Blue Dot Law https://bluedotlaw.com legal solutions for a small planet Thu, 25 Jul 2019 07:13:27 +0000 en-US hourly 1 https://wordpress.org/?v=5.2.3 Expanding the Dot! https://bluedotlaw.com/recruiting-2019/ Thu, 17 Jan 2019 19:22:21 +0000 https://bluedotlaw.com/?p=3448 The post Expanding the Dot! appeared first on Blue Dot Law.

]]>

For the past few years we have been trusted with an abundance of meaningful work. As we enter 2019, our intention is to expand dramatically our capacity to support impact investors, mission driven business and NGOs.

We are looking for lawyers in the following areas:

  • Business Lawyers with 5+ years of corporate and securities experience in a variety of backgrounds, including startups, corporate finance, lending, fund formation, mergers and acquisitions, and general corporate counseling
  • Business Lawyers with 2-4 years of experience, including competency in corporate, tax, finance, and/or securities, with a healthy desire to learn all of our areas of practice
  • Intellectual Property Lawyers with 5+ years of experience, ideally with a practice that includes both registration and transactional work
  • Trusts and Estates Lawyers with 7+ years of experience, with a focus on complicated estate planning for high net worth families

Click here for our full recruitment pitch, and Pass it On!

The post Expanding the Dot! appeared first on Blue Dot Law.

]]>
2017 Impact Report (and other Summer news) https://bluedotlaw.com/report-newsletter/ Fri, 03 Aug 2018 17:31:02 +0000 https://bluedotlaw.com/?p=3431 The post 2017 Impact Report (and other Summer news) appeared first on Blue Dot Law.

]]>

Summer 2018 News

Thank you,

The post 2017 Impact Report (and other Summer news) appeared first on Blue Dot Law.

]]>
U.S. Regulations of Non-U.S. Fund Managers and Reporting Requirements https://bluedotlaw.com/non-us-funds/ Sat, 14 Jul 2018 19:13:19 +0000 https://bluedotlaw.com/?p=3414 Applicable United States Regulation of Fund Managers and Reporting Requirements The following is an overview of certain U.S. laws and regulations make your life as easy as possible fixer that apply to non-U.S. investment funds and their fund managers to the extent they may have U.S. investors, advise U.S. clients, or have U.S. source income. […]

The post U.S. Regulations of Non-U.S. Fund Managers and Reporting Requirements appeared first on Blue Dot Law.

]]>
Applicable United States Regulation of Fund Managers and Reporting Requirements


The following is an overview of certain U.S. laws and regulations make your life as easy as possible fixer that apply to non-U.S. investment funds and their fund managers to the extent they may have U.S. investors, advise U.S. clients, or have U.S. source income. Although non-U.S. fund managers often qualify for exemptions from registration in the U.S. as an “investment adviser,” certain non-U.S. fund managers are subject to reporting requirements in the United States. In addition, non-U.S. investment funds with U.S. source income may be subject to substantial U.S. tax withholding to the extent they do not comply with certain reporting and other obligations to the United States Internal Revenue Service (the “IRS”).


I.     Investment Adviser Regulation

The Investment Advisers Act of 1940 (the “Advisers Act”) regulates persons and entities that advise others on investments in securities. Included within the scope of the Advisers Act are the managers of private funds. Even private fund managers that are not based in the United States and that manage only non-U.S. funds and clients may fall within the scope of regulation under the Advisers Act if there are U.S. investors investing in the private funds they manage. Certain fund managers are required to register with the U.S. Securities and Exchange Commission (the “SEC”), but many private fund managers qualify for an exemption to such registration. The relevant exemptions, reporting requirements, and certain other rules under the Advisers Act that may be applicable to non-U.S. fund managers are discussed below.

Foreign Private Adviser Exemption

There is an exemption from registration requirements under the Advisers Act for “Foreign Private Advisers.” Foreign Private Advisers are not subject to the reporting requirements and recordkeeping requirements discussed below that apply to “Private Fund Advisers.” To qualify as a “Foreign Private Adviser” a fund manager must:

  • have no place of business in the United States;
  • have fewer than 15 clients and investors in the United States in private funds advised by the investment adviser;
    • For the purpose of counting the 15 U.S. investors, the fund manager generally must “look through” certain entities that are essentially pooled investment vehicles and count the ultimate beneficial owners of such entities. For example, a master fund in a master-feeder fund structure would have to count all U.S. holders of securities of any feeder fund as investors.
    • For the purpose of determining whether a client or investor is in the Unites States, the Advisers Act incorporates the definition of a “U.S. Person” set forth in Regulation S of the Securities Act of 1933. This definition includes natural persons resident in the U.S. and entities formed under U.S. law, but specifically excludes international organizations such as the Inter-American Development Bank, the Asian Development Bank, and the African Development Bank.
  • have aggregate assets under management attributable to clients in the United States and investors in the United States in private funds advised by the investment adviser of less than $25 million; and
    • To calculate assets under management, the method for determining “regulatory assets under management” in Part 1 of Form ADV is used. For assets under management relating to private funds managed by the adviser, one must determine the current market value (or fair value if market value is unavailable) of the private fund’s assets and the contractual amount of any uncalled commitment of fund investors.
  • not hold itself out generally to the public in the United States as an investment adviser.

Private Fund Adviser Exemption

Non-U.S. advisers that have exceeded the 15 investor/$25 million thresholds discussed above or are otherwise not able to qualify as a “Foreign Private Adviser” may still be exempt from registration as an investment adviser in the U.S. if they qualify as a “Private Fund Adviser.” Although “Private Fund Advisers” are exempt from the comprehensive regulation and reporting requirements of the Advisers Act, it is important to note that a Private Fund Adviser will have certain reporting and other compliance obligations under the Advisers Act (discussed further below). To qualify as a “Private Fund Adviser” a non-U.S. investment adviser (i.e., an adviser whose principal office and place of business is outside the United States) must:

  • Have no client that is a “United States person” other than “qualifying private funds” (which generally refers to investment funds that are not required to register in the U.S. under the Investment Company Act of 1940); and
  • If any assets are managed by the investment adviser from a place of business in the United States, (1) all such assets managed must be solely attributable to private funds and (2) the total value of those assets must be less than $150 million.

In other words, there is no limitation on the type or number of non-U.S. clients a non-U.S. Private Fund Adviser may have or on the amount of assets it manages outside of the U.S. So long as the investment adviser is not managing assets (e.g. making its investment decisions) from a place of business in the U.S., there is also no limit on its amount of assets under management. For an investment adviser that only manages assets from a place of business outside of the U.S., the critical consideration for maintaining the Private Fund Adviser exemption is avoiding U.S. advisory clients other than private funds. If a non-U.S. adviser, for instance, manages accounts of one or more individual U.S. investors, for instance, it will not be able to take advantage of this exemption from registration with the SEC.

Reporting Requirements for “Private Fund Advisers”

Advisers claiming an exemption from registration as a “Private Fund Adviser” must file annual reports with the SEC electronically on Form ADV through the Investment Adviser Registration Depository (www.iard.com). A Private Fund Adviser must submit its initial Form ADV within 60 days of relying on the Private Fund Adviser exemption from registration and must file annual Form ADV amendments 90 days after the end of each fiscal year.

Private Fund Advisers only need to complete certain items in Part 1 of Form ADV and are not required to complete Part 2 of the Form ADV.[1] These items report basic identifying information about the adviser’s owners and affiliates, business activities that may present conflicts of interest, information about the relevant Advisers Act exemption on which it is relying, and disciplinary information regarding itself and its employees. Of particular note, an adviser must provide information about each private fund it manages, the private fund’s gross assets, the private fund’s investment strategy (based on an enumerated list of potential categories), and the private fund’s auditors, prime brokers, custodians, and administrators.[2]

Recordkeeping Requirement for “Private Fund Advisers”

Section 204 of the Advisers Act requires investment advisers to keep such records and to prepare and file such other reports as the SEC may prescribe by rule. Although Foreign Private Advisers are expressly exempt under the Advisers Act from the requirements of Section 204, Private Fund Advisers are not exempt. Hence Private Fund Advisers can be subject to SEC recordkeeping requirements, and the SEC will have the authority to examine such records. Specific recordkeeping obligations, which could significantly increase Private Fund Advisers’ compliance costs, have not been established but could be the subject of future SEC rulemaking.

Other Compliance Requirements.

  • The anti-fraud provisions of the Advisers Act apply to all investment advisers, whether registered or exempt from SEC registration. These provisions of the Advisers Act require advisers, among other things, to disclose all material facts (and not make any material omissions) to current or prospective investors, and to disclose to their clients actual and potential conflicts of interest.
  • Private Fund Advisers must comply with the Advisers Act’s “pay to play” rules that prohibit payments to certain third parties to solicit government clients and restrict payments and contributions to certain government officials and political parties. “Pay to Play” rules apply to foreign private advisers that advise U.S. state and local government funds. If a non-U.S. adviser does not solicit or accept any government funds from U.S sources, this is probably not applicable.
  • Private Fund Advisers are required to establish, maintain and enforce written policies and procedures reasonably designed, taking into consideration the nature of such investment adviser’s business, to prevent the misuse of material, nonpublic information (this relates to insider trading with information regarding publicly traded companies). If a non-U.S. adviser and the fund it manages will not be investing in U.S. publicly traded securities, this does not seem to be a material concern.
  • Private Fund Advisers must provide clients and fund investors with a privacy notice describing their practices for maintaining privacy of non-public personal information, at the time of establishing a customer relationship. Private Fund Advisers must also send clients and fund investors annual privacy notices, except when the adviser: (i) only provides non-public personal information to unaffiliated third parties for limited purposes, and (ii) has not changed its policies and practices from those disclosed in the adviser’s most recent privacy notice provided to clients and fund investors.

II.      IRS Withholding and Reporting Requirements

Certain non-U.S. funds are subject to rather onerous withholding and information reporting requirements under the Foreign Account Tax Compliance Act of 2010 (“FATCA”). FATCA imposes a withholding tax at a 30% rate on all “withholdable payments” to a “foreign financial institution” (an “FFI”) unless such FFI registers with the IRS and enters into an agreement (an “FFI Agreement”) with the IRS governing certain reporting and withholding obligations with respect to its U.S. account holders.[3] An FFI includes a non-U.S. entity that is engaged primarily in the business of investing, reinvesting or trading in securities, partnership interests, and other specified financial assets. Although there are some limited exemptions, this broad definition generally includes investment entities such as private equity funds. “Withholdable payments” subject to FATCA withholding are U.S. source interest, dividends, rents, salaries, wages, premiums, annuities, and other fixed or determinable annual or periodic gains, profits, and income (collectively referred to as “FDAP” income for U.S. tax purposes), and gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the U.S.

If a non-U.S. fund will be deploying all of its capital in investments in non-U.S. companies, it seems unlikely that there will be any U.S. sourced receipts for the fund that would be subject to 30% withholding under FATCA. If this were the case, there would generally be no compelling reason requiring the fund to enter into an FFI Agreement (and comply with the onerous information reporting thereunder). However, in certain cases, funds with no or very little U.S. source income may decide to register with the IRS and enter into FFI Agreements to the extent certain of their investors that are also FFIs require it as a condition to their investment. Furthermore, it is important to note that non-U.S. funds may sometimes have unexpected exposure to U.S. income. For example, interest paid by foreign branches of U.S. banks is considered U.S. source income and would be subject to FATCA withholding. Certain money market type instruments may also involve U.S. source income. It is therefore important to analyze whether a non-U.S. fund may have exposure to U.S. source income.


For further information, please contact one of us:


[1] Private Fund Advisers must complete Item 1 (Identifying Information), Item 2. B and C (SEC and State Reporting by Exempt Reporting Advisers), Item 3 (Form of Organization), Item 6 (Other Business Activities), Item 7 (Financial Industry Affiliations and Private Fund Reporting), Item 10 (Control Persons), Item 11 (Disclosure Information, e.g., disciplinary history); and Schedules A, B, C, and D with respect to any corresponding answers to the above items.

[2] For more information, see Item 7.B on Part 1 of Form ADV and the corresponding sections of Schedule D.

[3] Under an FFI Agreement, a “participating” FFI generally must (1) undertake certain identification and due diligence procedures with respect to its accountholders, (2) report annually to the IRS on its accountholders who are U.S. persons or foreign entities with substantial U.S. ownership, and (3) withhold and pay over to the IRS 30% of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to “recalcitrant account holders” (meaning generally those investors or account holders in the FFI who not provide the information required to meet the IRS’s verification standards) or to other FFIs who have not entered into FFI Agreements.

The post U.S. Regulations of Non-U.S. Fund Managers and Reporting Requirements appeared first on Blue Dot Law.

]]>
AVPN 2018 https://bluedotlaw.com/impact-investing-in-and-around-asia/ Tue, 01 May 2018 23:32:50 +0000 https://bluedotlaw.com/?p=3383 The AVPN Conference (Asian Venture Philanthropy Network) is the largest gathering of social investors in Asia bringing together a diverse group of funders and resource providers from around the globe. With the theme “Maximising Impact,” the 2018 Conference will cover a range of impact areas and investment approaches. On June 7, 2018, in Singapore, Soo Jung […]

The post AVPN 2018 appeared first on Blue Dot Law.

]]>
The AVPN Conference (Asian Venture Philanthropy Network) is the largest gathering of social investors in Asia bringing together a diverse group of funders and resource providers from around the globe. With the theme “Maximising Impact,” the 2018 Conference will cover a range of impact areas and investment approaches. On June 7, 2018, in Singapore, Soo Jung Choi will lead a workshop on the topic of alternative exits for early-stage impact investment. Learn more about the work we do in and around Asia here or click below.

avpn_final

The post AVPN 2018 appeared first on Blue Dot Law.

]]>
SEC Action Exposes Limits on Shareholder Proposals https://bluedotlaw.com/limited-shareholder-impact/ Thu, 22 Mar 2018 19:48:17 +0000 https://bluedotlaw.com/?p=3361 Many impact investors posit that holding positions in public companies leads to positive impact because of the ability to pressure management through shareholder proposals. Champions of this approach point to recent examples like the ExxonMobil shareholder proposal that shareholders approved last May requesting that ExxonMobil consider enhanced reporting on climate change risks. A recent SEC […]

The post SEC Action Exposes Limits on Shareholder Proposals appeared first on Blue Dot Law.

]]>
Many impact investors posit that holding positions in public companies leads to positive impact because of the ability to pressure management through shareholder proposals. Champions of this approach point to recent examples like the ExxonMobil shareholder proposal that shareholders approved last May requesting that ExxonMobil consider enhanced reporting on climate change risks.

A recent SEC action highlights, however, the limitations of shareholder activism under federal and state law. Trillium Asset Management recently demanded that EOG Resources, an oil and gas company, submit for a shareholder vote a proposal to consider targets for reducing greenhouse gas emissions. In response, EOG Resources argued that SEC proxy rules did not require it to submit the proposal for a vote because of an SEC rule that allows companies to refuse proposals that related to “ordinary business operations.”  Furthermore, EOG sought confirmation from the SEC that it could legally refuse the proposal.

In a published “no-action letter,” the SEC agreed with EOG that it could refuse to submit the proposal for a vote stating that the proposal sought to “micromanage the Company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.”

One could argue that this is simply another example of the Trump administration’s disfavor of climate related regulation and activism. But this SEC action exposes real legal limitations on the ability of shareholders to influence corporate behavior. Both federal and state law prohibit shareholder actions that seek to dictate corporate management decisions.

Although ultimately heralded as a victory for activism, the ExxonMobil board was not legally required to implement its climate-related shareholder proposal even though the shareholders approved it. The proposal was completely non-binding from a legal perspective. ExxonMobil could likely have rejected from consideration a binding proposal because it would have impinged on the board’s exclusive authority to manage the company. It was fully seven months after ExxonMobil shareholders voted to approve the proposal that the ExxonMobil board announced that it had dropped its opposition  and would implement the proposal recommendations related to enhanced reporting.

The post SEC Action Exposes Limits on Shareholder Proposals appeared first on Blue Dot Law.

]]>
Blue Dot is a PBC! https://bluedotlaw.com/blue-dot-pbc/ Thu, 01 Feb 2018 19:15:58 +0000 https://bluedotlaw.com/?p=3350 The post Blue Dot is a PBC! appeared first on Blue Dot Law.

]]>

Winter 2018 News

Thank you,

The post Blue Dot is a PBC! appeared first on Blue Dot Law.

]]>
When Social Impact Businesses Expatriate . . . https://bluedotlaw.com/social-impact-expatriate/ Thu, 02 Nov 2017 03:00:03 +0000 https://bluedotlaw.com/?p=3314 Social impact businesses are similar to their traditional business counterparts in many legal and tax respects. However, in advising social entrepreneurs and investors, we occasionally encounter differences that require departing from a traditional approach. My colleague previously noted that entrepreneurs shouldn’t use a US entity to operate a non-US business before considering the legal and […]

The post When Social Impact Businesses Expatriate . . . appeared first on Blue Dot Law.

]]>
Social impact businesses are similar to their traditional business counterparts in many legal and tax respects. However, in advising social entrepreneurs and investors, we occasionally encounter differences that require departing from a traditional approach. My colleague previously noted that entrepreneurs shouldn’t use a US entity to operate a non-US business before considering the legal and tax consequences. Here, I try to describe one major aspect of the US tax rules that can negatively affect cross-border businesses (including many social impact businesses) that is often not considered by founders, investors, and advisors experienced primarily with purely domestic businesses: the corporate anti-expatriation rules (referred to here as “Section 7874”).

Congress enacted Section 7874 in response to a wave of corporate expatriations by US-based, multinational, publicly traded companies. Unfortunately, however, Section 7874 (and the corresponding IRS regulations) could best be described as the proverbial sledgehammer used in lieu of scalpel, particularly as applied to small, start-up stage, impact-driven businesses.

When Section 7874 applies . . . 

Section 7874 applies to expatriating businesses, or those that move their legal headquarters from the US to another jurisdiction. Specifically, Section 7874 is triggered when all of the following occur:

  1. A foreign business entity acquires a US business entity (or its assets);
  2. Following this acquisition, the foreign entity is owned at least 60% (or 80%, as described below) by former owners of the US entity; and
  3. The combined foreign and US entities lack a “substantial trade or business” in the country of expatriation.

What Section 7874 does . . .

When triggered, Section 7874 can impose a one-time “exit tax” on the business based on its fair market value, and for which certain credits (such as prior net-operating losses) are unavailable to offset the tax. However, Section 7874 will instead completely disregard the expatriation and allow the IRS to continue treating the (now foreign-based) business as a US entity if the 80% threshold described above is reached.

By contrast, the costs of retaining a US-parent structure for a non-US business can be exorbitant. Many start-ups operating outside the US eventually court non-US buyers, who typically eschew purchasing US corporate stock, and instead insisting on an asset sale structure, which can more-than-double the tax on the selling owners. Additionally, a US-parented non-US business may scare away some foreign investors unwilling to tolerate particularly complicated American banking and tax compliance rules.

How small businesses previously dealt with Section 7874 . . .

Small businesses, particularly start-ups, often change their legal headquarters for non-tax reasons, including to reflect changes in customer location or accommodate new investors. Additionally, founders often hastily form a US entity before undertaking a thoughtful (often expensive) analysis of ideal legal structure. Sometimes well-meaning advisors rush entrepreneurs into a US corporate structure, advising this as a conservative step to protect company IP or limit liability. Many entrepreneurs may even anticipate a future company relocation, unaware of Section 7874.

However, US start-ups attempting to relocate are subject to the full effect of Section 7874, no differently from the originally targeted, publicly traded companies. (Perhaps more accurately, US start-ups may be even more affected by Section 7874, as large multinationals’ size and acquisition desirability afford certain work-arounds to the anti-expatriation rules.)

In prior years, some US start-ups looking to expatriate for non-tax reasons have managed to avoid Section 7874 by failing the 60% ownership test (e.g., by lumping a critical mass of new owners around an equity investment related to the relocation) or by satisfying the requirement of a “substantial trade or business” in the desired country of organization. However, the IRS has substantially altered the Section 7874 rules over time, resulting in much less planning opportunity, particularly for start-ups and social impact businesses.

Modification of the 60/80% ownership tests . . .

Section 7874 establishes the 60 and 80% thresholds mentioned above, but gives the IRS wide discretion to flesh out those tests in order to prevent abuse. As mentioned above, some start-ups previously avoided Section 7874 by admitting enough new equity investors in a financing transaction related to the relocation, and in some cases, lumping other new owners (e.g., recent hires or noteholders exchanging notes for equity) at the same time to reach the desired 40% new ownership (or 20%, if structuring to avoid only the harshest aspects of Section 7874).

Arguably, these practices were abusive and gave rise to legitimate IRS concern. On the other hand, some believe that these “workarounds” did not offend the “spirit” of Section 7874, which originally targeting large, publicly traded companies, which would have had a very difficult time selling such a high amount of new equity.

Furthermore, Congress specifically addressed sales of new equity by including an “anti-stuffing rule” in Section 7874. This rule disregards equity of the foreign acquiring entity from the computation where that equity was issued in a public offering related to the expatriation. Nevertheless, the IRS finalized regulatory guidance earlier this year that, in its own words: “modifies the scope” of the “anti-stuffing rule.” Under that guidance, relocating businesses must now disregard broad categories of equity issued by the foreign acquiring business, including equity issued for cash (whether in a public or private offering) and equity issued upon the exchange of company notes – quite a “modification.”

With these new rules, US start-ups are now generally unable to “fail” the 60/80% ownership tests (though this approach remains available for large, established, companies that can court a foreign “merger partner.”)

Constriction of the “substantial trade or business”

US companies have another means of potentially avoiding Section 7874, where the combined entity resulting from the foreign acquiring entity’s acquisition of the US entity (or its assets) has a “substantial trade or business” in the country of relocation. Initially, the IRS tested for a “substantial trade or business” in the new jurisdiction by considering all facts and circumstances – a difficult and subjective determination. However, the original rules included a safe harbor for those post-acquisition enterprises with at least 10% of their assets, employees, and sales in the chosen jurisdiction.

US start-ups could sometimes qualify for the initial safe harbor, but often two complications would arise: (1) businesses with global sales footprints (e.g., software businesses) often lacked at least 10% sales in any single jurisdiction, and (2) many social impact businesses operate in countries that make chartering a business entity very difficult, particularly where foreign owned. Many social entrepreneurs address the second concern by operating through a subsidiary or a branch of a corporation organized outside the operational jurisdiction, precluding availability of the safe harbor. Given these limitations, relocating US start-ups would frequently forego the 10% safe harbor and seek comfort under the general “all facts and circumstances” analysis.

However, the IRS later increased the safe harbor percentages to 25%, greatly limiting its availability (again, particularly for organizations with multi-jurisdictional sales). Not satisfied, the IRS then changed the 25% safe harbor thresholds to a set of minimum requirements. Currently, a US business seeking relocation must have at least 25% of the enterprise assets, employees, and sales located within the single jurisdiction where it is seeking to relocate. (Note that these rules do not consider the business principals’ tax motivations nor the actual tax rates of the chosen jurisdictions, and so effectively limit relocations to even high-tax, Scandinavian countries…)

The current situation . . .

Congress and the IRS are considering further changes to Section 7874, as they believe many large US businesses – the original targets – continue to pursue tax-motivated expatriations. However, we believe most of the previously available avenues for small, start-up US businesses considering relocation have effectively been closed. In certain limited circumstances, US start-ups may still expatriate under the “substantial trade or business” exception. However, this approach now requires a substantial amount of uncertainty, higher deal-structuring costs, and often some changes to the otherwise preferred deal structure, in order to obtain comfort on the desired tax outcome.

In some other limited circumstances, a US start-up may be able to establish a framework for future migration by either forming or converting into a limited liability company at a sufficiently early stage. However, even this approach requires careful planning and consideration of the applicable facts and circumstances.

In the end, we advise many social impact businesses with non-US operations to avoid creating a US entity entirely, or at least until advised of the full-lifecycle effects of that decision. So ultimately, Congress’s original intent of keeping large publicly traded corporations in the US may have the effect of pushing small, start-up companies out.

The post When Social Impact Businesses Expatriate . . . appeared first on Blue Dot Law.

]]>
Being the Change https://bluedotlaw.com/being-the-change/ Mon, 02 Oct 2017 15:15:44 +0000 https://bluedotlaw.com/?p=3282 On July 1st of this year, Blue Dot Advocates converted from a corporation owned solely by me to a workers cooperative and benefit corporation. This change had been in the works for a long time, and on my heart and mind for even longer. The most fulfilling aspect of the process for me was that […]

The post Being the Change appeared first on Blue Dot Law.

]]>
On July 1st of this year, Blue Dot Advocates converted from a corporation owned solely by me to a workers cooperative and benefit corporation. This change had been in the works for a long time, and on my heart and mind for even longer. The most fulfilling aspect of the process for me was that we took the time to craft a legal structure that embodies our most deeply held values as an organization. This blog focuses on those values and how our structure advances them.

Collective Responsibility

Over the almost decade of working in the fields of social enterprise and impact investing, I’ve heard many people say that companies must necessarily prioritize financial sustainability over mission considerations. Profit, I hear, is a company’s lifeblood. While this is true, blood does not support life without a heart to circulate it through the body. The two depend on each other for the body to survive.

The heart of our firm is our commitment to operate for the benefit of our global community. If Blue Dot ceases to operate with this sense of collective responsibility, then Blue Dot dies. None of us is interested in showing up for work unless we feel like our work is making a positive impact on the world.

We encoded this global collective social and environmental commitment in our organizational DNA by organizing our cooperative as a statutory benefit corporation. In addition to the general public benefit purpose, which is common to all benefit corporations, we also agreed to specific benefit purposes, which represent the distinct social and environmental outcomes that we target with our work. Our entire certificate of incorporation, including these purposes, can be found here.

Relationship

Very early in my life I encountered the saying “it’s not personal, it’s just business.” Sourced to a mobster and immortalized in the movie “The Godfather,” I have found that these words actually reflect a widely-held belief of how business should work. We are taught the universality of the “golden rule,” but many in our global society use legal constructs such as contract and property rights and fiduciary duty to justify actions that harm people in ways that we would never wish for ourselves or our loved ones.

To counteract the societal gravitational pull towards performance over people, we at Blue Dot designed a decision-making process that requires us to build consensus both at the board and member levels. An up or down vote is permitted as a last resort only if the consensus process fails. This can be slow and  cumbersome and inefficient, but we decided that we valued inclusivity more than expediency.

Even without consensus decision-making, the cooperative, by its nature, is more oriented toward shared power. By law, for example, every worker-member in the cooperative must have a vote, and worker-members must always control the board. The benefit corporation form is also inherently more people-centric, as directors owe fiduciary duties to employees and community members in addition to financial stakeholders.

Cooperative Economics

It seems that experts, academics, and the conventional business elite most often identify the “market” as the force driving wage and profit sharing decisions. Company leaders fear paying more than “market” wages because of investors “market” profit expectations. The “market” dictates that CEOs of public companies make outrageous sums of money. In law firms, the “market” arguably grants the highest economic reward to partners who control the most business and who possess the best socio-political skills.

We decided that we wanted our values of fairness and transparency to form the foundation of our internal economic system, rather than the invisible hand of the “market.” As a cooperative, we share the fruits of our collective labor based on a predetermined, objective formula in the company’s bylaws. We all know exactly how the firm determines our compensation and profit distributions each year, and consensus exists among the members as to how the firm values our different contributions.

* * * * *

I have often complained of suffering from the proverbial “Cobbler’s Children Syndrome,” or “vocational irony,” in which the cobbler’s own children suffer from a lack of shoes. In the past, I’ve struggled to apply the same skills in legal matters for myself that I offer to my clients. I failed, for example, to keep up with all of the corporate formalities of the former Blue Dot corporate entity, even though I regularly lecture clients about the importance of those formalities.

With this conversion to a cooperative and benefit corporation, however, I feel like my teammates and I showed up for ourselves with thoughtful, creative, and technically world-class lawyering. We have designed a legal structure that is aligned – and alive — with our values, which is the same experience that we seek to offer to our clients. We’re wearing custom-tailored shoes now, and we’re excited to walk the world with them! 


If you’re interested in more, here is the full story and history of Blue Dot Advocates as a mission-driven company.

 Special thanks to Jason Weiner for his generous support of this project.

The post Being the Change appeared first on Blue Dot Law.

]]>
Colorado Makes the Public Benefit Corporation Act Better https://bluedotlaw.com/co-pbcs/ Wed, 19 Jul 2017 19:02:57 +0000 https://bluedotlaw.com/?p=3203 In the three years since Colorado’s Public Benefit Corporation Act went into effect, lawyers who work with PBCs have seen a few ways it could be improved. This year a group of lawyers in the B Corp community, along with the Colorado Bar Association and bipartisan sponsors, proposed some amendments. The amendments were enacted, and […]

The post Colorado Makes the Public Benefit Corporation Act Better appeared first on Blue Dot Law.

]]>
In the three years since Colorado’s Public Benefit Corporation Act went into effect, lawyers who work with PBCs have seen a few ways it could be improved. This year a group of lawyers in the B Corp community, along with the Colorado Bar Association and bipartisan sponsors, proposed some amendments. The amendments were enacted, and will go into effect on August 9, 2017.

For the uninitiated, a PBC is a for-profit corporation that also has a purpose to produce one or more public benefits. Where a traditional corporation has a mandate to maximize shareholder wealth, a PBC is required to balance the financial interest of shareholders with the company’s public benefit purpose, and with its impact on all those materially affected by its conduct. Viagra generic https://www.lifestyle-pharmacy.com/product/viagra/

HB17-1200 updates the current law in three main ways:

  • it makes using the PBC identifier in the name optional,
  • it allows all types of cooperatives to form as PBCs, and
  • it broadens the requirement for a two-thirds shareholder vote to convert a PBC into a traditional corporation.

Name Requirement Becomes Optional

The previous law required PBCs to use the words “public benefit corporation” or an abbreviation such as “PBC” in the entity name. The amendments make using the identifier in the corporate name optional, and limit use of that identifier to entities organized as PBCs.

A privately held PBC that does not use the identifier in its name must inform investors of its PBC status before selling them shares.

Use of the identifier has made it difficult for entities to do business in states where the identifier is not recognized or means something different than public benefit corporation. This change will make it easier for Colorado businesses to operate across state lines, and will simplify life for corporations that want to become a PBC, but would find the process of changing their name burdensome. Adipex diet pills https://adipex-phentermine.net/

PBC Status Available to Limited Cooperative Associations

Under previous law, PBC status was available to some Colorado cooperatives but not others, depending on which of three statutes the co-op was organized under. The amendments make the PBC form available to all Colorado co-ops.

Colorado entity statutes authorize three forms of co-op:

  • Article 56, under which most co-ops are organized, including consumer, worker and producer co-ops;
  • Article 58 (added in 2011), which allows co-ops to adopt more flexible capital structures; and
  • Article 55, primarily used for utility and electric co-ops.

In an apparent oversight, the previous PBC Act allowed Article 55 and Article 56 cooperatives to organize as PBCs, but not Article 58 cooperatives. Cooperatives organizing under Article 58 have expressed a desire to use the PBC form – and will now be allowed to do so.

Two-thirds Vote Requirement For All (Not Just Some) Opt Out Transactions

A PBC can become a traditional corporation by amending its articles of incorporation, or by selling to a buyer that is not a PBC. Shareholders who care about the company’s social mission have an interest in whether or not that is allowed to happen.

In order to protect that interest, the law requires a two-thirds shareholder vote to approve certain transactions that would result in the PBC becoming a traditional corporation.

This requirement applies if the change is accomplished by amending the articles, or by a conversion, or by a stock-for-stock merger. But under previous law, it didn’t apply if the change is accomplished via a cash merger or a sale of assets. So before the amendments, directors could avoid this shareholder protection by choosing a different form of transaction when they act to sell the company.

The amendments expand the requirement of a two-thirds shareholder vote to cover these two situations.

We at Blue Dot are already proud of Colorado’s PBC Act. We think it helps keep Colorado in the vanguard of the global movement of companies and investors seeking to use business as a tool for the common good. And, we think these amendments will make it even better.

The post Colorado Makes the Public Benefit Corporation Act Better appeared first on Blue Dot Law.

]]>
Impact, meet Immigration https://bluedotlaw.com/impact-meet-immigration/ Thu, 15 Jun 2017 13:03:26 +0000 https://bluedotlaw.com/?p=3291 Migration Catalyst As of June 1st, Blue Dot Advocates excitedly welcomed Bruce’s long-time friend and a fantastic U.S Immigration and Naturalization attorney, Sheryl Winarick. Licensed in Maryland, with a home base in Austin, Texas Sheryl spent the first 8 years of her legal career working for national non-profit organizations – Catholic Legal Immigration Network, and the […]

The post Impact, meet Immigration appeared first on Blue Dot Law.

]]>
Migration Catalyst

As of June 1st, Blue Dot Advocates excitedly welcomed Bruce’s long-time friend and a fantastic U.S Immigration and Naturalization attorney, Sheryl Winarick. Licensed in Maryland, with a home base in Austin, Texas Sheryl spent the first 8 years of her legal career working for national non-profit organizations – Catholic Legal Immigration Network, and the Justice For Our Neighbors Program of the United Methodist Committee on Relief. Ten years ago, almost to the day, she started her own private practice. Her experience spans the entire breadth of immigration law, including humanitarian benefits like political asylum, removal defense before the immigration court, family and employment based immigration, and naturalization. Sheryl merged her practice into ours because she believes so strongly in our “why” and she knows Bruce means it. Joining the Blue Dot team also increases her capacity to serve clients through collaboration, coordination, and cooperation.

“Inspired people inspire people.”

Sheryl is a force for change, both for her clients and for the world around her. Eyes twinkling, Sheryl adds, “my clients inspire me on a daily basis and challenge me to reach my own full potential.” We’re proud to have that force helping to guide the future of Blue Dot.

In 2016, Sheryl invested three months as a TED Resident at TED HQ, where she incubated a project to explore culture, identity and change through inclusive community conversations around the country. She has done five TEDx talks over the last year, each addressing the impact her clients have made on her personally, as well as the profoundly positive impact immigration makes on our country. She forcefully addresses the misrepresentations of migrants and refugees, and always ends her talks with a call to action, around taking more time to listen and creating the space to engage with our communities as they evolve. Sheryl is also an Aspen Scholar, and was recently selected as one of the HATCH 100 as they met in Big Sky Montana. “Imagine gathering up a hundred innovators, artists, makers, creators, educators, risk-takers, influencers, and mavericks… people who want to shake the world by its ankles. And are. Imagine them in a room together, teased out of their cocoons, grids off, brains on, glass flying everywhere.” Now imagine that at Blue Dot and you start to get Sheryl.

Our Migration Catalyst

Sheryl is most comfortable waaaay outside her comfort zone. She has an insatiable sense of curiousity, naturally sees the best in everyone, and is driven to build bridges of understanding and appreciation across culture, religion, race, nationality, gender, age, and class. In addition to practicing law, she is a long-time member of the Public Policy Committee for HIAS, the oldest refugee resettlement agency in the world that helps those forced to flee their homelands because of who they are, including ethnic, religious, and sexual minorities, rebuild their lives in safety and dignity. Also, before the TED stage, Sheryl spent time on the boards of directors of Miriam’s Kitchen, an organization dedicated to ending chronic homelessness in Washington DC, and Teaching for Change, whose mission is to “encourage teachers and students to question and rethink the world…build a more equitable, multicultural society and become global citizens.” Viewing people from all circumstances with dignity is central to the way that Sheryl practices law, and is the core of building healthy intercultural relationships.

Immigrants ARE the New World Economy

So, what makes an immigration attorney such a valuable asset to a transactional law firm? When a young entrepreneur with demonstrated excellence in the sciences, arts, education, business or athletics contacts Sheryl, she helps them qualify for an O-1 Extraordinary Ability Non-Immigrant Visa or an EB-1 Extraordinary Ability Immigrant Visa, catalyzing their ability to create extraordinary benefit for the U.S. and the world. And, when the law firm already specializes in advising social enterprises, startups, and outside-the-box thinking, Blue Dot becomes the perfect partner to bring their ideas to life.

This isn’t some imaginary scenario. Yasmine El Baggari, a client, is an impressive young entrepreneur from Morocco. She came to the USA at the age of 17, on a scholarship granted by the U.S. State Department’s Youth Exchange and Study (YES) program. Yasmine wanted to learn about American culture from real Americans, and she decided the best way to do that was to visit all 50 states and live with them. Her view of the world was positively transformed by the warm hospitality she received from the more than 150 families and one-on-one interpersonal experiences with those who shared their lives and their homes with her.

Like Sheryl, Yasmine’s ambitions have always transcend self-discovery and adventure. She wisely saw that making similar experiences more widely accessible through technology was possible, so, she founded her company – Voyaj. The mission? To “connect people from around the world to deepen global understanding abroad or in your local community.”

Yasmine’s experiences, her desire to build understanding and connect people from differing backgrounds, along with her need to protect the intellectual property of her new business, made her an ideal client for Blue Dot. Sheryl and Yasmine’s mission alignment is undeniable, and each woman champions so much of what Blue Dot stands for. Connection, collaboration, cooperation. Women like this are designing a future that Blue Dot wants to be a part of – connected, sustainable, and innovative.

Cheers to Future Professional Overlap

Being able to call Sheryl a partner and offer her clients truly complementary legal services is an honor for Blue Dot, and we look forward to much more professional overlap. Whether we’re advising on how to restructure a company, forming a fund specific to investors desiring to collectively leverage very specific world impact, or providing immigration services to exceptional trail blazers, we will continue to expand our reach, create connections that lead to multifaceted living, and provide legal solutions for a small planet.

The post Impact, meet Immigration appeared first on Blue Dot Law.

]]>