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

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

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

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

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

Good news from a tax planning perspective as we head into the new year.  The Protecting Americans from Tax Hikes (PATH) Act of 2015, which was enacted into law on December 18, 2015, retroactively extends certain provisions of the Internal Revenue Code (IRC) that had previously expired.  Of particular interest to our readers, the PATH Act permanently extends the 100% capital gains exclusion for “qualified small business stock” (also referred to as QSBS) initially acquired after September 27, 2010.

As a quick refresher, the QSBS tax exemption was originally enacted
Continue Reading

Perkins, Rachel_Headshot.jpgCONTRIBUTED BY
Rachel M. Perkins
rachel.perkins@dlapiper.com

Startups and public companies alike often use equity to help attract, retain and incentivize talented employees and other service providers. The different forms of awards have proliferated in the past several years, though, leading to a confusing “alphabet soup” of jargon that often frustrates both the recipients of grants and the company itself. Many angel and venture capital investors continue to prefer seeing stock options and restricted stock awards in their portfolio private companies, as these are the most common and simplest to administer. Other forms of awards can also be challenging for startups because there is no public market to easily set a contemporaneous per share stock price or provide liquidity for the award recipients. However, while stock options—both nonstatutory (NSO) and incentive (ISO)—and restricted stock awards (RSAs) remain the most popular and most recommended form of equity compensation, other forms—such as restricted stock units (RSUs) and stock appreciation rights (SARs)—are gaining popularity in certain markets, and we are being asked more and more frequently about these alternatives.

Adding to our previous discussions of adopting your first equity incentive plan, NSOs vs. ISOs and options for issuing employee equity in LLCs, we have put together the below quick reference charts, which are intended as high-level summaries of the most common equity incentive awards as well as some of the other less common awards available.  The following charts highlight some of the key features and tax consequences of each type of award, as well as some of the potential drawbacks associated with each:
Continue Reading

CB Insights recently released its Pacific Northwest Investment and Exit Report, which analyzed private company investment and exit activity over the past five years. The report collected data from all activity sources, including venture capital, private equity, strategic corporate investments, corporate venture investors, angels, incubators and accelerators. Here are a few highlights from the report:

  • Since 2009, the number of deals closed per year has increased 144% (195 deals in 2009 vs. 475 deals in 2013), with the total annual investment amount increasing 81% ($780 million dollars invested in


Continue Reading

Earlier this month the Cayman Islands passed new legislation revising its existing Exempted Limited Partnership Law.  The new legislation, the Exempted Limited Partnership Law 2014, replaces the existing legislation in its entirety and has a primary objective of providing Cayman Islands partnerships with more flexibility in a number of areas and generally bringing Cayman Islands law into closer conformity with existing laws in more familiar jursidictions such as Delaware.  This is welcome news to both private fund investors and sponsors.  A detailed review of the changes enacted by the new legislation will follow in a future post on The Venture Alley, but here is a quick summary of some of the more material changes contained in the new legislation:

  • Allows foreign limited partnerships to serve as general partners of Cayman Islands exempted limited partnerships (previously funds typically had to set up either a Cayman Islands exempted limited partnership or Cayman Islands exempted company to serve as the general partner);
  • No longer requires an exempted limited partnership’s register of limited partners to reflect contributions by and distributions to limited partners, but rather only the names and addresses of limited partners (which will serve to increase the privacy of limited partners who are invested in Cayman Island investment funds);
  • No longer requires the limited partnership agreement to be executed as a deed and witnessed in order to make valid a power of attorney granted therein (with this change being retroactive so as to validate any power of attorney granted prior to the passage of the new legislation); and
  • Simplifies the admission process for new limited partners in connection with a transfer of interest in an exempted limited partnership.
    Continue Reading

Article prepared by and republished courtesy of our colleagues Joseph Langhirt and David Plewa; originally published here: http://www.dlapiper.com/en/us/insights/publications/2014/04/bitcoin-is-property-not-currency/.

The Internal Revenue Service has joined several other jurisdictions in publishing guidance regarding the income tax consequences of certain convertible virtual currency transactions.i IRS Notice 2014-21ii clarifies that existing general tax principles apply to transactions using convertible virtual currency and that such virtual currencies should be treated as “property” rather than “currency” for US federal income tax purposes.  Classification as property may affect the timing and character of income, gain or loss. While the immediate implications of the Notice are apparent, the mid-term and long-term consequences are still being considered.  The IRS has indicated that penalties may apply to taxpayers that have taken return positions that are inconsistent with its position in the Notice or that have failed to file the appropriate information returns.

Virtual currency, such as bitcoin, that is “convertible” (i.e., has an equivalent value in or acts as a substitute for “real currency”iii) and that is sold or exchanged or used to pay for goods or services in certain transactions has tax consequences that may result in a tax liability to the person disposing of such virtual currency and/or receiving such virtual currency.

In addition, such tax consequences may be immediate or deferred, and any tax imposed may be at varying rates, depending on the nature of the transaction and the type of person disposing of or receiving such virtual currency.

In the following paragraphs, we discuss the Notice and its immediate implications, and we point out some legal, factual and practical issues that the Notice raises.
Continue Reading