If you have plans to open a restaurant in New Jersey and would like to serve alcohol, you should be aware of the longstanding rules related to liquor licenses.  Most New Jersey municipalities are not able to issue new liquor licenses meaning that a business owner seeking a license will likely have to purchase an existing license.

What’s the first step in acquiring a liquor license? 

First, you should understand that there are several different types of liquor licenses but for your use as a restauranteur, you will want to acquire what is known as a Plenary Retail Consumption Liquor License.  You can determine if there is such a license available for acquisition by calling the municipal clerk or secretary of the Alcoholic Beverage Control Board of the municipality in which you plan to locate your restaurant.

I’ve located an available license in a different municipality.  Can it be transferred to the municipality in which I plan to operate?

No.  Liquor licenses are not transferable from one municipality to another.  The municipal clerk can provide you with a list of the names and addresses of the holders of all liquor licenses and can advise you which licenses are currently not in use (i.e., “pocketed”).  You can then contact the license holder to determine if he or she wants to sell the license.

Once I identify an available license, what are the next steps?

If you reach an agreement with a license holder, you will then need to:

  • Enter into a written purchase and sale agreement,
  • Obtain written consent from the seller to transfer the license,
  • File a 12-page application, accompanied by required fees, with the municipality for a “person-to-person” (from the seller to buyer) and “place-to-place” (from seller’s establishment to your new establishment) transfer of the liquor license,
  • Publish legal notices of the proposed transfer, and
  • File for the issuance of a tax clearance with the New Jersey Division of Taxation. The municipality cannot approve the license transfer until a tax clearance certificate is issued.

The municipality through the police department will then conduct a background investigation of you, the buyer and your principals, including fingerprinting, to ensure that you are not legally disqualified to hold a license, are reputable, and will operate the licensed premises in a reputable manner.  The background investigation also ensures that the proposed transfer and restaurant liquor license operation will not violate any state or local laws, regulations, and ordinances (including distance requirements between licensed establishments, as well as distance between schools and religious facilities), and that you have disclosed the source of all funds to purchase the license and you do not have any undisclosed, or hidden or non-qualified investors.  If you are determined to be qualified, and no objections to the license transfer are received by the municipality, then the municipality must authorize the transfer of the license to you and the new premises by resolution at a public meeting.  You are not entitled to utilize the license until such official action is taken.

How long can I expect the process to take?

The entire license transfer process should take between 90-120 days so the purchase and sale agreement should adequately provide time to complete this process.

What options do I have if my application for a liquor license is denied?

In the event that you cannot acquire a license, then, unless prohibited by the municipality, your customers may bring their own alcoholic beverages (beer and wine only) into your establishment.  You can supply glasses, ice, etc. but you cannot charge a corkage fee.

Delaware General Corporate Law § 226 (the “Custodian Statute”) bestows the Delaware Court of Chancery with the power to appoint a custodian for solvent companies and receivers for insolvent companies in certain circumstances. See 8 Del. C. § 226. Specifically, a custodian may be appointed where, inter alia, a company’s “stockholders are so divided that they have failed to elect successors to directors whose terms have expired”, and where the business is suffering or threatened with “irreparable injury because the directors are so divided respecting the management of affairs that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division.” 8 Del. C. § 226(a)(1), (2). Although a custodian appointed under § 226 shall “continue the business of the corporation and not . . . liquidate its affairs and distribute its assets,” the Chancery Court has wide discretion in how it addresses a deadlock, and may even authorize a custodian to sell a company. See id. The scope of the Chancery Court’s broad discretionary authority to address deadlocks under § 226 was addressed in a recent decision of the Delaware Supreme Court. See Shawe v. Elting, No. 423, 2016, 2017 WL 563963, at *1 (Del. Feb. 13, 2017). Some read that decision as expanding the power of the courts to order the sale of a solvent company’s stock over the objection of the company’s shareholders.

In response to the decision, legislation has been proposed that would restrict the Chancery Court’s ability to dissolve or sell a solvent company by requiring that “alternative remedies prove insufficient after three years”, or the “necessary parties stipulate to such a sale.” Proposed Delaware Senate Bill No. 53.  The purpose of the proposed legislation is to “ensure the continued fair and equitable treatment of corporations in Delaware” by addressing “deficien[cies] in providing fair and equitable remedies in specific regards to deadlock situations.”  Id.  The Delaware Corporate Law Section plans to oppose the bill. The full text of the case, Shawe v. Elting, can be accessed here.

 

In a recent decision of the Delaware Court of Chancery, the Court struck down a corporate bylaw provision of NutriSystem, Inc., a Delaware corporation (the “Company”), ruling the provision to be inconsistent with the Delaware General Corporation Law.  See Fretcher v. Zier, No. CV 12038-VCG, 2017 WL 345142 (Del. Ch. Jan. 24, 2017).  The Company’s bylaw provision, which had recently been adopted as an amendment to the Company’s bylaws, stated that the stockholders of the Company may remove directors, but only upon the vote of “not less than 66 and two-thirds percent…of the voting power of all outstanding shares” of Company stock.  Id. at *1.  This bylaw provision is in contravention of 8 Del. C. § 141(k) under which directors may be removed by a majority vote of corporate shares.

Plaintiff, a shareholder of the Company, brought a class action suit on behalf of the shareholders of the Company against Defendants, who were comprised of the Company and the Board of Directors of the Company.  Id.  Prior to the adoption of the subject bylaw amendment, the relevant bylaw allowed Company stockholders to remove directors only for cause and upon the affirmative vote of two-thirds of all outstanding shares of Company stock (the “Removal Provision”).  Id.  On January 7, 2016, the Company filed a Form 8-K with the Securities and Exchange Commission announcing that the Board had approved an amendment to the Company’s bylaws which removed the “for cause” requirement from the Removal Provision.  Id.

The Plaintiff filed his Verified Class Action Complaint on February 24, 2016 (the “Complaint”) pleading two counts.  Id. at *2.  In Count I, the Plaintiff alleged a breach of fiduciary duty against the Defendants, contending that the directors breached the duty of loyalty by enacting an unlawful bylaw to entrench themselves in office.  Id.  In Count II, the Plaintiff sought a declaratory judgment that the Removal Provision violates Section 141(k).  Id.  The Defendants moved to dismiss the Complaint on May 27, 2016 and the Plaintiff moved for partial summary judgment on Count II on August 9, 2016.

The Defendants defense was centered on two legal issues.  First, the Defendants focused their argument on 8 Del. C. § 216, which permits corporations to adopt bylaws specifying the required vote for the transaction of the business of the corporation, subject to other voting requirements necessary to take specific actions.  Id. at *3.  The Defendants conceded that the specific provisions of Section 141(k), addressing removal of directors, supersede this general permissive language, but argued that Section 141(k) “does not dictate a contrary result” because the Section “sets the rules only for the circumstances under which stockholders may remove directors without cause, and does not address the percentage of the vote that is required to remove directors.”  Id.  Second, the Defendants argued that the majority vote portion of Section 141(k) is a permissive provision, noting that Section 141(k) provides only that a majority of stockholders may remove directors, “thereby leaving the bylaws free to require a minority, a supermajority or even unanimity as a requisite for director removal.”  Id.

The Court disposed of Defendant’s arguments using a plain language reading of the statute, ruling that “[Section 141(k)] provides that holders of a majority of stock may—not must—remove directors; that is, if they so choose, the section confers that power.”  Id. at *4.  Stated otherwise, the permissive portion of Section 141(k) is whether a director is removed — not the required vote for such removal.

The Court denied Defendant’s Motion to Dismiss and granted Plaintiff’s Motion for Summary Judgment with respect to Count II.  Count I was withdrawn.  Id.

This decision is a stark reminder that corporations should be mindful of statutory rules when drafting and adopting bylaws.  While corporate statutes serve as guidelines in some circumstances, careful attention must be given to those provisions of a state’s corporate law that are to be literally, not figuratively, construed.

Updates and speculation regarding the forthcoming merger between AT&T and Time Warner have dominated the recent news cycle. Many pundits and business professionals have debated whether a vertical merger of such magnitude will survive regulatory scrutiny. The transaction will be reviewed by the Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (“DOJ”) as per the Hart-Scott-Rodino (“HSR”) Antitrust Improvements Act of 1976 (the “Act”).

The Act requires that parties who are planning to complete certain mergers, acquisitions, and transfers of assets or securities make a comprehensive filing with the FTC and the DOJ. The parties may not finalize the transaction until a determination is made by the agencies as to whether the transaction will negatively influence United States commerce in violation of antitrust laws. Parties may complete due diligence and make plans for post-transaction activities during the agencies’ review.

Effective as of September 1, 2016, the FTC, with the concurrence of the DOJ, adopted new standards concerning HSR filings which are meant to make the process easier and more efficient for filers.

With the new changes, the FTC has authorized filers to make HSR filings by submitting a DVD containing the filing. Filers will retain the option to submit a paper filing, but may not file on any other format, including CDs, flash drives, or SD cards. The filer should submit two DVDs to the FTC and two DVDs to the DOJ for review. If the DVD contains a virus or is either encrypted or password-protected, the submission will be rejected. Any errors with the DVD or the files on the DVD will require a replacement DVD. The DVD filing must include paper copies of the cover letters, original affidavits, and certification pages. All other documentation must be submitted on the DVD if the filer wishes to file by DVD, as there is not an option to file a combination DVD/paper filing.

Additionally, the FTC updated the instructions that apply to the HSR form. While some of the updates relate to filing by DVD, most were implemented in order to streamline the instructions and make them less complicated for filers. The form itself is not affected by these amendments.

The FTC vote to publish the Federal Register Notice was unanimous at 3-0. The Federal Register Notice and the new instructions to the form may be viewed at the following link.

To expedite review, the FTC encourages filers to follow the recommendations located on the “Style Sheet.”

 

The SEC has adopted final rules to address intrastate and small offerings, further expanding and modernizing the manner in which start-ups and other small businesses are able to raise capital.  The final rules amend Rule 147 under the Securities Act of 1933, as amended (the “Securities Act”) to facilitate the continued application of intrastate offering exemptions under State securities laws, including States’ crowdfunding provisions. The rules also create a new exemption, Rule 147A, which will permit general solicitation (including via internet) and will permit sales to residents within a State where the issuer was formed or where such issuer has its principal place of business.  In addition, the final rules amend Rule 504 to increase the aggregate amount of securities that may be offered and sold in any 12-month period from $1 million to $5 million, while repealing Rule 505 that limited such offerings to accredited investors and to up to 35 other persons who do not satisfy the financial sophistication standards.

The new Rule 147A and the amended Rule 147 include the following provisions:

  • A requirement that the issuer either (a) is formed or (b) has its principal place of business within the State in which the securities are sold (without requiring that issuers be incorporated or organized in the State where they are making the exempt offering under the new rules), and that the issuer satisfy at least one “doing business” requirement;
  • A new “reasonable belief” standard for determining the residence of the purchaser at the time of the sale of securities;
  • A requirement that the issuer obtain a written representation from each purchaser regarding the purchaser’s residency;
  • A six-month limit on resales to persons residing within the State or territory of the offering only;
  • An integration safe harbor that would include any prior offers or sales of securities made by the issuer under another provision, as well as certain subsequent offers or resales of securities by the issuer after the completion of the offering; and
  • Disclosure requirements, including legend requirements, regarding limitations on resales.

The amended Rule 504 retains the existing requirements, with the following changes:

  • An increase in the aggregate amount of securities that may be offered and sold in any 12-month period from $1 million to $5 million; and
  • A disqualification of bad actors from participating in an offering (consistent with the requirement of Rule 506).

The final rules also repealed the exemption previously provided under Rule 505. The amended Rule 147 and new Rule 147A will be effective 150 days after publication in the Federal Register.  The amended Rule 504 will be effective 60 days after publication in the Federal Register.  The repeal of Rule 505 will be effective 180 days after publication in the Federal Register.

The final rules are available here.