Showing 38 posts in Securities.
A friend recently asked if the Georgia Angel Investor Tax Credit program would cover an angel investor’s investment in a start-up’s convertible promissory note. It was a good question because start-ups often raise funds through convertible notes. The short answer to his question was, “it depends.”
The Georgia Angel Investor Tax Credit program gives angel investors who are Georgia residents a tax credit for making qualified investments in Georgia start-ups. The program was amended in 2015 to cover qualified investments made in 2016, 2017 and 2018. (See Georgia Angel Investment Tax Credit (May 24, 2016))
The program allows the angel a tax credit of up to 35% for a qualified investment, capped at a credit of not more than $50,000 in any tax year, with the tax credit to be issued in the second year after the investment is made. (For example, a qualified investment made in 2015 would result in a tax credit for the 2017 tax year.) The state permits not more than $5 million in tax credits each year and start-ups need to apply for allocations of the tax credits if they have investors who want to take advantage of the program.
The Georgia Department of Revenue has issued rules to guide tax payers through the requirements of the program. (See Georgia Rule 560-7-8-.52)
To obtain a tax credit a “qualified investor” must make a “qualified investment” in a “qualified business” (tracking the definitions from the Georgia Rule). Answering the question originally posed, therefore, requires the taxpayer to walk through each of these definitions. An investment in a convertible promissory note, can be a “qualified investment” (assuming all of the other definitions are met) if the convertible promissory note satisfies the requirements of “qualified subordinated debt” (the only debt category within the definition of “qualified investment”). Qualified subordinated debt is “indebtedness that is not secured, that may or may not be convertible into common or preferred stock or other equity interest, and that is subordinated in payment to all other indebtedness of the qualified business issued or to be issued for money borrowed and no party of which has a maturity date less than five years after the date such indebtedness was purchased.”
It is this last requirement for “qualified subordinated debt” that most start-up convertible note deals may have difficulty satisfying. Most convertible notes issued by start-ups are not subordinated, but rather represent senior indebtedness that may not be subordinated. So, if a start-up wants to ensure that its convertible note offering will be eligible for the Georgia Angel Investment Tax Credit program, counsel for the start-up should carefully draft the subordination provisions of the note with a view towards the requirements of Georgia Rule 560-7-8-.52(2)(g).
President Obama on December 16, 2016, signed into law the SEC Small Business Advocate Act of 2016.
During a period of exceptional political division, it was noteworthy that the Act passed with bi-partisan support and was quickly signed into law by the President.
The Securities and Exchange Commission (SEC) on October 26, 2016, voted to update Rules 147 and 504.
These changes reflect the increased use of Rule 147 in connection with intrastate securities offerings, often in combination with state intrastate crowdfunding rules. The revision to Rule 504 reflects the increased usage of Regulation D in connection with private offerings and the liberalization of private offerings under the 2012 JOBS Act and the SEC’s Regulation CF. Because the SEC took more than three years to implement the crowdfunding provisions in Title III of the JOBS Act, may state regulators and legislators took steps to implement intrastate crowdfunding rules as contemplated by Rule 147. Those state rules, in many respects, were more permissive than what the SEC had previously allows. As a result, the North American Securities Administrators Association joined with a bipartisan group from Congress to support these changes.
Entrepreneurs and angel investors often ask whether an investment in a particular start-up will qualify as “qualified small business stock” for purposes of Section 1202 of the Internal Revenue Code (the “IRC”).
IRC Section 1202 creates a powerful incentive for investors to invest in qualified small business stock. If all the requirements of Section 1202 apply, an investor may exclude from income between 50% and 100% of the gain the investor realizes upon a qualifying sale of that small business stock that the investor has held for five years or more. In other words, under some circumstances, the investor’s gain can be tax-free!
The SEC's Division of Corporation Finance recently released Compliance and Disclosure Interpretations (“C&DIs”) regarding its interpretations of Regulation Crowdfunding.
While C&DIs are not rules, regulations, or statements of the Commission, they are a helpful insight into how the staff of the Commission views the law.
Many of the C&DIs deal with the rules governing advertising. This is not surprising because Regulation CF's rules on advertising are not intuitive for most business people.
SEC Adopts Amendments to Implement JOBS Act and FAST Act Changes for Exchange Act Registration Requirements
On May 3, 2016, The Securities and Exchange Commission (SEC) announced that it was amending its rules related to the thresholds for registration, termination of registration, and suspension of reporting under Section 12(g) of the Securities Exchange Act of 1934. These amendments implement provisions of the Jumpstart Our Business Startups Act (JOBS Act) and the Fixing America’s Surface Transportation Act (FAST Act).
I was recently asked to pull together some top tips for crowdfunding campaigns under Title III of the JOBS Act. Here are some of the top tips:
- Find a way to tell your story – Crowdfunding investors are really looking for financial statements and revenue numbers; they can go to public companies for that. Crowdfunding investors are looking for a story that inspires them to believe that the company might be the ‘next big thing.’
- Invest in the effort to tell your story well – Lawyers, accountants, and other professionals are indispensable when it comes to getting a company ready to sell its securities to investors. If you would not perform open heart surgery on yourself, why would you try to act as your own lawyer? If you believe that your company has the potential to be the next big thing, act like it by hiring professionals who can help you.
EasyVote Solutions was recently named one of the TAG Top 40 Innovative Technology Companies. EasyVote’s SaaS solution creates efficiency in the people, equipment and financing that support democracy across 85 Georgia counties and eight other states.
As part of its commitment to consumer education the U.S. Securities and Exchange Commission has published an Investors Guide to Crowdfunding.
Referring to the upcoming May 16, 2016, start date, the SEC's publication is in an FAQ format, hoping to address questions that investors may have by providing a guide to the SEC's crowdfunding rules under Title III of the 2012 JOBS Act:
- Data Privacy
- Data Security
- Government Investigations
- Limited Government
- FAST Act
- JOBS Act
- Public Policy
- Intellectual Property
- Social Media
- Employment Issues
- Non-Profit Organizations
- Due Process
- Political Philosophy
- Risk Avoidance
- Risk Management
- Regulation A+
- Renewable Energy Around the Web
- In-House Counsel
- Mergers and Acquisitions
- Real Estate