How the SEC Lifting the Ban on General Solicitation for Certain Private Offerings Opens up Additional Source of Capital for Small Businesses
Small businesses in recent years have been dealing with very tight lending markets that have affected their ability to grow or in the case of startup businesses develop at all. Another alternative to bank financing for these small businesses is raising capital through a private investment offering. However, until recently this may have been a difficult process for small businesses because of the ban on being able to solicit and advertise a private investment offering which left the small business owner only able to look for capital from their family and friends. Congress recognized the issues small businesses were facing with regard to raising capital and in April of 2012 passed the Jumpstart Our Business Startups Act (the “JOBS Act”). The JOBS Act directed the SEC to amend its rules within 90 days of the act to remove the prohibition on general solicitation and general advertising in securities offerings conducted pursuant to rule 506. These rules were finalized in July 2013. The newly adopted rule adds a new and separate exemption, Rule 506(c), which is available to an issuer that wants to use general solicitation and advertising to offer securities that are ultimately sold to accredited investors. For individuals, accredited investors are defined as persons whose net worth exceeds $1,000,000 (not including any equity in the individual’s primary residence) or whose income exceeds $200,000 per year (or $300,000 for joint income with spouse) in each of the past two (2) years. The newly adopted rules do require that an issuer take “reasonable steps” to verify that a purchaser of its securities is an accredited investor. Reasonable steps would include reviewing financial statements and tax returns of the investor to confirm accredited investor status. If an issuer chooses to use the Rule 506(c) exemption no non-accredited investors could invest in the offering.
Rule 506(c) presents a new offering exemption but it is important to note that the current 506 offering exemption remains in place. Therefore, if an issuer does not need to generally solicit and advertise the issuer can sell to an unlimited number of accredited investors without the “reasonable steps” verification process and up to 35 non-accredited investors.
If you are a small business in need of capital or an entrepreneur looking for capital to start a new business please contact us to explore the possibilities of raising capital using this new private offering exemption or under the current 506 offering exemption. Given the newness of the JOBS Act and the new 506(c) offering exemption there will be continuing amendments made to the rules so it is very important to discuss the possibility of any offering with a qualified securities attorney.
ORLANDO, FLORIDA –ShuffieldLowman proudly announces that seasoned firm attorney Janet E. Martinez recently received the “Unsung Hero” award at the annual Hispanic Achievement & Business Leadership Awards (HABLA) ceremony held October 3 in Orlando. In addition to Martinez, other local business leaders received awards, and a deserving high school senior received an HABLA scholarship at the event.
The annual HABLA ceremony takes place in four different markets: Orlando, Florida; Houston, Texas; Charlotte, North Carolina and Atlanta, Georgia. HABLA is a tribute to Latino business and civic leaders and highlights the Hispanic communities many successes. HABLA serves as a highlight to Hispanic Heritage Month, which runs through October 15.
“With this event, we want to do two things, develop youth scholars and recognize the force of business and civic leaders in the Latin community,” said the Argentinean, Mariano Legaz, President of Verizon (Florida). “The combination of giving a scholarship together with awards and recognition to community leaders serves to remind the Hispanic community that we need more leaders.”
Martinez, of Mexican descent, offers her legal services pro bono to the Alianza de Mujeres Activas, Inc., an organization in Northwest Volusia County which provides health education and community outreach to fern-working women and children. In addition, she contributes extensively to the Hispanic community-at-large. She currently serves as: an executive committee member and legal advisor for the Hispanic Chamber of Commerce of Metro Orlando; a member of the board of directors for the Boys & Girls Club of Volusia/Flagler Counties, Inc.; and as a member of the Latino advisory committee, Volusia County School Board. She also has served as past president of the Seaside Music Theater; past president of the Volusia County Trusts & Estates Council; and past president of the Women’s Network of Volusia County. In addition, she currently serves as legal counsel for O’Neill Foundation for Community, Health, Inc.; legal counsel for the Florida Chapter of the American Society of Landscape Architects, Inc.; and pro bono, general counsel for Alliance for International Reforestation, Inc.
Janet Martinez earned her law degree (J.D., 1978) from Yale Law School and her undergraduate degree from Vanderbilt University (B.A., 1975, summa cum laude.) She brings clients more than 30 years of experience in estate planning, with emphasis on complex tax issues, business succession planning, estate and trust administration, charitable giving, international tax and estate planning, non-profits, and business law. Martinez speaks several foreign languages, but focuses on a bilingual practice in Spanish to best serve the growing Spanish-speaking clientele in the area. She has been published both nationally and internationally.
Shuffield, Lowman & Wilson, P.A. offices are located in downtown Orlando in the Gateway Center building, and in downtown Tavares, the county seat for Lake County. It is a full service, business law firm, practicing in the areas of corporate law, securities, banking and finance, bankruptcy and creditors rights, land use and government law, real estate, commercial and civil litigation, labor and employment, estate planning and probate, guardianship and elder law, mergers and acquisitions, intellectual property, patent licensing, trademarks and copyrights, tax law, planning for high net worth families with closely held businesses, and environmental law.
TAVARES, FLORIDA, October 2013 – ShuffieldLowman attorney Jason Davis has been named to the Cornerstone Hospice Foundation Board. Based in the law firm’s Tavares office, Davis will serve as an ambassador to help promote the organization’s mission to provide quality of life and dignity to those with terminal illness; and to assist with fundraising efforts that support its programs.
Davis practices in estate planning, corporate and tax law. His experience includes all areas of estate planning, corporate formations, mergers and acquisitions, shareholder agreements and business succession planning. Prior to joining ShuffieldLowman, he was a commercial credit banker. He earned a B.A. in economics from Rollins College, an M.B.A. from Stetson University and a J.D. from the University of Florida College of Law, where he graduated cum laude. Davis also serves on the Lake & Sumter County Habitat for Humanity Board.
Shuffield, Lowman & Wilson, P.A. offices are located in downtown Orlando in the Gateway Center building, and in downtown Tavares, which is the county seat for Lake County. The firm is full service, practicing in the areas of corporate law, securities, banking and finance, bankruptcy and creditors rights, land use and government law, real estate, commercial and civil litigation, labor and employment, estate planning and probate, guardianship and elder law, mergers and acquisitions, intellectual property, patent licensing, trademarks and copyrights, tax law, planning for high net worth families with closely held businesses, and environmental law.
Since 1984, Cornerstone Hospice and Palliative Care, a nonprofit community-based healthcare organization, has provided care and services to central Florida residents experiencing life-limiting illnesses. Cornerstone Hospice serves the Orange, Osceola, Polk, Hardee, Highlands, Lake and Sumter county communities. To learn more about Cornerstone Hospice and Palliative Care, visit www.cornerstonehospice.org.
ORLANDO, FLORIDA – The law firm of ShuffieldLowman recently hosted world renowned humanitarian, author and international speaker Carl Wilkens, and his wife Teresa, at a private event held at the firm on September 18. The firm’s reception and book signing was part of a series of events held from September 12-21, during Valencia College’s Peace and Justice Initiative’s Peace Week. The annual Peace Week program is supported by a grant from the Public Education for Peacebuilding Support Initiative from the U.S. Institute of Peace, with a matching grant by the law firm of ShuffieldLowman Attorneys & Advisors. ShuffieldLowman partner, Gregory W. Meier, is a member of the Valencia College Peace and Justice Initiative Advisory Board.
At the recently held ShuffieldLowman event — Paul Chapman, Valencia College Professor of Humanities; Rachel C. Allen, Valencia College Professor of Humanities and Coordinator of the Peace and Justice Initiative; Carl Wilkens; Teresa Wilkens; Greg Meier, Partner, ShuffieldLowman.
Carl Wilkens is the former head of the Adventist Development and Relief Agency International, and the current director of a Seattle-based educational nonprofit, World Outside My Shoes. As a humanitarian aid worker, Wilkens moved his young family to Rwanda in the spring of 1990. When the genocide that eventually took more than 800,000 lives began four years later, Wilkens refused to leave, even when urged to do so by close friends, his church and the U.S. government. Wilkens was the only American to remain in Kigali, the capital city. Venturing out each day into streets crackling with mortars and gunfire, he worked his way through roadblocks of angry, bloodstained soldiers and civilians armed with machetes and assault rifles so that he could bring food, water and medicine to groups of orphans trapped around the city. His actions saved the lives of hundreds.
Shuffield, Lowman & Wilson, P.A., located in downtown Orlando in the Gateway Center building, and in the heart of Lake County’s Downtown Tavares, is a full service law firm practicing in the areas of corporate law, securities, banking and finance, bankruptcy and creditors rights, land use and government law, real estate, commercial and civil litigation, labor and employment, estate planning and probate, guardianship and elder law, mergers and acquisitions, intellectual property, patent licensing, trademarks and copyrights, tax law, planning for high net worth families with closely held businesses, and environmental law.
1. I’ve heard of a living trust and heard that it avoids probate. What is probate and how does a living trust “avoid” it?
Probate is a court proceeding. In Florida, it can be time consuming and costly. Much of it is also public. Consider the case of Joe and Mary. They had run their own hardware store for many years. Joe owned half the stock in their family store and Mary owned the other half. They owned a home jointly. Mary had also inherited some money which she invested in rental property. Their savings was in a bank account, which they had decided to put in Joe’s name.
When Joe died, Mary learned that she didn’t yet own all the company. Joe’s stock had to be probated before it could be put in her name. Then she learned that she couldn’t get access to the savings. The court had to appoint her personal representative of Joe’s will before she could draw on any of those funds.
When the business creditors found out about Joe’s death, they waited until the will was filed for probate and read it. They saw that the will left everything to Mary, but they weren’t sure she was going to keep the store open, so they began calling her for answers. Joe had been prominent and, to Mary’s dismay, she learned that much of the probate proceeding was public record.
Over a year passed and Mary eventually settled the probate estate. She then heard of a living trust and heard that it avoids probate. She learned that during her lifetime, she would be in complete control of her living trust. She could buy and sell assets in the trust, even run the business, as easily as if she owned those assets herself. At her death, one of her children could succeed her as the trustee of the trust and its assets would pass then free from probate. Mary established a living trust, placed the company stock and her other major assets in the trust, and things ran smoothly for her after that.
2. If everything I own is in joint names, won’t that avoid probate, too?
Yes, but there are some things to add here. First, if you own an asset with your spouse, it will go through probate at your spouse’s later death. Second, consider what may happen if you should put a child’s name on that asset. Mary did so after Joe’s death, and added their son, Sam, as a joint owner of the savings account. Sam had started his own hardware business in a neighboring town, but he didn’t have quite his parents’ talents or experience. When the business started to fail, his creditors were able to reach the savings account he held with his mother and nearly wiped it clean. So while joint ownership is a shortcut to avoid probate, it can create some very special problems of its own. For these reasons, a living trust is a preferable way to avoid probate.
3. My bank told me to just use a “Pay on Death” account to name my heirs. Does that avoid probate?
Yes, it can. But it can raise questions, too. After her husband’s death, Mary decided to set up a POD account so that her grandchildren, Sam’s kids, “would also get something.” She set up another savings account and added her grandchildren, as a “Pay on Death” beneficiaries. At her death, she thought that the account would automatically pass to her grandchildren. She also thought that this was enough to protect the account from any claim or control by Sam’s wife, Christine. Mary had always mistrusted Christine and they had never gotten along.
When Mary passed away, the grandchildren were still very young. Christine made claim to the account on behalf of her young children and was able to get control of the funds at that time. Mary’s desires were thwarted.
This result could have been avoided if Mary had used a living trust instead of the “Pay on Death” shortcut to avoid probate. The living trust could have properly excluded Christine from control of the grandchildren’s funds at Mary’s death.
4. My life insurance agent told me not to worry about probate of my life insurance because insurance does not go through probate. How does this work?
That’s correct (provided it is not payable to your estate). Sometimes, though, you may not want your beneficiaries to receive such a large sum of cash right away. Many couples want their young children to be protected and set up trusts for them in their estate planning. The trusts postpone the children’s receipt of money until they are more financially mature and keep those funds safe for college expenses or emergencies. If a couple were to simply name their children as the beneficiaries then the children would get the proceeds right away with no strings attached. So further planning can be helpful in order to coordinate the beneficiary designations with the parents’ overall desires.
5. What about my home?
In Florida, there are very special considerations that apply to your home. First, it can be eligible for homestead tax exemptions. Second, it can be protected from your creditors. Third, Florida law restricts the ways that you can pass your home at your death. That law originally designed to protect widows and orphans, can lead to some unintended consequences, especially if you have remarried and have a minor child by your first marriage. Each one of these features needs to be taken into account when planning your estate.
6. How does a living trust avoid guardianship?
One of the most helpful features of a living trust is that it can serve as a way for your family to manage your assets if you should become disabled. Often, an adult child is named the successor trustee of a living trust. If you are disabled, that son or daughter, as successor trustee, can have access to the accounts in the trust and must use those accounts for your care. Bill paying and management of your assets is done through your trust and a costly guardianship proceeding can be avoided.
7. Won’t a durable power of attorney do the same thing?
A durable power of attorney is only a start. Because many financial institutions require their own form of power of attorney, it is often difficult to get a financial institution to honor a blanket durable power of attorney not pre-approved by them. This can cause delays when your power holder needs to get to your accounts to pay your bills. A living trust avoids this delay. It is an instrument which has been universally respected by such institutions for some time.
It should be noted here, too, that a fairly recent change to Florida law has required that many older Durable Powers of Attorney must be updated. If you have a Durable Power of Attorney, you should check its date. If you had it drawn up before 2012, it would be a good idea to call your attorney to determine whether it should be updated to reflect current law requirements.
6. What’s the takeaway?
Use of a living trust is much more effective way to put in place your desires for your heirs. A properly funded living trust avoids probate and avoids guardianship. In the long run, it can save your heirs time and money. That’s the good news in using a living trust as the foundation of your estate plan.