Doing Business in Massachusetts

A Guide to U.S. and Massachusetts Law for Non-U.S. Businesses

Driving Business Advantage CONTENTS

Introduction 1 The Federal System (Levels of Government) 1 Federal Law 1 Massachusetts Law 1 Municipal Law 2 Lawyers in the United States 2

Forms of Doing Business in the United States 2 Sole Proprietorship 3 General Partnership 3 Joint Venture 4 Limited Partnership 4 Corporation 5 Limited Liability Company (LLC) 6 Massachusetts Business Trust 7 Branch of a Foreign Entity 8

Corporations 8 Forming the Corporation 8 Record Keeping and Filing Requirements 10 Qualification in Massachusetts of a Corporation or Partnership 10 Using an Assumed Name 11 Issuing Shares and Other Securities 11

Joint Ventures 11 Structure 11 Tax Considerations 13

Business Financing 13 Equity Financing 13 Debt Financing 15 Asset-Based Loans 15 Term Loans 15 Subordinated Loans 16 Trade Credit 16 Public Securities Markets 17

Labor and Employment Relations 17 Hiring 17 Terms and Conditions of Employment 18 Wages 18 Workers’ Compensation for Injured Employees 18 Unemployment Compensation for Terminated Employees 19 Vacations and Holidays 19 Health Insurance 19 Leaves of Absence 20 Retirement Benefits 20 Life and Other Insurance 21 Safety and Health 21 Labor Unions 21 Protecting an Employer's Assets 21 Terminating Employees 21

Immigration 22 Temporary Nonimmigrant Visas 22 Permanent Residence 24 Employer Sanctions 25

Protection of Intellectual Property 26 Categories of Protection 26 Patent Law 26 Copyright Law 27 Mask Works 31 Trademark Law 31 Trade Secret Law 32 Unfair Competition Law 33 Transfer of Proprietary Rights 34 Copyrights 34 Patents 34 Trademarks 34 Trade Secrets 34 Partial Transfers and Licenses 34 Security Interests 35 Related Internet Privacy Issues 35

Real Estate 36 The Real Estate Transaction 36 Negotiation 37 Financing 38 Acquisition of Title 39 Leases of Real Estate 39 Massachusetts Practice 40 Transfer Taxes on Real Estate 40 Land Bank Fees in Dukes and Nantucket Counties 41 Nominee Trusts 41

Environmental Regulation 43 Minimizing and Managing Risks 44 The Key Regulatory Agencies 45 Contaminated Property: Cleanup and Liability Issues 45 Regulation of Hazardous Waste and Other Toxic Substances 47 "Cradle-to-Grave" Regulation of the Generation, Transport, Treatment, Storage, Recycling and Disposal of Hazardous Waste 47 Regulation of Toxic Substances 48 Asbestos 48 Underground and Aboveground Storage Tanks 49 Water Pollution Control 49 NPDES Permits and Wastewater Pretreatment Requirements 49 Air Pollution Control 50 Community "Right-to-Know": Mandated Information Disclosure 51 Toxic Substance Use Reduction 52 Development and Construction Projects 52 The Massachusetts Environmental Policy Act 52 Wetlands Protection and Coastal Zone Management 53 Title V 55 A Note About Environmental Litigation 55

Taxation 56 Federal Taxation 56 The Residency Rules 56 United States Income Taxation of Nonresident Foreign Investors 57 Sourcing Rules 59 Methods of Business Operation and Repatriation of Earnings 59 Massachusetts Taxation 62 The Corporate Tax Regime 62 Special Corporate Incentives 63 Other Massachusetts Taxes 63

Antitrust and Trade Regulation 63 Federal Law 63 Massachusetts Law 65 Practical Applications 65 7 Introduction

This guide is intended to provide foreign business - The Federal System people with an introduction to the basic kinds of (Levels of Government) laws and regulations that affect the conduct of The laws and regulations affecting the conduct of business in the United States, and particularly in business in Massachusetts discussed below flow the Commonwealth of Massachusetts. The level from sources at three basic levels: federal, state of detail is varied, reflecting the nature of the and municipal. legal areas discussed. For example, environmental Federal Law law and taxation are subjects of detailed and Federal law derives from the United States technical regulation, while labor relations are Constitution and from statutes enacted by the governed as much by custom and practice as United States Congress and approved by the by direct regulation. President. Federal law usually applies everywhere The discussion under each heading is intended to in the United States and prevails over conflicting provide only general guidance and is not an state or municipal law (but federal and state laws exhaustive description of all provisions of federal, governing the same subject often coexist without state and local law with which a non-U.S. business conflict, and in those cases both laws may apply). operating in Massachusetts might be required to Most federal statutes are enforced by one or more comply. The laws whose effects are described in administrative agencies, which often have authority this guide are subject to interpretation by courts, to adopt regulations that interpret or even expand may be affected or preempted by federal statutes on the underlying statutes. For example, the feder - or regulations, and may themselves be amended or al laws governing public offerings of securities and repealed. Particular businesses or industries may tender offers for control of publicly-held companies also be subject to legal requirements not referred are administered by the Securities and Exchange to in this guide. Commission. In some areas, such as defining fraudulent and deceptive practices in the sale of For this reason, you should not rely solely upon this securities, the statutes leave the definitions entirely guide when planning the details of a specific trans - to the regulations of that Commission. Other impor - action or undertaking. Instead, the pertinent details tant federal agencies are referred to in the text of of any transaction or business project involving this guide. Massachusetts should be reviewed thoroughly by qualified Massachusetts counsel. Massachusetts Law Massachusetts law derives from the Massachusetts Constitution and from statutes enacted by the Massachusetts Legislature (formally named the

Doing Business in Massachusetts Foley Hoag LLP 1 Great and General Court) and approved by the United Kingdom. Many individual lawyers and some governor. It applies only in Massachusetts and firms choose to specialize or concentrate their prevails over conflicting municipal regulations. practices in particular areas of the law; but most Massachusetts law is also administered by a vari - firms of any significant size (for example, more ety of administrative agencies, many of which have than 15 members) in the principal urban centers authority to adopt regulations. Massachusetts law stand ready to provide legal advice and, if neces - and regulation are important in, among other sary, representation in legal proceedings in most or areas, real estate law, corporate organization, all of the areas of concern to businesses entering public health and safety, environmental and labor the United States. law, and consumer protection. Similarly, the various terms that lawyers use to Municipal Law describe themselves — such as “attorney,” Municipal law derives ultimately from “counsel,” “counselor” and simply “lawyer” — Massachusetts state statutes conferring specific do not reflect any formal differences in status powers on cities and towns and is usually or specialty. expressed in bylaws, ordinances, or regulations adopted by any of a variety of municipal bodies. It Forms of Doing Business in is most significant in the areas of land-use planning the United States and public health and safety enforcement. An important initial choice facing a person wishing to do business in the United States is the form of At each of the three levels, the government imposes business entity through which to conduct U.S. some form of taxation to support its operations. The operations. The choice of entity must be carefully principal sources of federal revenues are personal considered in light of the specific concerns of a and corporate income taxes, a variety of excise particular business venture. The results in terms taxes and customs duties. The principal sources of of tax treatment, exposure to contract and tort Massachusetts revenue are personal and corporate liability, and efficiency and methods of governance income taxes and a smaller variety of excises. The will vary significantly in many circumstances principal sources of municipal revenue are real depending upon the form of entity chosen. There is estate taxes, an excise on motor vehicles and finan - no single best choice of entity in the abstract; the cial aid from the state government. different entities each have their own unique advan - Lawyers in the United States tages and disadvantages. American lawyers are licensed, or “admitted to The creation, management and powers of the dif - practice,” by the individual states and by the feder - ferent forms of business entities are governed by al courts in separate federal judicial districts. In state rather than federal law. Additionally, the offer most states, there is no formal distinction between and sale of securities of the different entities impli - branches of the profession — as there is, for cate both state and federal securities laws. This example, between barristers and solicitors in the

2 Foley Hoag LLP Doing Business in Massachusetts section briefly summarizes the characteristics of absence of any contract to the contrary, a sole the different entities. Corporations and joint ven - proprietor is personally liable for all obligations of tures are discussed in more detail in two separate the business to the full extent of his/her personal sections that follow. and business assets. In addition, a sole proprietor is liable not only for torts personally committed, Remember that the appropriate choice of form but also for those committed by any employees varies with the plans and goals of any specific busi - of the business. ness venture. The entity is appropriately chosen only after the venture is formulated and should be Because a sole proprietorship ends upon the death tailored to fit the venture. The venture generally of the proprietor, this form of business organization should not be tailored radically to fit the entity. The has no continuity of existence. The interest of a use of hybrid entities, which combine the charac - sole proprietor in the business is freely transfer - teristics of two or more of the business forms able, subject to laws that, in general, prevent the described below, allows businesses even further interest of business creditors from being defeated flexibility in choosing entities closely matched to by the sale of the business. their individual needs. General Partnership Sole Proprietorship A general partnership is a collaboration of two or A sole proprietorship is simply an individual engag - more individuals — by written or oral agreement — ing in business for himself or herself. No statute for the purpose of engaging in ongoing business governs the organization of a sole proprietorship. activities. Partnerships are governed to a limited However, any person engaged in business under a extent by state statutory law but, for the most part, name other than his/her own, generally, must file a the relationships among the partners are governed fictitious name certificate with the office of the by the terms of the partnership agreement. A gen - clerk in every town in Massachusetts in which the eral partnership is not itself subjected to income business has an office. tax; instead, the income tax consequences of the general partnership’s activities are passed through The principal advantages of this form of doing busi - to the individual partners, who must pay taxes on ness are administrative simplicity and autonomy. The their allocable share of the general partnership’s owner of a sole proprietorship is his/her own boss. income, regardless of whether the partnership No one else has the right to participate in manage - actually distributes any income to its partners. ment. However, the owner may, by contract, dele - Additionally, a partner in a U.S. partnership is treat - gate authority or surrender control. A sole proprietor - ed, for tax purposes, as if he/she were directly ship is not subject to the many record-keeping and engaged in the business of the partnership. As a reporting requirements facing public corporations. result, a non-U.S. partner may be required to file U.S. tax returns because of his or her participation The principal disadvantage of this form of doing in the partnership if the activities of the partnership business is potentially unlimited liability. In the constitute the “conduct of a U.S. trade or business”

Doing Business in Massachusetts Foley Hoag LLP 3 for U.S. tax purposes. (See the “Effectively Limited Partnership Connected Income” discussion on page 57.) A limited partnership is a partnership created by written or oral agreement that provides for at least The primary advantage of general partnerships is one general partner who is responsible for manag - that they permit great flexibility in the allocation of ing the partnership and at least one limited partner rights, responsibilities, and economic benefits and who is usually a passive investor. Limited partner - burdens among the participants. General partner - ships organized in Massachusetts must file a ships allow a number of participants to pool Certificate of Limited Partnership with the resources while maintaining a great deal of flexibili - Massachusetts Secretary of the Commonwealth. ty in deciding how to run their business, and how to distribute gains and losses for tax purposes. The principal advantage of a limited partnership is that it combines, to some extent, the flexibility of a There are a number of disadvantages to the gener - general partnership with the limited liability of a al partnership form. First, a partner in a general corporation. A limited partnership is taxed in the partnership is jointly and severally liable for all part - same manner as a general partnership. Thus, a nership obligations to the full extent of each part - limited partnership is not generally subjected to ner’s business and personal assets. Second, the income tax itself; instead, the income tax conse - flexibility provided by the formation of a general quences of a limited partnership’s activities are partnership can result in difficult negotiations and passed through to its partners, who must pay complex partnership agreements. Such complex taxes on their allocable share of the limited partner - agreements, along with an elaborate taxing ship’s income whether or not the limited partner - scheme, cause the administrative costs associated ship actually distributes any income to its partners. with a general partnership to be higher than those Both general and limited partners of a limited part - of a sole proprietorship. Additionally, the withdrawal nership are treated, for tax purposes, as if they of a partner can be cumbersome, and any such were directly engaged in the business of the limited withdrawal results in the legal dissolution of the partnership, and therefore may be required to file partnership. As a general rule, partnerships U.S. tax returns as a result of their participation in become increasingly unwieldy as the number of the partnership if the activities of the partnership partners increases. constitute the “conduct of a U.S. trade or busi - Joint Venture ness” for U.S. tax purposes. (See the “Effectively Connected Income” discussion on page 57.) The A joint venture is essentially a form of general part - general partners have great flexibility in managing nership that is limited to a single business venture. the enterprise within the confines of the partner - The advantages, disadvantages and tax treatment ship agreement and state law. Limited partners are of joint ventures are the same as those of general not responsible for partnership debts and liabilities partnerships. (Joint ventures are discussed in more beyond the amount of their investments. detail on pages 11 –13.) Additionally, since limited partners are simply pas -

4 Foley Hoag LLP Doing Business in Massachusetts sive investors, an increase in the number of limited A principal advantage of doing business in corpo - partners does not make the partnership unwieldy rate form is that the shareholders of a corporation to the same extent as an increase in the number of are insulated, in most instances, from personal partners in a general partnership. liability for the obligations of the corporation. Additionally, the corporation has a perpetual exis - A principal disadvantage of a limited partnership is tence; it does not dissolve upon the death or with - that limited partners are greatly restricted in the drawal of a sole stockholder. In most cases, owner - involvement they may have in the day-to-day man - ship shares of a corporation can be transferred rel - agement of the business enterprise. To protect atively easily, particularly so in the case of a public themselves, limited partners often insist that the corporation. Also, the statutory law and the case partnership agreement restrict the ability of a gen - law governing corporations are well developed, and eral partner to take certain key actions without the hence relatively predictable. approval of the limited partners, such as the dispo - sition of major assets. Therefore, important The principal disadvantage of doing business in cor - decision-making in limited partnerships can be porate form is that the formal record-keeping and slow. Further, limited partnership interests general - reporting requirements imposed by state corporate ly are securities, and therefore the offer and sale statutes make corporations more expensive to of those interests are subject to the requirements administer than some other forms of business enti - of state and federal securities laws. ty. Administrative costs are particularly higher for public corporations, which must comply with the Unlike a general partnership, the death, withdrawal complex and rigorous federal securities regulation or expulsion of a general partner does not auto - scheme under the Securities Act of 1933 and the matically result in the statutory dissolution of a Securities Exchange Act of 1934. Also, most limited partnership. corporations in the U.S. are subject to a “double taxation” system under which income of the corpo - Corporation ration is taxed at the corporate level, and distribu - Each state has its own corporate statute, but the tions of earnings to shareholders trigger a second laws are quite similar from state to state. A U.S. income tax at the shareholder level. Distributions by corporation doing business in Massachusetts, or a U.S. corporation to a non-U.S. shareholder are any other state, may be organized under the generally subject to U.S. withholding tax of up to 30 Massachusetts Business Corporation Act or under percent (unless reduced by treaty). Ownership of the analogous law of another jurisdiction. (See stock in a U.S. corporation does not, however, “Forming the Corporation” on page 8.) A corporation generally subject a non-U.S. person to U.S. tax may be either public or private. A public corporation return filing obligations . is one in which the shares are offered and sold to the public at large. A private corporation has rela - Private corporations are the most common form of tively few shareholders, and the shares of a private business entity in the U.S. The public corporate corporation may not be transferred as freely. form is generally the appropriate choice for busi -

Doing Business in Massachusetts Foley Hoag LLP 5 nesses that require access to the vast U.S. capital LLC is taxed as a corporation. As a result, a market. Public and private corporations are creat - non-U.S. owner of an LLC may be required to ed and governed under the same state corporate file U.S. tax returns because of his or her par - laws and are subject to identical tax treatment. The ticipation in the LLC if its activities constitute distinction between the two types of corporations the “conduct of a U.S. trade or business” for relates essentially to the application of state and U.S. tax purposes. (See the “Effectively federal securities laws. Connected Income” discussion on page 57.)

2. Limited Liability — Investors receive protection Limited Liability Company (LLC) from the obligations of an LLC similar to that A limited liability company (LLC) is an unincorporat - enjoyed by corporate shareholders. ed entity organized under state law that combines certain advantages of both a partnership (a single 3. Flexible Management — Investors may partici - level of taxation) and a corporation (limited liability pate actively in the management of the LLC. to owners of the entity). LLCs avoid many of the Alternatively, management of the LLC may be disadvantages and requirements of so-called S-cor - delegated to a manager or group of managers porations, another type of entity that combines lim - who may or may not be investors. ited liability and flow-through tax treatment but pro - 4. Flexible Capital Structure — An LLC may issue hibits foreign ownership. multiple classes of ownership interests, may have an unlimited number of owners and is not The key features of an LLC are: constrained as to the types of owners who may hold interests. 1. Flow-through Tax Treatment — Unless an LLC

elects to be taxed as a corporation for income These features make LLCs well-suited both for tax purposes, it is generally taxed as a part - entrepreneurial and privately-held businesses and nership. As such, an LLC is not subject to for passive investments, including businesses that income tax itself; instead, the income tax con - develop and sell or license technology, venture capi - sequences of the LLC’s activities are passed tal management, real estate investments and corpo - through to its members, who must pay taxes rate joint ventures where the limited liability of all on their allocable share of the income, whether owners is important and where the freedom of plan - or not the LLC actually distributes any income ning distribution and allocation of LLC income and to its members. An LLC with only one member losses is desirable. is generally disregarded for income tax pur - poses, and the single member must report One disadvantage of LLCs is that, because this and pay taxes on the LLC’s taxable income as form of entity is relatively new, there is not a well- if that member conducted the activities of the developed body of statutory and case law dealing LLC itself. Additionally, a member of a U.S. with LLCs, as there is, for example, with corpora - LLC is treated, for tax purposes, as if directly tions. As a result, legal developments in this area engaged in the business of the LLC unless the may be somewhat less predictable.

6 Foley Hoag LLP Doing Business in Massachusetts Massachusetts Business Trust business trust is a limit on the potential liability A business trust (often referred to as a faced by participants. The shareholders of the trust “Massachusetts business trust” because its use are liable for trust obligations only up to the amount first became common in Massachusetts) is a of their investments in the trust. The trustees them - hybrid entity that combines the characteristics of a selves face potentially unlimited liability, but that lia - corporation, a partnership and a trust. A business bility may be limited by contract — if the trust trust is a form of unincorporated business organi - instrument also limits the trustee’s liability, and also zation in which property is held and managed by possibly by the general Massachusetts trust statute trustees for the benefit of the owners of the enter - that limits a trustee’s liability on contracts properly prise. The trustees are appointed under a declara - entered into in his fiduciary capacity unless he/she tion of trust or other trust instrument, which also failed to reveal his/her representative capacity and describes the trust property and establishes proce - identify the trust estate in the contract. Finally, as in dures for the management of the trust and its busi - the case of limited partnership interests, shares in a ness. The owners, who receive transferable certifi - business trust are freely transferable except as cates of beneficial interest in the trust property, restricted by the agreement establishing the entity. may be referred to as the “shareholders” of the One disadvantage of a business trust is that only business trust. A business trust that is created the trustees may participate in the active manage - under Massachusetts law is required to file its dec - ment of the enterprise (the shareholders are in a laration of trust with the Massachusetts Secretary position similar to that of limited partners in a part - of the Commonwealth and with the city or town nership). Another disadvantage is that statutory law clerk of every municipality in which the trust main - governing business trusts is less developed than tains a usual place of business. that governing corporations or partnerships. The business trust form was developed initially to Therefore, one has less guidance in determining achieve limited liability for certain real estate busi - how a court might answer a question relating to nesses for which local law made the corporate business trusts. Also, as in the case of limited part - form substantially unavailable. The popularity of the nership interests, interests in business trusts are business trust as a vehicle for new open-ended generally deemed to be securities for the purposes investment companies is due to its flexibility and of state and federal securities laws. Tax treatment the simplicity of its organization and operation. of a business trust is a hybrid. For federal tax pur - poses, the business trust is taxable as if it were a The business trust has certain advantages normally corporation. As such, it is generally subject to the found in the corporate form. First, it has perpetual “double taxation” system, under which income of existence (based on an early Massachusetts the business trust is taxed at the entity level and Supreme Judicial Court case). Unlike a general part - distributions of earnings to shareholders then trig - nership, a business trust does not terminate if ger a second federal income tax at the shareholder investors die or withdraw. A second advantage of a level. For most Massachusetts tax purposes, a

Doing Business in Massachusetts Foley Hoag LLP 7 business trust is taxed at the entity level as if it businesses may be organized as so-called were an individual, but the trust may distribute its Massachusetts business trusts, with powers similar income to shareholders without causing them to to corporations but a legal structure founded on incur Massachusetts tax on the distribution. Use of fiduciary law. All of those forms and others are the business trust form by non-U.S. concerns is available to businesses operating in somewhat uncommon, but may be appropriate in Massachusetts. (See preceding chapter of this special circumstances. guide.) This section is a brief summary of the legal formation and operation of a corporation. Branch of a Foreign Entity Finally, one can do business in the U.S. as a Forming the Corporation branch of a foreign business entity. In The form of entity most commonly chosen by non- Massachusetts, as in most jurisdictions, a simple U.S. businesses is the corporation, since, among filing with the Secretary of the Commonwealth is other things, the corporate form provides protec - required of a foreign entity wishing to transact busi - tion for its owners against liabilities incurred in the ness within the state. business; a corporation can be organized quickly and relatively inexpensively; and a well-established The principal advantage of transacting business as body of statutes and case law permits the rights a U.S. branch of an existing foreign entity is that and responsibilities of the corporation, its owners organizational expenses are kept to a minimum and management, and persons with whom it deals since no new entity needs to be created. The dis - to be ascertained with relative clarity and certainty. advantage, however, is that doing business in such A corporation is also a convenient and efficient a form exposes the entity’s non-U.S. assets to vehicle through which to obtain outside financing claims arising out of activities of the U.S. branch (subject to compliance with applicable federal and as well as possible application of a branch profits state securities laws). tax and the obligation to file U.S. tax returns. (See “Methods of Business Operation and Repatriation Corporations in the U.S. are created under state of Earnings” on page 59.) (rather than federal) law. A corporation doing busi - ness in Massachusetts may be organized under the Corporations Massachusetts Business Corporation Act or under

Most U.S. businesses are organized as corpora - the corporation law of another state, such as tions, limited liability joint-stock companies with Delaware. Many U.S. companies (including many powers to act as legal “persons” separate from doing business in Massachusetts) choose to incor - their shareholders. Some, particularly professional porate under Delaware law. Publicly-held companies service organizations and private investment funds, in particular may wish to take advantage of particu - may be organized as partnerships or, more recent - lar features of Delaware corporation law, which, for ly, as registered limited liability companies or regis - example, may permit added flexibility in matters of tered limited liability partnerships. Some other corporate governance such as stockholder voting or provide protection against hostile takeovers.

8 Foley Hoag LLP Doing Business in Massachusetts Those provisions may provide little or no advan - The entire process can be accomplished within a tage, however, to a non-U.S. firm that has a wholly- matter of days, if necessary. owned subsidiary in the U.S. You should consult with qualified Massachusetts counsel before select - Contemporaneously with filing the Articles of ing Delaware or another state as the jurisdiction in Organization, the incorporators elect initial direc - which to organize a corporation that will do busi - tors of, and adopt bylaws for, the new corporation. ness in Massachusetts. The persons elected as the initial directors then typically adopt other preliminary resolutions, for An important preliminary step in organizing a cor - example, electing initial officers, directing the open - poration under the Massachusetts Business ing of a bank account, approving forms of corpo - Corporation Act is, of course, to choose a name rate seal and stock certificate, and authorizing the for the corporation. The name should be sufficient - issuance of capital stock of the corporation to its ly distinguishable as to avoid confusion with any stockholder or stockholders. The day-to-day man - other corporation or entity organized or qualified to agement of the corporation is carried out by its do business in Massachusetts and must contain a officers, under the general supervision of the board term such as “Corporation,” “Incorporated” or of directors. The board of directors appoints the “Inc.” identifying the business as a corporation. It is officers of the corporation, generally annually. Also, advisable to arrange for a search to confirm that the stockholders of the corporation hold an annual the desired name is available and, if so, to reserve meeting during which directors are elected for the it in advance with the Massachusetts Secretary of ensuing year. Meetings of the stockholders and the Commonwealth. directors of a Massachusetts corporation may be held within or outside of the U.S. However, it is not A Massachusetts corporation is organized by filing necessary to hold formal meetings of the stock - Articles of Organization, with the Secretary of the holders or board of directors because, under the Commonwealth, accompanied by payment of a rela - Massachusetts Business Corporation Act, any tively modest filing fee. The information required to action that can be taken at such a meeting can be included in the Articles of Organization is speci - also be taken by a telephone meeting or unani - fied by the Massachusetts Business Corporation Act mous written consent of the stockholders or direc - and is not extensive. The Articles must be signed tors, as the case may be, without holding an actual and filed by one or more incorporators, who may or meeting. The stockholders may even act by less may not be employees or principals of the non-U.S. than unanimous written consent, if the corpora - stockholder. It is not necessary to disclose in the tion’s Articles of Organization specifically permit it Articles (or otherwise) the identity of the stockhold - and certain requirements as to prior notice to ers. The Articles of Organization become effective, noconsenting stockholders are fulfilled. and the corporation comes into existence, immedi - ately upon filing of the Articles with the Secretary of A Massachusetts corporation need not have more the Commonwealth, unless a later date is specified. than three directors, and it may have fewer if per - mitted by its Articles of Organization (though it

Doing Business in Massachusetts Foley Hoag LLP 9 may, if desired, have more). In any case, a corpo - Record Keeping and Filing ration with only a single stockholder need not have Requirements more than one director. Directors are not required To maintain the limited liability of its shareholders, to be officers, employees or stockholders of the a Massachusetts corporation must observe the for - corporation, nor do they need to be residents or malities of corporate form, such as holding regular citizens of the U.S. The officers of the corporation meetings (or actions by written consent) of its must, by statute, include a president, a treasurer shareholders and directors, maintaining corporate and a secretary; any number of vice presidents and minutes and stock records, proper accounting for other officers are also permitted. Officers may, but the property of the corporation, and avoiding com - need not, be directors, and one person may serve mingling of funds of the corporation with those of in one or more of the statutory offices as well as its shareholders. A Massachusetts corporation act as a director. Officers need not be stockhold - must also file with the Secretary of the ers or U.S. residents or citizens. However, the cor - Commonwealth a report of condition (or “Annual poration must have a registered office and regis - Report”) each year and must also notify the tered agent in Massachusetts. The registered Secretary of the Commonwealth in writing of the agent can be an individual, including any officer of occurrence of certain events (such as relocation of the corporation, whose business office is also the its registered office or changes in its registered registered office of the corporation. agent, directors or statutory officers). Failure to file the Annual Report can result in imposition of fines Shares of stock in a Massachusetts corporation and, if the failure continues for a period of time, in may be owned by any natural person, corporation the involuntary dissolution of the corporation by the or other entity, including non-U.S. citizens or enti - Secretary of the Commonwealth. ties. There is no statutory minimum investment for a Massachusetts corporation, and, subject to cer - Qualification in Massachusetts of a tain limitations, stock can be issued for cash, Corporation or Partnership promissory notes, services or other property. (Be As a condition to its conducting business in aware, however, that inadequate capitalization of a Massachusetts, a foreign corporation, limited part - Massachusetts corporation may risk loss of the lim - nership or limited liability company (that is, one itation of liability of its shareholders.) organized under the laws of any jurisdiction other than the Commonwealth of Massachusetts) must A Massachusetts corporation can own or deal in file with the Secretary of the Commonwealth a for - real estate or any other form of property and, with eign corporation certificate, application for registra - limited exceptions (for example, the practice of tion as a foreign limited partnership or application law, medicine or another profession), can engage for registration as a foreign limited liability compa - in almost any business activity. ny, as the case may be. Failure to file the neces - sary certificate or application can result in the imposition of fines and will prevent the entity in

10 Foley Hoag LLP Doing Business in Massachusetts question from bringing suit in any Massachusetts areas such as manufacturing, marketing or product court (at least until the necessary certificate or distribution, particularly if the foreign business has application has been filed). Foreign corporations not previously operated in the U.S. In that situation, (but not foreign limited partnerships) are also the foreign business may find it advantageous to required to file annual certificates of condition. enter into a joint venture with the U.S. business. A properly structured joint venture will enable a foreign Using an Assumed Name business to obtain assistance in needed areas, Any person or entity that conducts business in obtain guidance and gain experience in conducting Massachusetts under an assumed name (that is, business in the U.S., and make contacts in the U.S. any trade name or title other than his/her or its business community. The foreign business may own legal name) must file, with the city or town then, in the future, proceed on its own, either with a clerk of each municipality in which it maintains an new business activity or by buying out the interest office, a certificate (often referred to as a “doing of its U.S. venture partner. business” or DBA certificate) stating his/her or its legal name. (No such certificate needs to be filed A joint venture arrangement may be tailored to fit for a corporation doing business under its true any business, whether in the real estate, manufac - corporate name.) turing, retail, service or any other sector of the U.S. economy (with limited exceptions for certain Issuing Shares and Other Securities regulated industries in which foreign participation Both federal law and Massachusetts law regulate may be restricted). Massachusetts law permits the offering or sale of securities. In this connection, great flexibility in structuring joint venture arrange - the term “securities” includes many forms of invest - ments. Joint ventures are, however, complex ment in an enterprise and is not limited to the arrangements requiring the consideration, analysis purchase of stock. Filings may need to be made and resolution of legal issues in a diverse range of with appropriate government agencies and speci - specialties, including tax, antitrust and intellectual fied disclosures may need to be made to prospec - property. Foreign businesses considering a joint tive investors before securities can be offered or venture arrangement should carefully select U.S. sold to certain classes of persons. For this reason, legal counsel with the experience and expertise to a non-U.S. business proposing to seek outside advise them in these areas. financing for a venture in the U.S. should consult with qualified counsel before initiating contacts with Structure prospective investors to ensure compliance with As previously mentioned, a joint venture is not a applicable federal and state securities law. specific type of legally constituted entity, as is a corporation or partnership, but is merely a generic Joint Ventures term used to indicate the existence of a working

A foreign business that wants to do business in the relationship between parties that join together in a U.S. may desire the assistance of a U.S. business in common enterprise. The manner in which the par - ties join together may vary and will be determined

Doing Business in Massachusetts Foley Hoag LLP 11 by a number of factors. For example, if the foreign tion from liabilities arising from the business of the business does not require substantial assistance, joint venture. In addition, the foreign business requires assistance in a narrowly defined area or would generally not be subject to the jurisdiction requires assistance for only a short period of time, of U.S. courts. There are, however, exceptions. its strategy should probably be to enter into a con - For example, a foreign business may subject itself tract with a U.S. company to provide the services to jurisdiction over product-liability claims in the required. If, however, the foreign business requires U.S. merely by sending its goods to the U.S. more substantial services and desires to establish A foreign business whose products are sold or a longer-term relationship with the U.S. business, used as components in products that are sold the better strategy would be to form a joint venture through a joint venture in the U.S. should consult entity to conduct the business. U.S. legal counsel to determine whether, regard - less of the form of joint venture entity selected, it The foreign business will want to be insulated from is prudent for the foreign business to maintain liability for financial obligations and for liabilities product-liability insurance. arising from the conduct of the U.S. business, while at the same time being active in management Regardless of the legal form chosen to conduct the and controlling the business. As discussed in the joint venture, the terms of the venture should be section on Forms of Doing Business in the United negotiated and documented in detail. Although States on page 2, general partners of a partner - legal counsel will include standard provisions devel - ship are liable for the partnership’s obligations, and oped through experience to protect the foreign limited partners of a limited partnership avoid liabili - business, there are many areas that will require ty only if they do not participate in the control of negotiation. The joint venture documents should, the business. As a result, a foreign business seek - for example, explicitly describe each party’s pres - ing both insulation and active management and ent and future contributions to the venture in terms control should not enter into a partnership directly of capital, management, technology, intellectual with its U.S. joint venturer. property rights, manufacturing facilities, product distribution and the like; each party’s ownership There are two approaches most advantageous to interest in, and rights to receive distributions of the foreign business in organizing a joint venture. profits of, the venture; the duration and manner of The first approach is for the foreign business to winding up the venture; governance of the venture; organize a U.S. subsidiary corporation. That corpo - a mechanism for dispute resolution, particularly in ration would then form a partnership with the U.S. the case where each venturer has an equal owner - joint venturer. The second approach is the forma - ship interest and restrictions on transfer of the ven - tion of a U.S. corporation jointly owned by the for - ture’s interests in the joint venture. Depending on eign business and the U.S. joint venturer. A foreign its long-term U.S. strategy, the foreign business business that, uses either approach and, in fact, may also find it advantageous to negotiate, at the maintains an arms-length relationship with the joint venture would generally achieve its goal of insula -

12 Foley Hoag LLP Doing Business in Massachusetts inception of the venture, a right to buy out its U.S. Massachusetts laws and the requirements of partner in the future. lenders and investors.

Tax Considerations Equity Financing Tax consequences will be a significant considera - All businesses require an adequate level of equity tion in the type of joint venture entity selected. The capital. What is adequate varies by industry and by entity formed to carry on the business of the joint the circumstances of a particular company within venture will be subject to U.S. federal and state an industry. A business that anticipates substantial taxation. If the venture is conducted through a cor - borrowing to finance its start-up costs and opera - poration, the venture will be subject to such taxes tions will need to satisfy its lenders that it is ade - at both the corporate level and again when any quately capitalized. The amount of equity capital earnings are distributed to the corporate sharehold - should be finally determined only after presentation ers. If the venture is conducted through a partner - to, and approval by, prospective lenders of a pro ship, then all items of the partnership’s income, forma balance sheet for the business. losses, deductions and credits will be passed through the partnership to its partners, who will be As a general matter, the U.S. does not restrict directly responsible for payment of taxes. In addi - the flow of funds between the U.S. and other tion, the tax treaty between the U.S. and the coun - countries. Subject to applicable reporting require - try of the foreign business will affect the tax liability ments described under the heading Reporting on income the foreign business receives from the Requirements for Foreign Direct Investment on page joint venture. Many tax treaties require withholding 66, funds may be brought into the U.S. without limi - of taxes in the U.S. on certain types of payments tation as to amount and, together with any profits made to foreigners. earned, may be repatriated without restriction as to amount. Thus, a foreign business may bring into the Business Financing U.S. funds needed to capitalize its U.S. operations, and funds that are no longer needed in the business This section of the guide is a brief description of or which are realized when the business is wound some of the more common types and sources of up may be repatriated and converted into foreign financing generally available to establish and currency at then prevailing exchange rates. finance the U.S. operations of a foreign business.

Both U.S. and Massachusetts law allow great flexi - A foreign business that desires to retain sole own - bility in tailoring financing packages to the needs of ership of its U.S. operations will provide all the particular industries and to individual businesses equity capital for the business. However, various within those industries. Financially astute business sources of equity capital are available to foreign people working with experienced legal counsel will businesses. Commercial banks in the U.S. do not be able to structure a financing package that is provide equity capital. Investment banking firms, appropriate for the particular business and can be however, may be a source of equity capital, not implemented within the framework of U.S. and only investing their own funds, but also arranging

Doing Business in Massachusetts Foley Hoag LLP 13 for investment of equity funds by their customers. covenants, remedies in the event of failure to make This source of equity capital will generally be avail - preferred payments when due, rights to participate able only if the foreign firm is an established busi - in future financings of the business, rights to partic - ness. Most of the major investment banking firms ipate in sales of shares by other equity holders, in the U.S. operate on an international basis, and rights of first refusal if either the foreign con - enabling a foreign investor to arrange equity financ - cern or U.S. investor desires to sell its shares. It is ing in the U.S. likely that the U.S. investor will, in addition, want to provide an exit strategy for its investment. This Equity capital raised from others to establish a busi - might take the form of an option to require the pur - ness in the U.S. will take the form of either com - chase of the U.S. investor’s shares after some peri - mon stock or preferred stock. Although od of time or upon the occurrence of an agreed Massachusetts law permits the creation of different event, a right to participate in a public offering of classes of common stock, a purchaser of common shares by the company, or a right to require the stock would have the same rights per share to divi - company to register the public sale of the U.S. dends and distributions as the foreign business investor’s shares. Legal counsel experienced in holder of common stock of the U.S. company. It is negotiating equity placements will be familiar with more likely that a third-party equity investor will the many pitfalls in negotiating these and other want to purchase a class of preferred stock, which issues that arise in private equity placements. will entitle the holder to a return on the investment and possibly a fixed yield on that investment before Venture capital, although a major source of equity any amounts are paid to the foreign concern if the capital in the U.S. for smaller and developing busi - business is wound up, and which may entitle the nesses, may not be an attractive financing alterna - holder to a specified level of dividends before any tive for a foreign business seeking to operate in are paid to the holders of common stock. The pre - the U.S. Venture capitalists have traditionally pre - ferred stock issued in such a transaction will likely ferred rapid-growth businesses with the potential of be convertible into common stock at an agreed a public offering or sale of the business to a strate - conversion rate, or may entitle the holder to partici - gic buyer and are unlikely to be interested in long- pate with holders of common stock in dividends term investments. In addition, venture capitalists and other distributions after the preferred stock - will ordinarily demand a high degree of control to holder has been paid the preferential dividends and protect their investment and can be expected to distributions to which it is entitled. react relatively quickly and insist on changes when a business does not perform as expected. They Issuing equity securities involves negotiation of may also insist on provisions giving them control of many issues, including dividend and liquidation the board of directors or actual ownership control rights and preferences, voting rights, preferred in the event of default. Finally, given the inherent stock conversion rights, rights to appoint represen - risk in venture capital investing, high returns on tatives to the board of directors, information investments are necessary to balance the success - reporting, affirmative and negative operating

14 Foley Hoag LLP Doing Business in Massachusetts es with the failures in the venture capitalist’s portfo - Asset-Based Loans lio. Consequently, the cost of venture capital financ - Asset-based loans generally provide short-term ing tends to be quite high. credit in the form of demand loans, seasonal lines of credit or single purpose loans for the purchase With some exceptions, the public securities mar - of specific assets. Often the amount of financing kets are generally most appropriate for mature available is based on a percentage of various types businesses, although market conditions will at of assets owned by the borrowing company. times allow less developed businesses with high growth potential to make initial public offerings at Working capital financing involves loans made an earlier stage of development. The public securi - against percentages of the borrower’s accounts ties markets are highly regulated under a system receivable and inventory accepted by the lender as based on the concept of full disclosure of all mate - collateral. The lender may also take a security rial information. A company that offers its securi - interest in other assets that the lender will not ties to the public is subject to extensive public include in computing the borrowing base for loans reporting requirements, both at the time of the to the borrower. Commercial banks and commer - offering and on an ongoing basis. “Insiders,” includ - cial credit companies are the most common ing officers, directors and significant equity hold - sources of this type of financing. ers, may trade in securities of their company only on the basis of information available to the general Equipment financing may be available both to public and are subject to various other securities finance the purchase of new equipment and to real - trading restrictions. ize cash from existing equipment. While maximum loan value and more advantageous financing terms Debt Financing will be available for the financing of new equipment, Debt financing is available to satisfy business lenders will provide financing against a percentage needs at various stages of growth from start-up to of the value of existing equipment. The types of maturity. The U.S. debt market is segmented with assets that may be financed in this manner extend different lenders providing different types of loans, beyond conventional equipment and machinery and and some lenders specializing in providing financ - include furniture, office partitions and virtually any ing to businesses in specific industries. A foreign other fixed assets. Typical sources of this type of concern must be careful to select lenders that are financing are commercial banks, commercial knowledgeable about the foreign concern’s industry finance companies and leasing companies. In addi - and capable of structuring a financing package that tion, sellers of fixed assets often provide direct suits its particular needs. Some of the more com - financing to their customers. mon types and sources of debt financing are described here. Term Loans For more mature companies with predictable cash flow, banks, insurance companies and pension funds provide longer-term loans. Long-term loans

Doing Business in Massachusetts Foley Hoag LLP 15 may have either floating or fixed rates of interest. that any deferred interest itself bear interest at an These loans are generally unsecured, and long- agreed rate. In addition, often only part of the sub - term lenders rely heavily on extensive affirmative ordinated lender’s return will be reflected in the and negative covenants, including financial ratios, interest rate. The balance of the return is more that set forth parameters for the conduct of the speculative and is provided by “equity kickers,” borrower’s business. Long-term loans are generally often in the form of warrants to purchase common used to fund working capital needs and expansion stock of the borrower’s at a favorable price. In of capital assets. appropriate situations, a borrower’s capital struc - ture may include more than one class of subordi - Subordinated Loans nated debt. In that event, the terms of subordina - Subordinated loans, sometimes referred to as tion of the more junior lenders will be negotiated “mezzanine” loans, are term loans that are subordi - separately with both the senior lender and the hold - nated in right of payment to other loan obligations ers of the more senior subordinated debt. of the borrower, often obligations for loans from secured creditors and banking institutions. The Subordinated debt financing is generally provided by term “subordination” has little intrinsic legal mean - insurance companies, venture capital funds that ing. The terms of subordination must be carefully focus on later-stage growth companies and special - negotiated in detail between the senior and subor - ized mezzanine lending funds. Because this debt is dinated lenders and must clearly set forth the rela - subordinate to the borrower’s senior debt, senior tive priorities of the different lenders to the cash lenders will often view it as equity in performing flow and assets of the borrower and the circum - their credit analysis. stances under which the subordinated lender is entitled to receive payments and exercise its reme - Trade Credit dies as a creditor in the event of a payment or Trade credit is so oriented toward a single purpose other default on its loan. and so short-term that it is often overlooked as a source of capital for general purposes. However, to Because of the inherently greater risk that results the extent that a company is able to obtain credit from subordination, subordinated lenders require a from its suppliers and convert the merchandise pur - considerably higher return than do senior lenders. chased into cash to pay the suppliers within the Particularly in the case of earlier-stage companies, credit term, it reduces its need to borrow from the near-term projected cash flow may not be suffi - banks and commercial credit companies. The cient to pay all the interest on both the senior and stage of development of a business has a signifi - the subordinated debt. In these situations, the sub - cant effect on its ability to obtain trade credit. In ordinated lender may be willing to permit payment the start-up phase, trade credit will be established of a portion of its interest on a current basis and to based on financial condition, while later, emphasis defer payment of the balance to a time when the will shift to consistency of earnings and the pay - borrower’s projections reflect adequate cash avail - ment record of the business. A more mature busi - ability. The subordinated lender is likely to require ness with a supplier’s confidence may be able to

16 Foley Hoag LLP Doing Business in Massachusetts negotiate credit terms, although suppliers are limit - ment; and terminating employees. Each of these ed in this respect by the Robinson-Patman Act, areas is discussed briefly here. which prohibits discrimination in price, terms or Hiring conditions of sale among buyers who compete with Most employees in the U.S. do not have written each other. (See “Antitrust and Trade Regulation” employment contracts. They are hired to work on on page 63.) what is known as an “at-will” basis. This means that Public Securities Markets they are not employed for any definite period of Debt financing in the public securities markets is time, and either the employee or the employer may available to late-stage substantial borrowers. This terminate the employment relationship without prior type of financing is generally long-term and often notice at any time and for any reason, as long as unsecured and may be at either a fixed or variable the reason is not an unlawful one. interest rate. While the cost of money tends to be lower and operating covenants tend to be less Employers who want to employ persons on an at- restrictive in publicly placed debt than in privately will basis should have their employment application placed debt, the cost of issuance and ongoing forms, offer letters, employee handbooks and any transaction and reporting costs tend to be signifi - written personnel policies and procedures reviewed cantly higher in the public markets. In addition, the by a lawyer to ensure that they do not inadvertently interests of holders of publicly-issued debt are rep - create enforceable contracts of employment for a resented by a trustee with fiduciary responsibilities, particular term. who generally can agree to amendments or to Some employees, such as high-level executives, waivers of default only with the approval of a speci - may have written employment contracts that estab - fied percentage of the debt holders. As a result, lish a particular period of employment and describe issuers of publicly-held debt will encounter less flex - the terms and conditions of the employment rela - ibility and greater delay in dealing with defaults as tionship. Those contracts are usually drafted with well as with amendments necessitated by changes the assistance of counsel. in business circumstances.

Other employees (for example, hourly paid workers Labor and Employment Relations in certain manufacturing jobs) are represented by Productive and skilled employees are essential for labor unions that have negotiated collective bargain - the success of any business. Massachusetts is for - ing agreements, which set the terms and conditions tunate in having a highly-educated and disciplined of the employment relationship. The number of workforce. When recruiting people to staff a busi - employees represented by labor unions in the U.S. ness, it is important to be familiar with the basic has been declining in recent years, and it is unusual rules of labor and employment law in the United for labor unions to represent employees who work States in three areas: hiring employees; establishing for high-technology and many other businesses in the terms, conditions and benefits of their employ - Massachusetts. Employers in the U.S. are prohibit -

Doing Business in Massachusetts Foley Hoag LLP 17 ed by both federal and state laws from discriminat - wage ($5.15 per hour, effective September 1, ing in the hiring of employees on the basis of race, 1997). Additionally, it requires employers to pay over - sex (including pregnancy), age (applies to people time premiums at the rate of one and one-half times 40 years and older), color, religion or national ori - an employee’s regular rate of pay for all hours gin. Federal and state laws also prohibit discrimina - worked in excess of 40 in a week. Except in the case tion against qualified handicapped persons who are of minor children, there is no limit on the number of able to perform the essential functions of a job with hours that employees can work in a week as long as or without reasonable accommodations. they receive one full day of rest (usually Sunday) in Massachusetts state law also prohibits discrimina - each seven-day period. Certain salaried employees tion based on a person’s sexual orientation, military who are employed as executives, professionals or service, genetic information or receipt of free health administrative personnel are exempt from these care services from the state. minimum wage and overtime pay requirements. Massachusetts law is essentially the same as the A federal law, the Immigration Reform and Control federal law concerning these matters, except that Act, makes it unlawful to employ aliens in the U.S. the minimum wage was increased to $7.50 per who do not have appropriate visas authorizing hour, effective January 1, 2007 under state law. them to work. A separate section on “Immigration” On January 1, 2008, the minimum wage in on page 22 of this guide describes the types of Massachusetts will rise to $8.00 per hour. In visas available under U.S. law. addition, by law, the Massachusetts minimum wage cannot be less than $0.10 higher than the Larger employers (those with 50 or more employ - effective federal minimum rate. ees) that do business with the federal government and have a contract in excess of $50,000 may Workers’ Compensation for Injured Employees have to prepare written “affirmative action plans” in In Massachusetts, as in every other state, employers an effort to recruit and promote qualified women must provide workers’ compensation benefits to and minorities in their workforces. employees who are injured during the course of their employment. These benefits are typically provided Terms and Conditions of Employment through private insurance that the employer obtains For the most part, employers in the U.S. are free at or before the time employees are first hired. The to determine the compensation and benefits for cost of the insurance is determined by factors such their employees without any regulation by the gov - as the size of the employer’s payroll, the nature of ernment. There are, however, some important the business (for example, construction, manufactur - exceptions to this general rule, as described more ing or office work) and the employer’s prior record fully below. concerning benefits paid to injured employees. The

Wages benefits that injured employees receive are set by A federal law, the Fair Labor Standards Act, requires law. The benefits are the employee’s sole remedy for most employers to pay their employees a minimum work-related injuries or illnesses, and employees

18 Foley Hoag LLP Doing Business in Massachusetts may not bring court claims against their employers as a matter of law for people who work in retail for additional benefits . establishments on New Year’s Day, Columbus Day or Veterans Day. Many employers are also required Unemployment Compensation to allow employees to take unpaid time off on for Terminated Employees Sundays, with exemptions from this law for certain Employers must also pay a quarterly tax on part of businesses. Retailers must pay time and a half to their total payroll to fund unemployment compensa - their hourly employees on Sundays. tion benefits for employees who are terminated involuntarily. The tax rate for each employer is Health Insurance determined in part by how much money the state Under federal law, employers are not required to needs to fund this program and in part by the provide health insurance benefits for their employ - claims experience of each individual employer. ees, but the majority of employers do voluntarily provide some type of group health insurance cover - Vacations and Holidays age in order to attract and retain capable employ - Neither federal nor Massachusetts law requires an ees. The cost of such insurance can vary substan - employer to provide employees with either vacation tially. Typically, an employer pays either a percent - time off or vacation pay. It is common, however, age of or all the cost of the insurance. for employers to provide employees with paid vaca - tion time. The amount of paid vacation a particular A state law, the Massachusetts Health Care Reform employee receives is typically determined by his or Act, strongly encourages employers to provide her length of service or position. It is not unusual group health insurance for their employees. An for employees to receive from one to four weeks employer with 11 or more full-time employees that of paid vacation time in a year. does not offer group health insurance and does not make a “fair and reasonable” contribution toward Time off for holidays is regulated by state law only. the premiums for such insurance may be subject In Massachusetts, most employers are required to to a surcharge of up to $295 per employee. allow employees to take off the entire day on five Further, such an employer may be subject to an holidays (Memorial Day in May, Independence Day additional surcharge if its employees or their on July 4, Labor Day in September, Thanksgiving dependents receive free health services from the Day in November and Christmas Day on December state. The law also requires every employer with 25) and to take off half a day in the morning on 11 or more employees to offer a “cafeteria plan,” two days (Columbus Day in October and Veterans a benefit plan that allows employees to make pre- Day in November). Employers are not required by tax contributions to be used toward health care law to pay employees for holiday time off, but it is costs. This law is complex and requires special a well-established custom to do so. Employers legal assistance. sometimes pay overtime premiums to those who are required to work on a holiday, although in Once an employer adopts a plan that provides Massachusetts such premium pay is only required health benefits for employees and/or their depend -

Doing Business in Massachusetts Foley Hoag LLP 19 ents, there are federal and state laws that establish During FMLA leave, an employer must maintain certain requirements for these plans. For example, an employee’s group health insurance coverage there is a federal law that applies to employers with the same terms as before the leave began. with 20 or more employees called the Upon return from FMLA leave, an employee Consolidated Omnibus Budget Reconciliation Act must be restored to his or her original job or an (COBRA), which allows terminated employees and equivalent job. certain other participants in group health plans to continue their coverage at their own expense after Massachusetts employers who are subject to the they leave their employment. There is also a state FMLA are also subject to the Massachusetts law law known as mini-COBRA that applies to compa - known as the Small Necessities Leave Act (SNLA). nies in Massachusetts with two to 19 employees. Under this law, employers must permit eligible employees to take a total of 24 hours of leave in Although not required by law, it is customary for a 12-month period, in addition to leave under the employers to allow employees occasional days of FMLA, to participate in school activities directly absence due to sickness or injury without loss of related to the educational advancement of an pay. Many employers have detailed sick-leave poli - employee’s child, such as parent-teacher confer - cies specifying the number of days allowed per ences or interviewing for a new school; to accom - year or other period, and similar matters. pany the child to routine medical or dental appoint - ments, such as check-ups or vaccinations; and to Leaves of Absence accompany an elderly relative of the employee to Massachusetts law requires employers to grant routine medical, dental or other appointments for employees an eight-week unpaid maternity leave for professional services relating to the elder’s care, the purpose of giving birth or adopting a child. The such as interviewing at nursing or group homes. Massachusetts Commission Against Discrimination has written guidelines to help explain the state’s law. Retirement Benefits Under the Social Security program administered by A federal law, the Family and Medical Leave Act of the federal government, all employers must with - 1993 (FMLA), requires employers with 50 or more hold a percentage of each employee’s wages each employees to allow up to 12 weeks of unpaid leave pay period and forward those amounts, together in a 12-month period for one or more of the follow - with an additional wage-based tax paid by employ - ing reasons: a) the birth and care of a newborn ers, quarterly to the federal government to fund child of an employee; b) the placement with an retirement and other benefits. employee of a son or daughter for adoption or fos - ter care; c) to care for an immediate family mem - It is also fairly common for employers to voluntarily ber (spouse, child or parent) with a serious health provide some type of program to enable employ - condition; or d) to take medical leave when an ees to accrue retirement benefits. Retirement and employee is unable to work because of a serious other benefit programs are regulated by a federal health condition. law known as the Employee Retirement Income

20 Foley Hoag LLP Doing Business in Massachusetts Security Act (ERISA). It has recently become more Protecting an Employer’s Assets common for employers to establish plans that Employers sometimes require employees to sign enable themselves and/or their employees to make certain written agreements as a condition of obtain - tax-deferred contributions to individualized retire - ing employment in order to protect the employer’s ment benefit plans. This is a complex area of the confidential information, to secure the employer’s law that requires special legal assistance. right to certain intellectual property or to prohibit employees from leaving their employment and going Life and Other Insurance into competition with them. Such agreements are Employers sometimes voluntarily provide group particularly important and common for employers term life insurance, accidental death and dismem - that are engaged in high technology businesses. berment insurance and/or long-term disability insur - Employment agreements concerning patents, inven - ance for their employees at either the employer’s tions, copyrights, noncompetition, confidential infor - or the employee’s cost. mation, conflict of interest rules and similar matters are usually drafted with the assistance of a lawyer. Safety and Health There is a federal law called the Occupational Terminating Employees Safety and Health Act (OSHA) that establishes “At-will” employees (that is, employees who do not minimum safety standards that employers must have employment contracts for a particular term or follow. Depending on the nature of the business, who are not covered by union-negotiated collective compliance with these regulations may require bargaining agreements) may be terminated at any significant effort. time and for any reason, as long as the reason is not an unlawful one. There are no particular proce - Labor Unions dural requirements that must be followed in termi - Another federal law, the National Labor Relations Act nating an at-will employee. Examples of unlawful (NLRA), protects employees from discrimination or reasons for termination include discharging an termination for engaging in collective activities or employee because of his or her race, gender organizing to form labor unions for the purpose of (including pregnancy status), age (applies to people bargaining with their employer about wages, hours 40 years and older), color, religion, national origin, of work or other terms and conditions of employ - or disability or handicap (if the person is qualified ment. When a union represents employees, many of to perform the essential functions of the job with or the wage and benefit policies that are described without reasonable accommodations). In above as voluntary may become subject to collec - Massachusetts, at-will employees may not be termi - tive bargaining with the union and may become nated for refusing to perform an unlawful act (such mandatory under an agreement negotiated with the as committing perjury) or for performing important union. This is a complex law, and special legal assis - public duties (such as serving on a jury). tance is required if, for example, you are acquiring a business that has union-represented employees. Employers are not required to inform terminated employees, either verbally or in writing, of the rea -

Doing Business in Massachusetts Foley Hoag LLP 21 son for their termination, although it is customary There is a federal law called the Worker Adjustment to do so. It is important that an employer give the and Retraining Notification Act (WARN) that requires complete and honest reason for an employee’s ter - employers with 100 or more full-time employees to mination if it chooses to give a reason. provide 60 days’ written notice to employees or their union representatives and other officials in the Employees who are covered by union-negotiated event of a plant closing or mass layoff at a single collective bargaining agreements ordinarily can be site of employment. Massachusetts also has a terminated only for “just cause.” plant-closing law that applies to employers with 50 or more employees and, in the event of either a full In Massachusetts, terminated employees are or partial plant closing, requires the continuation of entitled to receive all of their wages, including group health insurance coverage — with the same any accrued but unpaid holiday or vacation pay, terms as before the closing — for 90 days after at the time of their termination. An employer can - employees are terminated. not withhold from a former employee’s paycheck sums they believe are owed to them by the As noted above, involuntarily terminated employees employee, unless there is a definite amount of are ordinarily entitled to unemployment compensa - money at issue and there can be no dispute that tion benefits, which are paid directly by the state the money is owed. government. Additionally, under COBRA, terminated employees and their dependents are entitled to Employers must give employees a specific unemploy - continue their group health insurance coverage at ment compensation claim-filing information pamphlet their own expense for various periods as long as issued by the Division of Employment and Training 36 months after particular events occur. (DET), at or immediately after the employee’s termi - nation. The DET requires employers to fill in the com - Immigration pany’s name, address and DET identification number on the pamphlet. The system for regulation of foreign nationals coming to the U.S. is administered by the U.S Terminated employees are not ordinarily entitled to Citizenship and Immigration Services, the U.S. receive severance pay. Some employers voluntarily State Department and the U.S. Department of provide severance pay to terminated employees, Labor. To enter and remain in the U.S., a foreign particularly if the termination resulted from a “lay - national must qualify for and, in most instances, off,” a workforce reduction due to the elimination obtain a visa. Broadly speaking, these visas fall of redundant positions or for other economic rea - into two categories: temporary nonimmigrant visas sons. Plans that provide employees with severance and permanent resident visas. pay should be reproduced in writing and conform Temporary Nonimmigrant Visas to certain other requirements in ERISA. Nonimmigrant visas are issued to foreign nationals who are coming to the U.S. for a temporary pur -

22 Foley Hoag LLP Doing Business in Massachusetts pose and will maintain a permanent residence approved each year and, for the past several abroad. A nonimmigrant visa permits a foreign years, USCIS has reached that cap. national to enter the U.S. for a specific purpose H-2: Other skilled workers who are coming tem - and for a limited period of time. Most classes of porarily to the U.S. and who will not displace nonimmigrant visa do not permit the foreign nation - a U.S. worker. Entry in H-2 status requires al to work in the U.S., and many require advance prior approval of a labor certification applica - approval from the U.S. Citizenship and Immigration tion by the Department of Labor, as well as Services (USCIS). prior approval by USCIS. The maximum length of stay is typically one year. The most common visa categories utilized by H-3: Foreign national coming to the U.S. to com - foreign nationals are: plete a formal training program, which can B-1: Visitor for business purposes coming to the include programs maintained by U.S. U.S. on a short trip for a foreign employer. employers. The principal activity in the train - Typically, an individual’s initial admission in ing program cannot be productive employ - this status is limited to a maximum of six ment. Prior approval by USCIS is required, months. This visa status does not normally and the length of stay is defined by the authorize an individual to work for a U.S. duration of the program. employer. The U.S. has implemented a visa L-1: Intracompany transferee who is an executive, waiver program that enables foreign nation - manager or individual possessing specialized als of many countries to enter the U.S. in B-1 knowledge of an international company’s status without obtaining a visa in advance. products or operations. The individual must B-2: Temporary visitor for pleasure (tourist). The have worked abroad for the company or an visa waiver program available to nationals of affiliate for at least one year in the immedi - certain countries also applies to the B-2 visa ately preceding three years. Prior approval category. by USCIS is required, and the maximum peri -

H-1B: Foreign national in a “specialty occupation” od of stay is five to seven years. that normally requires attainment of at least TN-1: This visa status is available only to Canadian a bachelor-level degree, coming to the U.S. and Mexican nationals pursuant to the North to perform services requiring such skills. In American Free Trade Agreement (NAFTA). It addition, the employer must make certain permits qualified Canadian and Mexican pro - attestations concerning wage levels and con - fessionals to enter the U.S. without first ditions of employment. USCIS must approve obtaining prior USCIS approval or a visa. a petition in advance, and the maximum “Professionals” generally include individuals length of stay in H-1B status is typically six within certain job categories listed in NAFTA. years. There is also an annual “cap” on the O: Foreign national of “extraordinary ability” in number of H-1B petitions that can be the sciences, arts, business or education, as

Doing Business in Massachusetts Foley Hoag LLP 23 demonstrated by sustained national or inter - described, but the process of obtaining the national acclaim. This requires advance visa does not require advance USCIS petition approval by USCIS. An individual can be approval and there is a separate annual cap admitted in this status for whatever period of for this category.

time is required to complete the purpose of F-1: Students coming to the U.S. to pursue a his or her trip. course of study leading to a degree. The P: Performing artists and athletes who perform individual is admitted for the duration of at an “internationally recognized” level. his/her studies and, in certain circum - Advance USCIS approval is required, and the stances, can receive authorization to work.

foreign national is admitted for the period J-1: Exchange visitor coming to the U.S. for pur - required for his or her performance. poses of an international exchange of knowl - E-1: Foreign national coming to the U.S. pursuant edge. These programs require prior approval to a treaty of trade or commerce to foster from the U.S. Information Agency and, in international trade between the U.S. and some instances, participants in such a pro - his/her native country. To qualify, there must gram must return to their native country for be a treaty of trade between the U.S. and two years after completion of the program. the foreign employer’s country, the individual J-1 exchange visitors may be eligible to work must have the same nationality as the in certain circumstances. employer, and there must be substantial Permanent Residence trade by the company between the U.S. and A permanent resident visa allows a foreign national that country. The U.S. consulate in the for - to live and work indefinitely in the U.S. A foreign eign country can approve these visas, and national can seek permanent resident status on the there is no fixed limit on how long the individ - basis of a qualifying job offer from a U.S. employ - ual can remain in the U.S. er, a qualifying investment in the U.S. or a qualify - E-2: Foreign national coming to the U.S. pursuant ing relationship with a U.S. citizen or permanent to a treaty of trade between the U.S. and resident. Because there is a limited number of per - his/her native country in connection with a manent resident visas available each year in many substantial U.S. investment. Again, there categories, there can often be a substantial waiting must be an appropriate treaty of trade, the period to obtain permanent residence. To qualify visa can be issued by the U.S. consulate for permanent resident status on the basis of a job without prior USCIS approval, and there is no offer, a foreign national must fit into one of the fol - fixed limit on the length of stay. lowing categories. E-3: A special visa category available to Australian nationals under a U.S.-Australia • Priority Workers: Individuals with extraordinary treaty. The substantive requirements for this ability in the arts, sciences, education or busi - category are similar to the H-1B category ness; outstanding professors and researchers;

24 Foley Hoag LLP Doing Business in Massachusetts and certain executives and managers of multina - file a petition with USCIS documenting the tional companies. amount and nature of the investment.

• Professionals: Individuals holding an advanced • Relationship to a U.S. Citizen or Permanent degree (not a bachelor’s degree) and individuals Resident: The final avenue for obtaining perma - of exceptional ability. nent residence is through a qualifying relationship • Skilled Workers: Individuals with a bachelor’s to a U.S. citizen or permanent resident. Spouses, degree or who will perform duties that normally parents (if the child is over 21) and minor chil - require at least two years of specific training dren of U.S. citizens are classified as “immediate or experience. relatives” and are immediately eligible for perma - • Other Workers: Low-skilled or unskilled labor. nent residence. Other groups that may be eligible to seek permanent residence on this basis are: For individuals in the latter three categories the employer must normally first obtain a labor certifi - First Preference: Unmarried sons and daugh - cation from the U.S. Department of Labor (USCIS ters of U.S. citizens. can waive the labor certification process for profes - sionals whose employment is deemed to be in the Second Preference: Spouses and unmarried chil - “national interest”). To do so, the employer must dren of permanent residents. demonstrate, through the completion of prescribed Third Preference: Married sons and daughters recruitment activities, that there are no qualified of U.S. citizens. U.S. workers available to undertake the work. The Department of Labor has recently implemented an Fourth Preference: Brothers and sisters of adult automated “PERM” labor certification program, U.S. citizens. which has significantly expedited the processing of labor certification applications. To obtain permanent residence on this basis, the U.S. relative must obtain approval by USCIS of a • Investors: To qualify for permanent residence on petition to classify the foreign national as a qualify - the basis of an investment in the U.S., a foreign ing relative. In many categories, there is a signifi - national must invest at least $1 million (this cant waiting period before the foreign national can requirement is reduced to $500,000 if the invest - become a permanent resident of the U.S. ment is made in certain economically disadvan - taged areas) in a new venture that can be expect - Employer Sanctions ed to employ at least ten U.S. workers within two Since 1986, federal law has made it unlawful for an years. Alternatively, the investment could also be employer to employ a foreign national who is not made in an existing business that is in economic authorized to work. Federal law also imposes on trouble. To obtain permanent residence through a employers an affirmative duty to verify and record qualifying investment, the foreign national must on an I-9 form the identity and status of every new employee. At the same time, the law prohibits

Doing Business in Massachusetts Foley Hoag LLP 25 employers from discriminating on the basis of • Plant Patents: Protect only distinct and new national origin, citizenship status or impending citi - varieties of asexually reproduced or cultivated zenship status. Violation of any of these provisions nontuberous plants. can result in substantial civil penalties and, in Eligibility for Patent extreme cases, criminal penalties. The Patent and Trademark Office of the Protection of Department of Commerce (PTO) issues patents Intellectual Property after evaluation of applications submitted by inven - tors. To be eligible for a patent, an inventor must Many companies count intellectual property among demonstrate that the invention, design or plant is their most valuable assets. The acquisition or right novel and non-obvious. to use intellectual property is the force driving many business transactions today. Increasingly, lenders • Novelty. The novelty requirement will be satisfied and financiers look to a company’s intellectual if (a) the applicant was the first to invent the property assets to support its financing needs. invention; (b) the invention was not known or used in the U.S. or patented or published in any Under federal and Massachusetts law, these intellec - country, before the date of creation by the appli - tual property assets may be protected as patents, cant; and (c) the invention was not in public use copyrights, trademarks or trade secrets. Some or on sale in the U.S. more than one year prior assets can also be protected by principles of unfair to filing the application for patent. competition. Some types of intellectual property may be eligible for more than one form of protection. For • Non-obviousness. An invention is “non-obvious” example, computer programs are often subject to when the differences between the invention and patent, copyright and trade secret protection, and the previously known body of knowledge are their names may be protected as trademarks. such that the invention would not have been obvi - ous to a person having ordinary skill in the art. Categories of Protection Patent Law Patent Owner’s Rights Patents are exclusively matters of federal law, gov - Once a patent is issued, the patent holder is pro - erned by the 1952 Patent Act, as amended. The tected during the term of the patent against (a) the Patent Act provides for three types of patents: unauthorized use, sale, offer for sale or manufac - ture of the invention within the U.S.; (b) the unau - • Utility Patents: Protect the utilitarian aspects of a thorized importation of the invention into the U.S.; process, machine, manufacture or composition or (c) importation of a product that is made abroad of matter. under a process patented in the U.S. The duration of patent protection differs for the different types • Design Patents: Protect the ornamental external of patents. design of an article of manufacture.

26 Foley Hoag LLP Doing Business in Massachusetts • Utility and plant patents filed after June 8, 1995: Copyright Law 20 years from the filing date. Most copyrights are also exclusively matters of fed - eral law, governed by the 1976 Copyright Act and • Utility and plant patents filed or issued before its amendments. Copyrights are exclusive rights in June 8, 1995: The longer of 20 years from the works of artistic or intellectual expression. filing date or 17 years from the issue date. Eligibility for Copyright • Design patents: 14 years from the issue date. Copyright protection is available for original works of authorship fixed in a tangible medium of expres - Unlike some foreign jurisdictions, there is no work - sion. These include: ing requirement or compulsory licensing for U.S. patents in most cases. However, patent holders • Literary works (those expressed in words, may apply a prohibition on “abuse of patent” to pre - numbers or other verbal or numerical symbols vent certain restrictive or anticompetitive practices. such as books, lyrics, catalogs, compilations and directories) International Conventions Concerning Patents The U.S. is a party to the Paris Convention, the • Musical works Union for the Protection of New Varieties of Plants • Dramatic works (UPOV) and the Patent Cooperation Treaty. • Pantomimes and choreographic works

• Pictorial, graphic and sculptural works (two and The Paris Convention and the UPOV, as they apply three dimensional works of fine, graphic and to botanical plant varieties, accord the citizens of applied art, photographs, prints, maps, globes, each member state national treatment and a right charts, technical drawings, diagrams and models) of foreign priority. National treatment gives citizens of member states access to foreign patent protec - • Motion pictures and other audiovisual works tion to the same extent as nationals of the foreign • Sound recordings (works that result from the fix - state. Foreign priority entitles inventors in member ation of a series of musical, spoken or other states to the benefit of an earlier filing date if a sounds, but not sounds accompanying an audio - counterpart patent application was filed abroad, visual work) provided that a later application is filed within the • Architectural works priority period, which is one year under the Paris Convention. Copyright protection is available for computer pro - grams as literary works, to the extent that the pro - The Patent Cooperation Treaty establishes a mech - gram incorporates the programmer’s expression of anism for initially filing a single uniform international original ideas as distinguished from the ideas them - patent application and extends the priority period selves. Unlike other literary works, computer soft - of the Paris Convention. ware generally cannot be rented without authoriza - tion of the copyright holder.

Doing Business in Massachusetts Foley Hoag LLP 27 Copyright Owner’s Rights signed by them that the work shall be consid - Copyright protects the owner from unauthorized ered a work made for hire. copying, distribution, performance and display of the work and unauthorized creation of transla - A work made for hire created by an employee may tions and other derivative works. Copyright in the fall into any of the categories of works covered by U.S. also protects the “moral” rights of attribution the Copyright Act. However, works created by non- and integrity, but only with respect to works of employees can become works made for hire only if visual art. (a) they fall into one of the special categories listed in the preceding indented paragraph; and (b) the parties Copyright law distinguishes between an idea and an expressly agree in a signed document that it is to be expression of an idea. Only the expression is pro - considered a work made for hire. If it does not fall tected. Thus, copyrights do not protect the owner within one of the special categories, the parties may from use by others of any idea, procedure, process, nevertheless agree to assign copyright to the party system, method of operation, concept, principle or commissioning the work. In that case, the “author” discovery revealed by the copyrighted work. will be deemed to be the person who actually created the work; the commissioning party will become the Vesting of Rights owner of copyright by reason of the assignment. Copyrights in a work automatically vest in the author Since many consultants, advertising agencies, inde - or joint authors when the work is first set down in pendent contractors and other non-employees create tangible form. No registration or filing is necessary. works that do not fall within the listed categories, Copyrights remain vested in the author or authors ownership of copyrights in such works must be for the duration of the copyright unless they are obtained by an express written assignment. transferred by written assignment. Duration of Copyrights An employer will be the author of a work, and there - The duration of copyright protection depends upon fore hold the copyrights in the work, in the special who the author is, when the work was created and case of a “work made for hire.” A work made for when federal copyright protection was first hire is: obtained. For works created on or after January 1, 1978, the following terms apply (the term may not • a work prepared by an employee within the be extended). scope of his/her employment; or

• work prepared by a non-employee, if it is special - • A work of an individual author is protected for ly commissioned for use as a contribution to a the life of the author plus 70 years.

collective work, part of a motion picture or other • Joint works prepared by two or more authors audiovisual work, a translation, a supplementary are protected for the life of the last surviving work, a compilation, an instructional text, a test, author plus 70 years. answer material for a test, or an atlas, and the parties expressly agree in a written instrument

28 Foley Hoag LLP Doing Business in Massachusetts • Anonymous works, pseudonymous works and for recording transfers of copyright so as to give works made for hire are protected for 95 years constructive notice of the transfer, and for recording from the date of publication or 120 years after the copyright with the Customs Office. (Registration creation, whichever is shorter. is not a prerequisite for a U.S. copyright infringe - ment action for certain works of foreign authors first In addition, restoration of copyright is available for published outside the United States.) Registration certain works of foreign origin that have fallen into provides prima facie evidence of the owner’s title to the public domain in the U.S. but are still subject to the work and entitles the owner to claim statutory valid copyright in their source countries. damages and attorney’s fees in some infringement Restoration is generally available for works that fell actions and other benefits. into the public domain due to (a) noncompliance with U.S. formalities; (b) in the case of sound Moral Rights recordings fixed prior to February 15, 1972, lack Protection for moral rights (or droit moral ) is much of subject matter protection; or (c) lack of national more limited in the U.S. than in some other coun - eligibility for protection. The owner of a restored tries. The 1990 Visual Artists Rights Amendment to copyright must file a Notice of Intent to Enforce the Copyright Act grants to the author of a work of copyright in order to restrain parties acting in visual art the rights of attribution and integrity for reliance upon the lapse of rights. Such parties the life of the author, without granting such rights must stop using the work within 12 months after to any other type of copyrightable work. being notified of the restoration of rights. Right of Attribution: This right allows an author to Formalities claim authorship of a work and to prevent the use Since 1989, federal law has not required the for - of his or her name in a work of visual art that the malities of notice or registration to establish copy - author did not create. rights. However, it is still advisable to apply a copy - right notice to each copy of a work and to register Right of Integrity : This right allows an author to pre - copyrights in a work. vent the use of his or her name as the author of the work of visual art in the event of a distortion, mutila - The copyright notice consists of three elements: tion or other modification of the work that would be the word “copyright”, “copr.” or the copyright sym - prejudicial to the author’s honor or reputation. bol “©”; the year of first publication; and the copy - right owner’s name. Notice can prevent inadvertent The Massachusetts Art Preservation law, though infringement and prevent an infringer from mitigat - partially preempted by the Visual Artists Rights ing damages by claiming innocent infringement. Amendment to the Copyright Act, provides protec - tion for rights of attribution and integrity in fine art Registration is still a prerequisite for many copyright during the author’s lifetime and for 50 years after infringement actions for works first published in the his or her death. U.S., for perfecting security interests in copyrights,

Doing Business in Massachusetts Foley Hoag LLP 29 International Copyright Conventions Copyright Infringement Liability and the Internet The U.S. is a party to the Universal Copyright Signed into law on October 28, 1998, the Digital Convention (UCC), the Berne Convention, the Millennium Copyright Act (DMCA) established proce - Agreement on Trade Related Aspects of Intellectual dures by which online service providers (OSPs) can Property Rights (TRIPs) and the agreement estab - limit their liability for damages arising from the lishing the World Trade Organization (WTO). copyright-infringing activities of their subscribers.

• Universal Copyright Convention: Under the UCC, Definition of an OSP . To be eligible for the limita - signed by the U.S. as a compromise between the tions of liability under the DMCA, a party must be Berne Convention and the then-current U.S. copy - an OSP. The DMCA has two definitions of OSP: right law, works by nationals of member nations and works first published in member nations are • For purposes of an OSP engaged in transitory entitled to national treatment in every other mem - digital network communications, it is defined as ber nation, if the work is unpublished or carries “an entity offering the transmission, routing, or the prescribed notice. Member states, however, providing of connections for digital online com - can impose additional requirements on their own munications, between or among points specified nationals. by a user, of material of the user’s choosing, without modification to the content of the materi - Berne Convention: The Berne Convention specifies al as sent or received.” This is a very broad defi - minimum levels of copyright protection and nition, which includes almost any online service requires the principle of national treatment without provider. requiring any formalities.

• Agreement Establishing the World Trade • For all other purposes, an OSP is defined even Organization (WTO): This agreement establishes more broadly as “a provider of online services or a formal institutional framework for resolving network access, or the operator of facilities trade disputes among member states. It was therefore,” including an entity under the previous - concluded as part of the Uruguay Round negotia - ly mentioned definition. This definition includes tions under the General Agreement on Tariffs almost any Web page owner. and Trade (GATT) in 1994. Safe Harbors for OSPs . Under the DMCA, an OSP • Agreement on Trade-Related Aspects of may qualify for a safe harbor to shield against lia - Intellectual Property Rights (TRIPs): TRIPs estab - bility for copyright infringement for third-party con - lishes standards for the availability, scope, use, tent. To qualify for a safe harbor, the conduct of and enforcement (through the WTO, if necessary) the OSP must fall into at least one of four separate of intellectual property rights, including patent, categories of conduct enumerated in the DMCA. copyright and trademark. It also was concluded Each category has a separate set of requirements as part of the Uruguay Round negotiations to qualify for the safe harbor protection. Included in in 1994. the requirements is a “notice and take down” pro -

30 Foley Hoag LLP Doing Business in Massachusetts cedure in which an OSP must adopt and reasonably rights in most countries, this right is based on the implement a policy of removing or disabling access merchant’s use of the mark; there is no registration to alleged infringing material upon proper notice of requirement. A merchant who uses a mark in com - infringement. Also, the OSP must accommodate merce, even without registering the mark, can pre - and not interfere with accepted industry standards vent others from subsequently adopting and using for identifying or protecting copyrighted works. confusingly similar marks for related goods or services. However, one may apply for federal regis - Anti-circumvention . The anti-circumvention rules of tration of a mark before it has been used, based the DMCA prohibit the circumvention of technical upon a bona fide intention to use it. In that case, measures that prevent access to copyrighted rights in the mark will be retroactive to the date of work. The rules also prohibit manufacturing, import - application if it is approved by the Patent and ing, offering to the public, providing or trafficking in Trademark Office, is not successfully opposed by any technology, product, service, device, or com - any other person, is actually used within the statu - ponent for the purpose of circumventing measures tory time period, and is then registered. that protect copyright owners. The DMCA makes the violation of these anti-circumvention rules a Types of Marks criminal offense. A mark is typically a name or word capable of iden - tifying and distinguishing goods or services of one Mask Works source from those of other sources. A mark can Mask works, such as the two-dimensional and also be a: three-dimensional features of the shape, pattern and configuration of the layers of a semiconductor • phrase chip product, are accorded sui generis protection • fragrance under Chapter 9 of the Copyright Act. Mask works • symbol or logo are not afforded the same protection as copyright • telephone number works; timely registration is required and the dura - • graphic design tion of protection is limited to two years from the • series of sounds earlier of registration or first commercial exploita - • set of numbers tion anywhere in the world. A mask work may not • series of letters be reproduced, imported or distributed without the • distinctive design of a product container authority of the owner. • distinctive combination of colors

Trademark Law This list is by no means exhaustive. However, func - Trademark protection is provided by both federal tional features of a product are not entitled to and state law and is founded on the common law trademark protection, nor are the generic names notion that a merchant has a right to the exclusive of goods or services. use of those marks which distinguish his goods or services from those of others. Unlike trademark

Doing Business in Massachusetts Foley Hoag LLP 31 Registration of Marks Merely descriptive marks and mere surnames may Federal Law . A trademark that is in use in inter - be eligible for registration on the federal state or foreign commerce may be registered Supplemental Register. The “®” registration symbol under the federal trademark law, known as the may be used with marks registered on the Lanham Act. Upon application for registration, the Supplemental Register as well as marks registered PTO will conduct an examination to determine on the Principal Register. whether the mark is eligible for registration. Use of the registration symbol ® acts as construc - A mark will be refused registration on the federal tive notice to an infringer and may allow the regis - Principal Register for the following reasons, trant to recover profits and damages from an among others: infringer without giving actual notice of registration. The registration term is ten years. • It is confusingly similar to a previously used or registered mark not yet abandoned Massachusetts Law . A trademark owner may apply

• It lacks distinctiveness because it is merely to the Office of the Secretary of State in descriptive or geographically descriptive, or is Massachusetts for registration of any mark that is primarily a surname, and the mark has not used in Massachusetts. Registration is often more acquired distinctiveness through use easily obtained at the state level because the mark need not be in use in interstate commerce and the • It is a common descriptive or generic name for examination of the application by the state trademark goods or services office is not particularly rigorous. The restrictions on • It is scandalous or disparaging registration of a mark are similar to the federal • It is an insignia of a governmental entity restrictions listed above. The registration term is ten • Without consent, it identifies a living individual or a years. Both federal and Massachusetts law provide deceased president during his widow’s life limited protection against dilution of the distinctive quality of particularly strong or famous marks. Registration on the federal Principal Register pro - vides the registrant with the following rights, Trade Secret Law among others: Massachusetts provides civil and criminal statutory protection for trade secrets. As is the case in other • The prima facie right to exclusive ownership of states, trade secrets are also protected by the mark Massachusetts common law.

• The prima facie right to exclusive use of the Restatement of Torts mark in commerce in connection with the speci - A trade secret may consist of any formula, pattern, fied goods and services during the initial device or compilation of information or other know- ten-year term and any renewal terms how that is used in a business and gives that busi - • The right to use the registration symbol

32 Foley Hoag LLP Doing Business in Massachusetts ness an opportunity to obtain an advantage over If a trade secret is disclosed or used by an unau - competitors that do not know or use it. thorized party, its owner or licensee can bring either a civil or criminal action for trade secret mis - Trade secrets commonly include formulae for appropriation. Relief for trade secret misappropria - chemical compounds, processes of manufacture, tion is more variable and in some cases broader in patterns for machines or other devices, confiden - the U.S. than in many other countries. tial business information such as new product lines or marketing initiatives and customer lists. Indeed, Unfair Competition Law in the U.S. anything may be a trade secret, as long Both federal and state law prohibit the misappropri - as it is maintained in secrecy and provides a com - ation and misuse of intellectual property under a petitive advantage. theory of unfair competition.

Six factors are commonly used in determining Federal Law . Section 43(a) of the Lanham Act, the whether particular information is a trade secret: (1) federal law protecting trademarks, specifically pro - the extent of disclosure of the information inside hibits the use of false designations of origin and the business; (2) the extent of disclosure outside false descriptions or representations of goods or the business; (3) the measures taken to prevent services in commerce. disclosure of the secret; (4) the value of the infor - Both the person who creates the false designation mation; (5) the effort or funds expended to develop or description and the person having knowledge of the information; and (6) the difficulty or ease with the false designation or description who causes or which the information could be legally acquired or procures the goods or services to be transported duplicated by others. or used in commerce may be civilly liable for viola - Protection of Trade Secrets tion of this section. Any person doing business in The distinguishing characteristic of trade secrets is the falsely designated area or any person who their secrecy. Therefore, protection requires that believes that he or she is likely to be damaged by those who know the secret agree or are otherwise use of the false description may bring a civil action obligated not to disclose it. The number of author - against the false designator. ized people aware of the secret does not affect protection of the trade secret, as long as none of Massachusetts Law. Massachusetts General Laws them discloses it to anyone else. Trade secrets are Chapter 93A prohibits unfair methods of competi - generally protected through written nondisclosure tion and unfair or deceptive acts or practices in the agreements with employees, written license and conduct of any trade or commerce. For business nondisclosure agreements with authorized users, plaintiffs, its application is limited to acts or prac - and establishing and carrying out secrecy policies tices that occur substantially and primarily in and practices. Massachusetts. The essential elements of an action under the Massachusetts law are the same

Doing Business in Massachusetts Foley Hoag LLP 33 as under the Lanham Act. A practice will be unfair patent application. To be effective against subse - if it: quent purchasers or mortgagees, the instrument must be recorded in the Patent Assignment • Is within the penumbra of some common law, Division of the PTO within the specified time period. statutory or other established concept of unfairness; Trademarks

• Is immoral, unethical, oppressive A trademark may be assigned only with the good - or unscrupulous; will associated with the mark. A pending application for federal registration based on intent to use may • Causes substantial injury to competitors or other be assigned only if the applicant has an ongoing businesspeople; and and existing business, and the assignee succeeds • Is oppressive or otherwise unconscionable in to the business of the applicant. Assignment of fed - any respect. eral registration of a mark or an application for reg - istration requires a signed written instrument. To be It has been said that for business-to-business effective against subsequent purchasers or mort - conduct to be unfair or deceptive under gagees, the document must be recorded in the Massachusetts law, the conduct “must attain Trademark Assignment Division of the PTO within a level of rascality that would raise an eyebrow the specified time period. of someone inured to the rough and tumble of the world of commerce.” Trade Secrets Trade secrets are not a title-based form of property The misappropriation of a trade secret or trade - and therefore are often difficult to identify as mark may come within the purview of this broad assets. A person seeking to obtain rights in a trade unfair competition law. secret will want to describe the asset in the trans - Transfer of Proprietary Rights fer documentation. The transfer documentation Copyrights usually includes the agreement of the transferor The transfer of copyrights in a work, or any copy - not to disclose the trade secret to anyone else and right, requires a written document referencing the an assignment of the transferor’s rights to enforce copyrights and signed by the owner of the copy - the confidentiality obligations of employees, cus - rights conveyed. To be effective against subse - tomers and others who may have had access to quent conflicting transfers, the copyrights must be the secret. There is no system for registering such registered with the U.S. Copyright Office and the rights or recording such documents. transfer must be recorded in the Copyright Office Partial Transfers and Licenses Register within the specified time period. Written instruments are desirable, but not necessarily Patents required, to establish an enforceable license of intel - A signed written document is also required to lectual property rights. Licenses are not generally transfer a patent, any interest in a patent or a transferable without the consent of the licensor.

34 Foley Hoag LLP Doing Business in Massachusetts Security Interests from children younger than age 13 without parental A consensual lien or pledge intended to secure a consent. It requires operators of websites directed debt or other obligation creates a “security inter - to children younger than age 13 that collect per - est” subject to the Massachusetts Uniform sonal information from the children, to provide Commercial Code (UCC). The secured party should proper notice of the collection of the information, perfect its security interest by filing in accordance appropriate consent to collect the information, and with the UCC. To do this, generally notice in the access to it by parents upon request. COPPA also form of a financing statement must be filed in the requires the information collected to be limited to Office of the Secretary of State of the appropriate only that which is reasonably necessary to track state; filing may be performed electronically. online activity and to be protected by reasonable Federal filing is required to perfect a lien against procedures. The FTC has specific guidance for registered copyrights and may be necessary or businesses on how to comply with COPPA. If a desirable for other types of intellectual property. website operator is in compliance with an FTC- Care must be taken in creating a security interest approved guideline by a self-regulatory industry to avoid jeopardizing rights in the intellectual prop - organization, it may qualify for the safe harbor pro - erty or creating a transfer where none is intended. vision of COPPA.

Related Internet Privacy Issues The Electronic Communications Privacy Act (1996) The protection of privacy is a rapidly developing This act protects the privacy of e-mail or other area of the law. New regulations include those electronic communication over the Internet. relating to children, banking, health care and the Specifically, the act protects against unauthorized Internet. There is no single, comprehensive law that access, interception or disclosure of private protects an individual’s privacy. Rather, protection electronic communications by government exists under a mix of federal and state laws and or individuals. case law, often relating to particular industries. Internet Privacy Policies. The misuse of personal Relevant federal laws include: information on the Internet is a significant concern The Graham-Leach-Bliley Act (1999) for many consumers. Thus, a company doing busi - The act regulates the disclosure of nonpublic person - ness on the Internet may want to post a privacy al information by financial institutions. Disclosure of policy on its website to increase consumer information is prohibited unless the customer has confidence. If a company is doing business with received notice of the institution’s policies and prac - consumers residing in California, California law tices regarding disclosure and been given the oppor - requires the posting of a privacy policy. The tunity to opt out. standard elements of a privacy policy contain:

The Children’s Online Privacy Protection Act (1) the type of information collected and how it (“COPPA”) (1998) will be used; COPPA prohibits collection of personal information

Doing Business in Massachusetts Foley Hoag LLP 35 (2) the identity of any third parties to whom the actions on the federal level and, except for environ - information will be disclosed; mental laws and the regulation of certain aspects

(3) how individuals can review the information and of interstate land sales, the federal government have it corrected or deleted; and does not interpose itself in local real estate transactions. As described under the heading (4) how individuals can opt out of having their “Reporting Requirements for Foreign Direct information collected. Investment” on page 66, the federal government

In addition to these guidelines, there may be other does require that certain real estate transactions requirements based on the content or industry of be reported, but there is no regulation of, or inter - the company’s site. Also, it is critical to note that it ference in the transactions. is absolutely essential that any policy adopted be There are no restrictions in Massachusetts on the carefully followed. The FTC has become increasing - ability of foreign individuals or foreign business ly active in taking action against companies that entities to acquire and hold real estate. In fact, disregard their own stated privacy policies. a “foreign corporation” is considered to be any

Restrictions on Electronic and Other corporation that has not been organized in Communications . A number of federal and state Massachusetts, whether it is organized in another laws regulate the sending of electronic communica - state or another country. A foreign corporation, but tions by businesses. The federal CAN-SPAM Act not a foreign individual or other foreign business requires that any unsolicited commercial e-mail entity, must file a certificate with the messages include an opt-out mechanism and cer - Massachusetts Secretary of the Commonwealth tain notices. In contrast to the notices required for setting forth certain pertinent facts concerning the unsolicited commercial e-mail, most unsolicited corporation and appointing the Secretary of the faxes are prohibited entirely, unless the sender has Commonwealth as its attorney for service of an existing business relationship with the recipient. process. While a foreign corporation must comply The FTC’s Telemarketing Sales Rule regulates mar - with the forms of conveyance required in keting telephone calls, and in particular prohibits Massachusetts, its authority to make a conveyance most unsolicited telephone calls to telephone num - is governed by the rules imposed upon it by the bers listed on the national Do Not Call registry. jurisdiction where it is created. There are no restrictions or registration requirements in Real Estate Massachusetts for foreign individuals, whether they are resident or nonresident aliens, who purchase Purchasing real estate in Massachusetts is not par - real estate. ticularly difficult. While Massachusetts, like every other state, has its own peculiarities, the differ - The Real Estate Transaction ences, except for how and where local land The process of buying real estate involves three records are maintained, are generally not signifi - principal aspects: negotiation, financing and acqui - cant. There is little regulation of real estate trans - sition of title, all of which are discussed briefly

36 Foley Hoag LLP Doing Business in Massachusetts here. The following section highlights certain practi - ties will negotiate in good faith a fuller, more com - cal issues that are peculiar to the U.S., in general, plete contract called a “Purchase and Sale and to Massachusetts, in particular. Agreement” that incorporates the business terms of the Offer to Purchase. Negotiation Typically, a company establishing a facility or The respective lawyers for the buyer and the seller investing in real estate in Massachusetts will either usually negotiate the terms of the Purchase and purchase or lease real estate. In either case, the Sale Agreement. In addition to including the basic first contact a company has will probably be with a business terms (location of property, purchase real estate broker. While occasionally a buyer will price, etc.), the Purchase and Sale Agreement hire his/her own broker, in most cases the seller often contains a number of conditions to the engages a broker as his/her agent to market the buyer’s obligation to purchase the property. For property to prospective purchasers. The broker’s example, the buyer may not want to buy if there is fee is computed as a percentage (usually 5 to 10 a hazardous waste problem, if the local zoning reg - percent) of the purchase price. It is easy for the ulations do not permit the intended use of the prop - purchaser to be misled into thinking that the real erty or if he/she cannot obtain satisfactory financ - estate broker has his/her best interests in mind, ing. Therefore, the buyer makes his/her obligations since he/she is the one who contacts the broker subject to being assured that these conditions will and asks to be shown the properties that are avail - be satisfied. The seller will expect the buyer to able. However, the broker is the seller’s agent and request conditions but, because he/she will not in working for the seller has an obligation to gener - want to keep his/her land off the market too long, ate the highest purchase price possible. There is the seller will insist that the buyer either waive the nothing inappropriate about this, but it is wise to conditions or terminate the agreement within a rela - remember that, absent a special agreement, the tively short time period. A buyer often has three to broker works for the seller and his/her fee increas - four weeks to investigate and decide whether or es with the price. not to proceed with the purchase.

Once the buyer identifies a property that fits In determining whether to buy real estate, the buyer his/her requirements, he/she tenders a written must consider its condition and the uses to which it Offer to Purchase to the seller through the real may be put. These questions form the basis for the estate broker. Oral agreements to buy and sell real conditions in the Purchase and Sale Agreement. A estate are not enforceable. Some purchasers pre - careful buyer will want to evaluate the condition of fer to submit a “letter of intent,” which outlines the the land and of any buildings and improvements that business terms. If the seller agrees to the offer, are located on the land. Most buyers will have an the seller will countersign the letter. Such letters of engineering inspector assess the physical condition intent are usually, by their terms, not binding on of the buildings and improvements. In addition, they either party. The Offer to Purchase is binding, will have an environmental consultant test the soil although it often contains a condition that the par - and the structures for the presence of hazardous

Doing Business in Massachusetts Foley Hoag LLP 37 waste. Due to the complexity of environmental laws to pay for all of them out of his/her own funds. The (refer to the section on “Environmental Regulation” most common sources for financing are commer - on page 43) and the very high penalties that are cial banks and insurance companies. For certain payable if there are violations, it is extremely impor - kinds of property, such as low-income housing, tant that the buyer be satisfied with the environmen - there may be some state or federal assistance tal condition of the premises before the purchase is available. A prospective lender will require a sub - completed. Under many environmental laws, liability stantial amount of information in advance, about depends not only upon fault, but may simply be the both the buyer and the property. The lender will result of ownership of the land, without regard to ask for financial statements, tax returns and other who caused the problem. financial records. The lender’s counsel will investi - gate the title to the property and its compliance The buyer will also want a lawyer to evaluate the with local zoning laws. The lender will require a sur - zoning. Each city or town in Massachusetts has vey and will provide information about the proper - zoning codes or bylaws that divide the municipality ty’s compliance with environmental laws and into districts and establish the uses and dimension - regulations. If the buyer is a corporation, the lender al requirements permitted in each district. For will also require evidence that it is properly formed example, the town may require that manufacturing and has the authority to borrow and repay the facilities be located only in a certain area. In addi - money, together with a number of other documents tion, it may require that the facility conform to and certificates. height, lot coverage, setback and other dimension - al requirements. The zoning code will also regulate The loan and the promise to repay the borrowed the minimum number of parking spaces that must money is set forth in a promissory note, which the be provided, the location, size and design of signs buyer signs. The principal security for the repay - and, often, the landscaping or other decorative ment of the loan is a mortgage of the real estate. amenities. Where the proposed project will not con - While some states use an instrument called a deed form to the requirements of the zoning code, the of trust, Massachusetts does not. By granting a buyer may, if the code permits it, apply for a vari - mortgage to the lender, the buyer is, in effect, con - ance or special permit, each of which allows the veying the property to the lender as security for buyer to do something that otherwise would not be the repayment of the loan. Once the debt has been permitted under the zoning code. In extreme repaid, the lender discharges the mortgage and cases, the buyer may ask a lawyer to apply to the relinquishes its interest in the land. If the buyer town to have the property rezoned, which requires defaults in the repayment of the promissory note, amending the zoning code. the lender may foreclose on its mortgage. After certain statutory notices are sent to the owner and Financing anyone else having an interest in the property, the At the same time a buyer is making these investi - property is sold at a public auction. Anyone who gations, he/she may also be seeking to borrow produces the required deposit may bid, and the part of the acquisition costs, unless he/she plans

38 Foley Hoag LLP Doing Business in Massachusetts money received at the auction is applied to the Massachusetts are organized on a county-by-county repayment of the debt. Where the high bid is not basis, and instruments concerning real estate are sufficient to repay the outstanding balance of the recorded in the Registry of Deeds for the county loan, there is a deficiency, which the lender may where the land is located. collect by suing the owner. Commercial real estate lenders now require their Acquisition of Title borrowers to purchase title insurance in connection The actual transfer of title occurs at the closing. with a loan. Prior to the closing, the lender’s coun - Usually the buyer, the seller, their lawyers and the sel will have searched the land records to deter - lawyer for the lender all meet to put into effect the mine who owns the property, whether there are loan, the transfer of title and the payment of the liens that must be satisfied, whether there are any purchase price. These all occur simultaneously restric tions on the use of the property imposed by since the buyer will not pay the purchase price prior owners, and whether anyone else has the right without obtaining title to the property, the seller will to use all or part of the property (an easement) in a not transfer the title without the buyer’s paying the way that would interfere with the buyer’s intended purchase price, and the lender will provide the use. Once the lender is satisfied that there are no buyer the money to pay the seller unless the buyer problems and that the buyer now owns the property, can provide a security interest in the real estate. counsel will certify the title to the title insurance Since title is actually transferred at the closing, the company. In turn, upon payment of a one-time insur - seller wants to be assured of payment in good ance premium, the title insurance company will issue funds. Therefore, the buyer must make arrange - a lender’s policy, which insures the priority of the ments in advance to have the funds available in the lender’s security interest as a lien against the real form of a certified check or a bank cashier’s check estate and, if the buyer pays a small additional pre - in a bank account from which the money may be mium, will issue an owner’s policy, which insures the sent by wire transfer directly to the seller’s bank interest of the buyer. Should the title be other than account. At the closing, the seller delivers the as stated in the title insurance policy, the title insur - deed, which is the document that actually transfers ance company will reimburse the owner and the the title, to the buyer. The buyer then signs the lender to the extent of their loss but not, subject to mortgage and the lender’s lawyer takes both docu - certain exceptions, in excess of the face amount of ments to the Registry of Deeds for recording. Prior the policy. to the closing, the lender’s lawyer would have made a search of records in the Registry of Deeds Leases of Real Estate to confirm that the seller actually owns the land A business enterprise that intends to locate in that is being sold. After the closing, the lender’s Massachusetts might prefer not to tie up its funds lawyer completes the search and, if there have by purchasing real estate, or the property in which been no other transfers or liens, records the deed it is interested may not be available for sale. The and the other documents. The land records for solution would be to lease the property. The par - ties would negotiate and ultimately sign a lengthy

Doing Business in Massachusetts Foley Hoag LLP 39 and fairly complicated document, a lease, which third parties on notice of the tenant’s interest in the gives the tenant the right to use the leased proper - real estate. ty, provides that the landlord is entitled to receive, Massachusetts Practice in return, a set amount of periodic rental payments, Transfer Taxes on Real Estate and defines the other conditions under which the Massachusetts, which taxes the right to transfer property may be used. If the lease is not in writing, title to real estate, requires that excise tax stamps it is not enforceable. Leases usually describe who is be affixed to all deeds, instruments or writings responsible for maintaining the property, obtaining whereby any land or interest in land is sold, trans - insurance and rebuilding the property if there is a ferred, assigned or otherwise conveyed, and where casualty loss. Simpler lease agreements, where the the consideration is over $100. The total tax rate tenant pays rent in return for space but the landlord is $2.28 per $500 of consideration or a fraction manages the building, are called “space leases.” A thereof. The seller is responsible for payment of “net lease,” on the other hand, is a lease where the the tax. The seller is permitted to deduct from the tenant leases all or a substantial part of a building purchase price the value of any liens and encum - and is responsible for all costs — repairs, replace - brances not being satisfied so that the tax is ments, insurance, real estate taxes — connected imposed only on the equity being transferred. The with the building. The principle is that the rent is net tax is collected at the Registry of Deeds for the to the landlord; that is to say it is pure profit. county in which the land is located by requiring the Most commercial leases are for five- or ten-year seller to purchase documentary tax stamps in the terms, although shorter terms are available. The appropriate amount, which are affixed to the deed tenant often negotiates an option that requires the before it is recorded. The tax does not apply to any landlord, upon the tenant’s request, to extend the instrument or writing (such as a mortgage) given to term of the lease if the tenant agrees to pay a new secure a debt or to any instrument or writing to rent equal to the fair market rent for the premises. which the state, a city or town, or the U.S. or any Many leases also provide that, as part of the rent, of their agencies are a party. the tenant pay a proportionate share of the build - Barnstable County, which consists of Cape Cod, is ing’s operating costs and real estate taxes. If the permitted to levy a special excise tax of its own at landlord is in a strong negotiating position, he may the rate of $2.28 per $1,000 of consideration or also require that the tenant pay an increase in rent part thereof and the state excise tax in Barnstable each year based upon increases in the Consumer County is only $3.42 per $1,000 of consideration. Price Index (CPI) or some other economic indicator. Thus, any transfer in Barnstable County will be In many retail shopping center leases, the tenant taxed at the total of the county and state taxes - also pays percentage rent, which is computed as a $5.70 per $1,000 of consideration or part thereof. percentage of sales. If a lease is for a term of seven years or longer, the tenant should record a Notice of Lease in the Registry of Deeds to put

40 Foley Hoag LLP Doing Business in Massachusetts Land Bank Fees in Dukes and A nominee trust, on the other hand, is created to Nantucket Counties hold title to real property for the benefit of By two special acts, the Legislature has undisclosed beneficiaries. The trustee has no established Land Bank Commissions for Dukes power to deal with the trust property except as, County (the island of Martha’s Vineyard) and and when, directed by the beneficiaries. Typically, Nantucket County (the island of Nantucket). The the trust instrument, which identifies the trustee Land Banks are public organizations established to but not the beneficiaries, is recorded in the collect a 2 percent transfer fee on real estate Registry of Deeds for the county where the land is transferred in the country and to use the money located. The trust provides that the beneficiaries collected to protect the counties’ natural resources and their respective percentages of beneficial inter - through the acquisition of open space. The 2 est in the trust are listed in a separate schedule of percent transfer tax, which is computed on the pur - beneficial interests, which is on file with the chase price, is due upon the transfer of any real trustee. Unlike an ordinary trust, where the trustee property interest, and payment is the responsibility has discretion, and perhaps a duty, to act inde - of the buyer, even though the buyer and seller may pendently, the nominee trust specifically provides contract otherwise. The fee must be paid at the that the trustee may act only at the direction of the appropriate Registry of Deeds by certified, bank beneficiaries. This can create a problem for third cashier’s or attorney’s client escrow fund check at parties dealing with the trust, because the authority the time of transfer and the Land Bank stamp must for the trustee’s actions depends upon direction be affixed to the deed before it is accepted for from the undisclosed and unidentified beneficiaries. recording. Certain types of transactions such as This is not something an outside party can readily transfers to a government entity, gifts or contribu - confirm. The nominee trust provides that a third tions of real estate to form a corporation, are person dealing with the trust may conclusively rely exempt from the tax. on any act undertaken by the trustee and, in addi - tion, may rely on any certificate signed by the Nominee Trusts trustee for the truth of any matter stated therein. Unlike most other states, Massachusetts permits Therefore, if the trustee signs a certificate that an owner of real estate to hold title in a nominee or states he/she was authorized to take a certain realty trust. This provides a number of advantages action, a third party may rely on this. A nominee to a foreign investor. In an ordinary trust, legal title trust also often provides that the beneficiaries may to the assets is in the name of the trustee, and the terminate the trust at any time and, upon termina - equitable title (or benefit) is in the name of the ben - tion, title to any assets owned by the trust vests in eficiary. The trust instrument ordinarily identifies the beneficiaries. the trustee and the beneficiary and provides that the trustee is to manage the asset for the benefit There are a number of potential benefits where a of the beneficiary. nominee trust is used as a title-holding entity:

Doing Business in Massachusetts Foley Hoag LLP 41 • Nondisclosure of owner . Using a nominee trust • Facilitates transfer . The use of a nominee trust avoids having to publicly disclose the name of the facilitates the acquisition, holding and transfer of actual owner of the property. There are any num - interests in certain situations. First, where there ber of reasons why an owner may prefer this. are numerous owners, it might be unwieldy to

• Confidentiality of business matters. The true collect all the signatures every time there is a owner may be a business entity, for example, transaction. If title is held by a nominee trust, a partnership, which is established by an agree - only the trustees need to sign. Second, it may ment that the participants would prefer to keep be difficult to deal with the property if an owner confidential. By using a nominee trust, the true dies or becomes incapacitated. While the trustee business arrangement between the parties need would need the cooperation of the estate or never be disclosed on the public record. legal guardian, the trustee is able to act without lengthy probate delays. Third, there are consid - • Avoidance of creditors. An owner may find it erable problems in Massachusetts if a general advantageous to own property in a name that is partnership or joint venture takes title in its own not familiar to his/her creditors. Although there name. In either case, the partnership or venture are other ways to accomplish this, and although agreement should be recorded, making the busi - a determined creditor can, through litigation, dis - ness arrangement a public document, and every cover the true nature of the ownership, the nomi - change in the identity of the partners and every nee trust is an inexpensive and simple first line amendment to the agreement would also have to of defense. be recorded. Using a nominee trust is much less • Transfer of interests without public disclosure . cumbersome. Fourth, someone residing outside Because the beneficial interests do not appear in of Massachusetts might want to avoid the need the public record, shares may be transferred for an ancillary probate administration in freely without public disclosure. Where there is a Massachusetts if he dies. By using a trust, sale, the buyer selects a new trustee and the he/she can provide that his/her beneficial inter - beneficial interests are assigned to the new est passes by his/her will without the need for a owner. (Note that even such an off-the-record Massachusetts probate proceeding. transfer requires the payment of transfer taxes.) • Emergency situations. When it is necessary to This approach can be useful when a buyer wants acquire title before the intricacies of a business to avoid showing a transfer of title, for example, arrangement can be negotiated, the parties can in assembling a large parcel of land. Another sit - take title in the name of a trust. The original ben - uation where it is useful is when a transfer by eficiary can transfer the beneficial interest to a deed would cause a mortgage to become due (a business entity to be formed later. due-on-sale clause). • Facilitates corporate transactions. A corporation Some due-on-sale clauses are drawn in such a way that acquires real estate must often produce cor - that they will not be triggered by a transfer of ben - porate votes, certificates of legal existence and eficial interests. other ancillary documents concerning its organiza -

42 Foley Hoag LLP Doing Business in Massachusetts tion and the authority of its officers to act. A third merely an agent for the true owner, the beneficiary. party dealing with the trust need only rely on the Second, the beneficiary is probably personally authority of the trustee to act and, therefore, will liable to the creditors of the trust, so a nominee not require the various documents ordinarily trust should not be viewed as a shield against cred - required of a corporation. (Note that use of a trust itors. Third, although the trust provides that the does not necessarily mean that corporate transfer trustee can act only at the direction of the benefici - taxes will not be due.) aries, the trust instrument puts third parties on

• Foreign corporate transactions. It is very incon- notice that they may rely upon any action taken by venient for nonresident aliens to acquire title in the trustee without checking further. Thus, the ben - the name of non-U.S. (and especially off-shore) eficiary assumes the risk that the nominee will not corporations. Such corporations often have act dishonestly. structures and characteristics that are different Environmental Regulation than U.S. corporations and cannot produce the types of documentation necessary for a U.S. real Environmental laws affect a wide variety of busi - estate transaction. For example, a non-U.S. ness operations and land use development projects corporation might not be able to produce an in Massachusetts. Regulation occurs at the federal, instrument signed by its president and treasurer state and local levels and the laws are adminis - because it has managing directors and does not tered by a variety of agencies and boards. The recognize those offices. Another example would many potentially applicable laws, combined with be where a non-U.S. corporation could not ade- overlapping jurisdictions of regulatory authorities, quately establish its legal existence because of a make this field of law highly specialized and replete difference in registration requirements. Where a with traps for the unwary. nominee trust is used, it is not necessary to look behind the authority of the trustee. (Note that use Massachusetts’ environmental laws have achieved of a trust will not avoid the requirements of feder- a mature balance, combining regulatory controls al tax withholding laws, since most experienced with self-monitoring by industry, market-based lawyers will require a trust to certify that it is not incentives to achieve reductions in emissions of a non-foreign person for federal tax purposes.) pollutants, and a streamlined approach to permit - ting. Many of the laws that affect development rights limit discharge of pollutants, regulate han - There are potential drawbacks to using a nominee dling of chemicals and require cleanup of contami - trust, but, on the whole, anyone who uses one will nated properties have been in effect since the be no worse off for having done so. First, for cer - 1970s and 1980s. These years of experience have tain reasons based on common law trust produced a body of interpretation that provides principles, Massachusetts courts may ultimately helpful guidance to businesses. Massachusetts find that a nominee trust is, in fact, not a trust at regulatory agencies have also learned from all but an agency relationship where the trustee is experience. Recently, for example, they have taken

Doing Business in Massachusetts Foley Hoag LLP 43 steps to further streamline and consolidate permit - knowledgeable environmental counsel and technical ting requirements and to offer incentives to busi - experts is strongly recommended. The federal nesses willing to cleanup or redevelop contaminat - Securities and Exchange Commission’s rules and ed properties. Because U.S. environmental law interpretive guidance regarding the disclosure of imposes strict liability for environmental problems, certain environmental matters by publicly held in contrast to the fault-based system that charac - companies will not be discussed here. terizes most U.S. law, it is particularly critical that Minimizing and Managing Risks companies remain abreast of the many regulations The stiff penalties (including fines and, in some potentially applicable to their operations. The chal - cases, prison terms) for violations of environmental lenge for those doing business in the U.S. and laws and the enormous cost associated with com - Massachusetts — and many companies in environ - pliance with certain of these regulations and with mentally sensitive businesses have met that chal - cleanup of contaminated soil and groundwater lenge and thrived — is to conduct their business in focus attention on environmental matters for both a profitable manner while taking steps to minimize ongoing businesses and purchasers of businesses potential environmental liabilities. Meeting this chal - or property. Careful planning can minimize and lenge can be difficult because, while Massachusetts manage these risks. has made significant strides toward more market- based regulations, its environmental regulations in Because U.S. environmental laws have a broad lia - many areas, both on the books and as interpreted bility net, a company acquiring a business or real by dedicated agency employees, remain among property — and often its lender — are advised to the most stringent in the country. conduct an environmental due-diligence investigation to discover whether the business has committed The following discussion provides an introduction violations or the property is contaminated and, if to U.S. and Massachusetts environmental laws. so, to allocate the risks by agreement between the Some apply to ongoing businesses, others only to buyer and the seller (and sometimes the financing land use development projects. Some apply regard - entity). For example, contracts could provide for less of whether a business uses or disposes of indemnities or escrow accounts to fund costs of large quantities of hazardous substances. Each set assessment and corrective action. An environmental of laws and regulations has a multitude of exemp - due-diligence effort helps to ensure that the buyer’s tions and exclusions, which may, if applicable, dra - acquired assets or real property are not later deval - matically alter the financial impact of the law to a ued as a result of subsequently discovered environ - particular business or transaction. Important inter - mental problems. Obviously, the latter problem is pretive guidance and official policy materials may also of significance to the buyer’s lender. have similar effect. Reference to the appropriate statutes, regulations and guidance documents is An acquiring company and its legal counsel often imperative to determine their applicability to a spe - engage an environmental consultant to assist in the cific situation. Consultation with competent and due-diligence effort. In many cases, the consultant

44 Foley Hoag LLP Doing Business in Massachusetts will combine a property contamination investigation Massachusetts falls to EPA’s New England Regional with an operational compliance evaluation aimed at Office, headquartered in Boston. investigating such issues as whether the facility or business has all necessary environmental permits The Department of Environmental Protection and is in compliance with its permits and applicable (DEP) implements and enforces most of the laws, in some cases including environmental laws Commonwealth’s environmental laws, which are beyond the scope of this summary. In appropriate often, but not always, similar to federal law. The cases, the due-diligence investigation may include state laws are intended to supplement the federal an assessment of worker safety. The market for laws, and in some areas are more stringent. In environmental insurance has grown significantly in some cases, the Massachusetts laws operate in recent years, and a significant part of these risks lieu of the related federal scheme; in other cases, can often be minimized through use of the various the federal and state systems operate together. insurance products currently available. DEP is headquartered in Boston, and it also has Massachusetts has also created an insurance pool four fairly autonomous regional offices located that can decrease the cost of such insurance for throughout Massachusetts. DEP is one of several eligible buyers. agencies within the Executive Office of Environmental Affairs (EOEA). Among other Finally, because the legal standards governing liabil - functions, EOEA directly administers the ities for successor and parent corporations — as environmental impact review process required by well as the individual directors of these corpora - the Massachusetts Environmental Policy Act tions — are in a state of flux, careful attention (MEPA). MEPA, discussed below, is of critical should be paid to business organization and struc - importance to many projects and activities pro - ture issues so as to minimize the number of poten - posed in the Commonwealth. tially liable entities. In Massachusetts, municipalities also exercise sig - The Key Regulatory Agencies nificant control over environmental issues through The Environmental Protection Agency (EPA) is the their Conservation Commissions, Planning Boards, federal agency with primary responsibility for envi - Zoning Boards and Boards of Health. Cities and ronmental matters. The EPA oversees implementa - towns derive their authority both from local bylaws tion of federal laws regulating management and and from delegated state or federal laws. disposal of hazardous waste, protection of water quality and wetlands, air pollution, cleanup of con - Contaminated Property: Cleanup and Liability Issues taminated properties under the Superfund statute The federal law governing identification and and other environmental issues. EPA’s main head - cleanup of property contaminated by hazardous quarters is in Washington, D.C., but considerable substances is the Comprehensive Environmental permitting and enforcement power is delegated to Response, Compensation and Liability Act (CER - the EPA’s various regional offices. Jurisdiction over CLA), popularly known as the “Superfund” law, 42

Doing Business in Massachusetts Foley Hoag LLP 45 U.S.C. §§ 9601, of seq. Superfund’s impact on the erties in Massachusetts are cleaned up under business community has been enormous, largely Chapter 21E and the MCP, rather than under due to the law’s broad imposition of liability without CER-CLA. Chapter 21E establishes a broad obliga - regard to fault. Under Superfund, each business tion to report the presence of site contamination that generated or disposed of hazardous sub - — whether it occurred in the past or in the pres - stances on the property may be called to bear the ent, and whether suddenly or gradually through cost of investigation and cleanup regardless of industrial use. Once contamination is discovered, it whether the disposal activities complied with legal must be investigated and cleaned up in phases as requirements in effect at the time. delineated in the MCP.

Generally speaking, each of the responsible parties Under the MCP, at all but the most severely con - is jointly and separately liable for the response taminated sites, legally responsible parties must costs of investigating and remediating contaminat - engage Licensed Site Professionals (LSPs) to ed sites, at least to the government. As a result, a assess contamination and risk, and to design and financially healthy or “deep pocket” defendant is implement a cleanup. LSPs categorize sites into potentially exposed to the entire cost of site tiers according to severity of contamination, and assessment and remediation. Superfund’s liability is DEP devotes oversight to the sites posing the retroactive, covering activities that occurred even most serious risk to human health or the environ - before the law was adopted. ment. Following categorization, the responsible party must conduct a phased process of assess - The risks under Superfund are offset somewhat by ment and, unless the site is determined to pose no incentives designed to limit or eliminate liability in significant risk, proceed through selection, imple - certain situations. For example, the federal mentation and completion of appropriate remedial government offers “Brownfields” grants to help action. DEP conducts both random and targeted finance cleanup and redevelopment of some types audits to ensure compliance with the MCP. The of contaminated properties. In addition, through Massachusetts program offers several clear advan - “prospective purchaser agreements” the EPA tages over the cleanup programs of some other assures lenders, owners and buyers that the jurisdictions. For example, the MCP contains objec - federal government will not pursue actions tive standards against which a cleanup can be against properties cleaned up under state pro - measured. These make it easier to determine grams. In 2002, Congress passed amendments whether a site is a serious problem as well as to to Superfund to further encourage development determine when cleanup is done. The MCP also of Brownfield properties. allows varying levels of cleanup depending on the allowable uses of the property; land that will be Massachusetts, like many states, has a liability and used only for commercial or industrial purposes cleanup scheme similar to the federal Superfund, need not be as “clean” as property that will be referred to as Chapter 21E and the Massachusetts used for residential purposes. Finally, the privatized Contingency Plan (MCP). Most contaminated prop -

46 Foley Hoag LLP Doing Business in Massachusetts system allows parties to control their own schedule Regulation of Hazardous Waste and for cleanup. Other Toxic Substances

Massachusetts has gone further than the federal “Cradle-to-Grave” Regulation of the government to encourage cleanup and redevelop - Generation, Transport, Treatment, Storage, ment of contaminated property. In 1998, the legis - Recycling and Disposal of Hazardous Waste lature amended Chapter 21E specifically to encour - The federal Resource Conservation and Recovery age Brownfields redevelopment. Act, 42 U.S.C. § 6901, et seq. (RCRA), is designed to help prevent the need for costly property The statute provides that innocent owners, known cleanups by controlling the nation’s hazardous as “eligible persons” receive certain liability end - waste from the point of generation through its sub - points once the property has been cleaned up. sequent transportation, storage, treatment and dis - Such eligible persons are also protected from most posal — or “cradle to grave.” To meet this man - third-party claims. In addition, innocent tenants, date, the EPA has promulgated complex regula - known as eligible tenants and and downgradient tions to control hazardous waste. (40 C.F.R. Parts property owners are generally exempted from liabil - 260 et seq.) ity. Finally, secured lenders were given even clearer statutory protection under Chapter 21E’s lender Massachusetts has enacted its own hazardous liability provisions. waste regulatory scheme, which is codified in Chapter 21C program of the state’s General The statute now also provides significant financial Laws. Most elements of the Chapter 21C incentives for cleanups. Cleanups by innocent program operate in lieu of the federal program parties may now be eligible to receive certain tax in Massachusetts. Massachusetts, like many benefits. Other cleanups may be eligible for grants other states, has designed its program to be or assistance in obtaining loans. Finally, the state both broader and more stringent than the has created a mechanism for buying insurance minimum federal requirements. against cleanup cost overruns at favorable rates. It is the waste generator’s responsibility to deter - Although these incentives are important, they do mine whether or not its waste streams are regulat - not resolve all the concerns regarding contamina - ed under RCRA and Chapter 21C. There are two tion or potentially contaminated property, and major categories of regulated hazardous waste: potential owners, occupants or developers of real waste streams specifically listed by DEP (“listed estate are well advised to carefully evaluate the wastes”), such as wastewaters from electroplating environmental condition of properties they are con - operations, and wastes that exhibit one or more of sidering for purchase or use. the characteristics of toxicity, ignitability, reactivity or corrosivity (“characteristic wastes”). Chapter 21C’s listed wastes encompass not only materials regulated by the federal RCRA, but also additional

Doing Business in Massachusetts Foley Hoag LLP 47 materials such as used oil, certain PCB-containing of landfills and hazardous waste treatment, storage wastes and hazardous wastes that are being recy - and disposal facilities. cled. Some other waste categories are exempt Regulation of Toxic Substances from Massachusetts regulation. Apart from the “cradle-to-grave” hazardous waste Once material has been identified as a regulated programs outlined above, other laws regulate the hazardous waste, the generator is subject to various production, use and disposal of so-called toxic sub - waste management requirements depending on the stances, even if they are not wastes. Among the amount of hazardous waste generated in any given substances which the federal government regulates month. These restrictions include the time period under the Toxic Substances Control Act (TSCA), 15 during which the waste may be stored without a per - U.S.C. § 2601 et seq., and regulations issued at mit, the manner in which it must be drummed and 40 C.F.R. Part 761 are polychlorinated biphenyls labeled, the paperwork documenting its transporta - (PCBs). TSCA also regulates the introduction of cer - tion, storage and disposal by licensed facilities, and tain new chemicals into the marketplace. prohibitions against its disposal in landfills. Asbestos Massachusetts regulations also contain a number of Asbestos was commonly used in building products specialized provisions, which address either particu - and in industry until the late 1970s and must be lar types of operations or particular waste streams. handled carefully when buildings are renovated or For example, the Chapter 21C regulations provide demolished. Asbestos is regulated by a variety of for special permits for research and development federal and state laws including the federal Clean activities conducted for the purpose of developing Air Act, which defines asbestos as a Hazardous new treatment or recycling technologies. There are Air Pollutant. The Occupational Safety and Health now also separate regulations for the handling of Administration (OSHA) has promulgated rules cathode ray tubes in televisions or computer termi - governing occupational exposure to asbestos. nals and products that may contain mercury, such These rules mandate that increasingly stringent as fluorescent light ballasts. controls and work practices be applied to each of four classes of increasingly hazardous activity Keep in mind that even a material not formally and require employers to inform employees of classified as a hazardous waste may require special the presence and location of building materials handling and disposal. These materials include that are presumed to contain asbestos (PACM), asbestos, medical waste and materials from con - as well as confirmed asbestos containing materials taminated site cleanup that are not otherwise con - (ACM), unless the building was built or renovated sidered hazardous waste. after 1979.

Finally, different regulations apply for transporters Massachusetts regulations require notice to federal , of hazardous waste and for owners and operators state and local government agencies prior to undertaking asbestos-related building demolition

48 Foley Hoag LLP Doing Business in Massachusetts and renovation activities, establish safe work the local fire department in the event of a release practices for such activities and govern the from a tank. management and disposal of removed asbestos. In addition, the Massachusetts Department of Labor Chapter 21E, discussed above, does not directly has issued regulations governing the licensing of regulate tanks but does require owners and opera - firms and the certification of workers engaged in tors to address the release or threat of release of asbestos-related removal, containment or oil or hazardous materials (flammable and nonflam - encapsulation work. mable) to the environment. Notification and cleanup standards are contained in the Massachusetts Underground and Aboveground Storage Tanks Contingency Plan, discussed above. Chapter 21E A number of federal and Massachusetts statutes also imposes broad liability upon tank owners and and regulations impose a variety of requirements operators and others legally responsible for investi - on the owners and operators of underground and gation and cleanup costs associated with a release aboveground storage tanks used to contain flam - from a tank system. mable substances, hazardous substances or haz - ardous wastes. These myriad requirements govern Massachusetts has established an Underground notification of a tank’s presence and regulate tank Storage Tank Petroleum Product Cleanup Fund, installation and operation, reporting of releases, intended to facilitate cleanups of releases at dis - spills and leaks, cleanup of associated contamina - pensing facilities. A dispensing facility is a business tion, and financial responsibility requirements for that stores petroleum products and dispenses tank owners and operators. These laws include the them directly to motor vehicles, including boats, as Resource Conservation and Recovery Act, previous - fuel. Eligible claimants may be reimbursed certain ly discussed, and the federal Clean Water Act. allowable costs and expenses incurred as a result of responding to an eligible release or paying a The Massachusetts Department of Public Safety final judgment for injury or property damage. In (DPS) and the DEP implement the various federal order for a release to be eligible, the owner or and state requirements for tanks in Massachusetts. operator must have paid all fees in full prior to The DPS regulations address tank construction, applying to the fund and must have notified DEP of installation, operation and the mitigation of fire haz - the release and received a DEP tracking number. ards associated with tanks containing flammable The claimant must demonstrate that the facility liquids. These regulations apply to underground and was in full compliance with all applicable laws and aboveground tank systems. In some respects, they regulations at the time of the release. impose stricter requirements on tank owners than do the federal regulations. For example, Water Pollution Control NPDES Permits and Wastewater Massachusetts requires that installation, storage Pretreatment Requirements and removal permits be obtained from the local fire Several federal and state laws are intended to pre - department for all tanks containing flammable sub - vent or limit the discharge of pollutants into surface stances. These regulations also require notice to

Doing Business in Massachusetts Foley Hoag LLP 49 waters. The most notable of these are Chapter 21 covered by the permit, to develop and implement of the Massachusetts General Laws and the federal storm water pollution prevention plans and to con - Clean Water Act, 33 U.S.C. § 1251 et seq. These duct site inspections. The general permits do not federal and state programs operate coextensively. authorize mixed or non-storm water discharges, nor do they exempt permittees from spill notification In general, specified categories of industrial dis - requirements in the event of a release of hazardous chargers are subject to technology-based effluent substances into a discharge. The permit for dis - standards established by EPA. National Pollutant charges associated with industrial activities requires Discharge Elimination System (NPDES) permits are quarterly monitoring for certain types of facilities. issued to individual industrial dischargers for direct discharges of their process wastewaters and other Massachusetts also regulates some storm water designated non-contact waters to surface waters. discharges on a case-by-case basis, focusing on Massachusetts has established a variety of surface discharges contaminated by contact with certain water quality standards, which are maintained and substances or potentially contaminated due to enforced in part through NPDES permits. industrial locations.

Indirect discharges of effluent to municipal or other Air Pollution Control publicly owned treatment works (POTWs) are regu - An overlapping system of federal and state laws is lated through industry-specific, as well as generally designed to limit the emission of airborne pollu - applicable, pre-treatment standards, which must be tants from industrial facilities (Clean Air Act, 42 met prior to the discharge of effluent to a POTW. U.S.C. §§ 7401 et seq., as amended; Chapter Typically, new point sources of such discharges are 111, §§ 142A – 142K of Massachusetts General regulated more stringently than existing sources. Laws). DEP’s air pollution control regulations appear at 310 C.M.R. Parts 6.0 – 8.0 et seq. The Discharges to groundwater are regulated by air pollution control programs discussed in this Massachusetts water quality programs to ensure summary concern facilities that are known as sta - that state-mandated groundwater quality standards tionary sources. The federal and state programs are maintained. also extensively regulate mobile sources of air pol - lutants, such as automobiles. The federal and state Storm water run-off associated with industrial activi - regulatory scheme governing air pollutants are ties and construction sites is also regulated under exceedingly complex, particularly for larger the federal and state clean water acts. Under EPA sources of air pollution. regulations, a facility may need a site-specific per - mit, issued in a manner similar to the basic NPDES A wide variety of air pollutants are regulated. Six program. However, in many cases, facilities will be air pollutants are subject to National Ambient Air eligible for coverage under a general permit issued Quality Standards (NAAQS) (sulfur dioxide, carbon by EPA. To be covered by a general permit, a facility monoxide, ozone, nitrogen dioxide, lead and partic - must submit a Notice of Intent (NOI) in order to be ulate matter). In addition to standards for these

50 Foley Hoag LLP Doing Business in Massachusetts “criteria” pollutants, EPA is continuing to develop ed types of new facilities or industrial operations. standards for hazardous air pollutants (HAPs). Large sources of hazardous air pollutants are sub - Massachusetts is also paying increasing attention ject to the other programs so as to achieve to carbon dioxide and other so-called greenhouse Maximum Achievable Control Technology (MACT) gas emissions (though the regulation of carbon standards. Finally, large sources of air pollutants dioxide is still in the earliest stages), and to noise are also required to obtain an operating permit. pollution. It is important to recognize that a wide Basically, the operating permit program works to variety of new sources require air permits, and that collect, in one permit for each regulated facility, all those permits must be in place before construction the various air pollution control requirements appli - can begin on those sources. Obviously, air permits cable to that facility. are required for major generators of air emissions, Community “Right-to-Know”: such as power plants, but they can also be Mandated Information Disclosure required for much smaller sources, including emer - The federal Emergency Planning and Community gency backup generators, laboratory operations Right-to-Know Act (EPCRA) was enacted primarily in and heating boilers. Most air permits are issued by response to the 1984 Bhopal chemical release dis - the Massachusetts DEP, but the EPA often partici - aster. (EPCRA is similar to the European pates in the permitting process. EPA and DEP must Community’s Seveso Directive, the Directive on both issue an approval for new major sources of Major Accident Hazards of Certain Industrial air pollution. Activities, 82/501 [OJ L 230, June 24, 1982], as A variety of regulatory programs can apply to indi - amended by Directives 87/216 [OJ L 85, March vidual sources. For example, even relatively small 28, 1987] and 88/610 [OJ L 336, December 7, sources of air pollution require a permit from the 1988].) Businesses covered by EPCRA are general - DEP issued under its air pollution control regula - ly required to notify state and local emergency tions at 310 CMR 7.00. A Prevention of Significant planning entities of the identities and quantities of Deterioration (PSD) permit must be obtained from regulated hazardous chemicals and toxic chemi - EPA before a major source of regulated air pollu - cals, that are used or kept at their facilities or tants is constructed or modified in a significant released to the environment. Notification is by manner. Under certain circumstances, these large annual filing of Material Safety Data Sheet (MSDS) sources also must obtain approvals from DEP forms or chemical lists, inventory reports and toxic under the New Source Review program, which chemical release reports. EPCRA also requires reg - requires the most stringent emission control tech - ulated businesses to notify federal, state and local nology and often requires the purchase of emission authorities immediately of accidental releases of “credits” from other sources to “offset” the new hazardous chemicals. emissions created by the new source. The New Chapter 111F is the Massachusetts EPCRA equiva - Source Performance Standards program (NSPS) lent. It requires facilities to make hazardous chemi - imposes technology-based limitations on designat - cal information available to DEP and to the public.

Doing Business in Massachusetts Foley Hoag LLP 51 Unlike EPCRA, the chemical substances regulated second aims to force a reduction in use of toxic under Chapter 111F have been collected in a and hazardous chemicals in the Commonwealth, by single list, the Massachusetts Substances List, requiring certain toxics users to submit plans for found at 105 C.M.R. § 670, Appendix A. This list reducing their use of toxic and hazardous is revised annually. substances and generation of toxic by-products without shifting risks among workers, consumers Toxic Substance Use Reduction or parts of the environment. The federal government and many states are increasingly providing industry with incentives and Development and Construction Projects mandates to reduce the use of toxic chemicals in Much of the preceding has focused on requirements industrial processes. The Pollution Prevention Act that most often apply to larger industrial or commer - of 1990 (PPA), 42 U.S.C. §§ 13101 et seq., cial facilities or contaminated properties. However, makes pollution prevention or reduction at the there are a host of federal and state laws that apply source a national policy and directs EPA to pro - more broadly to the development, construction and mote source reduction activities. Owners and oper - expansion of facilities, regardless of whether those ators of facilities required to file Toxic Chemical facilities generate wastes, emit pollutants or lie on Release Reports under EPCRA are required to contaminated land. include toxic chemical source reduction and recy - cling information that is then made available to the In addition to conventional land use and zoning public. EPA uses the industry-provided information laws, which are primarily administered at the local to identify future pollution prevention opportunities. level, key state statutory and regulatory frame - works relevant to project development include the The Massachusetts Toxics Use Reduction Act Massachusetts Environmental Policy Act, the (TURA) represents the state’s approach (Chapter Wetlands Protection Act, Massachusetts General 211) to reducing toxics use. Unlike traditional Laws Chapter 91 (addressing use of tidelands) and “command and control” legislation, TURA allows the Coastal Zone Management Act. Requirements and encourages the regulated community to deter - for on-site sewage treatment under Title V may mine how to achieve this goal. In addition, TURA’s also be significant to these projects. Land use requirements have been coordinated to some development projects are often subject to legal degree with the above-described federal right-to- challenges by project opponents. Although legisla - know reporting requirements and forms, although tion was enacted in 2006 to streamline the resolu - TURA’s coverage of industrial categories is broader tions of these challenges, project proponents are than the federal law. well advised to evaluate the possibility of appeals as part of any development strategy. TURA has two major purposes. The first, similar to the federal PPA, is to develop detailed The Massachusetts Environmental Policy Act information about the use of toxic and hazardous The Massachusetts Environmental Policy Act chemicals by certain firms in Massachusetts. The (MEPA) is administered by the EOEA and provides

52 Foley Hoag LLP Doing Business in Massachusetts for comprehensive review and mitigation of the alternatives to the project and the environmental environmental impacts of projects or other activi - impacts of each alternative. ties that are subject to permits from state agen - cies. (MEPA is similar to the National Environmental After the draft EIR is reviewed and commented on by Policy Act, which requires development of various agencies and the public, the secretary of Environmental Impacts Statements [EISs] for major EOEA will issue a written statement summarizing the federal projects that may significantly affect the comments and areas of concern. The project propo - environment, and the European Communities nent then must submit a final EIR that incorporates Directive on the Assessment of the Effects of and responds to the secretary’s comments and Certain Public and Private Projects in the demonstrates that all feasible measures will be Environment, 851337 [OJ L 175, July 5, 1985].) taken to avoid or minimize project-related environ - Until the MEPA process is concluded, a state mental impacts. The final EIR is again subject to pub - agency may not issue a permit to, or provide fund - lic review and must be found adequate by the secre - ing for, a MEPA-covered project. Not all projects tary. Once the secretary’s review is complete, other are subject to MEPA review; only projects that agencies may then proceed to issue permits for or require state action, financial assistance or a state otherwise act on the proposed project. permit and are over a certain size or impact Wetlands Protection threshold (e.g., number of new parking spaces or and Coastal Zone Management amount of impervious surface created) must go The federal Clean Water Act regulates the dis - through the process. charge or placement of dredged or fill material into federally-protected “navigable waters.” A permit If a project is subject to MEPA, a project proponent from the U.S. Army Corps of Engineers (Section first must prepare and file an Environmental 404 Permit) is required for most discharges of Notification Form (ENF) with EOEA. The ENF pro - dredge or fill material. “Waters of the United vides information about the project’s scope and States” include most wetland areas; “waters” and potential environmental impacts, and is subject to “wetlands” have been broadly interpreted. This public review and comment. For smaller projects interpretation gives the Corps of Engineers, and with low impacts, submission of the ENF is all often EPA, a significant regulatory role in develop - MEPA requires. However, for others, the regula - ment projects in or near federal wetland areas. tions require preparation of a much more detailed However, in 2001, the Supreme Court narrowed review, called an Environmental Impact Report federal government jurisdiction under Section 404, (EIR). Generally, project proponents are required to in a ruling that concluded that isolated wetlands are prepare both draft and final EIRs. The purpose of not waters of the United States. A 2006 Supreme the EIR is to provide a detailed description of the Court decision has created further uncertainty project and its impact on the environment as well regarding the need for Section 909 permits for as any proposed mitigation measures intended to some wetlands. reduce environmental impacts, and a description of

Doing Business in Massachusetts Foley Hoag LLP 53 In Massachusetts, the Army Corps administers surrounding certain geographic features such as Section 404 through the Massachusetts coastal or freshwater wetlands, beaches, dunes, Programmatic General Permit (PGP). The PGP ponds and lakes. categorizes dredge and fill activities by impact, requiring additional screening or individual permits It is also worth noting that municipalities have for activities entailing impact above certain thresh - authority under state law to enact their own wet - olds. According to the Corps, most projects lands bylaws, so long as they are at least as approved by local conservation commissions under stringent as the state regulations, and that about Massachusetts Wetlands Protection Act also will be half the towns and cities in Massachusetts have below the federal thresholds for Category 1 nonre - done so. Therefore, a developer should determine porting projects. These may proceed under authori - whether a municipality has its own bylaws and zation of the PGP without application or notification whether they may be more stringent than the state to the Corps. regulations. Either way, the developer will apply first to the local Conservation Commission for approval. The Massachusetts wetlands and coastal zone pro - tection system is extensive. The State’s “Wetlands Massachusetts regulates activities within the so- Protection Act,” Chapter 131, § 40, requires public called Coastal Zone separately from — and in addi - review and authorization by the appropriate local tion to — regulation under the Wetlands Protection conservation commission of activities — such as Act. Therefore, activities within the Coastal Zone removal, filling, dredging or alteration that will or may be subject to regulation under both the could alter wetlands and floodplain areas. Wetlands Protection Act and the Coastal Zone Amendments to the Wetlands Protection Act in the Management (CZM) Office. The CZM Office has two mid-1990s extended protection to certain land near sets of responsibilities: it implements requirements rivers, even if dry. DEP has promulgated regula - under the federal Coastal Zone Management Act, tions to implement this Act at 310 C.M.R. § 10.00 16 U.S.C. § 451 et seq., and under the distinct et seq. In general, unless an activity that will or regulatory program pursuant to the Massachusetts could adversely affect certain protected interests in statute, M.G.L. Chapter 21A, § 4A. Initially, the critical areas can be adequately conditioned to CZM Office’s responsibilities are to define the limits meet DEP’s regulatory standards, the activity will of the Coastal Zone. See 301 CMR 20.99 be prohibited. Certain limited projects, generally (Boundary Appendix). The CZM Office has also maintenance of or improvement to existing struc - promulgated a series of policies regarding develop - tures or emergency response activities, are subject ment in the Coastal Zone (301 CMR 20.99). to somewhat more relaxed standards. The law Massachusetts gives effect to CZM policies allows a person to seek in advance a determination through existing permit and management programs whether a particular area is protected by the Act. and by promulgating CZM regulations under such The regulations also establish requirements for enabling acts as those governing wetlands and work to be conducted within a 100-foot buffer zone water pollution control.

54 Foley Hoag LLP Doing Business in Massachusetts Thus, state permitting agencies must review the per day (gpd) are considered “large systems” and applicable CZM policies before issuing state may be required to obtain a groundwater discharge permits to projects located in the Coastal Zone, permit under the state water quality regulations. and certain statutes require licensing agencies to New construction with a design flow exceeding obtain an opinion from the CZM office that a 10,000 gpd cannot be approved under Title V and project is consistent with CZM policies prior to must obtain a groundwater discharge permit. issuance of a license. Similarly, federal regulations require that, before projects requiring federal Under Title V, systems must be inspected for com - licenses can be constructed within the Coastal pliance at or within two years prior to the time the Zone, project proponents must obtain from state title to the property is transferred. Certain location - authorities a determination that the project is con - al criteria, such as specified distance in relation to sistent with applicable state policies. surface water supplies or private water supply The Massachusetts CZM Office has responsibility wells, automatically trigger upgrade requirements. for making federal consistency determinations, Obvious failures, such as backup or ponding, also based on review of the project in light of applicable trigger upgrade requirements. If a system is found CZM policies. Finally, under Chapter 91, the state to be failing, it must be upgraded within two years regulates developments in tidelands, which may be to maximum feasible compliance with Title V. In a somewhat misleading term to the uninitiated. evaluating what must be done to achieve maximum Tidelands includes former tidelands that may have feasible compliance, the local Board of Health must been filled at any time, even hundreds of years consider economic feasibility of upgrading in addi - ago. The state government retains an ownership tion to physical possibility. interest in these filled tidelands and has promulgat - A Note About Environmental Litigation ed regulations governing development in tidelands. Any summary of American environmental law would See 310 CMR 9.00 et seq. The general thrust of not be complete without mentioning the important the regulations is to protect the public’s rights in role of environmental litigation both in enforcing the these tidelands and, generally, to maximize the various laws and in reimbursing injured parties for extent to which they are preserved for water- legally compensable injuries. In addition, it is impor - dependent uses. tant to recognize the impacts of challenges to envi -

Title V ronmental permits in the overall project develop - Title V is applicable to all septic systems currently ment process. in use, to the design and construction of new sys - Actions to establish liability for cleanup costs, tems, and to the expansion and upgrade of sys - as well as penalties for violations, can be brought tems. No new, upgraded or expanded system may in both federal and Massachusetts courts under be used without a Certificate of Compliance from many of the environmental statutes described in the local Board of Health. Existing systems with a this summary. Many of these statutes not only design flow of between 10,000 to 15,000 gallons provide for suits by governmental agencies, but

Doing Business in Massachusetts Foley Hoag LLP 55 also allow other private parties — such as permit and by other aggrieved parties. Many of the landowners, other affected persons or concerned regulatory programs require the initial appeal of a citizens — to sue to enforce legally established envi - permit or approval to be filed with an administrative ronmental law requirements. agency, rather than in court, though judicial appeal is ultimately available. Appeals can often be costly In addition, certain statutes and the common law of and time-consuming, and in many instances the Massachusetts allow private parties to sue for prop - project cannot proceed until the appeals have run erty damages (which may include the reduced value their course. Even though recent (2006) of land) and injunctive relief in many situations involv - Massachusetts legislation is intended to speed the ing environmental contamination of land, water or resolution of challenges, any developer of a project air. The common law also allows suits for personal that requires approvals would be well advised to injuries caused by exposure to toxic or otherwise consider the likelihood of an appeal and the harmful substances. Potential causes of action (e.g., impacts to the project in the event of an appeal. theories of liability) include claims of negligence, trespass and nuisance. Recently, there has been Taxation increasing litigation activity relating to indoor air pol - Federal Taxation lution and mold, which are not pervasively regulated United States taxation of business income earned by under existing environmental law. a foreign investor can produce significantly varied results, depending upon the form, nature and extent One advantage to doing business in Massachusetts of the investor’s activities in the U.S. The following is is that this is the only state in the entire United a general overview of the potential federal tax conse - States where so-called punitive or exemplary dam - quences resulting from different methods of busi - ages cannot be awarded absent express statutory ness operation in the United States. authorization. In addition, the normal rule in Massachusetts and throughout the United States is The Residency Rules that each party to litigation pays its own attorneys’ The United States subjects all U.S. tax residents to fees, win or lose; the victor’s litigation expenses net progressive rate taxation on their entire world - are not ordinarily reimbursed by the loser. wide income, regardless of source. Nonresidents, However, under some environmental statutes, the however, are subject to U.S. tax only on income loser is required to pay the winner’s attorneys’ derived from U.S. sources. Moreover, nonresidents fees, especially in suits brought by citizens’ groups pay only a flat 30 percent withholding tax on most or where the loser is shown to have unreasonably U.S.-source passive income. Finally, qualified resi - failed to acknowledge its legal responsibilities. dents of countries with which the U.S. has tax treaties can take advantage of treaty provisions to Apart from litigation relating to environmental com - reduce, or even eliminate, U.S. taxation. Therefore, pliance or responsibility for cleanup costs, most of from a tax perspective, foreign individuals and cor - the permits and approvals discussed in this section can be appealed by the party that applied for the

56 Foley Hoag LLP Doing Business in Massachusetts porations will generally find it advantageous to U.S. net progressive taxation. Rather, the gross avoid U.S. tax residency. amount of FDAP income is subject to a flat 30 percent withholding tax. A taxpayer who is a Tax Residency for Corporations and Partnerships qualified resident of a country with which the Corporations and partnerships are treated as United States has a tax treaty may be able to United States tax residents (that is, “domestic” enti - reduce this tax rate to 5 to 15 percent in the ties) only if they are formed under the laws of the case of dividends, and in some cases eliminate United States, any one of the states or the District tax completely for interest or royalties. of Columbia. Thus, investors operating in the cor - porate or partnership form are assured of foreign There are three important exceptions to the gener - status so long as the corporation or partnership is al rule that passive income is taxed as FDAP formed outside the United States. income. First, passive income that is effectively connected with the foreign investor’s conduct of a Tax Residency for Individuals U.S. trade or business is not taxed as FDAP A foreign individual who possesses a “green card” income, but rather as ECI, as described below. granting him or her permanent residency in the Second, income from the sale of a United States United States is automatically a U.S. resident for Real Property Interest is also taxed as ECI rather federal income tax purposes. An individual who than FDAP income (see the discussion under the does not have a green card may also be a U.S. tax heading “Income Derived from the Disposition of resident if he or she spends sufficient time in the U.S. Real Property Interests” p. 58). Third, gains United States to have a substantial presence here. from the sale of capital assets (such as corporate Substantial presence is calculated on a modified stock) are not FDAP income. Thus, capital gains day-count basis. are generally not subject to United States taxation

United States Income Taxation of Nonresident unless they are either ECI or the capital asset sold Foreign Investors is a U.S. real property interest. In general, a foreign investor that is not a U.S. tax Effectively Connected Income (ECI) resident is subject to U.S. taxation only on U.S.-source income earned by nonresident individu - U.S.-source income. The taxation of U.S.-source als and entities is subject to the net progressive income depends on whether the income is consid - federal income tax if it is effectively connected with ered “fixed or determinable, annual or period” the conduct of a United States trade or business. (FDAP) income, or income that is “effectively Importantly, a foreign investor who engages in the connected” with a U.S. trade or business (ECI). conduct of a U.S. trade or business must file U.S. Passive or FDAP Income federal and state income tax returns; a foreign Most U.S.-source passive income — such as investor who has only FDAP income is generally not dividends, interest, rent, royalties and annuities — required to file returns. is FDAP income, that is, Fixed or Determinable, Annual or Periodic. FDAP income is not subject to

Doing Business in Massachusetts Foley Hoag LLP 57 The first step in analyzing whether U.S.-source poration would normally be FDAP income and there - income is ECI is to determine whether the nonresi - fore taxed (withheld) at the flat rate of 30 percent. If dent individual or entity is engaged in the conduct the dividend were ECI, however, it would be taxed of United States trade or business. Relevant fac - at rates as high as 35 percent for corporate tors include the level, nature, continuity and regu - investors and 39.6 percent for individual investors. larity of the foreigner’s activities in the United Since ECI taxation is based on net income, howev - States. The activities of a U.S. agent (whether er, applicable deductions may be taken against the dependent or independent) are attributed to a for - gross amount of the income (for example, the divi - eign principal in this context. dend received deduction may be available to the corporate investor). As with FDAP income, treaties If the activities involved rise to the level of a trade can significantly affect the tax treatment of or business, the second step is to determine effectively connected income. Under the model whether the income in question is effectively con - treaty, upon which most U.S. tax treaties are nected with the conduct of that trade or business. based, effectively connected income can be taxed This analysis can often be quite complicated, since under the normal progressive rate structure only there is no requirement that the income be a direct if the income is attributable to a permanent product of the trade or business in order for it to establishment maintained by the foreign investor be deemed effectively connected income. in the U.S. A permanent establishment requires a greater level of activity than a trade or business, For example, assume a foreign corporation oper - usually involving the existence of a fixed presence in ates a branch that conducts a trade or business in the U.S., such as a factory, store, office or other the United States. The corporation invests a por - place of management. tion of its branch earnings in the stock of a large, but unrelated, U.S. corporation. It later sells the Income Derived From the Disposition of U.S. stock at a significant profit and reinvests the profits Real Property Interests in its branch business in the United States. Even Foreign entities and individuals that own United though the corporation’s income from the stock States real property interests are subject to the sale is clearly not derived directly from the conduct Foreign Investment in Real Property Tax Act (FIRPTA), of its U.S. branch business, this income is treated which automatically treats income realized upon a as effectively connected with the conduct of its sale of a United States real property interest as U.S. trade or business. This result is particularly effectively connected income. United States real significant because capital gains are not FDAP property interests include direct ownership of real income; if the gain from the stock sale is not ECI, it property located in the U.S. and any interest in a would attract no U.S. tax at all, even if repatriated domestic corporation that is a U.S. Real Property to the foreign corporation. Holding Company (USRPHC). A domestic corporation is a USRPHC if more than 50 percent of its business ECI can be active or passive income. Thus, a divi - assets consist of U.S. real property interests. dend received by a foreign investor from a U.S. cor -

58 Foley Hoag LLP Doing Business in Massachusetts United States tax laws offer the foreign taxpayer an Sales of Real Property irrevocable election to treat all income derived from Gain on the disposition of real property is sourced a U.S. real property interest — not merely sale at the property’s location. Thus, if the property is income automatically treated as ECI — as effective - located in the United States, any gain from its sale ly connected to the conduct of a United States would be U.S.-sourced and automatically ECI under trade or business, whether or not the taxpayer is, in the FIRPTA provisions. fact, engaged in such a trade or business. Since Other Sourcing Provisions FIRPTA will automatically treat the income from the Interest and dividends are generally sourced at the sale of the property as effectively connected residence of the distributing bank, corporation or income, taxpayers subject to FIRPTA may find it other payer. Rental and royalty income is sourced advantageous to make this election, thereby allow - at the location of the property that is the subject of ing them to offset income derived from the property the lease or license. with the costs of producing such income. If the election is not made, rental or other income derived Methods of Business Operation and from the property will generally be FDAP income Repatriation of Earnings against which no deductions are allowed, yet any The method by which earnings and profits of a U.S. gain realized upon disposition of the property will be business can be repatriated is a major concern of ECI under FIRPTA and thus fully taxable. the foreign entity or individual doing business in the United States. The tax implications of operating a Sourcing Rules business through a branch, as opposed to a corpo - With certain minor exceptions, the United States rate subsidiary, can be significant. will only impose taxes on a foreign individual’s or entity’s U.S.-sourced income. Therefore, the sourc - The Branch Operation ing of a foreign investor’s income is crucial to any In order to minimize the tax differences between analysis of its potential U.S. tax liability. doing business in the United States through a cor - porate subsidiary as opposed to operating through Sales of Personal Property a U.S. branch office, the United States has institut - Generally, the source of gains from the sale of per - ed a “branch profits” tax. This operates as a sec - sonal property is the tax residence of the seller. ond-level tax, similar to the tax imposed on divi - Thus, if the seller is not a United States tax resi - dends paid by a subsidiary corporation. Therefore, dent, any gains from the sale of personal property, in addition to the normal first-level net progressive including corporate stock, will be sourced outside tax levied on the branch’s profits as effectively con - the U.S., even though the sale may take place with - nected income, a flat 30 percent tax is also in the U.S. Sales of inventory, depreciable personal imposed on those same profits (reduced by the property and intangibles, however, do not fall under first level tax already paid), but only to the extent this general rule and instead have their own partic - that the profits are not reinvested in the U.S. ular sourcing provisions. branch’s business.

Doing Business in Massachusetts Foley Hoag LLP 59 While the effect of this tax is similar to that of the The Corporate Subsidiary Operation tax imposed on dividends paid by a subsidiary cor - Foreign corporations may find it beneficial to do poration, a major difference does exist. That is, business in the U.S. through a domestic corpora - both the first-level tax on effectively connected tion. The corporate subsidiary form of doing income and the second-level branch profits tax are business offers the foreign investor many tax imposed at the corporate level. If a subsidiary cor - advantages over the branch form, including greater poration is used instead of a branch, however, the flexibility with respect to the repatriation of first-level tax is imposed at the corporate (sub - earnings and profits. sidiary) level, while the second-level dividend tax is imposed at the shareholder level. Arguably, this The first advantage offered by the corporate sub - double tax at the corporate level discriminates sidiary form is avoidance of the branch tax dis - against foreign corporations doing business in the cussed above. Whereas the branch tax is automati - United States as domestic corporations are subject cally imposed on the branch’s earnings and profits to only one tax at the corporate level. Therefore, if that are not reinvested in the United States busi - the foreign corporation is a qualified resident of a ness for any given year, the foreign parent of a country with which the United States has an United States corporate subsidiary will not be income tax treaty, and such treaty contains a valid exposed to a second level of United States tax until nondiscrimination clause, the foreign corporation the subsidiary actually distributes its earnings and will be fully exempt from the branch profits tax profits to its foreign parent. when it repatriates its earnings from its branch to A second advantage to the U.S. subsidiary corpo - its home office in a foreign country. The United ration concerns the lower withholding rates avail - States has income tax treaties containing effective able through tax treaties on dividends received by nondiscrimination clauses with the following coun - foreign corporations from their U.S. subsidiaries. tries: Aruba, Austria, Belgium, Cyprus, Denmark, As mentioned earlier, qualified residents of coun - Egypt, Finland, Germany, Greece, Hungary, Iceland, tries with which the United States has income tax Ireland, Jamaica, Japan, Korea, Luxembourg, treaties can have their FDAP withholding rates Malta, Morocco, Netherlands, Netherlands Antilles, reduced from 30 percent to as low as 5 percent if Norway, Pakistan, People’s Republic of China, the parent corporation owns at least 10 percent of Philippines, Sweden, Switzerland and the United the U.S. subsidiary, and to 15 percent in all other Kingdom. Unfortunately, certification requirements cases. No such withholding reduction is available prevent a privately-held company from easily against the branch profits tax. demonstrating that it is a qualified resident under most of these treaties. Accordingly, unless an over - Doing business in the United States through a riding foreign tax goal exists or the foreign corpo - corporate subsidiary also allows a foreign ration’s business mandates the use of a U.S. corporate investor to finance its investment branch, consideration should be given to incorpo - through debt rather than equity. Debt financing can rating a U.S. subsidiary. present many advantages over equity financing. For

60 Foley Hoag LLP Doing Business in Massachusetts example, many U.S. tax treaties reduce FDAP with - expense (interest expense offset by interest holding rates on interest beyond the reductions income) must be greater than 50 percent of its available for dividends (ranging from no interest in adjusted taxable income. some cases, to 5 percent or 15 percent on divi - dends discussed above). The earnings-stripping rules deny the subsidiary corporation an interest deduction to the extent of The greatest advantage afforded through debt its excess interest expense. A disallowed deduction financing is that interest payments made by the U.S. may be carried forward indefinitely and deducted in subsidiary are deductible, while dividend payments a future year to the extent the subsidiary does not are not. The United States, however, has sharply exceed the earnings-stripping limitations in the curtailed the availability of these interest deductions future year. through the enactment of earnings-stripping rules. Under these rules, U.S. corporations paying interest The earnings-stripping limitations present some to foreign related parties may be denied, in whole or potential traps for the unwary foreign investor in part, a deduction for such payments. Four condi - attempting to maximize the advantages of debt tions must be met before these earnings-stripping financing over equity financing. First, the debt-to- limitations are triggered. equity ratio rule limits the usefulness of debt financ - ing in producing interest deductions for repatriation First, the U.S. corporation paying the interest must payments. Second, the earnings-stripping limita - be related to the foreign recipient of the interest tions can apply not only to debt owed by the payments. Under United States tax law, the foreign subsidiary to a foreign parent, but also to debt the recipient and U.S. subsidiary are related if the subsidiary owes to an unrelated bank lender, that foreign parent corporation owns more than 50 per - debt is guaranteed by the foreign parent corpora - cent of either the vote or value of the subsidiary tion. Even a simple assurance of repayment by the corporation’s outstanding stock. Second, the foreign parent may trigger this rule. earnings-stripping rules apply only to the extent Transfer Pricing Rules that the foreign recipient is exempt from U.S. with - A foreign corporation with a United States sub - holding tax on the interest income under an income sidiary will inevitably conduct a variety of transac - tax treaty. For example, if the applicable treaty tions with that subsidiary, such as loans of money, reduces the U.S. withholding tax on interest to 10 personal and real property transactions and per - percent from the FDAP withholding rate of 30 per - formance of services. These transactions present cent, two-thirds of the interest paid will be deemed the possibility of significant U.S. tax avoidance exempt from U.S. withholding tax and thus subject through pricing schemes. For example, a foreign to the earnings-stripping limitations. Third, the sub - parent incorporated in a country with lower tax sidiary must be thinly capitalized, which means that rates than those of the United States may try to its debt-to-equity ratio must exceed 1.5 to 1. sell inventory to its subsidiary distributorship in the Finally, the subsidiary must have “excess interest U.S. at an artificially inflated price in order to mini - expense,” that is, the subsidiary’s net interest

Doing Business in Massachusetts Foley Hoag LLP 61 mize the subsidiary’s U.S. tax liability on sales of subject to the state’s corporate tax, but only to the inventory. the extent that they do business or own property in the state. The Massachusetts corporate tax is In order to curb this kind of U.S. tax avoidance, the essentially an excise, or fee, for doing business in United States has enacted transfer-pricing rules. the state. It is calculated partially on the basis of These rules allow the U.S. Internal Revenue Service property owned by a corporation and partially (IRS) to reapportion income and deductions according to the corporation’s net income. The between the U.S. subsidiary and its foreign parent property component of the tax is assessed at the if it determines that they have not conducted their rate of $2.60 per $1,000 worth of property locat - transactions in an arm’s-length fashion, that is, in a ed in Massachusetts. The income component is manner consistent with the commercial practice of assessed at the rate of 9.5 percent of net income unrelated parties. In the past, the IRS has experi - attributable to Massachusetts, whether or not the enced difficulties enforcing the transfer pricing income is distributed to shareholders. In computing rules because of a perceived “information gap” in net income, deductions are allowed for ordinary obtaining foreign parent business records. In and necessary business expenses; special tax response to this, the United States now imposes incentives, such as accelerated depreciation rules potentially burdensome information-reporting and and an investment tax credit for purchases of record-keeping requirements on foreign-owned depreciable property, are also available. corporations, supported by substantial monetary and other penalty provisions to ensure compliance. Corporations that do not operate solely within Foreign investors who own U.S. business opera - Massachusetts (that is, multi-state and multinational tions should pay careful attention to these informa - corporations) are subject to Massachusetts tion-reporting and record-keeping rules. taxation only to the extent of their income attributable to Massachusetts. The state uses a Massachusetts Taxation three-factor income apportionment formula to Taxes levied by the Commonwealth of determine the portion of a multi-state or Massachusetts include a personal income tax, multinational corporation’s net income that is sales tax and corporate profits tax, all of which taxable in Massachusetts. The elements of this are collected by the state government. In addition, formula consist of a property factor, a sales factor local cities and towns assess a property tax, and a payroll factor. Manufacturing companies use limited by state law to 2.5 percent of the fair only the sales factor instead of the standard market value of the property. three-factor apportionment formula; this ordinarily results in lower Massachusetts tax liability for The Corporate Tax Regime manufacturing companies. Corporations organized under the laws of Massachusetts are fully subject to taxation by the state. Foreign and domestic corporations organized outside of Massachusetts can also be

62 Foley Hoag LLP Doing Business in Massachusetts Special Corporate Incentives the property tax rate that localities can levy to 2.5 percent of assessed value. This special constitu - Investment Tax Credit tional amendment, called Proposition 2-112, also Massachusetts provides a 1 percent investment tax restricts the ability of cities and towns to increase credit based on the cost of depreciable real and their property tax rates, thereby stabilizing the personal property, if the property is both used and property tax burden. located in Massachusetts. The credit offsets state corporate tax liability, and both foreign and domes - Antitrust and Trade Regulation tic corporations doing business in Massachusetts Both the U.S. and Massachusetts have enacted are eligible for it. extensive laws and regulations aimed at preventing Dividends Received Deduction and punishing unreasonable restraints on free Massachusetts permits corporations to deduct from trade, monopolistic practices and unfair their net income 95 percent of the value of all divi - competition. Generally, transactions that involve dends received from other corporations, unless the commerce in more than one state and international corporate shareholder owns less than 15 percent commerce are governed by federal laws. However, of the voting stock of the corporation that paid Massachusetts’ broad unfair-competition law is the dividend. often invoked in areas in which federal law does not govern or to provide remedies beyond those R&D Tax Credit available under federal law. Massachusetts grants a tax credit for foreign and domestic corporations that engage in research and Federal Law development in the state. Like the investment tax U.S. antitrust laws include the Sherman Act, the credit, the R&D credit is available to offset a corpo - Clayton Act and the Robinson-Patman Act. The ration’s excise tax liability, but it is limited to a Sherman Act prohibits contracts, combinations and percentage of the qualified research expenses conspiracies that unreasonably restrain trade. incurred in any given year. Certain restraints on trade, most notably price-fix - ing agreements among competitors, are “per se” Other Massachusetts Taxes unreasonable. Certain other restraints, for exam - Massachusetts taxes personal income at a flat rate ple, controls placed by manufacturers on the sales of 5.3 percent. The Massachusetts Constitution activities of distributors, are usually governed by prevents the state government from instituting a the “rule of reason,” in which the procompetitive progressive rate tax, so all personal income is taxed and anticompetitive effects of the activity are at this flat rate. weighed against each other. The Sherman Act also prohibits monopolization, attempted monopolization Property taxes are collected by Massachusetts and conspiracies to monopolize. The U.S. govern - cities and towns on the fair market value of busi - ment may bring both criminal prosecutions and civil ness and residential real property. By special con - lawsuits to enforce the Sherman Act. The Sherman stitutional amendment, Massachusetts has limited

Doing Business in Massachusetts Foley Hoag LLP 63 Act can apply to wholly extraterritorial conduct if it U.S. antitrust policy is also promoted through is intended to and does have a substantial effect in the Federal Trade Commission (FTC) Act and the the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976. The FTC Act is intended to protect U.S. con - The Clayton Act prohibits certain specific anticom - sumers, domestic industry and exporters from petitive activities. For example, it prohibits a seller “unfair methods of competition” and “unfair or with market power in one product from forcing a deceptive arts or practices.” The FTC has broad customer to buy a second product in order to pur - authority to determine what constitutes an unfair chase the first product, so-called tying. It also pro - method of competition or an unfair trade practice. hibits mergers and acquisitions that would tend to U.S. courts have upheld FTC cease-and-desist lessen competition in a given area of commerce. orders that enforce antitrust laws and similar poli - The Robinson-Patman Act prohibits discrimination cies (for example, orders relating to mergers, and inducing others to discriminate in the price acquisitions and joint ventures), and orders that charged for commodities of “like grade and quality” prohibit false representations about products and to competing buyers, and certain discriminatory other similar practices. Under appropriate circum - advertising allowances, brokerage payments and stances, the FTC will issue advisory opinions as to services rendered in connection with the purchase whether a particular business policy would violate of goods. Given the complexity of the law in these the FTC Act. areas, potential violations of the Clayton Act and Robinson-Patman Act must be assessed on a case- The Hart-Scott-Rodino Act requires that companies by-case basis. The U.S. government has the power proposing to acquire companies that do business to enforce both Acts through either the Justice in the U.S. or assets located in the U.S. must, Department or the Federal Trade Commission. under certain circumstances, report such propos - als to the FTC and the Justice Department prior to Private individuals and corporations that are injured the acquisition. Whether reporting is required by violations of the U.S. antitrust laws, including depends on a formula related to the size of the the Sherman Act, Clayton Act or the Robinson- acquiring company and the size of the assets Patman Act, may sue for injunctive relief, three being acquired. Failure to report may lead to fines times their actual damages and their attorneys’ of up to $11,000 per day. The current nonrefund - fees (15 U.S.C. § 15). Companies seeking to able filing fee is $45,000 to $280,000, depending engage in certain cooperative research, develop - on the size of the transaction. It must be paid by ment or production joint ventures may apply to the the acquiring party for each proposed transaction Department of Justice and Federal Trade to which Hart-Scott-Rodino applies. Like the FTC Commission and may, under the proper circum - Act, Hart-Scott-Rodino may only be enforced by the stances, obtain an exemption from liability for tre - U.S. government. ble damages and attorneys’ fees.

64 Foley Hoag LLP Doing Business in Massachusetts Massachusetts Law result in forfeiture of the intellectual property rights and civil liability. Although private lawsuits may not be brought to enforce the FTC Act, the Massachusetts unfair Agreements with competitors and agreements with competition statute, Massachusetts General Laws, suppliers and vendors that affect competition Chapter 93A, broadly defines unfair trade practices should also be carefully reviewed. For example, to include all activities that are prohibited by the certain communications among competitors that FTC Act and other activities adjudged to violate the are legal abroad may be prohibited in the U.S. principles of fair competition. Chapter 93A pro - The FTC’s presale disclosure rule, 16 C.F.R. § 436, vides for civil actions by private parties and applies to offers or grants of franchises. Generally injunctive relief, up to three times actual damages, speaking, this rule requires that a franchisor pro - statutory damages and attorneys’ fees. Many U.S. vide potential franchisees with certain prescribed states have similar statutes. For example, one of disclosure documents, that the documents be the largest verdicts in a lawsuit in U.S. history was provided at the prescribed time, and that the fran - obtained in the Pennzoil v. Texaco case that was chisor abide by rules concerning representations brought under the Texas unfair trade practices and claims about the actual or potential sales, statute. The Supreme Judicial Court of income or profits of existing or proposed franchise Massachusetts has held that consumers who pur - operations. Unlike many other states, chase products indirectly from antitrust violators Massachusetts does not currently have a generally have standing to recover damages under Chapter applicable law that requires all franchisors to regis - 93A, even though they are barred from recovering ter disclosure documents with state authorities. under federal law by the Illinois Brick rule. Disclosure laws may apply in particular industries. Practical Applications Even among U.S. lawyers, antitrust is regarded as Companies engaged in business and asset acquisi - a particularly complex area of the law. As a rule of tion (including exclusive patent licenses) should thumb, upon entering the U.S. market, foreign ascertain whether they need to do a Hart-Scott- companies with market power in a given area of Rodino filing. Joint venturers engaged in coopera - commerce should have the structure of their tive research, development and production might proposed U.S. activities reviewed for antitrust com - wish to register with the Justice Department. pliance by an experienced attorney. Companies With respect to unfair competition laws, particularly that have market power through ownership of until a company becomes familiar with local busi - patents, copyrights or unique trade secrets should ness practices, it may wish to seek legal advice be particularly aware of the relationship between about the legality of marketing and selling tech - the intellectual property and antitrust laws, in that niques that have a direct impact on competitors or use of intellectual property rights to enhance a consumers. For example, U.S. law may require dis - company’s market power in other areas of closure of certain facts by the seller to the buyer commerce may, under certain circumstances,

Doing Business in Massachusetts Foley Hoag LLP 65 about property being sold prior to completion of authority to make investigations pursuant to the the sale. Failure to provide full disclosure of the Exon-Florio Amendment to the Committee on appropriate information may subject the seller to Foreign Investment in the U.S. (CFIUS), an intera - treble damages for an unfair trade practice. gency committee made up of representatives of various executive branches. Notifications of trans - Regulation of International actions are not mandatory and may be made by Trade and Investment one or more parties to a transaction or by any

Foreign investment in the U.S. and other interna - CFIUS member agency. tional commercial activities involving U.S. entities If, at the end of the initial 30-day period after notifi - are subject to a number of U.S. statutes and relat - cation of a transaction, CFIUS decides that a full- ed regulations. The following discussion outlines scale investigation is warranted, it then has an some of the more important aspects of these laws, additional 45 days to complete this investigation which might be relevant to someone investing in or and make a recommendation to the President with trading with entities located in the U.S. respect to the transaction. The President then has Restrictions on Foreign Investment 15 days to decide whether there is credible evi - Under a statutory provision commonly referred to dence that leads him to believe that the foreign as the Exon-Florio Amendment (50 U.S.C. app. § interest exercising control might take action to 2170), the President has broad authority to investi - impair national security. If the President makes gate and prohibit any merger, acquisition or such a determination, Exon-Florio empowers him to takeover by or with foreign persons that could take any action that he deems appropriate to sus - result in foreign control of persons engaged in pend or prohibit the transaction, including requiring interstate commerce. If the President determines divestment by the foreign entity if the transaction that such merger, acquisition or takeover consti - has already been consummated. tutes a threat to national security, the United U.S. law also places certain restrictions on acquisi - States Congress has indicated that the term tions of businesses that require a facility security “national security” is to be interpreted broadly and clearance in order to perform contracts involving that the application of the Exon-Florio Amendment classified information. Under Department of should not be limited to any particular industry. Defense regulations, foreign ownership may cause

The statute sets out a timetable for investigations the department to revoke a security clearance of transactions, which can take up to 90 days to unless certain steps are taken to reduce the risk complete. The President or his designee has 30 that a foreign owner will obtain access to classified days from the date of receipt of written notification information (DOD 5220.22-R, Industrial Security of a proposed (or completed) transaction to decide Regulation). Assuming that a foreign owner will be whether to undertake a full-scale investigation of in a position to effectively control or have a domi - the transaction. The President has delegated his nant influence over the business management of the U.S. firm, the Department of Defense may

66 Foley Hoag LLP Doing Business in Massachusetts require, as a condition to continuation of the securi - Under the IISA, international investments are divid - ty clearance, that the foreign owner establish a ed into two classifications — direct investments voting trust agreement, a proxy agreement or a and portfolio investments. Congress has delegated special security agreement approved by the depart - its authority to collect information on both types of ment and designed to preclude the disclosure of international investments to the President. In turn, classified information to the foreign owner or other the President has delegated his power to collect foreign interests (see DOD 5220.22-M, National data on direct investments to the Bureau of Industrial Security Program Operating Manual). Economic Analysis (BEA), a part of the Department of Commerce, and on portfolio investments to the Reporting Requirements for Department of the Treasury. Foreign Direct Investment All foreign investments in a U.S. business enter - A “foreign person” is any person who resides out - prise that result in a foreign person owning a 10 side the U.S. or is subject to the jurisdiction of a percent or more voting interest (or the equivalent) country other than the U.S. A “direct investment” is in that enterprise are required to be reported to the defined as the ownership or control, directly or indi - Bureau of Economic Analysis, a part of the U.S. rectly, by one person of 10 percent or more of the Department of Commerce. Pursuant to the voting securities in any incorporated U.S. business International Investment Survey Act of 1976 (22 enterprise or an equivalent interest in an unincorpo - U.S.C. §§ 3101–3108) and the regulations promul - rated business enterprise. Because the IISA further gated thereunder (15 C.F.R. §806), such reports defines “business enterprise” to include any owner - must be made within 45 days after the investment ship in real estate, any foreign investor’s direct or transaction. Depending on the size of the entity indirect ownership of U.S. real estate constitutes a involved, quarterly, annual or quinquennial reports direct investment and falls within the requirement may be required thereafter. that reports be filed with the BEA.

The International Investment Survey Unless an exemption applies, a report on Form Act of 1976 BE-13 must be filed with the BEA within 45 days of The International Investment Survey Act of 1976 the date on which a direct investment is made. The (IISA) authorizes the President to collect informa - form collects certain financial and operating data tion and conduct surveys concerning the nature about the investment, the identity of the acquiring and amount of international investment in the U.S. entity and certain information about the ultimate The IISA’s primary function is to provide the federal beneficial owner. In addition, Form BE-14 must be government with the information necessary to for - filed by any U.S. person assisting in a transaction mulate an informed national policy on foreign that is reportable under Form BE-13 unless a Form investments in the U.S. It is not intended to regu - BE-13 causing such transaction is already being late or dissuade foreign investment but is merely a filed. The purpose is, obviously, to ensure that tool to obtain the data necessary to analyze the those required to file a Form BE-13 do so. impact of such investments on U.S. interests.

Doing Business in Massachusetts Foley Hoag LLP 67 The Agricultural Foreign Investment to use the land. In addition, the Secretary of Disclosure Act of 1978 Agriculture may require the identification of each The Agricultural Foreign Investment Disclosure Act foreign person holding a 10 percent or more inter - of 1978 (7 U.S.C. §§ 3501–3508, AFIDA) requires est in the ownership entity. all foreign individuals, corporations and other enti - ties to report holdings, acquisitions and dispositions Export Controls of U.S. agricultural land. AFIDA contains no restric - In general, U.S. export controls are more stringent tions on foreign investment in U.S. agricultural land and govern a wider array of transactions than the and is aimed only at gathering reliable data from export controls of most other countries, even with reports filed with the Secretary of Agriculture to respect to non-military “dual-use” commodities and determine the nature and magnitude of this foreign technology. (See the regulations originally promul - investment. Unlike the reports filed under the gated under the Export Administration Act of 1979, International Investment Survey Act of 1976, as amended, at 15 C.F.R. §§730–799.) Except for reports filed under AFIDA are not confidential but exports to U.S. territories and possessions, are available for public inspection. exports from the U.S. may be subject to an export license. An export license is a government authori - For the purposes of AFIDA, a “foreign person” is (1) zation that allows the export of particular goods or any individual who is not a citizen or national of the technical information. Licenses are required for U.S. and who is not lawfully admitted to the U.S.; those items for which the U.S. specifically controls (2) a corporation or other legal entity organized exports for reasons of national security, foreign under the laws of a foreign country or has its princi - policy or short supply. Regulations and federal laws pal place of business outside the U.S.; (3) a corpo - implementing U.S. sanction regimes (both unilateral ration or other legal entity organized in the U.S. in and treaty-based) may also restrict transactions which a foreign person, either directly or indirectly, with, and provision of services to, certain coun - holds 10 percent or more of an interest; or (4) a tries, persons or entities. foreign government. The definition of “agricultural land” is any land in the U.S. that is used for agricul - A wide array of license exceptions is available, tural, forestry or timber production. AFIDA requires however, for exports to many countries, persons a foreign person to submit a report on Form ASCS- and entities. An exporter should first obtain the 153 to the Secretary of Agriculture any time he proper classification of a commodity or technology holds, acquires or transfers any interest, other than to be exported under U.S. regulations in order to a security interest, in agricultural land. The report determine which of the many exceptions may apply requires rather detailed information concerning such to the transaction. If a license exception is not matters as the identity and country of organization available for the export of a specific product or of the owning entity, the nature of the interest held, specific data to a specific destination, person or the details of a purchase or transfer and the agricul - entity, it is necessary to apply for and obtain a tural purposes for which the foreign person intends license from the U.S. Department of Commerce prior to the export. Certain commodities and tech -

68 Foley Hoag LLP Doing Business in Massachusetts nologies cannot be exported to any country without Board. Under the Foreign Trade Zones Act, the an individual license, while others may require a Board is authorized to grant to public or private license only for shipment to specified countries. corporations the privilege of establishing a zone. For purposes of the U.S. export control regula - Regulations covering the establishment and opera - tions, export of technical information occurs when tion of foreign trade zones are issued by the the information is disclosed to a foreign national Foreign Trade Zones Board, while U.S. Customs even if such disclosure occurs in the U.S. Thus, if Service regulations cover the customs require - disclosure of information is subject to a license ments applicable to the entry of goods into and requirement, it may not be made to a foreign removal of goods from these zones. national without first obtaining the necessary Antidumping and Countervailing Duties license, whether or not the disclosure is to occur The U.S. antidumping law (19 U.S.C. §§1673– outside the U.S. This aspect of the export control 1677) provides that if a foreign manufacturer sells regime often leads to unexpected restrictions on goods in the U.S. at less than fair value and such hiring and sharing of information. U.S. export con - sales cause or threaten material injury to a U.S. trol regulations have been revised to permit many industry or materially retard the establishment of a commodities formerly requiring a license to be U.S. industry, an additional duty in an amount equal exported pursuant to license exceptions. Despite to the “dumping margin” is to be imposed upon the the revisions, however, licenses will continue to be imports of that product from the foreign country required for many commodities, and the proce - where such goods originated. Under the statute, dures for obtaining such licenses will continue to sales are deemed to be made at less than fair be time-consuming. value if they are sold at a price that is less than Foreign Trade Zones their foreign market value (which generally is equiv - Foreign trade zones are areas in or adjacent to alent to the amount charged for the goods in the ports of entry that are treated as outside the cus - home market). The dumping margin is equal to the toms territory of the U.S. In order to expedite and amount by which the foreign market value exceeds encourage trade, goods admitted into a foreign the U.S. price. trade zone are generally not subject to the cus - toms laws of the U.S. until they are ready to be The U.S. countervailing duty law (19 U.S.C. imported into the U.S. or exported. These foreign §§1671–1677) also imposes a duty on imported trade zones are isolated, enclosed and policed merchandise manufactured in or exported to the areas that contain facilities for handling, storing, U.S. with subsidies provided by foreign govern - manufacturing, exhibiting and reshipment of ments. Such subsidies take various forms, such as merchandise. Foreign trade zones are created pur - direct cash payments, credit against taxes or loans suant to the Foreign Trade Zones Act (19 U.S.C. with artificially low interest rates, or other terms §§ 81a–u) and are operated as public utilities more favorable than market conditions. By impos - under the supervision of the Foreign Trade Zones ing countervailing duties, U.S. law protects domestic industries against unfair competitive

Doing Business in Massachusetts Foley Hoag LLP 69 advantage, which foreign manufacturers and Resource Listing for exporters receive from subsidized programs. Massachusetts Unlike antidumping duties, depending on the coun - try from which the subsidy merchandise originates, Cambridge Chamber of Commerce countervailing duties may sometimes be imposed 859 Massachusetts Avenue without application of a material injury test. Cambridge, MA 02139 Telephone 617.876.4100 The Secretary of Commerce is charged with deter - Fax 617.354.9874 mining whether merchandise is being sold at less [email protected] than fair value in the U.S. or its manufacture, pro - www.cambridgechamber.org duction or export to the U.S. has been subsidized. The International Trade Commission makes the Greater Boston Chamber of Commerce determination of whether such sales cause or 75 State Street, 2nd Floor threaten material injury to a U.S. industry. Boston, MA 02109 Telephone 617.227.4500 Fax 617.227.7505 [email protected] www.bostonchamber.com

Massachusetts Biotechnology Council One Cambridge Center, 9th Floor Cambridge, MA 02142 Telephone 617.674.5100 Fax 617.674.5101 [email protected] www.massbio.org

Massachusetts Department of Corporations One Ashburton Place, 17th Floor Boston, MA 02108 Telephone 617.727.9640 Fax 617.742.4538

70 Foley Hoag LLP Doing Business in Massachusetts Massachusetts Department of Revenue Massachusetts Software and Internet Council, Inc. 100 Cambridge Street One Exeter Plaza, Suite 200 Boston, MA 02114 Boston, MA 02176-2831 Telephone 617.626.2300 Telephone 617.437.0600 Fax 617.626.2330 Fax 617.437.9686 [email protected] Massachusetts Division of Employment and Training www.swcouncil.org 19 Staniford Street Boston, MA 02114 Massachusetts Office of International Telephone 617.626.6800 Trade & Investment Fax 617.626.6222 State Transportation Building 10 Park Plaza, Suite 4510 Massachusetts Industrial Finance Agency Boston, MA 02116 160 Federal Street Telephone 617.973.8650 Boston, MA 02110 Fax 617.227.3488 Telephone 617.451.2477 [email protected] Fax 617.451.3429 Massachusetts Office of International Trade and Massachusetts Office of Business Development Investment Europe 10 Park Plaza, Suite 3720 Am Karlsbad 11 Boston, MA 02116 10785 Berlin Telephone 617.973.8600 Germany Fax 617.973.8797 Telephone 49 (0) 30 399 02 547 Fax 49 (0) 30 399 02 548 Massachusetts Office of Travel & Tourism 10 Park Plaza, Suite 4510 Boston, MA 02116 Telephone 617.973.8500 Telephone 800.227.MASS (U.S. & Canada) Fax 617.973.8525 [email protected]

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