legislators across the aisle and multiple Congresses. The CTA’s mandatory reporting requirement sought to create a centralized database of information about all entities doing business in the United States, both foreign and domestic, and the individuals in positions of authority for each of those entities. However, following judicial challenges resulting in the law being deemed unconstitutional, the Executive Branch scaled back enforcement of the CTA. Under the Interim Final Rule (IFR), reporting requirements are no longer imposed on domestic reporting companies or American beneficial owners. This change was applauded by some, especially small businesses in the United States who argued that the reporting requirement was burdensome. Others, however, disapproved of this change and argued that the IFR runs counter to Congressional intent and is destined to be ineffective. This Note argues that, given the recent court rulings, Congress should pass an amended version of the CTA that is both tailored to the needs small businesses and satisfies Congress’s original intent to create legislation to combat illicit activities. This Note argues that such a new law should focus on: (1) providing dollar-for-dollar tax credits to reporting companies for the expenses incurred in preparing the mandated reports, (2) removing all exemption categories, and (3) limiting the scope of access to the beneficial ownership information (BOI) database. Such a law would properly address small businesses’ interests and would not impede the government’s ability to meet its chief objectives for passing the law.
Research and development (R&D) credits and research and experimentation (R&E) tax incentives have recently experienced legislative changes and litigation related to the questionable methods deployed by R&D consulting firms. Proponents of research tax incentives tout their potential to produce positive externalities and innovation. Critics have pushed back, questioning whether research tax incentives are successfully achieving their purpose. The shifting landscape, litigation over aggressive tax claims, and debatable success of tax incentives signal a need to reassess whether research tax incentives are properly claimed in the United States. This paper proposes stronger regulation of R&D consulting firms to ensure research tax incentives are used to promote valuable research, development, and experimentation.
A series of high-profile companies announcing plans to leave the state of Delaware and reincorporate out of state has sparked many commentators to predict a coming wave of corporate exodus from the First State called “DExit.” This paper seeks to explore the DExit “movement” with a particular focus on “controlled companies” and the recent doctrinal developments that have created a perception that Delaware law has become hostile to such governance arrangements. I will begin by discussing a brief history of Delaware’s corporate law and its current role in the American corporate legal system. I will then move to a robust discussion of controlled companies, or companies that have controlling stockholders. I will describe two of the arrangements controlling stockholders use to establish corporate control: dual class common stock and contractual control. I will include a brief analysis of some facts and figures regarding recent Delaware departures, attempting to draw a link between controlled companies and the DExit movement. Then I will discuss recent doctrinal developments in the state of Delaware that have created the perception that Delaware is hostile to controlled companies. This robust discussion will examine both how Delaware courts have treated controlled companies in controlling shareholder and contractual control contexts. Finally, I will catalogue recent changes made by the Delaware Legislature to the Delaware General Corporate Law designed to stop companies from leaving Delaware with a discussion of the efficacy of the changes made. This paper attempts to draw a link between controlled companies and the DExit movement and argues that recent changes to the state’s corporation laws are likely insufficient to quell the fears of corporate controllers.
The European Union’s (“EU”) Corporate Sustainability Due Diligence Directive (“CSDDD” or the “Directive”) introduces new human rights and environmental obligations that reshape global corporate governance. This paper explores its impact on US companies, with a particular focus on compliance strategies under both direct and indirect applicability. It contrasts tactical compliance, which emphasizes risk mitigation while meeting minimum legal requirements, against strategic compliance, where companies use sustainability to gain a competitive edge in the market. This paper highlights how varying enforcement levels across EU Member States may incentivize companies to “forum shop” or choose jurisdictions with more relaxed enforcement. It also explores the concept of “loyalty” in compliance, with companies adopting either minimal or substantive strategies based on enforcement dynamics. This paper concludes with the argument that US companies adopting a strategic compliance approach are better positioned to lead in global sustainability, build stakeholder trust, and drive innovation.
Rule 14a-8 under the Securities Exchange Act of 1934 allows stockholders to submit proposals for inclusion in a company’s proxy materials. The rule assumes that Delaware law provides stockholders with the right to submit non-binding proposals for stockholder approval. But as many have observed, this assumption lacks a firm basis in state law, particularly in Delaware. If such a right exists, a stockholder conducting its own proxy solicitation could submit numerous precatory proposals, including those advancing narrow or special interests. This article concludes that, under Delaware law, stockholders do not have an inherent right to submit precatory proposals. Accordingly, a corporation may adopt bylaws to provide for, and regulate, the submission of such proposals. Although others have advocated for regulating precatory proposals through private ordering, they have generally done so on the assumption that stockholders possess a baseline right to submit them. That assumption creates uncertainty: if such a right exists, it is unclear how far a bylaw may go in restricting or conditioning its exercise. This article examines the potential sources of an inherent precatory proposal right—specifically, the Delaware General Corporation Law and case law on fundamental and subsidiary stockholder rights—and concludes that Delaware law does not provide such a right. That conclusion supports broad flexibility to adopt bylaws governing precatory proposals. Such a bylaw would be meaningful to Delaware corporations, regardless of whether it applies only to stockholders soliciting their own proxies or also to Rule 14a-8 proponents, to the extent the Securities and Exchange Commission permits augmenting Rule 14a-8 by bylaw.
The proxy advisory industry is often criticized on two primary accounts: the lack of accountability for informational accuracy in the development of voting standards and the conflicts of interest faced by advisors when they make proxy voting recommendations on issuers to which they have previously provided corporate governance consulting services. The industry has also been accused of having “anemic” levels of competition, since only two advisors command a vast majority of the market share. While much has been written about curtailing the prevalence and effects of proxy advisor conflicts of interest through increased regulation, the regulatory route toward increased informational accuracy is less clear. This Article proposes a single regulatory framework that aims to tackle the industry’s informational accuracy issue by increasing competition. To set the stage, this Article briefly discusses the rise of the industry as well as its modern structure before describing historical factors and barriers to entry that have helped perpetuate the industry’s consolidation. This Article then examines academic studies concerning the effects of competition in the proxy advisory industry before describing considerations necessary for effective regulation due to the industry’s unique nuances and extensive entry barriers. Lastly, it proposes a novel regulatory structure aimed at increasing informational accuracy in proxy advisor recommendations by incentivizing competition while keeping regulatory costs to a minimum.
Mergers in the mobile telecommunications industry are of keen interest to policymakers and scholars. This sector often experiences high concentration levels, driven by pronounced economies of scale and scope, alongside substantial regulatory barriers to entry created by radio spectrum allocations. Hence, antitrust authorities frequently struggle with the tradeoff between the benefits of enhanced synergies and the potentially adverse effects of increased market power. This tension results in varied outcomes from regulatory agencies when approving (or blocking) mergers. Between 2012 and 2016, for instance, four E.U. nations (Austria, Ireland, Germany, and Italy) allowed the consummation of “4-to-3” mobile telecommunications transactions, while the U.K. and Denmark blocked similar combinations. In the U.S., the Federal Communications Commission (FCC) rejected “4-to-3” mergers in 2011 and 2014, yet approved the T-Mobile acquisition of Sprint in April 2020—a decision that continues to spur debate. This Article examines the T-Mobile/Sprint post-merger evidence of retail mobile subscription prices, network investment, service quality, market share, and industry profits in the U.S. mobile communications industry. Our findings suggest that the T-Mobile/Sprint merger has led to consumer benefits, challenging arguments claiming negative impacts due to the carriers’ consolidation.
In internal transactions between affiliated companies, there are two opposite directions of wealth-transfer: (1) in the “forward transfer of wealth” (FTW), the wealth-transfer arises from an affiliated company where a controller’s “economic interest” (i.e., “cash-flow right”) is smaller relative to another affiliated company where the controller’s economic interest is larger; (2) in the “reverse transfer of wealth” (RTW), the wealth-transfer arises from an affiliated company where a controller’s economic interest is larger relative to another affiliated company, where the controller’s economic interest is smaller. This Article puts forward a new finding that the extent of internal-transaction tunneling is affected not only by a controller’s economic interests in the two affiliated companies but also by valuation multiples—such as price earnings ratios (PERs), price-sales ratios (PSRs), and enterprise value / earnings before interest, tax, depreciation, and amortization (EV/EBITDA)—of the two affiliated companies. Accordingly, this Article suggests a new theory that regulatory authorities and courts should pay attention to how changes of market capitalization of the two companies affect the value of shares that the controller holds. More specifically, based on market capitalization-based analysis and PER-adjusted economic interest gap analysis, this Article counterintuitively shows that a controller can sometimes gain private benefits in the RTW internal transaction. Conversely, this Article, contrary to expectations, demonstrates that a controller can sometimes end up with net private costs in the FTW internal transaction. Based on these counterintuitive arguments, this Article provides a new regulatory framework that avoids under- and over-regulation.
To encourage minority shareholder protections and public investment in Brazilian corporations, Brazil passed the New Business Environment Law. The New Business Environment Law’s Corporate Governance Provisions require that all corporations have at least one independent board member, have different individuals serving as their CEO and board chairperson, and grant increased power to the general shareholders’ meeting. This Note predicts that the New Business Environment Law’s Corporate Governance Provisions will have an inconsequential effect on Brazilian minority shareholder protections. Traditional American means of achieving minority shareholder protections may be ineffective in Brazil, due to legal, institutional, and cultural differences between the United States and Brazil. Therefore, this Note recommends that Brazil implement higher independent board member requirements, require that corporations select independent nominating committees to choose corporate board and executive management candidates, mandate larger boards, and stagger policy changes pursuant to the existing Novo Mercado system.
This study aims to bridge the gap between stakeholder capitalism—manifesting today in the evolving corporate social impact paradigm—and the historical shareholder primacy of corporate law. The emerging view of corporate purpose, particularly stakeholder capitalism, is closely related to the notion of fairness. This article demonstrates—by looking mainly at Israeli corporate law—that certain foundational concepts of behavioral economics better describe and justify the recent prominence of stakeholderism and the rejuvenated discourse of corporate social impact and purpose than does neoclassical economic theory. It concludes that the “fairness principle” provides a strong rationale for assimilating stakeholder expectations into the DNA of modern corporations by reframing corporate law.
The invention of Artificial Intelligence (“AI”) has triggered a wave of copyright and trademark litigation that will likely shape the intellectual property laws governing AI for the foreseeable future. Lawsuits against AI giants like Meta and OpenAI stand to declare popular uses of AI as actionable infringement as well as possibly reshape how copyright and trademark law view concepts, such as fair use and derivative works in the age of technology. Meanwhile, businesses are pushing forward rapidly with adopting AI and implementing its use in everyday functions. For many of these businesses, AI is a highly desirable but poorly understood technology, creating the possibility that businesses may be using AI in ways that lead to surprise lawsuits and penalties depending on the outcome of the cases currently pending. This note surveys many of the ongoing lawsuits alleging violations of authors’ copyright and trademark rights, explaining what claims have been brought and their significance for businesses if accepted by the courts. In particular, this note discusses the novel claims being brought, such as the claim that an AI model should itself be declared an infringing derivative work once a work has been uploaded to it without the author’s permission. After explaining the business impacts of these claims, this note suggests that businesses should seek to license any work they wish to upload into an AI model from the author, search for insurance providers willing to develop insurance against copyright and trademark infringement claims for improper AI use, and request specific liability-insulating features when commissioning a custom AI program from developers.
Solving the retirement savings crisis requires widespread access to reliable financial advice. Yet financial advisers often operate without insurance, collecting fees and commissions from customers and leaving them penniless when substandard advice causes harm. Instituting insurance coverage requirements would protect investors and allow market forces to discipline misconduct. For decades, advocates and regulators have raised awareness about the millions of unpaid arbitration awards each year; an insurance solution would significantly reduce the harm suffered. This paper aims to create a roadmap to solve the problem. It identifies the problem and maps out the different levers available to policymakers to increase overall insurance coverage across a fragmented regulatory landscape.
While mindlessly scrolling Facebook, Instagram, or TikTok, users often forget that a complicated web of personal data ownership lies under the screen. This Note analyzes the legal interactions of users, platforms, and third-parties regarding this personal data. Hohfeldian analysis of rights and reciprocal duties in the context of California’s various data privacy statutes and common law doctrines provides a powerful tool for understanding the rocky legal landscape data stakeholders navigate. Courts add further definition to this landscape when adjudicating conflicts between these stakeholders. Legal scholars have also proposed frameworks to simplify the rules of engagement for these stakeholders. Data privacy is an area that has enjoyed historically little top-down examination. This Note hopes to unwind the complicated web that is personal data privacy law.
The Digital Millennium Copyright Act (DMCA) unfairly discriminates against copyright holders by allowing online service providers to employ inadequate and outdated takedown protocols of copyright infringement. These protocols promote piracy resulting in illegal advertisement revenue streams. Congress must reform the DMCA to ensure online service providers are held properly accountable when copyright infringement occurs on their platforms. Specifically, the DMCA’s existing takedown protocols should be reformed to ensure online service providers cannot benefit from issues associated with advertisements attached to posts containing infringing material. This Note examines the pertinent sections of the DMCA; relevant caselaw concerning the DMCA, online service providers, copyright holders, and internet users; and recommendations for changes to be made to reconstruct the DMCA so that it may fulfill its original purpose. The proposed recommendations address rising tensions between copyright holders and online service providers. These proposed solutions involve revising existing takedown protocol requirements to give copyright holders more freedoms rather than limiting their remedies to a “band-aid” fix that only provides an illusory remedy. Efficient and updated procedures should be added to the DMCA, to ensure that copyright holders are protected from the issues presented by an ever-digital climate. We cannot continue to apply a law written in Short Code to a world living in the Metaverse.
Startups use stock options to compensate their employees. An employee’s divorce could result in a change in the formal ownership of the startup securities. However, the startup, the employee, and the former spouse of the employee all have considerable and conflicting interests in the outcome of the allocation of the employee’s securities as part of a divorce settlement. I argue that the startup, along with the relevant tax rules, imposes obstacles on the transferability of the securities to the employee’s former spouse that are likely to distort the settlement outcome. An inefficient outcome is likely because the person who may assign a higher value to owning the securities is both barred from owning them and prevented from receiving equivalent value in exchange. While amending the IRC would allow for more outcomes and could enable the parties to reach a more efficient result, corporate law’s attempt to protect the shareholders’ rights and scrutinize contractual arrangements such as voting agreements and appraisal waivers could have an ex-ante unintended consequence. Specifically, since the startup is likely to continue, it may deprive the former spouse of any equity rights following the divorce and attempt to prevent possible complications to future corporate transactions once the tax pretext is lifted.
Due to their ongoing focus on tax planning and continuous efforts to find new tax minimization strategies, multinational corporations have not been paying their fair share of taxes for a long time. As a result, the federal government is unable to generate much revenue through taxes levied on corporations. The government’s response to this problem has always been the same: introduce new tax laws and regulations, revise old tax laws to close “loopholes,” and hope that this will solve corporate tax evasion. For decades, this approach has failed. This Article examines the history of the corporate income tax in the United States and the parallel evolution of an industry dedicated to helping corporations avoid those taxes. This Article finds that the development of this industry has had significant influence on the federal government’s decisions with respect to how it taxes corporations, usually opting to adopt anti-abuse, -avoidance rules in an effort to crack down on perceived bad actors. These policy choices, though, have had little success over the years. Instead, tax revenue generated from large-scale corporate groups has been modest, and there appears to be a consensus that these entities don’t pay their fair share. We propose a different course. Instead of anti-abuse and -avoidance rules, the tax code should use tax and other economic incentives to encourage entrepreneurs and corporations to invest in the domestic economy. Economic activity creates positive externalities in the domestic economy specifically and United States generally. Congress should amend the tax code to better allocate the proceeds of these positive externalities between the Internal Revenue Service, corporations, and stakeholders. Since the Internal Revenue Code for corporations was enacted in 1909, Congress has attempted to block abusive tax planning. However, its chosen method–deterrence– has had little positive impact on the U.S. economy. In many instances, deterrence has even had a negative impact, encouraging corporations to shutter their U.S. plants and dismiss hundreds of thousands of American employees in favor of foreign operations. Such legislative measures have “trapped” billions of dollars overseas by making the distribution of these profits to U.S. shareholders too costly. Instead, Congress should adopt tax incentives that balance the positive externalities of economic activity on local communities with the need to protect small- and medium-sized businesses’ ability to compete with the entities that will be most advantaged by these favorable incentives. This approach would reduce the advantages built-in to existing complex corporate structures that enable the largest corporations to easily shift revenue and profits to lower-tax jurisdictions. This approach, however, does not jeopardize recent attempts to set a global minimum tax aimed at reducing the tax incentive driving corporations to move operations overseas in search of a lower tax rate. Instead, this Article’s recommendation focuses on rewarding the positive externalities such operations create for domestic communities.
The ability to move digital data internationally has become an asset to countless businesses. Yet an increasing number of countries’ data regulations hinder these cross-border data flows. As such, many have speculated that companies could protect their interests in data flows through international investment law, a regime that lets companies sue foreign governments for harm to private assets. Yet the literature has largely been cursory or equivocal about these suits’ likely success. This Article argues that, under current law, such suits have a strong—if not unassailable—legal basis. Critically, the reality of global data regulation and digital commerce means such suits are only likely to arise in specific contexts. In those contexts, a close reading of the current law reveals that companies will have well-grounded arguments under the treaties, caselaw, and policy of today’s investment regime. The regime’s history also bodes well for them. The real viability of these suits has counterintuitive, opposing implications. On the one hand, such suits could bolster the resilience of—and even catalyze—beneficial domestic and international data regulation by solidifying emerging legal norms. On the other, they could deter countries from adopting such regulation. This negative effect results from the risk that international investment law, by superintending data regulation, will become a form of data regulation itself. To prevent this regulatory spillover, investment tribunals in data-flows cases should reinvigorate a longstanding but neglected tool in the international-investment caselaw: the Salini test. A binding application of Salini in data-flows cases can preserve international investment law’s ability to strengthen beneficial data regulation while ensuring the investment regime remains centered on its economic domain: capital flows—not data flows.
The Supreme Court created strong protections for the attorney’s thought processes and analysis in Hickman v. Taylor. However, the Court in Arthur Young & Co. created a loophole enabling opposing lawyers to access the lawyer’s thought processes and legal strategies. This loophole was created when the Court allowed discovery of an auditor’s tax workpapers, and lower courts then interpreted this decision to imply that disclosing information to the outside auditor constitutes a waiver of attorney work-product protections. This loophole can be corrected through a Congressional statute that impacts the Federal Rules of Evidence, which would protect communications between outside auditors and their clients for legally required audits. If Congress fails to act, then courts should hold that disclosure of documents to outside auditors as part of a Securities and Exchange Commission required audit does not waive attorney work-product protections.
A Delaware court has recently recognized the need to enforce contracts that delineate where the attorney-client privilege rests after an asset transfer. This Article will argue that courts across the country should recognize the important and legitimate reasons for this type of decision. Part I will review how the attorney-client privilege functions for corporations and how courts respect the importance of the privilege in other contexts. Part II will review the fundamental corporate changes in which these questions can arise and situations in which courts choose to recognize the importance of protecting the attorney-client privilege. Part III will argue that courts should apply certain underlying principles that are discussed in Parts II and III to the asset-transfer context. This would result in parties being permitted to contemplate attorney-client privilege issues that may arise following an asset sale and contract to resolve the issues before they ever truly come to fruition. Example provisions are provided as a conclusion.
In October 2019, the National Collegiate Athletic Association (NCAA) announced it would be making a major change to its rules: student-athletes would soon be permitted to receive compensation for the use of their name, image and likeness (NIL). The announcement came in response to an increasing volume of state legislation allowing for student-athlete NIL compensation. On July 1, 2021, student-athletes finally had the opportunity to receive NIL benefits as the NCAA’s interim NIL policy went into effect. This change represents a nail in the coffin for traditional notions of amateurism. For decades, the NCAA defended its rules from antitrust challenges with the procompetitive justification of preserving amateurism. As permissible compensation for student-athletes has expanded, the NCAA has continuously adjusted its definition of amateurism to fit its needs. Now, with the availability of NIL compensation, it has become clear that no coherent concept of amateurism exists in college sports. Yet, the death of amateurism does not have to lead to the death of the NCAA. This Note concludes that in future antitrust challenges, the NCAA will need to point to a procompetitive justification other than amateurism to defend its remaining rules. An antitrust defense based on the unique culture of college sports, rather than amateurism, will align with the realities of student-athlete compensation without sacrificing the NCAA’s ability to enforce eligibility rules. Part I of this Note provides background for the relevant antitrust law and its historical application to the NCAA. Part II discusses how the concept of amateurism in collegiate athletics is unraveling and argues that amateurism will no longer be an effective defense in antitrust challenges to NCAA rules. Part III proposes a solution to the problems addressed in Part II that will allow the NCAA to maintain its distinct product of collegiate athletics without depending on the dying concept of amateurism.
