“Allow entrepreneurs to raise up to $1 million per year through an SEC-registered crowdfunding portal. Free people to invest a percentage of their income. For investors with an income of less than $100,000, investments will be capped at the greater of $2,000 or 5% of income. For investors within an income of more than $100,000, investments will be capped at 10% up to $100,000. Require crowdfunding portals to provide investor protection, including investor education materials on the risks associated with small issuers and illiquidity.”

A copy of the text of the CROWDFUND ACT is available here. If passed by the House and signed by President Obama, this should pave the way for small investments in start up companies using the crowdfunding model.

As the law currently stands, and before the CROWDFUND ACT is passed and implemented, issues of securities are generally prohibited from (a) using advertising to solicit investments (including facebook, linkedin and twitter) and (b) raising capital from non-accredited investors unless specific disclosures are provided.

The SEC takes this seriously and intervened in one transaction where a group was trying to raise money to buy a beer company using a crowdfunding model. A copy of the cease and desist order is available here. This group created the buyabeercompany.com website and attempted to solicit pledges to invest in the future.

WHAT DOES THIS MEAN IF YOU AM LOOKING TO RAISE CAPITAL USING CROWDFUNDING? Sit tight and lets see what the final law looks like.

Where can I find a copy of the proposed notice? A copy of the proposed notice is available here.

What are the consequences for not posting the notice? There are a variety of consequences including (a) the extension of the 6 month statute of limitations for a charge of unfair labor practices and (b) the failure may be considered evidence of unlawful motive in an unfair labor case.

Where can businesses find additional information? The NLRB has a FAQ site that answer common questions and has links the laws.

On October 5, 2011, the NLRB postponed the implementation of the new posting until January 31, 2012 to “allow for enhanced education and outreach to employer, particularly those who operate small and medium sized businesses.”. A copy of the NLRB press release is available here. The previous effective date as November 14, 2011.

This will allow employers additional time to figure out how they will advise all their non-union employees that they have the right to form a union.

The Congre3ssional Research Service provides the following summary:

“3/3/2011–Passed House amended. Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 – Amends the Internal Revenue Code to: (1) repeal requirements for the reporting to the Internal Revenue Service (IRS) of payments of $600 or more to corporations that are not tax-exempt and of gross proceeds paid in consideration for any type of property; (2) repeal requirements for reporting payments made with respect to rental property which is not part of a trade or business; and (3) increase, for taxable years ending after December 31, 2013, the advance applicable dollar amount of the tax credit for health care premium assistance for taxpayers whose household income is less than 400% of the poverty line.”

The House  in HR 129 and through HR 705 also provided for some amendments to the bill.

The Senate through SA 284 added an amendment that would require the Secretary of Health and Human Services to conduct a study to determine if modifications to the 1099 reporting requirements would result in an increase in either (i) health insurance premiums or (ii) the number of individual without health insurance. If either occurs, the amendment would reinstate the repealed 1099 requirements after the date of such determination.

Procedurally, the bill now does to the committees of the House and Senate to resolve any inconsistencies between the 2 versions. Once finalized, it goes to the President to be signed into law. A status report is available here. I would expect the White House to issue a press release once the bill is signed by the President.

What does this mean for small business?

If passed and in general, businesses will not be required to report on form 1099 for payments of $600 or more to non-exempt corporations and for gross proceeds paid in excess of $600 for property. In other words, things will go back to the way they were before the Health Care Reform bill with respect to 1099 reporting.

The fact sheet sets forth 2 major requirements:

1. Employers are required to provide “reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has need to express the milk” and
2. Employers are required to provide “a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk”

The fact sheet also contains guidance on time and location of breaks, compensation, and clarifies which employers are subject to the requirements.

What does this mean to businesses subject to these requirements?

In general, employers will need to have a policy in place regarding break time to express breast milk and provide an area free from intrusion and the public (other than a bathroom) for employees to express breast milk. For many businesses, this may be a managers office, conference room or similar are that can be secured (i.e. locked) to prevent intrusion.

What about other state law requirements?

The fact sheet indicates that this release does not preempt state law that provides greater protection to employees

Question 179.01

Question: Under Section 413(a) of the Dodd-Frank Act, the net worth standard for an accredited investor, as set forth in Securities Act Rules 215 and 501(a)(5), is adjusted to delete from the calculation of net worth the “value of the primary residence” of the investor. How should the “value of the primary residence” be determined for purposes of calculating an investor’s net worth?

Answer: Section 413(a) of the Dodd-Frank Act does not define the term “value,” nor does it address the treatment of mortgage and other indebtedness secured by the residence for purposes of the net worth calculation. As required by Section 413(a) of the Dodd-Frank Act, the Commission will issue amendments to its rules to conform them to the adjustment to the accredited investor net worth standard made by the Act. However, Section 413(a) provides that the adjustment is effective upon enactment of the Act. When determining net worth for purposes of Securities Act Rules 215 and 501(a)(5), the value of the person’s primary residence must be excluded. Pending implementation of the changes to the Commission’s rules required by the Act, the related amount of indebtedness secured by the primary residence up to its fair market value may also be excluded. Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the investor’s net worth. [July 23, 2010] [Emphasis Added]

What does this mean if you are looking to raise capital?

Any mortgage indebtedness that exceed the value of an investors primary residence is a liability and should be deduced from the investor’s net worth calculation. It also means that value of the investor’s primary residence is also excluded.

This is not a big surprise and confirmed the SEC’s initial position on the matter.

Thanks to  Broc Romanek for posting about this here.

“(a)… The Commission shall adjust any net worth standard for an accredited investor, as set forth in the rules of the Commission under the Securities Act of 1933, so that the individual net worth of any natural person, or joint net worth with the spouse of that person, at the time of purchase, is more than $1,000,000 (as such amount is adjusted periodically by rule of the Commission), excluding the value of the primary residence of such natural person, except that during the 4-year period that begins on the date of enactment of this Act, any net worth standard shall be $1,000,000, excluding the value of the primary residence of such natural person.” [Emphasis added]

Now an accredited investor must have a net worth of $1,000,000.00 excluding his primary residence. The SEC is taking the position that this requirement is effective upon enactment. In addition, the SEC is also taking the position that the amount of any mortgage indebtedness secured by the personal needs to be reviewed in considering the investors net worth. If the indebtedness is less than the value of the property then the indebtedness does not need to reduce the investors net worth. If the indebtedness is more than the value of the personal residence, the indebtedness may need to be factored into the investors net worth.

What does this mean for start up business?

This will likely reduce the number of angel and other investors that are able to invest in start-up and small businesses. The pool of accredited investors will now be smaller.

What steps do I need to take if I am raising capital?

Companies seeking capital will need to review their suitability questionnaires in light of the new requirements.The investors will now need to give a representation regarding their net worth excluding their personal residence and may also need to to give a representation that any mortgage indebtedness does not exceed the value of their personal residence.

Thank you to Alan M. Parness (www.cadwalader.com) for writing about the SEC’s interpretation.

The image is used under the creative commons license from pbarnhart

Due to the down economy, many students and unemployed workers are looking for unpaid internships as a way to get their foot in the door. The New York Times has reported that state and federal regulators are concerned that employees are improperly using unpaid interns for free labor.

The United States Department of Labor (DOL) has recently issued a fact sheet to provide guidance internships under the Fair Labor Standards Act (FLSA) and its regulations available here. The DOL’s fact sheet uses a 6 part test to determine if an intern can participate in an unpaid internship program. The Supreme Court has ruled an than an intern who works only to serve their own interests (gaining knowledge) is not necessarily an employee (or technically suffered or permitted to work) of another person who provides aid or instruction.

To make the determination, the DOL considers the following six criteria:

1. The  internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to the wages for the time spent in the internship.

If all the above factors are satisfied, an employment relationship most likely will not exist and the minimum wage and overtime provisions do not apply to the intern. If the factors are not satisfied, the intern must be paid at least minimum wage (and overtime as applicable).

Points 2, 3 and 4 will likely be the most difficult requirements that a for profit employer will need to satisfy in order to use unpaid interns. The points collectively require that an employer is really giving the unpaid intern training, which uses the employer’s resources, and is not using the unpaid intern to perform work usable by the employer. If you are going to use the interns work product or are going to derive a benefit from their activities, employers should consider paying the intern at least minimum wage plus overtime to minimize their risk.

The image is used under the Creative Commons license from http://www.flickr.com/photos/banky177/

In general, an employer must pay at least half the cost of single coverage to their employees. The IRS has published a FAQ, a guide, and a general notice.

This credit will apply to qualified employers (generally with less than 25 full time equivalent employees) and tax exempt organizations. A qualified employer is generally (1) an employer with fewer than 25 full-time equivalent employees for the tax year, (2) an employer were the average annual wages of its employees for the year must be less than $50,000 per full-time equivalent employees, and (3) where the employer pays the premiums under a “qualifying arrangement.”

The IRS.gov website contains helpful guidance on understanding the nuances of the credit.

The maximum credit for a qualified employer (not a tax exempt employer) is 35% of the employer’s premium expenses that count towards the credit.  The maximum credit for tax-exempt employers is 25% of the employer’s premium expenses that count towards the credit.

Hopefully this law will encourage hiring by small business and encourage employers to offer health care coverage to their employees.

The HIRE Act grants employers a 6.2% payroll tax incentive for certain new employees hired after February 3, 2010 and prior to January 1, 2011 and for wage paid to such new employees after March 18, 2010.

This incentive effectively results in the employer not having to pay the employer’s share of Social Security taxes on the employee’s wages paid after March 18, 2010. The incentive has no no effect on the employee’s future Social Security benefits or Medicare taxes.

This incentive hopefully will cause small business to start hiring new employees since their out of pocket wage cost is reduced by approximately 6.2%.