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Megan Muir

Earlier this summer, together with some of my partners within DLA Piper (Christopher Paci, Jason Harmon, Darryl Steinhause and Wesley Nissen), I wrote an article about new SEC regulations concerning private offerings. The final rules issued in July 2013 by the SEC go into effect on September 23, 2013. Below is a summary of the changes with respect to general solicitation in such rules. The full article contains a discussion of other regulatory issues that should be considered and new “bad actor” rules, as well as a discussion of certain proposed private offering rule changes that are not yet final. That piece may be found here.

On July 10, 2013 the US Securities and Exchange Commission adopted much-anticipated amendments to its regulations on private offerings under Rule 506 of Regulation D of the Securities Act of 1933, as amended, that lift the more than 80-year ban on general solicitation and advertising for certain purchasers, as mandated by Section 201(a) of the Jumpstart Our Business Startups Act (popularly called the JOBS Act).

Beginning September 23, 2013, these changes will permit issuers to use advertising and other forms of mass communication to sell securities solely to “accredited investors” under Rule 506 of Regulation D. However, these amendments also include several new requirements and procedures. You will want to be aware of these changes before you launch a general solicitation campaign.


Continue Reading New SEC General Solicitation Rules Go Into Effect

Interesting tax update courtesy of Bruce Thompson, a Senior Policy Advisor with DLA Piper.  He continues to see momentum for comprehensive tax reform and wrote the following summary of what that might mean for fund managers and partnerships:

“The Chairmen of the Tax Committees in the House and Senate—Rep. Dave Camp and Sen. Max Baucus—are committed to moving a major tax reform bill, and the House leadership has reserved HR 1 for the tax reform bill.


Continue Reading Tax Reform Update: Impact on Private Equity, Hedge Funds, and Real Estate Partnerships

This article is appearing simultaneously on The Venture Alley and on Startup Law Blog

The below flowchart may be helpful to you in answering the question whether you qualify for the exemption for “venture capital funds” under Section 203(l) of the Investment Adviser’s Act of 1940 ( the “Advisers Act”), pursuant to the final rules promulgated by the SEC.1  In all cases you should consult with an attorney.  For more detailed information regarding the federal exemption, check here.  Note that the Washington State Department of Financial Institutions (DFI) has proposed rules that are going to require many fund managers to register with the State as investment advisors.  We plan to prepare a separate flowchart to help you understand those rules once they are finalized.


Continue Reading “Venture Capital Fund” Flowchart for Exemption Under the Investment Advisers Act of 1940

As readers of this blog know, Washington State is proposing new rules that will require more fund managers to become registered investment advisers.  These rules were originally proposed in the second half of last year and, in response to preliminary comments, the Securities Division of the Washington State Department of Financial Institutions (DFI) proposed new rules for comment by May 21, 2013.  Quoting from the DFI’s Notice to Interested Parties dated March 27, 2013:

In August 2012, the Securities Division circulated an early draft of rule amendments to the interested parties list. We also conducted a small business economic impact survey. In response to comments received from interested persons, and in response to the results of the small business economic impact survey, the Securities Division made certain changes to the proposed rules compared to the earlier draft…

The Securities Law Committee of the Business Law Section of the Washington State Bar Association, representing attorneys practicing in this area throughout Washington State, submitted formal comments to the DFI’s request.  Their comment letter is included below.  Full disclosure, I’m not a member of the Committee, but they asked me to help them in drafting their formal response with respect to how the rules relate to private fund advisers.


Continue Reading Comment Letter Response to Washington State’s Plans to Regulate More Fund Managers

This article is appearing simultaneously on The Venture Alley and on Startup Law Blog. Readers may feel free to re-post this content elsewhere as well.

The world is changing for venture funds and similar funds in Washington State, and not necessarily for the better.  It used to be the case that managers of venture or other private funds did not need to file anything with the SEC or state securities regulators (other than Forms D incident to their fundraisings).  Dodd-Frank changed all that – but provided that investment advisers solely to venture capital or other small private funds may be exempt (based on Congress’ belief that these funds posed no systemic risk to the nationwide financial system).

There are now SEC regulations that define the new exemptions for the managers of venture funds (discussed in more detail here) and for the managers of private funds with less than $150M management (discussed in more detail here).  Even if exempt, however, managers of venture funds and private funds with AUM of less than $150M now must publicly report certain high-level information, which becomes publicly available.  For example, here is the exempt reporting adviser Form ADV for Union Square Ventures.

These rules settled out a few years ago.  Right now, the bigger issue is with state regulators.  State regulatory regimes need to be updated in order to conform to Dodd-Frank.  The North American Securities Administrators Association (NASAA) created model rules for state regulators to follow, which adopted the same venture capital and private fund exemptions.  Many states, including California, have now adopted the NASAA model rules.


Continue Reading Washington State to Regulate Fund Managers

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.

This potential for tax savings does not, however, come without a cost.  LLCs tend to be more complicated and expensive to setup and manage, particularly for operating businesses.  LLCs can become even more tricky for businesses that want to issue equity to incentivize employees or other service providers.  This article addresses some of the ways LLCs can use equity to incentivize service providers, and the implications of each option (pardon the pun).


Continue Reading Options for Issuing Employee Equity in LLCs

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.

Most notably the budget proposal would provide US$3 million for a new refundable state tax credit, the CyberMaryland Investment Incentive Tax Credit Program, to generate investment in early-stage cybersecurity businesses in Maryland.

The credit would be available for taxable years beginning after December 31, 2013 and would provide a 33 percent refundable tax credit (up to a maximum of credit of US$250,000) to investors in qualifying businesses that (1) are headquartered and operated in Maryland, (2) have been in operation for five years or less, (3) have at least one full-time employee primarily engaged in development of cybersecurity products for commercial and federal markets and (4) have at least US$100,000 in contributed owner’s equity.


Continue Reading Proposes tax credit to support investment in cybersecurity industry

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. Delaware requires these reports to be filed electronically.

As you will notice, there are two methods that you can use to calculate the amount of Delaware franchise tax due for your corporation (i.e., the “Authorized Shares Method” and the “Assumed Par Value Capital Method”), which result in vastly different amounts due. The default payment amount listed on your notification is set by Delaware using the Authorized Shares Method, which method will almost always result in a much high amount due for startups with limited assets. The minimum franchise tax is $75 and the maximum franchise tax is $180,000.

Franchise taxes are generally due in arrears for the prior calendar year. However, note that Delaware requires corporations owing $5,000 or more for the prior year to make estimated payments for the current (going-forward) year’s franchise tax with 40% due June 1st, 20% due by September 1st, 20% due by December 1st, and the remainder due March 1st.

Here are some examples showing how the different methods can dramatically impact the amount of Delaware franchise tax due:


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

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.

In drafting the Regulations, the US Treasury Department adopted a targeted, risk-based approach to implement FATCA by balancing policy considerations and administrative burdens and more fully incorporating local AML/KYC documentation practices. The Regulations detail the operational aspects of implementing FATCA – to reduce administrative burdens and clarify the interaction of the unilateral regulatory regime with the bilateral intergovernmental (IGA) regime.

Of particular importance is that the Regulations fill in many of the gaps that foreign financial institutions (FFIs) had as to how to implement FATCA. Nevertheless, FFIs, particularly global financial institutions, will have continuing challenges implementing the rules under the Regulations and IGAs within the current timelines among geographies, lines of business, clients and products.


Continue Reading The final FATCA Regulations: Highlights

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.

Fom an asset class return perspective, there were six key projections:

  1. Bonds will have virtually no nominal returns for the foreseeable future.
  2. High yield and emerging market local debt will provide attractive


Continue Reading Equity and Bond Market Outlook 2013