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It’s early days in the administration of President Trump, but already public reporting companies are considering how best to capture potential risks to their businesses as they draft their annual reports on Forms 10-K and 20-F. Risk factors are an important part of an annual report that help a company to communicate potential risks to its shareholders and prospective shareholders. Risk factors can also give a company some protection from suit in the event of unwelcome occurrences or unfavorable market conditions. Generally speaking, broader risk factors can help limit surprises, but the more specific a risk factor, the more protection it is likely to give a company. Although risk factors are required in all annual reports of non-smaller reporting companies, they must also be updated in quarterly reports to reflect any material changes since the last annual report.

At this early stage of the new administration, it is somewhat difficult to say which specific risks might require disclosure for any given company. However, some strong trends are emerging. Companies that are reliant on the Affordable Care Act should certainly consider including a risk factor related to the recent legislation preparing to repeal the Act. Similarly, companies with manufacturing and other supply chains or trade arrangements outside of the United States should likely consider adding or supplementing a risk factor on the potential impacts of new import/export legislation and revisions to existing treaties, particularly with regard to NAFTA. Such current event-driven reporting is not new, and many reporting companies have recently noted Brexit and climate change-related issues in their risk factors.  But, given the amount of significant economic changes proposed by President Trump both before and after the election, and the overall uncertainty surrounding how those proposals might be achieved, reporting companies should be extra careful in monitoring and updating their risk factors in 2017.

Over the last year, the Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) together closed more than 50 enforcement actions under the Foreign Corrupt Practices Act (FCPA) against businesses engaged in commercial activity beyond the borders of the United States. Those investigations netted fines and penalties of nearly $2.5 billion—the most substantial transfer of corporate wealth under the auspices of the FCPA in any year since its inception. Another 17 senior officers and directors were charged individually with federal offenses or faced civil fines, while a host of other employees lost their jobs as a result of their involvement in suspect business transactions abroad. And we now know that the greatest number of enforcement actions across the history of the FCPA program have arisen in connection with business activities in China, surpassing Nigeria, the next most common venue, by a considerable margin.

With news of the resumption of commercial aviation flights to Cuba, and other changes in the Cuba embargo accomplished through Presidential executive order, it would appear at first blush that the time is ripe to travel to Cuba to investigate commercial opportunities there. But appearances can be deceiving, and we wanted to report on the reality of Cuba travel and the opportunities there:

Magnifying glass on docFor years, FCPA observers have predicted that the Department of Justice (“DOJ”) will increase its prosecutions of corporate officers and employees for FCPA violations. These predictions have so far proven disputable, as the number of individual FCPA prosecutions has remained essentially flat and DOJ has struggled to convict individual FCPA defendants. However, high-ranking DOJ and SEC officials have recently stated their commitment to focus more on individual FCPA violators. DOJ has affirmed its focus with last fall’s Deputy Attorney General’s Memorandum on Individual Accountability for Corporate Wrongdoing (the “Yates Memo”).

China economyAs China continues to grapple with a slowing economy, its banks are facing an increasing number of overdue loans.  Companies large and small, particularly in the industrial sectors, are finding themselves heavily indebted and dealing with substantial overcapacity issues.  In this climate, a new strategy has recently emerged that may provide some relief to both banks and companies: paying off overdue debt with company equity.  However, while banks and companies may see short-term benefits from improvements to their balance sheets flowing from such arrangements, some experts are predicting that banks taking equity interests in struggling companies will only put off hard choices and ultimately prevent a necessary, long-term reorganization of the economy.  Read more at The New York Times DealBook.

Thanks to our friends at Yulchon LLC in Seoul, we’ve learned about some changes to the M&A laws in Korea, which will take effect this month (February, 2016). They include the following developments:

    • Reverse triangle mergers are now permitted.
    • Triangular mergers can be used for spun-off businesses.
    • The small-scale stock swap exemption to shareholder approvals that are otherwise required in acquisitions is increased to 10% of total issued shares and 10% of net assets; a simple board resolution will suffice.
    • A “simplified business transfer” system is introduced, reducing instances when a general shareholder meeting would be required.
    • Dissenting shareholder rights are improved in two ways – (1) Non-voting shareholders gained a right of appraisal, and (2) corporations are required to pay consideration for acquired shares within two months of expiration of the dissenting shareholders’ appraisal rights period.
    • If a subsidiary acquires parent company shares in a triangular merger or reverse triangular merger, it is given six months after payment of consideration to dispose of such stake to avoid criminal penalties.

Click here for more details.


The State of Washington’s new Limited Liability Company Act became effective on January 1, 2016. The new Act significantly alters several aspects of Washington law governing LLCs. To see what you should be aware of moving forward under the new Act (including potential changes to current LLC agreements), please feel free to refer to our white paper on the subject here.

On June 23, 2015, the State Council of the People’s Republic of China issued “the Opinions of the General Office of the State Council on Accelerating the Registration Reform of Consolidating Three Certificates into One Certificate.” The reform, aimed to simplify the previous bureaucratic delay and complication in business registration, has progressed and has since been implemented in China nationwide on October 1, 2015.

The so-called "Three-in-One Registration Reform" means that the business license, organization code certificate and tax registration certificate are combined into one integrated business license document: one certificate with one unified code.

The implementation of the "Three-in-One Registration” simplifies the longstanding business registration procedures, shortens the administrative processing time, facilitates a unified registration system, and is aimed to push and accelerate the continued development of the market-driven economy in China.

The stated targets of the reformation are to:

1)  Simplify the required application materials. Applicants used to be required to submit the same or similar set of materials to Administration of Industry and Commerce Office, Administration of Quality and Technology Supervision Office and Tax Bureau. Now, applicants can expect to experience a one-window service, and submit only one set of application materials;

2) Reduce duplication in review process. Application materials will be mutually recognized by the above offices, and will be reviewed by one entity: Administration of Industry and Commerce Office. Other government agencies will not need to review again;

3) Reform the annual audit systems. For companies that have applied for the new business license, annual audits won’t be performed on the organization code certificates;

4) For companies that have applied for the new business license, the validity period of their organization code certificate will be made consistent with the new business license;

5) Eliminate the administrative fees associated with the previous three certificates;

The "Three-in-One Registration Reform" is expected to benefit new and existing business entities alike. Applicants only need to visit one government authority for submission of application and supporting materials. Time and transaction costs will likely be greatly reduced. One set of original application materials will improve work flow efficiency and streamline administration. The goal is to encourage investments and to link to the newly established enterprise credit system.

In the old registration system, companies are required to apply and maintain three separate certificates, which are the business license, organization code certificate and tax registration certificate. An applicant may be required to prepare and submit several sets of up to 30 supporting documents and to make at least eight trips to various government authorities to complete the required registration processes. The final registration approval would sometimes take several weeks. The implementation of "Three-in-One Registration Reform" makes the registration process much more seamless. Now, applicants can expect to make no more than two trips to a single location, and to submit one set of original application materials, which may include approximately thirteen items, half of which were previously required. The processing time has shortened to up to three days, with some locations reporting a two-day only process.

The "Three-in-One Registration Reform” is applicable to all forms of business entities except for self-employed individuals.

The reform will have a transition period. For enterprises that have already applied for the business license before the "Three-in-One Registration Reform," they should continue to use the old business license and other certificates. However, by the end of 2017, it is mandated that all enterprises must move to the new business license format with one unified code (For certain enterprises in special industries that may have difficulties in obtaining new business licenses, the grace period is no later than 2020).

If you require further information, please contact Leo Peng at +86 (10) 8529.9880.

iStock_000040646252_LargeWill recent international laws impact the role of women in business? Can a country legislate the role of women in corporations?

In the last week, two countries reportedly adopted new laws to increase women’s role in companies.

Japan’s Law on Promoting Women’s Role in the Workplace

In the last week, two countries reportedly adopted new laws to increase women’s role in companies.

On Aug. 28th, the Japanese parliament approved a bill aimed at promoting and enhancing women’s role in the workplace. Companies with over 300 employees must analyze their current status and set numerical targets for promoting and employing women.

The analysis must consider various aspects of women’s participation in a business:

1) The ratio of women in recruitment;

2) The difference between genders in the duration of employment;

3) The working hours for women;

4) The ratio of women in management positions; and

5) Other aspects of women’s participation.

Companies must then establish numerical targets for at least one of these aspects of the operations in their action plans to be implemented beginning April 1, 2016. Their plans must be made public. The law also calls for creating an environment where women can balance work and family.

Others are also impacted by the law. The new law imposes similar obligations on central and local governments. Companies with 300 or fewer employees are also required to make efforts to comply with the law, but without any set process.

Although there are no mandatory numerical goals and no penalties for anyone, the law is viewed as a significant development. The Japan Institute for Labor Policy and Training, reports that women make up 11 percent in management positions in 2013. This law aims to increase that number.

Germany’s Law on Requiring Women on Boards

Similarly, last week, Germany passed a law requiring public companies to give 30 percent of board seats to women. In companies on the S&P 500, women represent under 20 percent of the directors. Even in England, where there has been a concerted, voluntary effort to increase the number of women on boards, called the 30% Club, the New York Times recently reported in "Women on Boards: Where the U.S. Ranks" that the boards of Britain’s biggest stock index companies are only 23 percent female. This phenomenon persists, despite studies such as that from David A. Carter, Frank D'Souza, Betty J. Simkins & W. Gary Simpson, indicating that gender and ethnic diversity on boards has a significantly positive effect on return on investment, (See, The Gender and Ethnic Diversity of U.S. Boards and Board Committees and Performance, 18 CORP. GOVERNANCE: AN INT'L REV. 396, 400 (2010).)

Will these laws make positive change for corporations by allowing firms to explore any benefits of greater numbers of women in the corporate world or will laws mandating such change just be an ineffective annoyance?

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About Us
Foster Garvey’s International practice group comprises a cross-disciplinary group of attorneys practicing in areas ranging from business transactions, immigration, maritime, government regulatory work, transportation and logistics and estate planning. The group members include bilingual and multicultural attorneys who are well-versed in handling these subject matters in a cross-border context. A number of attorneys have been actively practicing in the international arena since the early 1970s.
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