Archives: VC Funds and Tax

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Options for Issuing Employee Equity in LLCs

Choosing the best type of entity for a company can be a challenge.  C corporations are the norm for most emerging growth businesses, particularly those raising money from investors.  However, LLCs are becoming more widespread, even for operating businesses.  Founders may want to have the tax benefits of LLCs, which are not subject to a company-level tax (as is the case with C corporations) and may enable more tax deductions.…

Proposes tax credit to support investment in cybersecurity industry

Article prepared by and republished courtesy of Drew M. Young and Joseph H. Langhirt of DLA Piper; originally published here http://www.dlapiper.com/maryland-proposes-tax-credit-to-support-investment-in-cybersecurity-industry/.

Maryland Governor Martin O’Malley’s recently released proposed Fiscal Year 2014 budget provides funding to support private investment in the cybersecurity industry.…

Franchise tax due March 1 for Delaware corporation: two methods of calculation, two vastly different results

Just a reminder to those who have Delaware corporations, your annual report and franchise tax payment are both due on March 1. At this point, you should have already received from Delaware your notification of annual report and franchise tax due, which is sent to a corporation’s registered agent in December or January of each year.…

The final FATCA Regulations: Highlights

Article prepared by and republished courtesy of Alan Granwell and Witold Jurewicz of DLA Piper; originally published here http://www.dlapiper.com/the-final-fatca-regulation-highlights/.

The US Treasury Department has issued the final FATCA regulations.

Although simplified and clarified, the Regulations are lengthy (544 pages) and more than 150 pages longer than the Proposed Regulations.…

Equity and Bond Market Outlook 2013

A friend of mine at a major investment bank sent me their market outlook for 2013.  In 2012, the world markets were up 16%.  For 2013, they are projecting:

  1. Interest rates are likely to remain low for a few years,
  2. investors should lower their return expectations, and
  3. “policy” will remain incremental in key developed and emerging markets economies.

SEC Staff Preview Top Hedge Fund Enforcement Trends for 2013

Article prepared by and republished courtesy of Perrie Weiner, Patrick Hunnius and Stephanie Smith of DLA Piper; originally published here http://www.dlapiper.com/sec-staff-preview-top-hedge-fund-enforcement-trends-for-2013/.

In a recent speech before the Regulatory Compliance Association,1 Bruce Karpati, Chief of the Securities and Exchange Commission’s Enforcement Division’s Asset Management Unit, suggested where the SEC may be heading regarding hedge fund oversight in the months to come.…

Filing deadline reminder for companies with incentive stock options; reports must be delivered by January 31

A reminder to companies that had incentive stock option exercises in 2012, Section 6039 of the Internal Revenue Code requires a corporation to furnish a written statement to any employee or former employee who either exercised an incentive stock option during 2012 or during 2012 first transferred legal title to shares acquired under the corporation’s Section 423 employee stock purchase plan.…

Tax Changes – Implications for Venture Capital

Asher Headshot - Resized.pngCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

The National Venture Capital Association (NVCA) had a good post about the implications of the new tax bill significant to the venture capital community.  Significantly, they note that this bill did not address any changes to the tax rate for “carried interest”, but they do “fully expect” carried interest tax rate increases to remain a topic of discussion as part of the larger pending tax reform discussion, although they project that discussion to be delayed until the second half of 2013.…

Fiscal Cliff Bill to Renew 100% QSBS Tax Break

One provision included in the fiscal cliff bill (aka the Taxpayer Relief Act of 2012), but seemingly unnoticed by the general press, was the unexpected renewal of the 100% tax exclusion for capital gains on Qualified Small Business Stock (“QSBS”). This QSBS tax exemption, which had previously expired at the end of 2011, would be extended for investments made through the end of calendar year 2013 (and would be retroactively effective for investments made in 2012).…

Congress pulls back from the fiscal cliff − for the time being

Article prepared by and republished courtesy of Evan Migdail of DLA Piper; originally published here http://www.dlapiper.com/congress-pulls-back-from-the-fiscal-cliff/.

Following an unprecedented New Year’s session, Congress has passed legislation, the Taxpayer Relief Act of 2012, negotiated with President Barack Obama to partially prevent the US economy from going over the fiscal cliff.  You may read the full text of the bill here.…

Default Fiduciary Duties in Delaware LLCs Remains an Open Question following Delaware Supreme Court Ruling

Asher Headshot - Resized.pngCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

Earlier this year, I wrote about an opinion from the Delaware Court of Chancery that, if affirmed, could have broad practical implications for LLC managers and the fiduciary duties owed to their members.  We have been monitoring this case and, on November 7, the Delaware Supreme Court issued its decision.  As it turns out, whether fiduciary duties are owed by default in a Delaware LLC remains an open question.  The Delaware Supreme Court affirmed the earlier Chancery Court’s opinion exclusively on contractual grounds, leaving open-ended the question as to default fiduciary duties by rejecting the Chancery Court’s decision to incorporate fiduciary duties into the Delaware LLC Act.  Please continue reading below for the text of DLA Piper’s follow-up Client Alert posted by John Reed and Jennifer Lloyd.…

Summary of 2013 Tax Changes

As the new year approaches, taxes will again be front and center in shaping strategy for both actions before year-end and 2013 financial planning.  This year is no exception, and in fact the prevalence of tax as a driver will be magnified given several major tax changes that are set to take place at year-end absent action by Congress. …

Washington DFI Announces Possible Amendments to Investment Adviser Rules

Asher Headshot - Resized.pngCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

The Washington Department of Financial Institutions (DFI) issued a Notice to all interested parties that its Securities Division intends to propose amendments to its rules for investment advisers.  Significantly, these rules could significantly change the regulatory landscape for investment managers operating in Washington State.  In speaking with state regulators and reviewing the release, I understand that DFI currently is in the process of surveying fund managers.  If you have been contacted by DFI to complete this survey but you are not a registered investment adviser, I would very much like to hear from you as it’s not clear to us exactly who is part of the DFI analysis.…

SEC Proposes General Solicitation Rules

The SEC yesterday proposed rules to permit general solicitation and general advertising in Rule 506 and Rule 144A offerings. A main requirement is that the issuer "takes reasonable steps to verify" that the purchasers are accredited investors. The model the SEC has proposed would neither mandate specific verification steps nor assure issuers and investors that adequate steps have been taken. The model will likely require issuers to obtain reliable third party information most of the time, rather than relying on questionnaires, contractual representations, or similar confirmations from a purchaser.

Tax Changes Are Looming

Asher headshot.jpgCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

Tax planning can be challenging at any time of year, but this year may be more challenging than normal.  As with any presidential election year, there is a lot of legislative uncertainty leading into 2013.  Adding even more fuel to the fire, there are a number of significant tax rate changes scheduled to occur at the end of 2012 unless Congress steps in with a last-minute change.  Given the election year, an affirmative action by Congress seems very unlikely prior to November, which could result in last-minute planning for many investors. 

Pending Tax Rate Changes – Capital Gains Increasing from 15% to 25%

One significant tax change set to hit at year-end is an aggregate effective increase in the long-term capital gains rate from 15% to 25%, due to the following: 

  1. The long-term capital gains rate (for capital assets held for at least a year) is scheduled to increase from 15% to 20%.

You Cannot ‘Crowdfund’ a Fund (in case you were wondering)

Asher headshot.jpgCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

Crowdfunding may provide an interesting way for some companies to raise capital.  It’s definitely getting a lot of the hype since passage of the Jumpstart Our Business Startups (JOBS) Act earlier this month.  I’ve read articles talking about how crowdfunding is going to disrupt funding for small businesses (in a good way).  Personally, I don’t see it…certainly not in the short-term.  Perhaps the SEC’s pending rulemaking will make this an amazing option, but right now I’m not sure that otherwise financeable companies will find this option better than the other existing methods.  The currently projected costs are simply too great.  The process is expensive both initially in setting up the intermediary/crowdfunding process itself (vs.…

Delaware franchise tax due March 1: two methods of calculation, two vastly different results

Just a reminder to those who have Delaware corporations, your annual report and franchise tax payment are both due on March 1. At this point, you should have already received from Delaware your notification of annual report and franchise tax due, which is sent to a corporation’s registered agent in December of each year (although sometimes it does not arrive until January).…

SEC May Inspect Fund Managers – How to Prepare

pic-asher.jpgCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

Fund managers have a lot of new things to worry about of late. March 30, 2012 is only six months away. That’s when investment advisers can expect to be obligated to comply with the new regulatory regime imposed pursuant to the Dodd-Frank Act (which we’ve covered extensively), all fund managers will become subject to the SEC’s examination authority. …

Incentive Stock Option Plans – ISOs vs. NQOs

Tyler Hollenbeck.jpg

CONTRIBUTED BY
Tyler Hollenbeck
tyler.hollenbeck@dlapiper.com

In my earlier post regarding considerations when creating your option plan, I briefly referenced the tax advantages, from the recipients’ perspective, of “incentive stock options” (ISOs), which can only be granted to employees, relative to so-called “nonqualified options” (NQOs), which can be granted to employees or consultants. …

Can Fund Managers Make Political Contributions?

pic-asher.jpgCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

Effective today, March 14, 2011, the short answer is “probably not” if the fund manager has any governmental investor.  Many fund managers also happen to be politically active and, for them, the new restrictions on political contributions by fund managers, which we previously summarized here, will be a huge imposition.  If they also have governmental or public institutional investors (for example, many public universities have endowments that invest in a broad spectrum of categories), the rules will limit or prevent them from a broad range of political activities.  For fund managers who have or are thinking about accepting investments from these “government investors,” the new political contribution rules may be very significant because they have been drafted to cast an incredibly wide net, which creates a significant risk of inadvertent violations (not actually involving any form of quid-pro-quo).  For this reason, the rules are causing significant compliance concerns on the part of fund managers.…

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