Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations.  Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.

The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less.  The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year.

For more information, click here.

For the 2010 tax year, nonprofits need to comply with the following:

1.     If your organization’s gross receipts are normally $50,000 or less, you can file a Form 990-N – a simple filing (this threshold has been increased from $25,000 – thank you IRS!)

2.     If your organization’s gross receipts are greater than $50,000 but less than $200,000 (and total assets not more than $500,000), you can file a 990-EZ (which is not necessarily easy, but it is easier than the Form 990)

3.     All others must file Form 990

Click here for more information.

Colorado has two exemptions from the general requirement that securities offerings must be registered that can be useful for social enterprises.

First, a cooperative formed under the law of any state that sells securities to its members in Colorado is exempt from the Colorado registration requirement.  (Note that it will still be necessary to qualify for a federal exemption – in this case, probably the intrastate exemption would be used.)

Second, securities offered and sold in compliance with a federal exemption for small or private offerings (such as Reg D) is exempt from Colorado registration.  All that is required to qualify for this exemption is the filing of a simple notification of exemption with the Colorado Division of Securities along with a $75 fee.  If used in conjunction with federal Rule 504, this means that a company can conduct a private placement (no general solicitation) for up to $1 million to an unlimited number of accredited AND unaccredited investors.

The recently passed federal Small Business Jobs Act allows a taxpayer to exclude from taxable income any gain realized on small business stock acquired after September 27, 2010 and before January 1, 2011 and held for at least five years.  This applies even to those taxpayers subject to the Alternative Minimum Tax.

The business must be a C corporation with gross assets of no more than $50 million at the time of investment.

Tell your potential investors to take advantage of this great opportunity!

SB 392 was signed into law which means that effective soon, LLCs will be able to become licensed contractors in California.  This is great news for cooperatives/collectives that form as LLCs.

Before a company can solicit investments from the public, it must register the offering in the states where the offering will be made (and must also complete federal securities compliance).  Most states in the United States accept the SCOR (also known as U-7) form as fulfilling this state level registration requirement.  The SCOR form was developed by the North American Securities Administrators Association (NASAA), the association of the state securities regulators.

The form is fairly straightforward and not that difficult to complete.  It asks questions like

• Describe the business of the Company, including its products or services.
• Describe how the Company produces or provides these products or services and how and when the Company intends to carry out its activities.
• Is the Company dependent upon a limited number of suppliers?
• Does the Company have any major sales contracts?
• Name the Company’s principal competitors and indicate their relative size and financial and market strengths.
• Describe how the Company plans to market its products or services during the next 12 months, including who will perform these marketing activities.
• Indicate any benefits or incentive arrangements the Company provides or will provide to its employees.
• Is the Company’s business subject to material regulation by any governmental agency?

If you can answer questions like these as well as provide professionally prepared financial statements for your company, you may want to consider using the SCOR form to raise funds for your company!

There are some complications that must be dealt with first.  You must determine what exemption from federal securities law you will be using (probably  Rule 504 or the intrastate exemption) and then complete any required filings related to the federal exemption.  You must determine what kind of security you want to sell (common stock, preferred stock, notes, convertible notes, a share in the profits . . . .) and prepare the proper documentation for that instrument.

Once you have taken care of all this and completed the SCOR form, you file the form in each state where you want to sell your securities.  The state securities regulators of those states will probably make comments and ask for changes and additional information.  They are likely to require other protections for investors such as an impound account where you keep investment dollars until a minimum amount is raised.  Once the relevant states have approved the form and you have complied with any requirements they have imposed, you can offer your securities in those states.  In most cases, you can advertise to the general public and you do not have to worry about whether your potential investors meet any requirements of wealth, income, or sophistication.

If you want to use the form in more than one state, you may be able to use regional coordinated review.

If you choose to request coordinated review, you will generally only have to work with one of the states, the lead jurisdiction, that will coordinate the review and comments of all states within the region in which you want to offer your securities.  Note that each state will charge fees, so choose your states wisely!

The following is a list of the groups of states that do coordinated review.

CR-SCOR-Mid-Atlantic: Delaware, Maryland, New Jersey, Pennsylvania, Virginia, and West Virginia

CR-SCOR-Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, and Wisconsin

CR-SCOR-New England: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont

CR-SCOR-Southwest: Arkansas, Oklahoma, Texas

CR-SCOR-West: Alaska, Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming

Unfortunately, California does not encourage the use of the SCOR form and New York does not accept it.  Future postings will discuss how to do public securities offerings in these states.

The following are some helpful links:

Information about the SCOR program and links to the SCOR form and instructions

Information about the coordinated review program

By Gabrielle Lessard, Esq.

The deadline looms.  Small nonprofit organizations that failed to file the 990-N or 990-EZ for 2007, 2008 and 2009 will lose their tax-exempt status if they fail to file by October 15^th.  (See earlier post IRS Announces One-Time Relief for Non-filing Organizations.)

The IRS has made two types of relief available under a one-time reprieve.  Small organizations required to file Form 990-N, also known as the e-Postcard, simply need to go to the IRS website, www.irs.gov, and electronically file the brief form by Oct. 15.  Organizations eligible to file Form 990-EZ must file their delinquent annual information returns by Oct. 15 and pay a compliance fee under the Voluntary Compliance Program.  The relief is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.

The IRS has posted on its websites the names and last-known addresses of at-risk organizations, but has cautioned that the list may not be complete.

If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

Rule 504 is known as an exemption from the requirement of federal registration of a securities offering under Regulation D. In its more familiar incarnation, it is an exemption that allows a company to offer up to $1 million in a private placement (assuming state law compliance) – which means that the company cannot do general solicitation – it can only solicit investors with whom the company leaders have a pre-existing relationship.

But Rule 504 has a whole other side to it that most people don’t know about. Used in conjunction with certain state securities laws, Rule 504 can be used to make a public offering of securities (i.e. a general solicitation to the public).
If a company is making a securities offering that qualifies to use the federal Rule 504 exemption (raising up to $1 million), and the company registers the offering under the securities law of a state that requires the public filing and delivery to investors of a substantive disclosure document, that offering can be made to the public in the state where the registration was completed.

But what if you want to offer your securities in a state whose securities laws do not require the public filing and delivery to investors of a substantive disclosure document (like New York)? As long as you complete the registration process in a state that does have these requirements, you can also offer securities to the public in states that do not have this requirement as long as you deliver the disclosure document to all potential investors (assuming you comply with all of the laws of the states in which you are making the offering).

The federal Rule 504 exemption can be used in conjunction with state registration accomplished through a SCOR form. The SCOR form was developed by the North American Securities Administrators Association (the association of state securities law administrators). Most states accept the form. It is a fairly straightforward disclosure document that can be completed without much help from a lawyer.

This is a fairly simple and low cost way to legally raise money from the public! Unfortunately, this does not work in California! Watch for upcoming posts about the special case of California.

Existing law, the Contractors’ State License Law, provides for the licensure and regulation of contractors by the Contractors’ State License Board and authorizes the issuance of contractors’ licenses to individual owners, partnerships, and corporations, but not to limited liability companies.

California Senate Bill 392 would allow contractors’ licenses to be issued to limited liability companies.

The bill would also require, as a condition precedent to the issuance of a limited liability company contractor’s license that the LLC have on file a $100,000 surety bond for damages arising out of specified claims of employees and would require the LLC to maintain liability insurance.

If the LLC license is suspended, the members and managers of the company may be personally liable for up to $1 million each each for damages resulting to third parties in connection with the company’s performance, during the period of suspension.

This bill has passed both houses of the California legislature but is being held up by the failure of the legislature to pass a budget.

Please check out what I wrote for the SOCAP1o Impact Challenge.  Please “like” it if you like it!

Here is an excerpt: “The securities laws were put in place for a good reason – to protect average investors from losing their life savings in unregulated investment schemes. Well, didn’t investors lose their life savings in completely regulated and legal investment schemes in the last few years? It is time to ask why these regulations make it almost impossible for small social enterprises to raise capital and what we are trying to protect people from.”

Click here to read the whole thing.