June 2023

Business News Digest

6 min

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We are continuing to monitor key trends, significant updates, and related news that may affect established and new/growing companies across a wide variety of industries. We want to make sure we touch upon issues that are of concern to you. We invite you to take a moment and let us know what you would like to hear more about in this newsletter. Click below to email our team of attorneys.

Featured Article

Navigating the Corporate Transparency Act

Federal law will soon require for the first time that certain companies disclose personally identifiable information about themselves and their beneficial owners and company applicants to U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). This disclosure obligation, mandated by the Corporate Transparency Act (CTA), will require these companies to identify their beneficial owners and company applicants based on definitions developed by federal regulators. Because these reporting obligations begin on January 1, 2024, companies should begin taking steps now to prepare themselves for this new regulatory regime.

Yes, Contractors and Providers, What You Think Matters—U.S. Supreme Court Unanimously Holds That Defendants' Subjective Beliefs Must be Considered in False Claims Act Cases

On June 1, 2023, the U.S. Supreme Court issued a unanimous opinion in United States ex rel. Schutte v. SuperValu Inc. reversing a pair of False Claims Act (FCA) cases on review from the Seventh Circuit Court of Appeals. In what is arguably the most important FCA decision in years, the Court held that a contractor can "knowingly" submit a false claim, where it would have been objectively reasonable for the contractor to believe that the claim was not false at the time it was submitted. A contractor's subjective belief that its claim for payment is (or is very likely) unlawful is, on its own, sufficient to establish "scienter," or knowledge of a claim's falsity, under the FCA.

How to Protect Your Organization Using Best Practices for Generative AI

In recent months, artificial intelligence (AI) has taken center stage as the technology to watch, with generative AI systems like ChatGPT exciting companies, fascinating journalists, and concerning people in governance and risk functions. All of these are merited. While this technology and the best practices around it are both developing quickly, there are a few things to take into account now to begin future-proofing any work with this technology and protect your organization as you explore using these tools.

Smart Contracts: A Brief Overview

The conversation surrounding cryptocurrency and blockchain technology has led to an increased interest in smart contracts. In fact, smart contracts—self-executing agreements—live on blockchain-based platforms. But what are smart contracts, who uses them, and how are they written and enforced?

Smart contracts are, generally, sets of coded computer functions that trigger self-executing actions performed by computing nodes within a blockchain network. Blockchain networks are distributed, decentralized digital ledgers that enable users to record irreversible transactions. When choosing a blockchain platform on which to execute a smart contract, users may consider a multitude of factors regarding the specific blockchain platform, such as the degree of decentralization, transaction processing speeds and costs, energy consumption, and user friendliness.

Online Contract Formation: Seeking Digital Signatures

Whether they are uploading digital photos to cloud storage, hiring a driver through a ridesharing app, or buying a virtual item in the metaverse, people are using a growing variety of online or mobile applications or platforms with increasing frequency. Companies offering these applications or platforms typically include an electronic Terms of Use/Service contract (e.g., displayed on a website, within an app, etc.) to control use of and access to their application or platform.

Because these online contracts lack the traditional ink signature and paper, establishing notice of the terms and conditions as well as end user assent is critical for companies in ensuring contract enforceability. Below, we introduce the legal basis for online contracts, assess digital signature issues that arise in common forms of electronic terms, and briefly conclude with general best practices to consider.

Technology Contracts: An Overview

The use, distribution, and licensing of software and technology are commonly governed by legal terms both to protect the software or technology owner intellectual property (IP) rights and to allow another permission to use or otherwise exploit the IP. Following is an overview of some different types of technology contracts, how such contracts are often used in practice, and some of the supplementary documents used alongside such contracts.

IP Licensing Agreement

An intellectual property license agreement is a legal contract authorizing the right to use, make, or sell IP in exchange for adequate consideration. A license allows one party to use the IP, while the other party retains ownership of the IP at issue. An entity may desire to license its intellectual property for a variety of reasons, such as allowing the creation or derivatives or the further distribution of the IP. An intellectual property license agreement may simultaneously be attractive to the licensee because the arrangement provides the licensee access to established IP.

Changes to Maryland General Corporation Law and Maryland REIT Law Effective October 1, 2023

The General Assembly of Maryland has enacted House Bill 209 (Chapter 560 of the Laws of Maryland 2023), amending several provisions of the Maryland General Corporation Law (the “MGCL”), the Maryland REIT Law (the “MRL”) and the Maryland Statutory Trust Act (the “MSTA”), as well as certain other provisions of the Corporations and Associations Article of the Annotated Code of Maryland (the “C&A Article”) applicable to close corporations, nonstock corporations and limited liability companies. The legislation has been signed by Governor Moore and is effective as of October 1, 2023.

Corporate Governance Made Easier for New York Nonprofits

The New York Not-for-Profit Corporation Law (N-PCL) has been amended again, and this time, the amendments make decision-making easier for New York nonprofits. The new legislation, enacted in November 2022, (1) accommodates increased use by nonprofits of electronic portal technology for unanimous consent actions outside of Board and membership meetings; (2) allows a replacement Board member who is elected by the Board to serve for the full length of the unexpired term rather than the prior requirement of temporarily serving only until the next annual meeting; and (3) clarifies that conflicted Board members who leave a nonprofit's Board meeting can still be counted as present for maintaining quorum despite their recusal. These modernizing amendments, described in more detail below, reflect additional incremental steps taken over the past decade to reform corporate governance standards for nonprofit corporations incorporated in New York.

IRS Announces Filing Changes for Form 8940 for Miscellaneous Determination Requests

As part of an ongoing effort to modernize its operations and reduce administrative burdens, the Internal Revenue Service (IRS) has revised and updated the Form 8940 for tax-exempt organizations, charities, and nonexempt charitable trusts seeking certain kinds of approvals or determination from the IRS, and mandated the form be submitted electronically via Pay.gov. The move, announced in Revenue Procedure 2023-12, is expected to standardize the format and presentation of miscellaneous determination requests, streamline review of these requests by the IRS, and reduce the possibility for errors that commonly arose in the preparation and processing of the paper versions of the form.