Monday, November 24, 2014

JD, CIPP/US, CIPP/E - The Purpose of Credentials and Examinations?

Last week I passed an examination on European privacy that entitles me to add CIPP/E after my name.

So what?

When I took the Minnesota bar exam in 1985, failing was not an option. The exam took two days and was intended to determine whether or not I was qualified to practice law. The J.D. (Juris Doctor) degree lets the world know that I graduated from law school and attained a professional doctorate in law. Yes, I graduated with a J.D. from the University of Minnesota law school and passed the bar exam.  I have enjoyed almost 30 years of a very fulfilling legal practice where no more examinations or credentials were required for me to counsel clients in my chosen practice areas of intellectual property law, information technology law, e-commerce and internet law, and data privacy and security laws and regulations. 

So what prompted me to spend many weekends and evenings studying for and taking the examinations necessary to become a Certified Information Privacy Professional (CIPP)? Did I really want to subject myself to the same stress and anxiety I experienced in 1985? Or in 2012 when I took the CIPP/US examination

For the CIPP/E exam, I was ensconced alone in a tiny room in a nondescript St. Paul office building with nothing but the computer terminal and a proctor to make sure that I was indeed Michael R. Cohen and that I would have absolutely no help in completing the exam. Upon answering the last question and hitting the submit key, I learned immediately that I had passed the CIPP/E exam. Instant gratification.

What is the big deal about obtaining a CIPP/US and CIPP/E ?

The CIPP is the global standard in privacy certification. Developed and launched by the International Association of Privacy Professionals (IAPP) with leading subject matter experts, it is the world’s first broad-based global privacy and data protection credentialing program. The CIPP/US demonstrates a strong foundation in U.S. private-sector privacy laws and regulations and understanding of the legal requirements for the responsible transfer of sensitive personal data to/from the United States, the European Union, and other jurisdictions. 

The CIPP/E is the first professional credential specific to European data protection professionals that is part of a comprehensive, principles-based framework and knowledge base in information privacy. The CIPP/E encompasses pan-European and national data protection laws, the European model for privacy enforcement, key privacy terminology, and practical concepts concerning the protection of personal data and trans-border data flows. 

By reviewing the extensive IAPP course materials, I confirmed what I already knew and filled in gaps as necessary. To pass these CIPP examinations, you must know a lot about data privacy and security law. And with our global economy and expanded use of e-commerce and the internet, few businesses today can safely say that they only need to be concerned about privacy laws in the United States. To me, the knowledge gained through preparation for the CIPP/E exam was equally as important as what I learned preparing for the CIPP/US. 

With confidence, I can now help my clients successfully navigate their business through our global data-driven global economy.  I can now help organizations manage rapidly evolving privacy threats and mitigate the potential loss and misuse of information. And I am not finished learning. I continue to monitor developments in privacy law daily to make sure I know what is happening and that my clients are getting the most current advice relative to this ever-changing legal landscape.

So you tell me–are you in compliance with all federal, state, and global privacy laws and regulations? Ready for changes in the EU directive relative to the collection and use of personal information? In compliance with the European “right to be forgotten” and the California eraser law (effective January 1, 2015)? Prepared for the onerous penalties for noncompliance with the new Canadian anti-spam law?  Do you have a plan in place for when a data breach occurs?

If you do not yet have a plan in place for dealing with a data breach or don’t know whether you are in compliance with data privacy and security laws, you may want to consult your favorite lawyer. It should be comforting if you see them wearing a little gold CIPP pin on their lapel.

Michael R. Cohen

Monday, November 17, 2014

How Does Moving Impact Your Financial and Estate Plan Health?

I'm moving. So moving (and packing, hauling, and unpacking) is on my mind. It occurred to me that many clients have questions about what moving means for their financial and estate plans. 

In the context of your estate plan, there are a few things to consider if you are moving. If you are moving to another state within the United States, your will is likely valid in that new state as long as it was validly executed in the initial state. This means that if you executed a will in Illinois that complied with all Illinois requirements, it is most likely still valid in Minnesota.

That being said, it is still important to consider the meaning of that will in the context of the laws of your new state. Your new state may have different estate tax laws, and therefore your plan may not be the most efficient under the laws of your new state. Your new state may subject your property to community property laws, so your estate plan may no longer be appropriate. Your current health care directives and powers of attorney may require a legal opinion before they are respected in the new state. Because these documents apply when you are alive, but incapacitated, waiting for a legal opinion may waste valuable time. Updating these documents upon moving to a new state is a good first step.

If you are moving to another country, there are a number of things in your financial and estate plans that probably need review and changes. First, the requirements for executing a will and other documents may be dramatically different.  For example, in Germany, many legal documents have to be executed in the presence of a notary public—who receives a percentage of your transaction cost as a fee, and has to read the legal document in a very loud voice before you execute it. Additionally, some countries have required heirship rules, especially for real property, so it may or may not be possible to transfer certain property to certain beneficiaries. Finally, it is important to understand the taxing impact the new country makes and whether you would be subject to that country’s estate tax system instead of, or along with, the United States.

Any move should trigger a review of your financial and estate plan health. Make sure you investigate the impact of your move, and ensure that all of the careful planning you have in place still works the way you intended.

Thursday, November 6, 2014

Highlights of the New Minnesota LLC Act

A new LLC Act is coming to Minnesota. In early 2014, Governor Dayton signed a modified version of the Revised Uniform Limited Liability Act, sometimes called RULLCA, into law as Chapter 322C of the Minnesota Statutes. Since it was promulgated by the Uniform Law Commission in 2006, RULLCA has been adopted in 10 states, including California, Florida, and New Jersey, and is continuing to gain acceptance.  

Why in Minnesota? Minnesota’s current LLC Act, Chapter 322B, mirrors the Minnesota Business Corporation Act, Chapter 302A, and takes a very corporate approach to LLC governance. This is at odds with nearly every other LLC Act in the U.S., so attorneys for non-Minnesota parties typically advocate using the Delaware LLC Act. But the complexity of that law, and the potential obligation to litigate disputes in Delaware, can make it inconvenient and costly for Minnesota parties. Chapter 322C, which will replace Chapter 322B in its entirety, adopts a partnership model for LLCs, consistent with most other states’ approaches, and will hopefully reduce the need to go to Delaware.  

How is it different? Chapter 322C differs in a number of ways from Chapter 322B and RULLCA. For example, Chapter 322B’s default rules establish a corporate structure with members, a board of governors, and managers–analogous to shareholders, a board of directors, and officers–whereas Chapter 322C takes a partnership approach and permits three different types of governance structures: member-managed (default), manager-managed, and board-managed. RULLCA does not provide for a board-managed governance structure, but the concept has been maintained in Chapter 322C to support the large number of existing board-managed entities in Minnesota.  

Under Chapter 322C, an LLC’s operating agreement serves as the foundational contract among the LLC’s owners and is the agreement, whether oral, written, implied, or in any combination thereof, of all of the members of an LLC, including a sole member, concerning (i) the relations among the members as members and between the members and the LLC, (ii) the rights and duties of a person in his, her or its capacity as manager or governor, (iii) the activities of the LLC and the conduct of those activities, and (iv) the means and conditions for amending the operating agreement. Thus, it is a hybrid of two traditionally separate documents used by Chapter 322B LLCs–the bylaws and the member control agreement. Moreover, whereas a member control agreement must be in writing, the operating agreement may be an oral agreement or may be created by the course of dealing among members.  

Pursuant to Chapter 322C, unless the operating agreement provides otherwise, distributions by the LLC (before dissolution and winding up) must be made in equal shares (i.e., per capita) among members and dissociated members. Upon dissolution and winding up, any distributions of surplus are made (i) to each person owning a “transferable interest” (i.e., economic interest), in an amount equal to the value of any unreturned contributions, and (ii) in equal shares amongst members and dissociated members. There is no provision specifically addressing the allocation of profits and losses. This differs from Chapter 322B, where distributions, profits and losses must be allocated in proportion to the value of each member’s contribution(s), unless the entity’s organizational documents provide otherwise. (These differences will not affect most LLCs that address these matters in an effective agreement among the members.)    

Unless otherwise provided in an operating agreement, in a member-managed Chapter 322C LLC, each member has equal rights in the management and conduct of the LLC’s activities, i.e., voting is on a per-capita and not per-capital contribution basis. However, in a Chapter 322B LLC, unless otherwise provided in the entity’s organizational documents, members’ voting rights are in proportion to the value of each member’s contribution(s). Finally, whereas Chapter 322B provides statutory dissenters’ rights, Chapter 322C has no statutory dissenters’ rights. Any dissenters’ rights must be contractually-based.  

When do I have to comply? Chapter 322C will become effective on Aug. 1, 2015, for all LLCs formed on or after that date. Any LLCs formed prior to Aug. 1, 2015, may elect to be governed by Chapter 322C, but any Chapter 322B LLC that has not previously elected into Chapter 322C will automatically become subject to Chapter 322C on Jan. 1, 2018.  

What can I do to prepare? For LLCs formed under Chapter 322B, the extent to which documentation may need to be revised for consistency with Chapter 322C will depend on each entity’s specific facts and circumstances. Generally speaking, documents that have been highly customized will require fewer revisions. You may want to consider (i) simplifying your articles, (ii) consolidating the substantive provisions of your existing articles of organization, bylaws, and member control agreement into a single operating agreement, and (iii) eliminating your reliance on any of the statutory defaults contained in Chapter 322B. If you are considering forming a new LLC, include a provision in your operating agreement whereby you automatically elect to be governed by Chapter 322C effective as of Aug. 1, 2015. Your attorney will be a great resource in helping you understand and work through the nuances of Chapter 322C.

You can find the full text of Chapter 322C here.

Tuesday, November 4, 2014

What: Rhoda R. Gilman, Henry Hastings Sibley: Divided Heart (Minnesota Historical Society Press, 2004)

Why: The Minnesota we know today came about because of the restlessness and entrepreneurial yearnings of men like Henry Sibley. 

I’ve written before about the essential role entrepreneurs played in the development of the Great Lakes region. If we’re in the mood to think about the impact of entrepreneurialism on the development of modern American society, we need not travel all the way Up North. Examples abound right here in the Twin Cities.

Over the weekend, I found myself traveling along Highway 110 through Mendota Heights, passing Henry Sibley Senior High School, from which I graduated lo these many, many years ago, and was reminded of the extraordinary—and extraordinarily complicated—life story of the man in whose honor the school was named. If someone were interested in learning how the Minnesota in which we now live came into being, he or she could do no better than to read Rhonda Gilman’s highly engaging biography of this man.

Sibley, the son of a frontier lawyer and judge, was born in 1811 in the small frontier settlement of Detroit, and was educated to be a lawyer like his father. From a young age, though, it was clear he was not destined for a legal career, as he makes clear in an autobiography he penned later in life:

         My father intended me to follow his profession, but after the time indicated 
         had elapsed, I frankly told him that the study was irksome to me, and I 
         longed for a more active and stirring life.

I have known a number of entrepreneurs who started their adult careers in law school, and this sentence could have been written by almost any of them.

In any event, an active and stirring life is what Sibley got. Staring as a clerk in a military sutler’s store in Sault Ste. Marie, he moved on to the American Fur Company in Mackinac. His business acumen and reputation ultimately landed him in what would become Minnesota Territory as a junior partner in an operation that managed Dakota trade north of Lake Pepin and up the Minnesota River Valley, for which he took up residence in Mendota.

From that point, he was integrally involved in the development of the economic infrastructure of territorial Minnesota, and went from strength to strength as “an accommodating trade partner of the Indian/European/Métis worlds and the conquering government official of the ever-expanding west.”

Along the way, Sibley fathered a child by a Dakota woman and maintained a close relationship with her and her maternal family. Nonetheless, as former governor of the state and a congressman, he headed the military response to the Dakota uprising in 1862. I told you it was complicated.

Thursday, October 30, 2014

The Latest on Crowdfunding—Intrastate Intrigue

With all the constant chatter about Crowdfunding, I’ve come to realize that, as the three-year Halloween anniversary of my first post on Crowdfunding approaches, I was ahead of the curve on this one.

Frequent readers of this blog know that several authors have been actively following Crowdfunding developments. They also know that federal and state securities regulators are not excited about the prospect of equity Crowdfunding. Even back in 2011, when I predicted that the SEC would miss the initial deadline for adopting Crowdfunding regulations, I couldn’t have imagined that they might miss it by over two years!

While the SEC has been taking its time enacting the final rules, at least 12 states have enacted “intrastate” exemptions to permit Crowdfunding equity capital to be raised from investors. Each of these statutes has their own requirements (filings, disclosure obligations, limits, etc.), but a common element is that each one makes Crowdfunding available only to companies who meet the requirements of Section 3(a)(11) of the federal Securities Act. This means that they must be organized in the state where the offering is being made, have significant business in the state, and make offers and sales only to residents of that state.

While it isn’t clear how useful these exemptions will be in the context of Crowdfunded equity in general, at least another 12 states have also begun the process of adopting similar regulation. This includes the Land of 10,000 Lakes (or, if you prefer, the North Star State) where this initial draft legislation is in its infancy.

While I fully support the adoption of an intrastate Crowdfunding exemption to make sure that the great state of Minnesota isn’t viewed as too provincial and doesn’t get left behind, the utility of these exemptions remains unclear. Before you rush out to raise equity capital from an intrastate crowd, consider the following: 

If you don’t want to have to become a reporting public company, you still 
   can’t have more than 500 non-accredited shareholders (or 2,000 total  
   shareholders). While provisions of the JOBS Act permit you to exclude 
   Crowdfunding investors from the count for the purposes of determining 
   whether you need to become a reporting company, only Crowdfunding investors 
   under Section 4(6) of the Securities Act (the federal Crowdfunding exemption) 
   are excluded. At least until the SEC finalizes its Crowdfunding rules, you’ll need 
   to count those who invest in an intrastate Crowdfunding.

To be exempt in an intrastate Crowdfunding, you’ll need to implement
   technological measures to limit your communication about the offering to only 
   persons within the state where the intrastate Crowdfunding is happening. 
   In addition to disclaimers and legends on the topic, it may mean restricting
   access to those whose IP address originates from the particular state.

Almost all of the state Crowdfunding exemptions (and those 
   of about a dozen more states that have proposed legislation) require delivery
   of specific disclosure information (description of issuer, risk factors, use of
   proceeds, identification of officers and directors, offering terms, etc.) 
   to prospective investors. Not that you’d want to, but you won’t be able to 
   avoid your friendly neighborhood entrepreneurial services attorney to pursue 
   an intrastate Crowdfunding.

The landscape for equity Crowdfunding is undoubtedly evolving rapidly. If the journey to what it may ultimately look like is a trip from San Francisco to Tokyo, we just passed under the Golden Gate Bridge (maybe we should sing it a song). Stay tuned for updates on federal and state Crowdfunding initiatives.

Monday, October 27, 2014

New (and Improved)?

Another week of technology overload:  A new car and upgraded phones have made me long to live in a lighthouse.

I am a relatively simple person. I appreciate all of the wonderful things that can be done with electronics, but I only want what I want–or need–and only when I’m ready for it.  
Take the new car. It passes the basic function test–it is immediately drivable by using a key, as I have done with countless cars before. It has the same basic components–engine, seats, tires, radio. It has lights and windshield wipers. It is the most recent model of what I have been driving for ten years.

So why am I completely thrown off the first time I drive the car and it happens to be dark and raining?  Because car manufacturers can’t leave well-enough alone. Do they think that moving the wiper switches will amuse me? Or that enabling me to tune the radio on the steering wheel is less distracting than dealing with knobs on the dashboard radio?

And what is with the touch screen? First, it tells me that I shouldn’t pay attention to it while driving because that would be distracting. No kidding. I’m not sure that it has a whole lot of use in my driveway or parking ramp either. I don’t want to diagnose a crack in my block, a leaky hose, or whatever else might be wrong with the car (if I can’t figure out the pictures on the photocopy machine telling me where there is a paper jam, I am hardly likely to figure out what to do under the hood). I don’t want to program the temperature in a gajillion different locations. Either I don’t really need to know, or I will roll down the car window when I get there.

I just want to pre-set my radio stations, turn my lights on and off with my ignition, and go from Point A to Point B without the temptation of trying to find directions to the lowest gas price in the next 100 miles.

The phone is much worse. I finally let go of my beloved Blackberry. You laugh, but it was simple, dependable and exactly what I needed. Maybe not everything I wanted from time to time, but everything I really needed.

My new phone–a Samsung Galaxy S5–is a significant upgrade. Or so I’m told. I’m having trouble getting past the initial screen which pops up an Amazon advertisement with each minor touch. I know that with each passing day, I will master a new button or feature and will learn to love the phone. But for now, I’m panicking about whether or not I will ever speak to my husband again (I have no idea what his cell number is and have lost my “frequent calls” list) and desperate to figure out how to change the annoying alarm tune which only heightens my naturally cranky morning disposition. Most importantly, I do not want the app that will tell me that my blood pressure is going up. I know that without being told.

In the midst of this, we adopted a new dog. A one-ish year-old Staffordshire Terrier, commonly known as a pit bull. He looks like Petey of Our Gang/Little Rascals fame, sans the painted circle around his one eye.

“Teddy” is pure sweetness. Within minutes of bringing him home, he charmed our elderly lab with respect and kindness, and held his own with our border collie by letting her win the toy battles. There is a learning curve with this guy–just like with the car and the phone. But while he can raise my blood pressure (such as when destroying his second remote control), he more often brings it down with a mischievous grin, a lick, or the old I’m-not-sure-what-I-did-but-I’m-sorry-anyway stare. He is complex, but not technologically irritating. Best of all, his touch screen is warm and cuddly, and usually produces a wag instead of an annoying beep.

Wednesday, October 15, 2014

Grumpy Old Venture Capitalists

Last week I attended a panel session entitled “Grumpy Old Venture Capitalists” which was hosted by Club Entrepreneur, a local club that hosts semi-monthly lunches for those in the entrepreneurial community. Norm Dann, Andy Greenshields, Richard Perkins, and John Trucano (a.k.a. the Grumpy Old Venture Capitalists (GOVCs) shared stories about their best deals and what they have learned from their investment failures over their past combined 100 years in the venture capital world. The event was extremely well-attended–I mean who could resist learning from venture capitalists who have seen the good, the bad, and the ugly (and I don’t mean the movie)?!?

Several of the questions during the panel session inevitably focused on what the GOVCs look for when determining if they are going to invest in a company. Not surprisingly, the response was unanimous—they look for a company with the right people. They want to see a company comprised of people who are passionate about the company’s product or service and are working non-stop to make the enterprise a success. One panelist added that he’s not going to be impressed if he meets with an executive who has a nice tan or boasts about what a low handicap he or she has. They want to see executives who live and breathe their businesses.

The bottom line: if you’re running a start-up, it better be the focus of your team members’ lives. If you’re an entrepreneur, take a moment to think–do you have the right people in your organization? Does each person contribute something unique to the organization? Do your team members execute their ideas effectively and successfully? It’s the right people that drive innovation and create success. As the GOVCs highlighted, it’s the people that can make or break your company.

Are you willing to bet your company’s future on your current team members?