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Category: Business Services

Trends in Financing ESOP Transactions


April 4, 2019

A growing number of business owners are discovering the financial and performance benefits of employee stock ownership plans (ESOPs). As of 2015, the most recent year for which data is available from the National Center for Employee Ownership, there were nearly 6,700 ESOPs in the United States, holding total assets of nearly $1.3 trillion.

With an average of nearly 230 new ESOPs formed each year, ESOPs are a proven, effective tool for recruiting and retaining talent and developing corporate succession plans for family-owned and closely-held businesses in the United States. Industry experts anticipate ESOP formations will increase over the next 10 to 15 years as “baby boomer” business owners transfer ownership and management of their companies to employees.

As a result of the growing trend of ESOP formation, many banking and financial institutions now have finance teams in place to manage specialized and complex financing of ESOP transactions. Banks are eager to provide financing for ESOPs due to ample lending reserves. Many ESOP-owned companies are also exempt from federal income taxes which in turn increases the cash available to repay bank loans.

Walter | Haverfield partner and ESOP practice leader Tim Jochim will lead a panel session discussing the latest trends in ESOP financing at the 33rd Annual Ohio Employee Ownership Conference on April 25th in Akron, Ohio. Jochim will be joined by panelists from Fifth Third Bank and accounting firm, Mill, Potoczak and Co. The panel will also discuss multiple bank financing instruments with different levels of seniority, security and return.

The issues of Ohio’s medical cannabis law


March 5, 2019

Kevin MurphyIn the Columbus Jewish News, Walter | Haverfield attorney Kevin Murphy explains how Canadian dispensaries may play a role in Ohio’s medical marijuana program and how the current pace of the program is a telling sign for what’s to come.

SEC Addresses Regulation of Digital Asset Securities


December 31, 2018

Greg WatkinsThe Securities and Exchange Commission (SEC) recently issued a statement making it clear that federal securities laws apply to securities issued using new technologies, such as blockchain. The SEC’s Statement on Digital Asset Securities Issuance and Trading highlighted recent enforcement actions falling into three categories: initial offers and sales of digital asset securities (DAS), investment vehicles investing in DAS and those advising on the investment in such securities, and secondary market trading of DAS.

In an initial offering scenario, the SEC focuses on whether the digital assets constitute securities and, if so, what registration requirements apply. The SEC will not treat digital assets differently based on their technological nature. In fact, the SEC has already issued enforcement actions to companies for their unregistered offerings of tokens. The SEC also required the companies to compensate investors who purchased tokens in the illegal offerings.

With respect to investment vehicles investing in DAS and those advising on the investment of such securities, such vehicles are subject to registration requirements under the Investment Company Act of 1940. Also, managers of such investment vehicles are subject to registration requirements under the Investment Advisers Act of 1940.

Finally, exchanges that facilitate the electronic trading in DAS are required to register as a national securities exchange or operate pursuant to an exemption from registration. The SEC will apply a “functional approach” to assess whether a trading system constitutes an exchange. Additionally, entities that facilitate the issuance of DAS in initial coin offerings and secondary trading in DAS may also be a “broker” or “dealer.” Accordingly, such entities would be subject to register with the SEC and become a member of a self-regulatory organization. Again, the SEC will use a functional approach to determine whether an entity qualifies as a broker or dealer. The broker-dealer registration requirements are applicable, even if the entity does not qualify as an exchange.

Greg Watkins is an attorney at Walter | Haverfield who focuses his practice on corporate transactions and blockchain technology. He can be reached at 216-928-2917 or at gwatkins@walterhav.com.

Ohio Becomes First State to Accept Bitcoin for Tax Payments


November 30, 2018

Greg WatkinsOhio businesses are now able to pay their tax bills with bitcoin. It’s a noteworthy move for the state as it leads the country in accepting cryptocurrency as a form of payment and positions itself as crypto-friendly.

Businesses can take advantage of the new payment method by visiting Ohiocrypto.com. They are not required to be headquartered in Ohio to use the website. Once on the website, registration, tax payment information, and one’s compatible cryptocurrency wallet are necessary. The process utilizes blockchain technology, allowing businesses to reap the benefits of secure and trackable transactions.

Ohiocrypto.com uses BitPay, a third-party cryptocurrency processor to facilitate the receipt of payments. Through BitPay, the payments are received from the taxpayer, converted to dollars, then deposited into the state account. As such, the Ohio Treasurer’s office will not mine or hold cryptocurrency.

23 taxes are eligible for payment including commercial activity, sales tax and use tax. Although the website only currently accepts bitcoin, the treasurer’s office hopes to add more cryptocurrencies in the future. Ohio leads the way as other states with similar initiatives, such as Arizona and Georgia, failed to receive approval from their respective state legislatures. Ohio plans to expand the bitcoin initiative to individual filers in the future.

Greg Watkins is an attorney at Walter | Haverfield who focuses his practice on corporate transactions and blockchain technology. He can be reached at 216-928-2917 or at gwatkins@walterhav.com.

The California Consumer Privacy Act: How it May Impact Your Ohio Business


Greg WatkinsThe California Consumer Privacy Act of 2018, which goes into effect in 2020, affects businesses doing business in California that satisfy one of the following thresholds: (a) has annual gross revenues in excess of $25 million; (b) annually buys, receives, sells or shares the personal information of 50,000 or more consumers; or (c) derives 50% or more of its annual revenues from selling consumers’ personal information. However, businesses are exempt from the act if every aspect of their commercial conduct takes place outside of California.

The act requires businesses to inform consumers of the personal information being collected and the purposes for which that information will be used. “Consumers” are defined under the act as California residents. The act’s definition of “personal information” is broad and includes information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked to a particular consumer or household.

The act gives consumers the right to request the following from a business:

  • The categories of personal information that the business collected about the consumer
  • The categories of personal information that the business sold about the consumer
  • The categories of third parties to whom the personal information was sold
  • The categories of personal information that the business disclosed about the consumer for a business purpose

The act also contains an “opt-out” mechanism where a consumer may direct a business not to sell the consumer’s personal information. Business must inform consumers of this opt-out right. The consent mechanisms of the act vary greatly from those in the European Union’s General Data Protection Regulation (GDPR). The GDPR prohibits the collecting, processing or transferring of personal information without a legal basis, one of which is a consumer’s informed and unambiguous consent. In other words, consumers are required to “opt-in.”

Businesses located in and out of California should consult with counsel to determine if they will be subject to the act.

Greg Watkins is an attorney at Walter | Haverfield who focuses his practice on corporate transactions and blockchain technology. He can be reached at 216-928-2917 or at gwatkins@walterhav.com.

New Smart Contracts on Blockchain Increase Efficiency and Security


October 31, 2018

Greg WatkinsSmart contracts are becoming a very viable option today as blockchain technology emerges in the marketplace.

In simple terms, a smart contract is a computer program with conditions encoded into its language. Once agreed upon, it is placed on blockchain – a digital ledger that records transactions in cryptography. Each transaction is recorded chronologically and publicly. Blockchain is highly resistant to modification, so smart contracts allow trackable, irreversible transactions without third-party intermediaries.

In a stock sale, for example, the parties typically hire an escrow agent, an objective third-party who is in place to foster trust between the buyer and seller. In a traditional transaction, the seller delivers share certificates to the agent, and the buyer pays money to the agent. When both parties have satisfied all the conditions, which were previously made in writing, the escrow agent releases the shares to the buyer and the money to the seller. The transaction is complete. The process requires redundant communications, a paper contract and a lot of back and forth.

A smart contract eliminates redundancies. Terms are still negotiated in contract form, but once they are complete, they are coded into a block and placed on blockchain. For instance, a blockchain transaction might read: “When the buyer pays $100, the buyer receives ownership of the shares.” Then, when the buyer pays, he or she automatically receives the certificates without third-party interaction and signed contracts.

Smart contracts are encrypted and decentralized. They are distributed among many computers, making them indisputable. The process increases trust among all parties because no single party is in control. The transactions are trackable and public, making them more secure than paper tucked away in a file cabinet.

However, such contracts do have their disadvantages. Because they are fairly new, the legalities remain uncertain. There is no guarantee that eliminating intermediaries will lower costs. Parties still need to hire qualified coders to enter contracts on the blockchain. And, human error can present problems from coding mistakes.

Smart contracts combine the security of blockchain technology with the efficiency of online transactions. There are various benefits, but it is unclear how willing people will be to adopt the new technology.

Confusion remains over CBD oil sales


September 30, 2018

Kevin Murphy
Walter | Haverfield’s Kevin Murphy says it’s likely that individual states will clarify the difference between hemp and other varieties of cannabis because federal law is “murky at best.” This article appeared in both The Canton Repository and The Independent.

Anyone’s Bet: The Legalization of Sports Betting in Ohio


Ohioans may soon be able to place bets on their favorite sports teams in bars and casinos throughout the state. This past spring, the U.S. Supreme Court struck down a 1992 federal law in Murphy v. National Collegiate Athletic Association that had effectively banned sports betting in most states. This decision has opened the door for states to legalize sports betting across the country.

The change comes more than two decades after sports betting was outlawed at the national level. In 1992, Congress enacted the Professional Sports Protection Act in response to concerns over state-sponsored sports gambling. Delaware, Montana, Nevada and Oregon were exempt from the new law as they had already established a sports betting system.

The law went unchallenged until 2014, when, in an effort to make sports betting legal in New Jersey, lawmakers there repealed provisions of its state law that prohibited sports gambling. The major professional sports leagues and the NCAA brought an action in federal court against the state. The case made its way up to the Supreme Court, which held PASPA to be unconstitutional because it requires states to maintain their existing laws against sports gambling without alteration.

The result of Murphy is that each state can now decide whether to legalize sports betting and how to do it. While many states have quickly moved to make this a reality, Ohio is taking a more deliberate approach. In July 2018, placeholder bills were introduced in both the Ohio Senate and House of Representatives to begin the process of drafting sports betting legislation.

Since the proposed bills are only placeholders, we do not yet have any actionable details on what guidelines Ohio plans to put in place, how it plans to regulate betting practices, or what businesses will be permitted to participate. Supportive legislators are hopeful that a sports betting bill will reach the Ohio Senate and House floors soon after the November election, although it is unlikely Ohio will pass any legislation until 2019 or 2020.

With the exception of the Ohio Lottery, casinos and charitable bingo, the Ohio Revised Code currently prohibits any organization or individual from operating a gambling house or allowing public gaming to occur on premises. And the Ohio Constitution has certain prohibitions as well. Ohio legislators will need to determine whether authority exists in Ohio to allow sports betting through legislation and possibly even a constitutional amendment.

If legislators can find a way, sports fans will legally be able to collect their winnings on placing an Ohio-based wager for the Cleveland Indians to win the World Series or the Browns to win the Super Bowl. Until then, fans can only dream.

Emily O. Vaisa is an attorney at Walter | Haverfield who focuses her practice on liquor control and business law. She can be reached at eoconnor@walterhav.com or at 216-928-2909.

John Neal is an attorney at Walter | Haverfield who focuses his practice on liquor control and business law. He can be reached at jneal@walterhav.com or at 216-619-7866.

Ohio To Recognize Blockchain Technology


Greg WatkinsOn November 2nd, 2018, an Ohio law goes into effect allowing records and contracts secured by blockchain data. This comes after Governor John Kasich signed Senate Bill 220 (SB220) in August, which amends Ohio’s Uniform Electronic Transactions Act (UETA).

UETA ensures electronic transactions are enforced to the same effect as written transactions. SB220 amends the definition of “electronic record” in UETA to add that “a record or contract that is secured through blockchain technology is considered to be in an electronic form and to be an electronic record.” SB220 also amends the definition of “electronic signature” to expressly provide that signatures secured through blockchain technology are considered to be in electronic form and be an electronic signature.

SB220 was born out of Senate Bill 300 (SB300), which was introduced in May 2018. SB300 sought to implement blockchain and its associated technologies into Ohio legislation even further than SB220 as it also defined “blockchain technology” and “smart contract.” SB300 died in the Senate, however, and only a few of its provisions were implemented via SB220.

Ohio joins Arizona, Delaware, Illinois, Nevada, Tennessee, Vermont and Wyoming as states enacting or adopting laws that reference blockchain. Meanwhile, California legislatures continue to work on their blockchain legislation. Legislatures in Florida and Nebraska have also proposed blockchain legislation, but the pursuit of passing the legislation has been abandoned indefinitely.

Greg Watkins is an attorney at Walter | Haverfield who focuses his practice on business services and blockchain technology. He can be reached at 216-928-2917 or at gwatkins@walterhav.com.

Controversy, confusion surrounds status of CBD products in Ohio


September 12, 2018

The state agency overseeing the implementation of Ohio’s medical marijuana program recently clarified where cannabidiol (CBD) products can be sold in the state. And that is causing confusion to the corner stores and gas stations, which often sell the products. Walter | Haverfield’s Kevin Murphy clarifies what’s legal in Crain’s Cleveland Business.

Looking to Grow Through Acquisitions? Five fundamentals that often go overlooked


June 28, 2018

 

When business is good, an acquisition lures the prospect of moving your company to the next level. But even veteran dealmakers sometimes overlook critical elements that can derail the best intentions. The following are five elements that should always be considered in an acquisition:

  1. Preparation – Whether the target company is a competitor or a complement, take a step back and ask if it truly fits the strategic direction of your business. Too many deals are made on emotion. Before talking numbers, develop a business plan that details how the new company will merge with yours. Be sure to list the pros and cons. Most importantly, make sure the executive team and your board of directors have a clear strategic acquisition plan in place on an annual basis.
  2. Communications – Seek outside perspectives and lean on advisors for constructive feedback. Good ones can be objective without internal blinders. This can include consultants, attorneys, accountants, IT, operations, sales managers, suppliers and strategic partners. Ensure that your executive team is fully engaged.
  3. Finance planning – Before determining the best way to finance the deal, develop a post-integration forecast and PandL. Cash and equity are not always the preferred method of payments. Debt from a multitude of sources can carry significant tax and cash-flow benefits. Leverage financial, legal and tax advisors for alternative strategies.
  4. Finding synergy – Before the deal closes, develop a six-month integration plan that uncovers as many efficiencies as possible. Too often, newly acquired companies trudge on in a perpetual silo without revealing the many opportunities they present. This includes shared resources, supply chain, operational efficiencies and workforce integration.
  5. Create an audit – A year after the deal, take a critical look at the entire process. This provides a second chance to uncover additional efficiencies that were not initially apparent. It also identifies critical lessons and the ability to improve the process during your next deal. Done well, there will be a next deal.

Ted Motheral is a partner with Walter ǀ Haverfield’s Corporate Transactions group. He be reached at tmotheral@walterhav.com or at 216.928.2967.

 

Northeast Ohio potrepreneurs are facing many obstacles


June 11, 2018