VC Funds and Tax

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The secondary market for limited partner interests in venture capital funds has witnessed robust growth in recent years as an increasing number of existing venture fund investors seek an early exit from their positions for one reason or another (e.g., liquidity needs, portfolio rebalancing, end of their own term, etc.).  That demand for an early exit has been met by an equally robust growth in secondary capital looking to acquire existing interests at a discount.  For the most part, the secondary market has operated pretty efficiently as many venture funds…

Continue Reading Withholding Requirements for Transfers of Venture Capital Fund Interests by Non-US Limited Partners

Written by: David Stier, Eric Forni, Katrina Hausfeld, David Solander and Lauren O’Neil

On May 13, 2024, the Securities and Exchange Commission (SEC) and the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) jointly proposed a new rule that would impose requirements on SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish, record, and maintain customer identification programs (CIPs) under the US Bank Secrecy Act (BSA) and related regulations. 

The SEC and FinCEN designed the proposal to target illicit actors, illicit funds, and…

Continue Reading Treasury’s FinCEN and SEC Propose Rule Requiring Investment Advisers to Develop Customer Identification Programs

Written by: David Solander, Meghan Carey and Jessica McKinney

A three-judge panel of the US Court of Appeals for the Fifth Circuit unanimously vacated the US Securities and Exchange Commission (SEC)’s private fund adviser rules and amendments (Private Fund Rules),[1] stating that “no part of it can stand.”[2]

In August 2023, the SEC adopted the Private Fund Rules, which included five new rules: the Private Fund Audit Rule, the Quarterly Statements Rule, the Restricted Activities Rule, the Adviser-Led Secondaries Rule, and the Preferential Treatment Rule. These rules…

Continue Reading Private Fund Adviser Rules Vacated: Key Takeaways

Provided that they meet certain criteria, venture capital funds are not required to be registered as an “investment company” by the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Company Act of 1940 (the “Investment Company Act”). The Investment Company Act defines “investment company” to include any issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities. Venture capital funds would typically fall under this definition; however, most venture capital funds are…

Continue Reading Venture Capital Funds: 3(c)(1) Funds vs. 3(c)(7) Funds

What are they?

A letter agreement between a portfolio company and an investing venture capital fund which provides the venture capital fund with certain “management rights” that allow it to substantially participate in, or substantially influence the conduct of, the management of the portfolio company.

Why are they important?

A management rights letter is critical for any venture capital fund that is seeking to rely upon the venture capital operating company (“VCOC”) exemption in order to avoid its assets from being subject to the Employee Retirement Income Security Act of…

Continue Reading Management Rights Letters: What they are, why they are important and potential traps to be mindful of

Yesterday, the SEC issued an enforcement order regarding Munchee’s token offering and SEC Chairman Jay Clayton released a general public statement on cryptocurrencies and ICOs.  For those who previously read our post about the SEC’s report in the DAO, much of this might not be a surprise – although the SEC staff did answer the call of discussing so-called “utility tokens.”
Continue Reading The SEC has the Munchees: Eating away at the “utility token” theory

Much has been written recently on blockchain, Bitcoin, Ethereum, cryptocurrencies and initial coin offerings (ICO). Unfortunately, for non-computer scientists (like me), trying to understand these concepts and their potential implications can be a bit overwhelming. To help all of those non-technologists trying to get their heads around blockchain, Bitcoin, Ethereum, cryptocurrencies and ICOs, I pulled together the following list of resources that I have found useful. As an attorney who represents startup and emerging growth companies, it seems likely that these technologies will prove to be disruptive to how we do business, build new technology, fund startups and even think about employment – much like the initial proliferation of the Internet. Let’s start with a brief overview of these technologies and how they relate to each other.
Continue Reading Getting up to speed on blockchain, Bitcoin, Ethereum, cryptocurrencies and ICOs

Article prepared by and republished courtesy of our colleagues Evan Migdail and Steven Phillips; originally published here: https://www.dlapiper.com/en/us/insights/publications/2016/11/the-trump-tax-reform-plan/. 

As a result of the elections, the chances for the enactment of comprehensive tax reform are perhaps greater than at any time over the past decade. A great deal of work has already been done on tax reform in the Congress. What has been lacking is the political dynamic needed to make reform a reality.

President-elect Donald Trump and Congress may also consider a scenario whereby part of the tax reform could be used to pay for an infrastructure program to create greater domestic economic growth.

What follows are brief summaries of President-elect Trump’s tax proposals and the House Republican Tax Blueprint that is expected to be a possible starting point for the consideration of reform early in 2017. 
Continue Reading The Trump Tax Reform Plan – Key Points

Article prepared by and republished courtesy of our DLA Piper Trusts and Estates colleagues.

Earlier this month, the US Treasury issued proposed regulations that, if finalized, will significantly increase the transfer tax cost of transferring interests in family-controlled entities to other family members, both during lifetime and upon death. These regulations relate to how the value of the transferred interest is determined for gift, estate and generation-skipping transfer tax purposes. Under current law, well-established valuation methods permit the application of discounts for the lack of control and lack of…
Continue Reading New IRS Proposed Regulations Eliminate Valuation Discounts: Planning Likely Required before the End of 2016

The SEC has updated the net worth threshold for “qualified clients” from $2.0 million to $2.1 million, effective August 15, 2016.

Section 205 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”) generally prohibits a registered investment adviser from entering into an advisory contract that provides for compensation to the adviser on the basis of a share of capital gains upon or capital appreciation of funds of an advisory client.  This prohibition on “performance-based fees” prohibits compensation arrangements commonly used in fund vehicles, such as “carry”…
Continue Reading “Qualified Client” Threshold Increasing to $2.1M