Legal Updates

SECURITIES TRANSFER AGENTS

Transfer agents track the owners of securities. They also perform several other services for companies with registered and publicly traded securities in the course of tracking the owners of the securities. Transfer agents usually are banks or trust companies, although a company with publicly traded securities may perform transfer agent functions for its own securities. Functions of transfer agents include:

Tracking company ownership -- Transfer agents issue certificates evidencing securities of a company and cancel those certificates if the underlying ownership is transferred to another person or entity. Transfer agents track ownership of the securities by keeping records of what certificates have been issued or transferred and what securities are held in street name by a brokerage or in book-entry form by the company.

Determining loss or destruction of certificates of ownership of company securities and replacing those certificates upon receipt of a guaranteed signature of the true owner of the securities.

Serving as company intermediaries -- Transfer agents may be a company's paying agent responsible for distribution of dividends and interest payments to stockholders and bondholders of a company. Transfer agents also may serve in the following additional agency capacities:

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.

Agreements In Restraint of Trade

ANTITRUST & TRADE LAW: SHERMAN ACT

Agreements in unreasonable restraint of trade are prohibited by Section 1 of the Sherman Act, 15 U.S.C.S. § 1. While Section 1 of the Sherman Act provides that "every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal," the courts have decided that not all agreements in restraint of trade are illegal. Only restraints of trade considered unreasonable are deemed illegal based on the rational that otherwise, every contract in some sense restrains trade and would be illegal.

A violation of Section 1 of the Sherman Act may result in imposition of a prison term or a fine in an action by the U.S. Department of Justice or in the assessment of damages in a civil action brought by the Department of Justice, the states, or by private parties. Violation of the statute is shown through proof of:

Each of the three elements of a Section 1 violation -- agreement, restraint of trade, and effect on commerce -- has been the subject of substantial case law.

To prove the existence of an agreement, it must be shown that more than one actor was involved. Thus, issues regarding whether members of a joint venture or different divisions or subsidiaries of a corporation can agree to restrain trade either among themselves or with other competitors continue to be litigated. Also, to prove an agreement, it must be shown that there was some conscious decision to engage in some course of anti-competitive conduct.

Whether trade is restrained by the agreement or whether the agreement has some pro-competitive effect or consumer benefit is often litigated. Only some restraints on trade such as price-fixing or market allocation will be considered unreasonable and illegal without further inquiry into the reasonableness of the restraint.

Finally, it must be shown that there has been an effect on interstate or foreign commerce as a result of the agreement in restraint of trade. Under traditional notions of the scope of the Commerce Clause, the demonstration of an effect on interstate commerce is not considered difficult. However, the effect on foreign commerce that must be shown is an effect that is substantial and foreseeable.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.

FORMATION OF A PARTNERSHIP

A partnership is created when members of the partnership intentionally join together to carry on a business that is not incorporated. Members, or partners, may be individuals, trusts, estates, corporations, or other partnerships.

The intention of partners to form a partnership usually is expressed through a written partnership agreement. However, depending on the facts and circumstances of each case, an intention to form a partnership may be found in conduct of parties such as establishment of a joint bank account, contribution of cash or property to a business venture, or the sharing of profits or losses of a business venture.

Laws of the various states provide for the formation of partnerships. Each state except Louisiana has adopted provisions of either the Uniform Partnership Act or the Revised Uniform Partnership Act. Although these provisions by default provide details regarding the formation and terms of partnerships, parties may establish by written agreement partnerships that meet their particular requirements. Such agreements normally will specify the name of the partnership, what each partner contributes to the partnership, how each partner will share in losses and profits, the authority of partners to act on behalf of other partners, management and decision-making responsibilities of partners, and the handling of death or withdrawal of partners or dissolution of the partnership.

Profits and losses of partnerships are passed through to partners and are taxed at the partner level rather than at the partnership level. Existence of a partnership for federal taxation purposes depends upon evaluation of the following factors rather state laws:

The existence of a written agreement and adherence to that agreement;

The extent to which each party to the venture has contributed something of value to the venture;

How management and decision-making is shared among members of the venture;

Whether each of the members of the venture shares in the profits and losses of the venture;

Whether separate accounting is maintained for the venture;

Whether the venture is presented to the public as a partnership; and

Whether federal returns reflecting a partnership are filed.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.

EXCHANGE-TRADED FUNDS

Exchange-traded funds are open-ended registered investment companies regulated by the Securities and Exchange Commission under the Investment Company Act of 1940. The Securities and Exchange Commission has exempted exchange-traded funds from regulatory requirements in order to allow secondary trading on national exchanges of shares in exchange-traded funds.

The general investment objective of an exchange-traded fund is to obtain the same return as a group of securities. Exchange-traded funds may invest in all the securities included in a particular index such as the S&P 500 Composite Stock Price Index, or they may invest in securities within particular market sectors such as energy or banking. Exchange-traded funds also may be further specialized by investing in securities of companies in a particular country or region of the world.

Exchange-traded funds are classified under the securities laws as open-ended investment companies or unit investment trusts. However, exchange-traded funds differ from the usual open-ended investment company or unit investment trust because exchange-traded funds do not sell individual shares in the fund directly to open-market investors. Rather, the exchange-traded funds sell large blocks of shares ranging from the 25,000 to 600,000 shares to investors in what are known as "created units."

The "created units" of exchange-traded funds are sold to authorized participants. Authorized participants usually are institutional investors, specialists, or market makers who buy the underlying shares of companies and then trade those shares to the exchange-traded fund in return for shares in the exchange-traded fund. The authorized participants then sell the fund shares on the open market or later redeem those fund shares for underlying shares. The fund charges creation and redemption fees to authorized participants when dealing with "created units.

Exchange-traded funds provide a prospectus to authorized participants. Also, purchasers of the exchange-traded fund shares in secondary markets may obtain a copy of the exchange-traded fund's prospectus. Funds that do not provide their prospectus directly to investors in secondary markets must provide a "product description" that includes information on the fund and details on how to obtain a copy of the full prospectus of the fund. Exchange-traded funds must provide shareholders with annual and semiannual reports and publicly disclose annual operating expenses and shareholder fees.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.

RESPONSIBILITIES OF CORPORATE DIRECTORS AND OFFICERS

Boards of directors and officers of corporations have distinct functions. Generally, directors set corporate policy while officers carry out that policy.

Corporate Director Responsibilities

Members of the corporation's board of directors manage the corporation principally through their power to appoint corporate officers. Normally, the board of directors decides what corporate stock will be issued, what responsibilities will be carried out by particular corporate officers and how those officers will be compensated, what action will be taken regarding fixed corporate assets such as real estate, and whether loans will be made or accepted by the corporation.

Directors take action through meetings of the board. Such meetings normally must occur at least annually although meetings without the physical presence of directors may be authorized by corporate bylaws.

Directors owe a duty of loyalty to the corporation. They are not agents of shareholders. So long as they exercise good faith business judgment, they are not duty-bound to accede to the wishes of majority shareholders. However, shareholders are entitled to remove directors even without cause in most jurisdictions and shareholders are entitled to accept or reject board of director actions that would cause fundamental changes in the corporation such as a merger or a significant disposition of corporate assets.

Corporate Officer Responsibilities

Corporate officer responsibilities are set by statute and by the board of directors appointing the officer and delegating duties to the officer. Generally, corporate officers are responsible for the day-to-day operations of the corporation within statutory parameters for corporate conduct. Corporate officers (and employees) are agents of their corporation and thus owe a duty of loyalty to the corporation.

Titles and duties of corporate officers usually are found in the corporate bylaws. Typically, officers of a corporation include a president or chief operating officer, a treasurer or chief financial officer to handle finances, and a secretary responsible for corporate records.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.