The principal types of business entities in the US are corporations, limited liability companies (LLCs), general partnerships (GPs) and limited partnerships (LPs). Entity formation in the US occurs at the state level and is governed by state law, not federal law. Among the 50 US states, Delaware is the jurisdiction of choice.

Delaware has earned this reputation by developing a deep, sophisticated and predictable body of corporate law that provides guidance on many areas of corporate governance and transactions. Delaware corporate law clearly delineates management’s fiduciary duties and offers significant options to limit or exclude them.

Corporations

This is the common form of entity structure for businesses that seek a formal management structure, limited liability, perpetual existence and a path to becoming public. Corporations have three levels of authority: stockholders (ie, the owners); the board of directors, who exercise a supervisory role and have ultimate responsibility for managing the corporation’s business and affairs and setting its strategic direction; and officers (such as the CEO or president, the CFO or treasurer, and the secretary), who carry out the day-to-day operations of the corporation pursuant to the directives of the board of directors.

• Corporations with a limited number of stockholders or which are wholly owned by a single stockholder (often a parent company) typically have a single class of common stock. In Delaware, it is customary for such corporations to be authorised to issue no more than 5,000 shares of common stock.
• Venture capital-backed corporations have founders who receive common stock in exchange for technology contributions and services (colloquially referred to as sweat equity) and outside investors who receive preferred stock in exchange for their cash investments. In Delaware, it is customary for such corporations to be authorised to issue up to 10 million shares (or more) of a mix of common and preferred stock. Venture capital-backed corporations are designed to raise capital in multiple equity financing rounds.
• Corporations are generally taxed both at the entity level and again at the stockholder level upon payment of a dividend. Corporations often function as a US tax blocker for foreign investors.

LLCs

While corporations are created by statute and have a rigid organisational structure and a fixed capital stock, LLCs are flexible creatures of contract. LLCs evolved from limited partnerships but extended the element of limited liability to all owners. LLCs are the entity of choice for small businesses, service firms, private real estate investment or project-specific special purpose vehicles. LLCs have members (ie, the owners) and managers. LLCs can be member-managed or manager-managed. Unless they have elected to be taxed as a corporation, LLCs are treated as pass-through entities for income tax purposes (ie, their income is only taxed at the member level). A key feature of LLCs is that they have a flexible capital structure that permits disproportionate allocations of income and losses among the members.

GPs

GPs are unincorporated business entities where two or more people agree to operate a business and share in the profits and losses. GPs have unlimited liability and are treated as pass-through entities for income tax purposes.

LPs

LPs are the preferred type of entity for private funds (private equity, venture capital and hedge funds), although sometimes they are replaced with LLCs. LPs have one or more general partners, who manage the business and have unlimited liability, and limited partners, who are passive investors with limited liability. The general partners of LPs are typically limited liability entities, oftentimes LLCs. LPs are also considered pass-through entities for income tax purposes.

Entity formation in Delaware is a simple, fast and inexpensive process. Corporations are formed by filing a Certificate of Incorporation with the Delaware Secretary of State. LLCs are formed by filing a Certificate of Formation with the Delaware Secretary of State, and LPs are formed by filing a Certificate of Limited Partnership with the Delaware Secretary of State.

All entities formed in Delaware must maintain a registered agent in Delaware for receipt of service of process but may have their principal place of business in any other jurisdiction. Owners, directors and officers, and managers of Delaware entities need not be US residents. All other formation steps are internal matters, including organising the entity and causing it to issue shares or other ownership interests. A Delaware entity can therefore be formed within days or, if need be, within hours.

Filing expenses are generally in the hundreds, not thousands, of dollars, and there are no minimum capitalisation requirements for any type of entity. Delaware corporations must file an annual report and pay franchise tax each year, which is a de minimis amount relative to the assets of the corporation. LLCs and LPs do not have to file an annual report but pay an annual tax of USD400. A Delaware entity that does not have any business activity in Delaware is not subject to any other tax in Delaware.

Corporations

While the issuance of shares is reserved for the board of directors, in the certificate of incorporation, the stockholders determine the various classes and maximum number of shares that the board of directors is authorised to issue. Once issued, shares are either issued and outstanding and held by a stockholder or issued and not outstanding because they have been repurchased by the corporation and held by it in its treasury.

While Delaware corporations do not have minimum capitalisation requirements, shares in Delaware corporations do have a par value or no par value per share. A common par value for corporations with few stockholders is USD0.01. A common par value for venture capital-backed corporations is USD0.00001. The sum of the par values of all issued shares of capital stock establishes the stated capital of a Delaware corporation (see 1.4 Distributions and Return of Capital). Capital that an investor contributes to a corporation in excess of the stated capital is referred to as additional paid-in capital. Shares in Delaware corporations can either be certificated or uncertificated.

In the venture capital context, outside investors receive preferred stock that converts to common stock upon the occurrence of certain specified events (eg, a trade sale, an IPO or upon the election of the investor), allowing the investor to participate in the upside potential of the business. The designations, powers, preferences and rights of preferred stock include liquidation preferences, conversion rights, special voting rights (including director designation rights and veto rights), dividend rights, anti-dilution protections for down rounds and information rights.

LLCs and LPs

LLCs issue membership interests to their members and LPs issue partnership interests to their partners. They are typically denominated as percentage interests in the operating agreement in the case of LLCs or the limited partnership agreement in the case of LPs. LLCs and LPs with multiple owners have distribution waterfalls for profits generated by the business. Members of LLCs and partners of LPs may have profits interests that are disproportionate to their capital contributions.

Corporations

The board of directors of a Delaware corporation may declare dividends based on the so-called surplus test. Surplus is defined as the net assets of a corporation (ie, total assets minus total liabilities) that exceed the corporation’s stated capital. Alternatively, the board of directors may declare dividends out of a corporation’s net profits for the fiscal year in which the dividends are declared and/or the prior year. Unlike the surplus test, the net profits test does not require balance sheet solvency; it only requires cash flow solvency. While the concept of a mandatory insolvency declaration does not exist in the US as it does in some other jurisdictions, directors authorising a dividend must ensure that the corporation has sufficient funds to operate its business and pay its debts as they come due following the payment of a dividend.

LLCs and LPs

The authority to make a distribution to members of an LLC or partners in an LP is set forth in the operating agreement of an LLC and the limited partnership agreement of an LP. These are typically bespoke provisions that are specific to the business and ownership structure.

Unlike public companies, which are subject to comprehensive SEC periodic reporting and the disclosure of insider information, private companies in the US are generally not subject to control person reporting and beneficial ownership disclosures. However, disclosure may arise in specific circumstances, including the following.

• When conducting certain exempt securities offerings under the federal securities laws (eg, issuers relying on Regulation D are generally required to file a Form D with the SEC within 15 calendar days after the first sale of securities, containing information concerning the issuer, its executive officers, directors, promoters and the offering).
• Certain other exemptions for securities offerings may involve additional disclosure requirements (eg, issuers relying on Regulation A (the so-called mini IPO) are subject to more extensive disclosure requirements regarding beneficial owners, board members and executive officers).
• Periodic reports filed by companies at the state level often require disclosure of the company’s directors and officers, but not owners.

The Corporate Transparency Act (CTA), which entered into effect on 1 January 2024, sought to establish a nationwide beneficial ownership reporting regime for private companies. Reports had to be submitted to the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and were not available to the general public. Upon entering into office, the second Trump Administration suspended the reporting regime for US companies and limited it to foreign companies operating directly in the US (ie, foreign companies operating through a branch rather than a subsidiary). The final rule terminating the reporting regime for domestic companies entered into effect on 11 August 2026.

For Delaware corporations (whether public or private), the Delaware General Corporation Law (DGCL) is the primary source of authority on corporate governance matters. A corporation’s certificate of incorporation and its by-laws must comply with the DGCL. Case law regarding the fiduciary duties of directors and officers is another important source of law for corporate governance matters.

Public companies are subject to an additional federal regulatory overlay consisting of the Securities Exchange Act of 1934 (the “’34 Act”); the SEC’s rules and regulations, including Regulation S-K (regarding qualitative and non-financial disclosures) and Regulation S-X (regarding financial disclosures); the Sarbanes-Oxley Act of 2002; the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; and the applicable listing standards of the New York Stock Exchange (NYSE), Nasdaq or another securities market.

In Delaware, directors owe fiduciary duties to the corporation and its stockholders. The principal fiduciary duties are the duty of care and the duty of loyalty.

• The duty of care requires directors to use the same measure of care when managing a corporation’s business and affairs that an ordinarily prudent person would use under the same or similar circumstances. If a director acted on an informed basis, in good faith and in the honest belief that the action taken was taken in the best interests of the corporation and its stockholders, the courts will not review the board’s decisions and instead defer to them under the so-called business judgement rule. The duty of care includes the subsidiary duty of oversight.
• The duty of loyalty requires directors to always act in good faith and in the best interests of the corporation and its stockholders. The corporation’s interests must take precedence over the director’s interests, and directors must avoid conflicts of interest, including conflicted transactions where the director sits, directly or indirectly, on both sides of the transaction. Directors may not engage in self-dealing, take business opportunities that belong to the corporation, compete with the corporation, or misuse corporate assets absent informed consent from a majority of the disinterested directors or the stockholders (see 2.5 Conflicts of Interest and Related-Party Transactions). The duty of loyalty includes the subsidiary duty of good faith.

Breaches of fiduciary duties can result in personal liability for directors. Corporations often purchase and maintain directors’ and officers’ (D&O) liability insurance to provide coverage against claims of alleged breaches of fiduciary duties (including to cover defence costs). Breach of fiduciary duties claims are derivative claims. A derivative claim is a claim brought by one or more stockholders on behalf of a corporation seeking restitution for a wrong done to the corporation.

Delaware corporations may include an exculpation provision in their certificate of incorporation that eliminates a director’s personal monetary liability for breaches of the duty of care, but not for breaches of the duty of loyalty.

The fiduciary duties of members or managers of Delaware LLCs and general partners of Delaware LPs can be waived in the operating agreement or limited partnership agreement almost entirely.

Under the DGCL, a private corporation’s board must have at least one director, and every director must be a natural person. The board size is usually established in the by-laws or otherwise determined by the stockholders from time to time. Moreover, except as it relates to the duty of loyalty, the DGCL does not require boards of private corporations to meet any independence standards. Nor are there any diversity requirements. US residency is not required for directors of a Delaware corporation.

Board composition rules for public companies are materially different because the listing standards of the NYSE and Nasdaq require a majority of the directors to be independent. Moreover, they require public companies to maintain a fully independent audit committee and compensation committee. Public companies and large private companies have standing audit, compensation, and nominating and corporate governance committees that assist with oversight and governance functions.

Unlike the EU, the US currently does not have a comprehensive federal law requiring corporations to make ESG (Environmental, Social and Governance) disclosures. There was an SEC Climate Disclosure Rule proposed in 2022 and finalised in 2024, but it is in the process of being rescinded after legal challenges and political shifts. Public companies must nonetheless disclose material issues that could be characterised as ESG matters even in the absence of an ESG-specific disclosure obligation.

In Delaware, transactions involving a director, officer or controlling stockholder who is conflicted (ie, not disinterested) are not prohibited, but are subject to the entire fairness test that requires the economics of the transaction (ie, the price) and the process to be fair to the corporation and its stockholders.

DGCL Section 144(a) provides a safe harbour for transactions between the corporation and one or more of its directors or officers who are conflicted. To receive the benefit of this safe harbour, the transaction must be approved either by the affirmative vote of a majority of the disinterested members of the board or by an affirmative vote of a majority of the disinterested stockholders.

DGCL Section 144(b) provides a safe harbour for transactions involving the corporation and a controlling stockholder that do not qualify as a going private transaction. To receive the benefit of this safe harbour, the transaction must be approved either by the affirmative vote of a board committee comprised of two or more disinterested directors or by an affirmative vote of a majority of the disinterested stockholders.

DGCL Section 144(c) provides a safe harbour for transactions involving the corporation and a controlling stockholder that qualify as a going private transaction. To receive the benefit of this safe harbour, the transaction must be approved by an affirmative vote of a board committee comprised of two or more disinterested directors and by an affirmative vote of a majority of the disinterested stockholders.

Under the DGCL, stockholders of Delaware corporations have statutory rights to vote for the election of directors, access information (subject to a proper purpose limitation), approve fundamental transactions and compel an annual meeting if none has been held for 13 months.

Stockholder approval is also required for major corporate actions, including (i) amendments to the certificate of incorporation pursuant to Section 242 of the DGCL, (ii) mergers pursuant to Section 251 of the DGCL and (iii) a sale of all or substantially all of the corporation’s assets pursuant to Section 271 of the DGCL. These approvals require the affirmative vote of a majority of the outstanding shares, unless the governing documents or applicable law impose a higher threshold. In connection with a merger, stockholders have appraisal rights. If they do not vote in favour of the merger, they can petition Delaware courts to compel the surviving entity to pay them fair value for their shares (as determined by the court). Appraisal rights are subject to strict procedural requirements.

Stockholder agreements are frequently used in private and closely held corporations to supplement statutory rights and allocate rights and obligations among the stockholders relating to governance, economic matters and an exit of all or individual stockholders. Typical provisions include voting agreements, designation of directors or board observers, veto or consent rights for significant matters, pre-emptive rights, transfer restrictions, rights of first refusal or first offer, drag-along and tag-along rights, call and put options, and expanded information and inspection rights.

In venture capital equity financing rounds, the National Venture Capital Association (NVCA) model documents are commonly used as the market-standard transaction documents to regulate the rights and obligations of founders and investors.

In the US, M&A transactions are primarily in the form of stock purchases, asset sales or statutory mergers. The consideration for mergers can be stock, cash or a combination of both. Statutory mergers are particularly prevalent in the public company context where there are many shareholders and holding a shareholder meeting that yields a vote is a more efficient process than collecting signatures from disparate shareholders to a single stock purchase agreement.

State corporate law as well as the applicable common law provide the principal statutory basis for stock purchases, asset sales and mergers. State common law also primarily governs the duties owed by boards of directors and officers to their companies and their shareholders. The federal securities laws, and for listed companies, the listing rules of the applicable securities markets, such as the NYSE and Nasdaq, also apply to public and private M&A transactions. The principal securities laws that apply to M&A transactions involving public companies are the Securities Act of 1933 (the “’33 Act”) and the ’34 Act and the SEC rules and regulations promulgated under these laws, including the tender offer and proxy solicitation rules under the ’34 Act. Private M&A transactions must comply with the ’33 Act and the SEC rules and regulations promulgated under this law, primarily the resale restrictions for shares not issued in a public offering (restricted securities) and possibly the rules governing private placements or offshore transactions.

As in any jurisdiction, tax laws also impact M&A transactions. In general, an analysis of federal tax efficiency arises early in any potential transaction, and federal and state tax compliance are significant concerns in any due diligence review.

As the M&A landscape is vast, the following sets out a selection of practice points that often differ from practice in other jurisdictions.

• US acquisition agreements contain a detailed set of representations and warranties regarding the condition of the target qualified only by exceptions that the seller sets forth in detail on disclosure schedules. Documents provided in the data room or available in public records typically do not qualify the representations and warranties. Careful attention to the representations and warranties and the disclosure schedules is critical to ensure the indemnification expectations of the parties are consistent with the terms of the agreement. Moreover, state law varies on whether a buyer should be entitled to indemnification if the buyer has actual knowledge prior to closing of the seller’s breach of a representation (so-called sandbagging) if the purchase agreement is silent on this point.
• M&A transactions are typically valued on a cash-free, debt-free basis. In order to determine the value of the target at closing, parties in the US typically rely on a working-capital adjustment of the purchase price up or down based on the difference between the expected amount of closing working capital and net debt established at signing and the closing working capital and net debt that actually exists at closing. This requires preparation of closing accounts after the closing along with a related dispute resolution mechanism. The locked-box approach prevalent in many other jurisdictions is not commonly used in the US.
• US law firms will ordinarily resist sharing diligence reports prepared for a buyer with financing sources and will seldom if at all permit financing sources to rely on such diligence reports. US law firms will, however, share diligence reports if the recipient explicitly agrees not to rely on the report in a non-reliance letter.
• An important element in any private equity M&A transaction is certainty on termination mechanics and limitations on potential liability for such termination. These matters are primarily dealt with in the interaction between the purchase agreement termination provisions, the equity commitment letter and the limited guarantee as well as, to a more limited extent, the debt commitment letters of financing sources. Even if the acquisition document for a non-US target is governed by its local laws, US private equity funds will insist that the limited guarantee and equity commitment letter be governed by US laws.
• Finally, many non-US practitioners wonder whether it is necessary to engage a lawyer qualified in the state of organisation of the relevant transaction party. Given the prevalence of Delaware corporations and the influence of Delaware corporate law, the corporate laws of the various states tend to be substantially consistent with Delaware corporate law. For this reason, US corporate lawyers are generally well-versed in Delaware corporate law and are familiar with how to navigate issues that may arise if parties to a transaction are not Delaware corporations. Practitioners will, however, pay special attention to state-specific rules that apply to employment and will generally seek local counsel assistance on matters related to real property transfers. Moreover, the choice of governing law requires practitioners to consider divergent ways in which various jurisdictions approach certain aspects of M&A transactions. 

Public Offerings

Pursuant to Section 5 of the ’33 Act, any offer or sale of a security made within the US must either be registered with the US Securities and Exchange Commission (SEC) or benefit from an exemption to registration. Otherwise, the offer or sale is illegal. Absent fraud, an illegal offer or sale generally creates a right of rescission in the investor permitting the investor to put its investment to the issuer and recover its purchase price (plus interest) from the issuer.

In connection with an IPO, an issuer registers the offer and sale by filing a registration statement with the SEC on Form S-1. If the registration is being made in connection with a business combination (ie, a merger), Form S-4 is used. The registration statement is comprised of a prospectus and the registration statement wrapper. The SEC’s initial review period is approximately 30 days and is typically extended by several weeks in connection with the SEC staff’s issuance of one or more comment letters and the issuer’s amendment of its registration statement in response to such comments. Once the review is complete, the SEC declares the registration statement effective. SEC review does not immunise the issuer and the directors and officers who have signed the registration statement from liability for material misstatements or omissions contained in the registration statement. Filings made with the SEC can be found on the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.

For follow-on public offerings, an eligible public company (essentially, one that is current and timely in its periodic reports for the 12-month period preceding the offering) can use a short-form registration statement on Form S-3 that incorporates information from the issuer’s periodic public filings to register the sale of additional securities.

Foreign private issuers (ie, companies incorporated outside the US with securities listed on a US exchange with 50% or less US ownership) must follow the same registration procedures as US issuers but benefit from accommodations to their home-country rules by using registration statements on Form F-1 (in the place of Form S-1) and Form F-3 (in the place of Form S-3).

Private Offerings

Although the once-strict rules have been relaxed for private offerings that meet certain conditions in Rule 506(c), a critical element of a typical private offering of securities in the US is the avoidance of general solicitations. A general solicitation is any solicitation or communication that conditions the market for a securities transaction or capital-raising or arouses public interest in a security (ie, a public offering). To avoid general solicitations, issuers may only conduct private offerings (also referred to as private placements) with investors with whom they have a substantive pre-existing relationship. The relationship must pre-exist the offer or sale and the relationship must be of sufficient depth to permit the issuer to evaluate, and the issuer does evaluate, the investor’s status as an accredited (or sophisticated) investor.

The two primary exemptions to the registration requirement that issuers rely on for private placements are Regulation D and Section 4(a)(2), the statutory exemption for private sales of securities set forth in the ’33 Act. Regulation D is a regulatory safe harbour for private placements in reliance on Section 4(a)(2). Most issuers that rely on Regulation D for their private placements rely on its Rule 506(b). These exemptions do not limit the offering size and are available to issuers for an unlimited number of accredited investors with respect to Rule 506(b) (individuals with at least USD200,000 in annual earnings (or USD300,000 with a spouse) or USD1 million in investments) or sophisticated investors with respect to Section 4(a)(2) (a case law-based facts and circumstances analysis). Only Rule 506(b) requires a public filing on Form D. In addition to complying with the requirements of the federal securities laws for private placements, issuers also have to comply with state securities laws, so-called “blue sky laws”. These laws typically provide for an exemption for Regulation D offerings.

Private placements are ubiquitous in the venture capital, private fund and institutional private debt markets. Securities issued in private placements are subject to limitations on resale by investors who are deemed statutory underwriters (so called restricted securities) under SEC Rules 144 or 145, and, for issuers in the institutional private debt market, Rule 144A.

SEC Regulation S provides safe harbours for sales of securities to investors that are not US persons from the registration requirements of the ’33 Act (both in the primary and secondary markets), if they are conducted in an offshore transaction. The conditions for these safe harbours vary depending on the type of security and the type of offer or sale.

A special regulatory regime applies to investment companies, such as mutual funds or ETFs. These issuers are subject to the registration, governance and reporting requirements of the Investment Company Act of 1940. Private funds (private equity funds, venture capital funds, hedge funds) are typically not investment companies subject to the Investment Company Act. Rather, they rely on the exceptions from the definition of an investment company provided by Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. Section 3(c)(1) is available for private funds with not more than 100 investors, and Section 3(c)(7) is available for private funds offered exclusively to “qualified purchasers”, defined as individuals with at least USD5 million in investments or entities with USD25 million in investments.

While the funds themselves are exempt, the investment advisers (or managers) to the funds must comply with the registration requirements of the Investment Advisors Act of 1940 or benefit from an exemption thereto. Exemptions include the Private Fund Adviser Exemption and the Venture Capital Fund Exemption (both of which result in Exempt Reporting Advisor status) and the Foreign Private Adviser Exemption.

Simultaneously with the registration of the sale of shares in a public offering under the ’33 Act, the class of shares issued to the public must be registered under the ’34 Act, which regulates the markets for securities issued to the public. Once securities are registered with the SEC under the ’34 Act, the issuer becomes subject to the periodic reporting requirements pursuant to Section 13(a) of the ’34 Act. The periodic reporting requirements include annual reports on Form 10-K and quarterly reports on Form 10-Q, and current reports on Form 8-K for specified material events.

Foreign private issuers whose shares have been offered to the public in the US must file annual reports on Form 20-F (in the place of Form 10-K), and interim and current reports on Form 6-K (in the place of Form 10-Q for interim reports and Form 8-K for current reports). Major exchanges such as the NYSE and Nasdaq require foreign private issuers to file semiannual interim financial statements on Form 6-K (although this is not an SEC requirement).

While the Section 16(b) “short swing” profits rules apply to a specified group of insiders irrespective of whether they exploit their position (see 5.4 Shareholder Disclosure), Rule 10b-5 prohibits trading in securities while in possession of material, non-public information. Insider trading requires (i) a trade in securities, (ii) while in possession of material information (ie, information a reasonable investor would consider important or likely to affect securities prices), (iii) which information is not public (ie, information that has not been broadly disseminated) and (iv) the use of such information is in violation of a duty (eg, as a result of being a director or officer or advisor of the company).

Liability may arise from use or misappropriation of the information in breach of a fiduciary duty or disclosing the information to others who trade on it (so-called “tipping”). Caution is required in the context of tender offers, which do not require the element of violation of a duty to give rise to liability.

Violations can result in civil and criminal penalties, including fines and imprisonment. The SEC is the principal civil enforcement authority, and the US Department of Justice is the principal criminal enforcement authority.

If any person or group owns or acquires beneficial ownership of more than 5% of certain classes of equity securities registered under the ’34 Act, Section 13 of the ’34 Act requires such person or group to file a beneficial ownership report with the SEC. These filings give the issuer, other stockholders and the market notice of significant acquisitions and potential changes in control. They require disclosure of the identity of the shareholder, the number of shares owned, and in the case of Schedule 13D, the source of funds used to acquire the shares, the stockholder’s purpose for owning them and any contacts, arrangements, understandings or relationships with respect to securities of the issuer.

A person crossing the 5% threshold must file Schedule 13D unless the person qualifies for Schedule 13G. Schedule 13G is a shorter form and requires fewer disclosures than Schedule13D. Schedule 13G is available to passive investors (eg, institutional investors and investors that have no intent to seek control of the issuer).

Failure to file a Schedule 13D or 13G can lead the SEC to seek injunctions and monetary penalties.

Directors, executive officers and 10% or greater shareholders of most public companies must make Section 16 filings reporting their ownership stakes and trades in company securities. They must make the initial statement on Form 3, report changes on Form 4 and make any year-end corrections on Form 5. Forms 4 are due within two business days of a change. Since 2026, directors and executive officers (but not 10% or greater shareholders) of non-exempt foreign private issuers must also make Section 16 filings, although they remain exempt from the Section 16(b) “short-swing” profits disgorgement rules, which require an insider of a US public company to return to the company any profits earned on purchases and sales of company securities during any rolling six-month period regardless of the purpose or intent behind such transaction or whether the insider had knowledge of any information not available to the public.

For public companies, the SEC plays a central role in monitoring companies’ compliance with internal control over financial reporting (ICFR). The SEC also maintains a Whistleblower Program that enables whistle-blowers to report potential violations of the securities laws directly to the SEC. Large private companies often also maintain an internal whistle-blower program as part of their compliance programs.

Article 9 of the Uniform Commercial Code (UCC), as supplemented (when adopted) by new Article 12 for certain digital assets, governs secured transactions involving tangible and intangible personal property in the US.

Attachment

For a security interest to be enforceable against the debtor and third parties (ie, to “attach”): (i) the secured party (ie, the lender) must provide value to the debtor (eg, an extension of credit), (ii) the debtor must have power to transfer rights in the collateral to the secured party and (iii) there must be a security agreement.

Perfection

Perfection protects the secured party’s claim against third parties, including other creditors. Although the exact steps for perfecting a security interest vary by collateral type and local rules, the general rules are as follows.

• UCC filings – a security interest in “personal property” or “general intangibles” generally is perfected by filing a UCC-1 financing statement in the jurisdiction where the debtor is located (jurisdiction of formation for most entities and residence for individuals).
• Control – a security interest in certain collateral is perfected by control, such as through possession of a physical stock certificate or control of a deposit account (as depository bank or through a deposit account control agreement) or a digital asset (through control of the custody account or the keys that grant control over the digital asset).
• Specialised laws – a security interest in certain collateral – eg, in intellectual property, may require additional state or federal filings. For example, a security interest in intellectual property may be perfected through a filing with the US Patent and Trademark Office.
• Real estate – security interests in real property (mortgages) are not governed by the UCC, but by state property laws and possibly federal and state consumer protection laws and are typically recorded in the county where the property is located.

Priority

Generally, priority of security interests in the same collateral is as follows.

• Perfected security interests have priority over unperfected interests.
• The first security interest that is perfected has priority over later-perfected security interests.
• A purchase money security interest (PMSI) in consumer goods, equipment or inventory has priority over perfected non-PMSI security interests.
• For collateral perfected by possession or control, the party with possession or control has priority over a security interest perfected by another manner (eg, a UCC-1 filing).

Enforcement

Upon default, the secured party generally may repossess and sell the collateral to satisfy the debt without a court proceeding.

Acquisition Financing

Acquisition financing typically is secured by a security interest over substantially all assets of the target and its material subsidiaries (as subsidiary guarantors), including pledges of the equity of the target and any material subsidiary. Material subsidiaries of the target also typically accede to the financing documents as a subsidiary guarantor after the closing. One lender often acts as security agent for all lenders. When there are multiple classes of debt, the parties may enter into an intercreditor agreement to govern how senior and junior lenders share, prioritise and enforce their security interests.

In the US, contract law is state law. Contract formation requires an offer, acceptance by the counterparty and consideration. Under the common law mirror-image rule, the acceptance must unequivocally match the terms of the offer. Otherwise, the acceptance is considered a counteroffer. Consideration is a bargained-for exchange whereby each party gives the other party something of value (ie, money, goods, a service or forbearance of a legal right). Consideration cannot be based on a pre-existing duty. A promise to make a gift is not a legally enforceable contract.

Contracts for the sale of goods under the Uniform Commercial Code relax the common law mirror-image rule under certain circumstances. When buyers and sellers exchange standard terms and conditions of sale but certain elements conflict, the Uniform Commercial Code’s “battle of the forms” procedures kick in to resolve the conflict.

Oral contracts are generally enforceable. However, under state Statutes of Frauds, certain contracts (eg, sale of goods contracts of USD500 or more and contracts related to real estate) must be evidenced by a signed writing, which can be in electronic form. Purported contracts based on an illegal subject matter or that violate public policy, that lack the basic elements of contract formation or that are impossible to perform are void ab initio. Fraudulent misrepresentation, duress, undue influence and lack of capacity are grounds for voiding a contract, creating a right of rescission in the adversely affected party.

In the US, courts typically enforce the plain language of a contract so long as it is clear and unambiguous on its face. This incentivises contracting parties to spell out their rights and obligations clearly and comprehensively. The parole evidence rule prohibits evidence of prior negotiations or agreements to vary, add to or contradict the terms of a fully integrated agreement, so courts only look to extrinsic evidence (including evidence of the parties’ intent at the time of contract formation), if they need to resolve an ambiguity in the language of the contract. Commercial contracts include an implied duty of good faith and fair dealing. However, this duty does not extend beyond a prohibition against frustrating the counterparty’s ability to perform the contract.

The building blocks of contracts are the following types of promises:

• representations – a statement about a present or past fact that is purported to be true at the time it is made;
• covenants – a promise to do or to refrain from doing something in the future; and
• conditions – a future event or requirement that must be satisfied before a party is required to perform its obligations under the contract.

Limitation of liability provisions are among the most frequently negotiated clauses in commercial contracts. Two distinct mechanisms typically appear together in these provisions. The first is a monetary cap on total liability, either tied to fluctuating fees paid under the agreement or a fixed dollar amount. The second is an exclusion of consequential, indirect, punitive and special damages. Importantly, carve outs for (gross) negligence, willful misconduct and fraud are commonly built into these clauses, meaning the cap and exclusions will not apply if a party’s conduct rises to that level. Whether a contractual limitation of liability is enforceable also depends on the governing state law and the particular limitation at issue. In certain jurisdictions, applicable law may render liability limitations unenforceable with respect to specified conduct, regardless of the contractual language.

Indemnification obligations, particularly for third-party claims such as intellectual property infringement or personal injury and property damage, as well as for breaches of confidentiality and data privacy incidents, are another type of frequently negotiated clause in commercial contracts. Under an indemnification clause, one party agrees to cover a specified loss of the other party as a matter of contract (as opposed to the payment of damages following a court proceeding). The obligation to indemnify typically arises at the time the indemnified party suffers the loss.

Under the common law, the principal remedy for a breach of contract in the US is expectation damages in the form of money damages. The aim of expectation damages is to give the non-breaching party the benefit of the bargain; in other words, to put the non-breaching party in the financial position they would have been in had the breaching party fully performed its obligations under the contract. Expectation damages are not punitive in nature.

The main types of damages are direct damages and consequential damages, and in the goods context, incidental damages. Direct damages are the immediate loss caused by the breach and suffered by the non-breaching party. Consequential damages are secondary losses that are specific to the transaction at issue and that were reasonably foreseeable to the contracting parties at the time of contract formation. Incidental damages are reasonable and additional losses suffered by the non-breaching party in connection with its management of a breach (eg, additional transportation costs or the additional costs of securing replacement goods, so-called cover costs).

Specific performance is an equitable remedy that may be granted in a court’s discretion if money damages would be an inadequate remedy for a breach (eg, in the case of a breach of a covenant not to compete). If specific performance is granted, the court orders the breaching party to take an action or to refrain from taking an action. The bar for obtaining an order of specific performance is high. Parties to a contract therefore often include express provisions in the contract authorising the remedy to increase the likelihood that a court will award it.

A minor breach of contract merely entitles the non-breaching party to money damages. A major or material breach of contract entitles the non-breaching party to money damages plus the option to suspend the performance of its obligations under the contract. The non-breaching party generally has the obligation to mitigate damages to the extent possible through the exercise of reasonable efforts. If included in a contract, a force majeure provision permits a party to temporarily suspend the performance of its obligations under the contract in response to a major, unforeseen event that is outside of its control without being in breach of contract (eg, natural disasters, the outbreak of hostilities, wide-reaching government actions).

Types of IP

The main types of intellectual property (IP) rights involved in commercial transactions in the US are patents, trade marks, copyrights and trade secrets.

Patents are issued by the US Patent and Trademark Office (USPTO). The main types of patents are utility patents that have a term of 20 years from the filing date, and design patents that have a term of 15 years from the grant date. Utility patents require the payment of periodic maintenance fees.

Trade marks in the US need not be registered to receive legal protection, but registration is recommended for enforcement. Federally registered trade marks require the filing of a declaration of continued use periodically, and the registrations can remain active as long as use of the trade marks continue.

Multinational registration is available for patents pursuant to the Patent Cooperation Treaty (PCT) system and for trade marks pursuant to the Madrid Protocol.

Copyrights automatically vest upon creation of the work and need not be registered. However, copyrights must be registered to bring an infringement action in court. Copyrights generally last for the duration of the author’s life plus 70 years, or for works made for hire, 95 years from first publication or 120 years from creation for unpublished works.

Trade secrets are confidential information with a business or economic value where the proprietor makes reasonable efforts to keep the information confidential and control access to it.

IP Assignment and Licensing

Intellectual property assets must be assigned pursuant to a signed writing. For an effective trade mark assignment, the goodwill of the business associated with the trade mark must also be transferred. Recordation of a patent, copyright or trade mark assignment is not required but puts third parties on notice of the assignment and provides priority with respect to later-in-time good faith purchasers for value. Patents, copyrights and trade marks can be licensed on an exclusive, non-exclusive or sole basis, perpetually or for a limited term, with or without being revocable, with or without payment of royalties, with or without rights of transferability and sublicense, and on a worldwide or more limited basis. Trade secrets are difficult to license due to the requirement to keep them confidential.

Allocation of Ownership of IP

The ownership of IP arising out of a project (whether in connection with a licensing agreement or a joint venture) should be allocated between the contracting parties, and can involve significant negotiation. Background IP is IP owned or developed by one party prior to the start of the project or developed independently by such party outside of the scope of the project. Background IP typically remains with the party that licensed or contributed the IP to the project, but a licence to the Background IP may be necessary for the project to continue. IP developed in connection with the project, can be allocated to one or more parties, and is often licensed back to the individual parties.

An employee inventor is by default the owner of patentable IP, subject to a shop right that grants the employer non-exclusive rights to use the IP. The work-for-hire doctrine vests copyrights in the employer but has limitations. To avoid any adverse consequences, employers often have employees sign inventions assignment agreements to vest any and all IP rights in the employer. Recording such assignments with the USPTO is highly recommended to enable the employer to prosecute patent applications.

Currently, copyright ownership and patentable inventions must be created by humans and not AI, although AI assistance may be permissible.

Remedies for Infringement

Remedies for infringement include injunctive relief and money damages. Enhanced damages and attorneys fees are sometimes available, based on the facts. Contractual indemnification rights provide important substantive and procedural protections for parties to IP transactions against third-party claims alleging infringement.

Franchises

A franchise is a comprehensive business contract between a franchisee and a franchisor that couples a trade mark licence with an operational and logistical framework that allows the franchisor to retain significant control over the operations of the franchisee. Although a franchise transaction does not constitute a securities offering, it reflects a similar regulatory concept. Rather than relying solely on private contractual arrangements, the franchisor (the seller) is subject to a prescribed pre-contractual disclosure regime designed to provide prospective franchisees (the buyers) with standardised information before they enter into a franchise relationship. The disclosure document that must be delivered is called a Franchise Disclosure Document (FDD).

An important intersection between consumer protection laws and commercial agreements are consumer product warranties. The key laws governing such warranties are the Magnuson-Moss Act at the federal level and Article 2 of each state’s Uniform Commercial Code.

A warranty is the seller’s promise about the quality or certain characteristics of a product or a service. There are two types of warranties: express warranties and implied warranties.

• Express warranties are promises made by the seller voluntarily and explicitly to the consumer, either orally or in writing. Express warranties must be limited to what the seller can actually deliver. For instance, tying the warranties to agreed specifications is preferable to open-ended language (eg, “free of defects”) or incorporating a subjective component (“quality satisfactory to the buyer”).
• Implied warranties (eg, the implied warranty of merchantability or the implied warranty of fitness for a particular purpose), on the other hand, are implied by the applicable state Uniform Commercial Code and must be excluded “conspicuously” in a contract (ie, in bold or all cap letters).

Under the Magnuson-Moss Act, if a seller offers a limited express warranty to a consumer, this seller may limit the duration of the implied warranty to the period of the express limited warranty (if certain conditions are met) but may not disclaim the implied warranties entirely. Sellers offering a full express warranty may not disclaim nor modify the implied warranties at all. Conversely, if the product is offered on an “as is” basis (ie, without any written express warranty), most states allow the seller to disclaim the implied warranties in their entirety so long as consumers are informed in writing in a conspicuous manner.

Related to the topic of warranties is deceptive advertising. Under the Federal Trade Commission Act (the “FTC Act”), advertising must be truthful and non-deceptive. There is no private right of action under the FTC Act, but consumers may submit complaints to the US Federal Trade Commission (FTC), which could then initiate an enforcement action. If such misrepresentation (eg, a false claim in the product specification) is embedded in an express warranty, it could be an actionable breach of contract. Moreover, if such breach also constitutes a violation of the Magnuson-Moss Act, the consumer may be able to recover court costs and reasonable attorneys’ fees, if successful.

Additional consumer protection regimes exist in specific sectors (eg, the Consumer Financial Protection Bureau (CFPB) regulates mortgages, credit cards and student loans offered to consumers) and at the state level.

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 and its implementing rules (the “HSR Act”) require that an “acquiring person” (up to the ultimate parent owner) make a filing and observe a waiting period before closing an acquisition of voting securities or assets which causes the acquiring person to cross specified ownership, voting or dollar value thresholds. An HSR Act filing can be triggered in connection with an original investment, the exercise of warrants or options, the conversion of debt to equity or the consummation of another add-on investment that would result in crossing those thresholds. Failure to make a necessary filing or to satisfy any required waiting period prior to closing an acquisition can result in substantial fines.

Unless an exemption applies, pre-merger notification is required if a transaction meets three tests (numbers are valid for 2026).

• Commerce test – requires that either party be engaged in an activity affecting commerce.
• Size of transaction test:
1. USD133.9 million or less – if the transaction is valued at USD133.9 million or less, pre-merger notification is not required;
2. more than USD535.5 million – if the transaction is valued at more than USD535.5 million and no exemption applies, pre-merger notification is required; and
3. more than USD133.9 million to USD535.5 million – if the transaction is valued in excess of USD133.9 million but not more than USD535.5 million, pre-merger notification is required only if the transaction meets the “size of person test” below.
• Size of person test – this test is satisfied if one party has annual net sales or total assets of at least USD26.8 million (a “USD26.8 million person”) and the other party has annual net sales or total assets of at least USD267.8 million (a “USD267.8 million person”). It does not matter which party is the USD26.8 million person and which is the USD267.8 million person.

HSR filings require specified, detailed information regarding the acquiring person and the acquired person, as well as the disclosure of certain documents prepared by the acquirer for evaluating or analysing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets (so-called 4(c) materials).

The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee responsible for reviewing foreign investments into the US. CFIUS has discretion to determine whether such investments pose national security risks, and the CFIUS process can impact the timing and likelihood of closing a transaction.

CFIUS has broad authority to review “covered transactions”, but only some covered transactions require mandatory filings. Filings are required before closing when:

• a foreign person in which a foreign government has a substantial interest (excluding an excepted foreign state) acquires 25% or more of the voting interest in a US business that:
1. produces, designs, tests, manufactures, fabricates or develops “critical technology” in the US;
2. owns, operates, manufactures, supplies or services certain critical infrastructure in the US; or
3. maintains or collects sensitive personal data of US citizens that could be exploited to threaten national security (collectively, a TID US Business); or
• a foreign person (excluding an excepted investor) acquires certain ownership, governance (including a board observer) or information rights in a TID US Business involved with “critical technology”. Failure to make any required filing can result in financial penalties. Parties may voluntarily report covered transactions to gain safe harbour protection against later action by CFIUS.

A CFIUS declaration is a short, expedited filing with a 30-day review period and no filing fee. All mandatory filings require the filing of a declaration or, at the filers’ discretion, the filing of a notice (see below). A declaration is often filed if the parties believe the transaction has low national security risk, they want to save costs and time, and they hope to secure a quick safe harbour letter. However, unlike a notice filing, there is no guarantee that CFIUS will provide a definitive clearance or rejection of the transaction. Parties often receive “the shrug”, meaning CFIUS allows the transaction to proceed without rejecting it or providing an affirmative safe harbour from future CFIUS action. Sometimes, parties that file a declaration are then requested to submit a full notice.

A CFIUS notice is a detailed, long-form filing with a 45-day review period (plus a potential 45-day investigation period) and has a sliding-scale filing fee based on transaction value. A notice typically is used when the transaction is of likely interest to CFIUS, such as if it clearly involves sensitive technologies, infrastructure or data (ie, a TID US Business), or has complex foreign government ownership elements.

The US does not have comprehensive federal legislation governing consumer privacy protection across all US states. As a result, the US legal landscape remains a layered framework consisting of federal and state statutes, regulations, industry standards and case law with differing scope and focus areas depending on the state and industry. Some are based on the residency of the data subjects, while others regulate the use of certain data categories, activities or triggering events.

The closest to a federal general consumer privacy law is Section 5 of the FTC Act. Consequently, the FTC has become the de facto federal enforcement agency for consumer data protection. Notably, Section 5 of the FTC Act does not address privacy explicitly but rather folds it under the general prohibition on unfair or deceptive trade acts or practices. Hence, rather than enforcing specific privacy requirements, the FTC’s enforcement actions have primarily targeted companies’ disclosures and representations about their handling of personal information, with the failure to adhere to their own privacy policy being the most common allegation. Other federal laws impose specific privacy requirements, but they only apply to certain sectors or categories of personal information. These include, among others, the Gramm-Leach Bliley Act concerning consumer financial services, the Health Insurance Portability and Accountability Act (HIPAA) concerning healthcare and the Children’s Online Privacy Protection Act.

At the state level, California was the first state to enact its own general consumer privacy law, the California Consumer Privacy Act, amended by the California Privacy Rights Act (the CCPA). The CCPA, together with its implementing regulations, is thus far the most comprehensive among the state consumer privacy laws that have been enacted to date. Further, the state of California is also the only state with a standalone agency that is solely dedicated to enforcing California’s privacy laws. Companies that fall under the CCPA must give consumers a so-called “notice at collection” that discloses the categories of personal information being collected and the purposes of such collection. Such notice needs to provide the consumer with a link to opt out from the sale of personal information (if applicable) and another link to the company’s full privacy policy. Notably, the CCPA defines “sale” or “sharing” of personal information broadly.

To add to the mix, apart from the general consumer privacy laws, certain states have also enacted laws that govern specific subject matters (eg, biometric data, AI, data security requirements and data breaches).

Given the current fragmented state of US privacy law, emerging technological advancements and evolving legal landscape, compliance can be a daunting task. Rather than attempting absolute compliance, many companies adopt a pragmatic approach that seeks to establish a defensible compliance program aimed at reducing the risk of enforcement and consumer complaints.

The principal anti-money laundering and counter-terrorist financing laws in the US are the Bank Secrecy Act, as amended by the USA PATRIOT Act and the Anti-Money Laundering Act of 2020. These are supplemented by the regulations and guidance issued and enforced by the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The US anti-money laundering regime applies to financial institutions. Covered financial institutions are generally required to maintain a risk-based AML/CTF compliance programme; implement know-your-customer (KYC) procedures; monitor transactions; file suspicious activity reports; maintain prescribed records; and implement sanctions screening and related controls to comply with Office of Foreign Assets Control (OFAC) requirements. Section 314 of the USA PATRIOT Act also requires covered institutions to respond to FinCEN information requests and permits regulated information-sharing concerning suspected money laundering or terrorist financing.

The Foreign Corrupt Practices Act of 1977 (FCPA) is the principal US federal anti-corruption statute. It prohibits bribery of foreign officials and requires issuers to maintain accurate books and records and adequate internal accounting controls. It applies where (i) anything of value is offered, promised or given, (ii) to a foreign official, (iii) with corrupt intent, (iv) for a business purpose. The FCPA applies broadly to issuers, domestic concerns, certain foreign persons acting in US territory and affiliated persons. It can also reach third parties if the payer acts knowingly, including with reckless disregard or wilful blindness. There is no monetary threshold under the FCPA, meaning that even small improper payments can lead to liability. Violations can trigger civil and criminal liability.

The federal domestic Bribery Statute prohibits corrupt exchanges generally. It prohibits directly or indirectly giving, offering or promising anything of value to a federal public official (or the public official demanding or accepting anything of value), in each case, to influence an official act.

Owners and operators of real property are generally liable for environmental contamination caused by them under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA). Owners can also be held strictly liable for pre-existing contamination caused by a prior owner or operator. To protect against this liability, buyers of real property can conduct “all appropriate inquiries” (including Phase I and Phase II environmental assessments) and comply with certain post-closing procedures that ensure that the contamination does not continue. The US Environmental Protection Agency (EPA) enforces CERCLA.

Health and safety in the workplace is primarily regulated by the Occupational Safety and Health Act of 1970 (the OSH Act). The Occupational Safety and Health Administration (OSHA) enforces the OSH Act. The OSH Act imposes a general duty on employers to provide a hazard-free workplace as well as industry-specific duties. The OSH Act also imposes recordkeeping requirements for workplace injuries on covered employers (so-called OSH Form 300 Logs).

Unlike the EU, the US currently does not have a single comprehensive federal AI statute comparable to the EU AI Act. Similar to data privacy, states are beginning to introduce regulatory elements and federal agencies may have jurisdiction to regulate AI practices under existing frameworks – eg, the FTC for unfair and deceptive AI trade practices, the EEOC for discriminatory AI-assisted employment decisions and the CFPB for AI-assisted decision-making with respect to consumer financial products.

There are no other applicable regulatory compliance requirements or regimes in this jurisdiction, which have not already been mentioned.

Employment and labour law in the US is governed by a combination of federal, state and local laws. Key federal statutes include:

• the Fair Labor Standards Act (FLSA), which prescribes standards for wages, overtime pay and child labour;
• Title VII of the Civil Rights Act, which prohibits employment discrimination;
• the Americans with Disability Act (ADA), which makes it unlawful to discriminate in employment against qualified individuals with a disability;
• the Age Discrimination in Employment Act (ADEA), which prohibits age discrimination in the workplace;
• the Family and Medical Leave Act (FMLA), which entitles eligible employees to take unpaid, job-protected leave for family and medical reasons; and
• the National Labor Relations Act (NLRA), which provides the right to unionise.

Typically, employment contracts in the US are presumed to be “at will,” which means that the employer as well as the employee may terminate the relationship at any time and for any or no reason. However, employers may not terminate employees for unlawful discriminatory or retaliatory reasons, or in violation of public policy.

Most employees in the US receive a short form offer letter that sets forth base pay and bonus entitlements, a basic description of benefits (such as health care coverage and 401(k) retirement savings plan participation), and vacation and sick leave entitlements.

Large-scale reductions in force require companies to comply with the WARN Act by providing employees with 60 days’ advance notice of plant closings or mass layoffs.

For foreigners working in the US, a variety of visa types are available, including E Treaty Trader/Investor Visas, L-1 Intracompany Transfer Visas (both individual and blanket-based), H-1B Specialty Occupation Visas, TN Visas for Canadians and Mexicans under USMCA, J-1 Visas for interns and trainees, O-1 Extraordinary Ability Visas, Family-Based Green Cards and Employment-Based Green Cards (EB-1, EB-2, EB-3).

Federal securities laws require clear, concise and comprehensive disclosures of compensation paid to executive officers and directors of public companies, in particular, for the executive officers named in periodic SEC filings (ie, the CEO, the CFO and the next three most highly paid executive officers). These disclosures tend to be heavily scrutinised by investors and proxy advisory firms. Compensation paid to executive officers and directors of private companies is generally not subject to public disclosure.

Executive compensation arrangements extend well beyond base salary to include notice periods and severance rights, annual and performance-based bonuses, equity incentive programs, change of control benefits, additional benefits entitlements (including life and disability insurance, relocation expenses and car allowances), confidentiality and inventions assignment obligations and restrictive covenants. These are typically set forth in a negotiated, long-form employment agreement.

The structuring of equity incentive programmes requires navigating complex federal and state tax laws. Section 409A, which must always be reviewed in connection with the implementation of an equity incentive programme, prohibits non-qualified (ie, guaranteed) deferred compensation and subjects violations to a 20% excise tax. If a non-US entity is involved, Section 457A imposes an independent 20% excise tax on prohibited non-qualified deferred compensation. Golden parachute payments made by corporations to executives and other senior employees in connection with a change of control are subject to a 20% excise tax under Section 280G if the payments meet or exceed three times the base amount of pay, calculated as the employee’s average annual compensation over the past five years. Various mitigation measures are available (including gross ups and cutback provisions (ie, provisions that limit the payments to USD1 less than the three times limit)) and private corporations can avoid Section 280G penalties by obtaining shareholder approval and meeting prescribed disclosure requirements.

The enforceability of restrictive covenants varies significantly by state. California is the most restrictive state and tends to void all non-compete agreements in the employment context, no matter how narrowly tailored. Most other states (with certain exceptions) tend to enforce non-compete agreements that are reasonable under the circumstances with respect to geographic or industry scope and duration and are necessary to protect the employer’s legitimate interests. However, an increasing number of states are enacting limitations on non-compete agreements applicable to low-wage workers. Non-compete agreements in connection with the sale of a business remain widely enforceable. Recent efforts by the FTC during the Biden Administration to ban post-employment non-competes nationwide have been unsuccessful.

Most states (with certain exceptions including California) enforce reasonable employee and customer non-solicitation agreements. However, as with non-compete agreements, an increasing number of states are enacting limitations on their enforcement with respect to low-wage workers. Confidentiality agreements remain widely enforceable.

Land ownership in the US primarily takes one of three forms:

• fee simple ownership – full ownership rights;
• a leasehold – the exclusive right to use and possess real property for a set period of time; and
• an occupancy licence – a contractual right to use and possess real property for a limited purpose during a limited period of time that is often revocable.

Foreign individuals and corporations are generally free (subject to applicable CFIUS and sanctions restrictions, if any) to buy, hold and sell real property in the US. However, in the event of a disposition of a US real property interest (including equity interests in a US real property holding company) by a foreign seller, the buyer must withhold and pay to the IRS 15% of the purchase price under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) to secure the seller’s payment of applicable capital gains taxes.

A contract of sale typically governs the purchase and sale of real property in the US. The property transfer itself is effected by the execution and delivery of a deed at closing and recordation of the deed at the county level shortly thereafter. Real property transfers often require the payment of transfer tax. Buyers frequently purchase title policies to insure against deficiencies in marketable title.

A security interest in owned real property is referred to as a mortgage.

Most business in the US rely on commercial leases for their operating premises (an office, store, warehouse or facility). Many commercial leases are “triple-net” leases. These are long-term arrangements (five to ten years or more) where the tenant pays the landlord monthly rent and covers all maintenance and operating expenses (including taxes). The landlord is only responsible for making structural repairs to the building. Few to no regulations apply to commercial leases, so they often are heavily negotiated.

Zoning regulations enacted by local governments limit the types of activities that business can undertake on given parcels of land.