Big SEC News for Your Capital Raising Efforts3/27/15+

Capital raise efforts get another boost from the JOBS Act! 

The Securities and Exchange Commission (SEC) adopted amendments to Regulation A that allow private companies to make exempt public offerings of up to $50 million in securities, as required by the Jumpstart Our Business Startups Act (JOBS Act).

The new rules have come to be known as “Regulation A+.” The rules establish two tiers under Regulation A. Tier 1, which covers offerings of up to $20 million within a 12-month period, is very similar to the existing requirements of Regulation A. Tier 2 allows offerings of up to $50 million within 12 months but requires more robust initial and ongoing reporting. For offerings up to $20 million within 12 months, companies can elect to follow either the Tier 1 or Tier 2 requirements. Selling shareholders can sell up to 30% of the annual offering limit of the chosen Tier.


These new rules provide an effective, workable path to raising capital that also provides strong investor protections.

  — SEC Chair Mary Jo White


Under the Securities Act of 1933, when a company offers or sells securities to potential investors, it must either register the offer and sale or rely on an exemption from registration.  Regulation A is a longstanding exemption from registration that permits unregistered public offerings of up to $5 million of securities in any 12-month period, including no more than $1.5 million of securities offered by security-holders of the company.  In recent years, Regulation A offerings have been relatively rare in comparison to offerings conducted in reliance on other Securities Act exemptions or on a registered basis.

The JOBS Act amended the Securities Act to require the Commission to update and expand the Regulation A exemption.  In particular, the JOBS Act directed the Commission to:

Adopt rules that would allow offerings of up to $50 million of securities within a 12-month period.

  • Adopt rules that would allow offerings of up to $50 million of securities within a 12-month period.
  • Require companies conducting such offerings to file annual audited financial statements with the SEC.
  • Adopt additional requirements and conditions that the Commission determines necessary.

Highlights of the Final Rules

The final rules, often referred to as Regulation A+, would implement Title IV of the JOBS Act and provide for two tiers of offerings:

  • Tier 1, which would consist of securities offerings of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer.
  • Tier 2, which would consist of securities offerings of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.

In addition to the limits on secondary sales by affiliates, the rules also limit sales by all selling security-holders to no more than 30 percent of a particular offering in the issuer’s initial Regulation A offering and subsequent Regulation A offerings for the first 12 months following the initial offering.

For offerings of up to $20 million, the issuer could elect whether to proceed under Tier 1 or Tier 2.  Both tiers would be subject to basic requirements as to issuer eligibility, disclosure, and other matters, drawn from the current provisions of Regulation A.  Both tiers would also permit companies to submit draft offering statements for non‑public review by Commission staff before filing, permit the continued use of solicitation materials after filing the offering statement, require the electronic filing of offering materials and otherwise align Regulation A with current practice for registered offerings.

Effective Date for Regulation A+

The rule amendments become effective 60 days after publication in the Federal Register.

For More Details, Check Out the Link Below!

Understanding US Income Source Rules2/18/15+

We often have international clients that seek to do business in the US ask; “where do I pay tax, and how much do I pay?”  As with most legal questions, the answer is largely dependent upon the specific business circumstances, but the IRS does provide some guidance.

In the equity-ownership context, any entity formed in the United States which is owned or controlled by a foreign entity must withhold a designated amount of tax on its effectively connected taxable income (“ECTI”), and file Form 8804, reporting the total tax required to be withheld and pay such withholdings to the IRS by the 15th day of the 4th month after the close of the entity’s tax year.

The withholding tax rate on ECTI allocable to a foreign partner is currently 35% on net ordinary income; 28% on gains for non-corporate partners; 25% on unrecaptured section 1250 gains for non-corporate partners; and 15% on qualified dividend income allocable to non-corporate partners.

Where income isn’t connected through equity-ownership, but is being paid pursuant to a contract, the IRS reviews the source of income to determine if the income is subject to the tax jurisdiction of the United States.  The source of income from services is generally attributed to the country where the services generating such income are performed. I.R.C. § 861(a)(3).  Therefore, income received in the United States that is attributable largely to some other country is generally not subject to U.S. reporting or the ECTI withholding requirements.

The general rule of sourcing income does not take into account where the contract was made, the residence of the payor, or the place and time of payment.  Where services are performed partly within the US and partly outside the US, there are no definitive rules that provide for apportioning the income as “domestic source” or “foreign source.” Determination of apportionment is generally based on the facts and circumstances that “most correctly reflect the proper source of income.”

Rediscovering the Artisan Practice of Law1/14/15+

By: Nat Pierce

The term “artisan” evokes a certain idealistic picture of someone in a workshop toiling away at his or her craft.  However, all over the country there seems to be a slowly emerging economic trend where craftsmanship, locality and value have become paramount in the new “artisan economy.”  The fast food chain corporate commodity ethos is slowly fading into the background with the blossoming of distinctly unique businesses such as app developers, hand-lettering shops, farm to table restaurants, coffee shops and craft breweries.  The “artisan” ethos has permeated both large and small business in our economy.

New York Times reporter Adam Davidson, in his article “Don’t Mock the Artisanal-Pickle Makers,”  suggested that this is evidence of a larger macro-economic trend; “[i]nstead of rolling our eyes at the self-conscious Brooklyn hipsters . . . we might look to them as guides to the future of the American economy” referring to this new “artisan” economy as a “happy refinement” to the industrial era, not a rejection of capitalism.

But what about the legal industry?  Can lawyers or firms be distinctly “artisan”?  Would clients flock to firms like they do to “artisan economy” microbreweries and coffee shops if those firms distinguished themselves as “artisan.”  What if lawyers focused on their craft and were meticulous about things like client experience, design, brand positioning?

I spent an afternoon asking a few local business owners and friends what the first things were that came to mind when they heard the term “corporate lawyer” or “business attorney.”  The results were not good…”have you ever heard of the firm Dewey, Cheatum & Howe?”  When I dug deeper past the jokes the majority of them didn’t truly grasp any specializations or distinctions within the industry, or that firm size and billing practices really make any difference.  Basically at the end of the day, were just all a bunch of lousy lawyers trying to squeeze a buck out of our clients, right?  When I asked if a lawyer could ever be referred to as an “artisan,” I just got blank stares…or downright rejection…

Something just seemed off track with this typical perception of lawyers.  In my years in practice I have witnessed many lawyers who embrace creativity and craft unique and unexpected solutions to a clients problem, or are impressively eloquent in their delivery of an argument.  But ill admit, thats usually a minority of my lawyer colleagues.

Historically, law offices used to be street level and the attorney, usually on his own or part of a small firm, would have a grip on the pulse of the local economy and would have deep personal relationships with the firms clients.  Since the 1970s firms merged to become large, massive organizations with multiple offices, industrial era style corporate culture developing specialized practice departments and divisions.  Client relationships are more consumeristic and attenuated.  The partner-associate dichotomy also evolved, with partner compensation and billable rates skyrocketing.  Lawyers transitioned from being highly trusted advisors and staples of the community to highly paid outsiders with limited specialties.  Perhaps lawyers are still getting over the hangover of the broken law-firm model.

Should there be an artisan legal economy?  There isn’t really one currently…over the last ten years a number of huge corporate players have jumped into the online legal services market, but you can’t necessarily distinguish these services as distinctly “artisan.”  Online legal services and legal process outsourcing products are cetiantly improving each year, and surprising law firms are not doing much to keep up.  But id like to suggest that lawyers and firms don’t need to.  I have served as a Rocket Lawyer and Legal Zoom referral attorney for a number of years and most of the clients all have a false sense of security in their computer generated forms.  For example, by LegalZoom’s own estimates, 80% of its online forms are filled in incorrectly.  I would contend that there is an intangible quality that a skilled lawyer can bring, even to the mundane, routine legal issues.

At PIERCE / MCCOY pursuing a more “artisan” practice of law is grounded in our desire to create.  Whether creating strong relationships, creating unique new businesses or crafting predictable outcomes for clients, our desire is to be viewed as distinctly “artisan” in the marketplace.  This is because true legal creativity can’t be compartmentalized, commoditized, or outsourced.  Make no mistake we believe specialization, technology, and other aspects of the legal industry are salvageable, but the “artisan” practice of law requires rediscovering the value and quality that a lawyer or firm’s legal services should be based upon.

In his book the Artisan Soul, Erwin McManus says at our core we are all “called to be artisans” and “[o]ur utilitarian mindset tells us that it’s a waste of money to pay for more beauty, craftsmanship and timeless quality,” but “[t]he artisan would consider it a waste of money to pay for something that lacks beauty, quality and integrity.”

This is why it is our desire at PIERCE / MCCOY to build a firm of creators, building a team of creative and energetic lawyers pursuing the “artisan” practice of law…