Blue Dot Law https://bluedotlaw.com legal solutions for a small planet Fri, 10 Jul 2020 22:48:43 +0000 en-US hourly 1 https://wordpress.org/?v=5.5.1 Revenue-Based Financing and Foundation Investors: An Ideal Pairing in Our Current Climate? https://bluedotlaw.com/rbf-foundations/ Fri, 10 Jul 2020 20:42:46 +0000 https://bluedotlaw.com/?p=4138 As others have pointed out, early-stage companies are experiencing dramatically increased funding needs, and specifically, needs for financing with flexible repayment terms. Often, the go-to investment structures for flexible repayments are revenue-based financings, often called RBFs. These instruments are attractive because they not only tie repayments to the borrower’s ability to pay, but may also […]

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As others have pointed out, early-stage companies are experiencing dramatically increased funding needs, and specifically, needs for financing with flexible repayment terms. Often, the go-to investment structures for flexible repayments are revenue-based financings, often called RBFs. These instruments are attractive because they not only tie repayments to the borrower’s ability to pay, but may also support potential impact-oriented benefits of:

  • Maintaining founder control and ownership;
  • Sharing the volatility risk of future revenues; and
  • Facilitating long-term independence because investor liquidity is not tied to an “exit”.

For all their benefits, however, RBFs can be difficult to implement, for several reasons. We often encounter difficulty on two fronts: first, an investor or company looking for a “standard” approach may be discouraged by the myriad structuring options available; and second, certain regulatory and tax considerations can add complexity.

Absent tax considerations, RBFs would typically be structured as a debt instrument with revenue-based repayments. This type of financing is typically simple to negotiate and draft and avoids the complexity and expense of issuing equity to investors.

However, RBF debt financings are often disadvantaged by a complicated tax regime: the requirement to accrue and report interest for tax purposes using an IRS-mandated schedule, rather than by reference to actual payments. This regime is known as the “original issue discount” or “OID” rules (described more in-depth here). And, while it is true that some, simpler debt instruments trigger only moderate complexity under the OID rules, RBFs are almost always subject to the more complicated requirements of the OID rules, including the requirement that the borrower make a detailed, hypothetical interest rate schedule and then continuously adjust the schedule to account for deviations between the initial schedule and actual payments of interest.

Investors, on the other hand, typically experience negative effects of the OID rules in the form of recognizing taxable “phantom” interest income prior to the actual payment of corresponding interest – at least – if the investor is subject to income tax. This points to one set of circumstances where simpler RBF debt structures can be used without triggering the OID rules for either party: deals where the only investors are tax-exempt entities.

While the borrowing party would typically be required to report OID accruals on IRS 1099 forms, this is not required with respect to tax-exempt lenders. More than the filing obligation itself, RBF borrowers can avoid the obligation to make detailed hypothetical interest computations and subsequent adjustments when all of the RBF lenders are tax-exempt, effectively removing the most significant issuer-side hurdle to structuring an RBF investment.

So, if impact investors structured as foundations or otherwise tax-exempt needed any more reason to step up their impact investing, then here’s a suggestion: assume the role as a lead investor with other tax-exempts to invest using RBF debt structures. In addition to avoiding the tax-related challenges of the OID rules, RBF debt investments can be structured to support substantial impact-oriented benefits as well as to qualify as foundation program related investments (PRIs).

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Unlocking Forgivable Loans for Investor-Backed Companies https://bluedotlaw.com/forgivable-loans/ Fri, 17 Apr 2020 03:30:40 +0000 https://bluedotlaw.com/?p=4057 Written by Bruce Campbell, Seth Henry, & Donna Mo The Small Business Administration announced yesterday the suspension of the Paycheck Protection Program (the PPP) under the CARES Act, after applications outstripped the program’s $349 billion of funding. In spite of the headlines about stalled efforts to approve more funds, we expect that a second wave […]

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Written by Bruce Campbell, Seth Henry, & Donna Mo

The Small Business Administration announced yesterday the suspension of the Paycheck Protection Program (the PPP) under the CARES Act, after applications outstripped the program’s $349 billion of funding. In spite of the headlines about stalled efforts to approve more funds, we expect that a second wave of funding will restart the program in the next week.

The PPP provides for forgivable loans to cover two months of payroll and other basic expenses. Forgiveness is automatic so long as the recipient satisfies certain conditions. So, for all practical purposes, most or all of the loan amount could be considered a federal grant.

To qualify, an applicant must be a small business, defined in most cases as having no more than 500 employees. In the first round of the program, many private investor-backed companies did not apply for the PPP forgivable loans. Complicated affiliation rules that required applicants to count toward the 500 employee limit the employees of their investors’ businesses discouraged participation. In addition, investors balked at a requirement to provide as part of the application a list of all of the businesses in which investors hold ownership stakes.

We believe it will be easier for companies to participate in the next wave of funding because the SBA recently clarified certain aspects of its affiliation rules. The clarification opens a clearer path for an applicant to avoid aggregating its employees with the employees of its investors’ other portfolio companies for purposes of the size limit.

From an investor perspective, however, the PPP benefits come with tradeoffs. Applicants will still need to disclose the portfolio companies of certain investors. And for companies to access the loans, investors must waive or remove by amendment consent rights that are often included in financing deals. On the other hand, if investors facilitate PPP applications, they can unlock potentially substantial non-dilutive grant capital for their portfolio companies.

The affiliation rules require aggregating the employees of all companies “controlled” by an investor. The investor is considered to control a company if the investor owns the majority of voting equity, has the power to block actions of the board or its committees, or has veto rights with respect to what the SBA considers to be “ordinary” business matters.

Investors may retain consent rights that concern “extraordinary” business matters, which the SBA believes are designed primarily to protect their investment rather than to exert control over day-to-day business decisions. Below are examples of consent rights that may be retained (Extraordinary Actions) and consent rights that make companies potentially ineligible for PPP loans (Ordinary Actions).

Ordinary Actions (“Not ok”) Extraordinary Actions (“Ok”)
  • Approval of the company’s budget or expenditures outside the budget
  • Incurring debt or entering into other obligations
  • Payment of dividends or other distributions
  • Hiring and firing officers, employees, consultants, and advisors, and setting their compensation
  • Establishing a quorum for owner and board meetings.
  • Amending charter documents
  • Issuing new stock or admitting new owners
  • Dissolving or filing for bankruptcy
  • Selling or encumbering all or substantially all of the assets of the business
  • Changing the size of a board of directors or manager

As we represent only impact investors and mission-driven companies, we assessed the SBA affiliation rules from a different perspective than conventional law firms. Based on our evaluation, we believe impact investors and mission-driven companies should consider the following:

1.    As with investors generally, impact investors are reluctant to finance companies that they believe will have a lower likelihood of surviving the current economic crisis. With limited financial and human resources, impact investors are understandably focused on sustaining companies with the strongest prospects to thrive once the crisis ends. All investors are faced with this kind of triage at the moment. We would hope, however, that impact investors may be more willing than other investors to relax certain conventional control rights for portfolio companies that they’re not actively supporting.

2.    Investors who have experimented with equity investments that rely on dividend payments and redemptions to drive returns rather than conventional exits, probably have placed restrictions on the ability of these companies to pay dividends and redeem stock. A blanket veto right over dividends and redemptions would trigger the problematic affiliation rules. We believe, however, that with some creativity it is possible to maintain the essence of these deals even with the waiver of customary veto rights.

3.    We believe the common mission protection clauses listed below should not by themselves trigger the affiliation rules. In other words, we believe retaining these mission protection clauses should not jeopardize a company’s PPP application.

    1. Requiring investor consent to change the benefit purpose of a public benefit corporation.
    2. Requiring investor consent to discontinue the mission-related business or to enter into a new line of business.
    3. Requiring impact reporting.

With such an overwhelming amount of COVID-19 information out there, we tried to make this blog as non-technical as possible. We’ve tried to capture the essence – rather than the nuance – of these extraordinarily complicated rules. If you would like to geek out on more detail, we suggest this guidance from the National Venture Capital Association:

NVCA Guidance as of March 27, 2020
NVCA Guidance as of April 7, 2020

Given the complexity and stakes, we would recommend that any company with professional investors consult with a knowledgeable attorney before submitting a PPP application. In addition, if you’re reading this and you think you may have submitted a PPP application without fully understanding the affiliation rules, then you may also want to seek legal guidance. Submitting false information on a PPP application can result in penalties equal to three times the benefit amount. We, of course, would be happy to review any of these issues with both investors and companies, and we are email hidden; JavaScript is required for companies on any PPP loan matters.

Nothing in this article is meant to constitute legal advice
or create an attorney-client relationship.

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Sick Leave during COVID-19 https://bluedotlaw.com/covid19/ Fri, 20 Mar 2020 17:57:15 +0000 https://bluedotlaw.com/?p=4044 What Employers Need to Know about Paid Sick-Leave during this Coronavirus Pandemic Congress has passed the Families First Coronavirus Response Act (the “Act”) – one of several laws responding to the Coronavirus outbreak. A few key items for employers: 1)  Paid sick leave is required, even for small companies. The Act specifically applies to employers […]

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What Employers Need to Know about Paid Sick-Leave during this Coronavirus Pandemic

Congress has passed the Families First Coronavirus Response Act (the “Act”) – one of several laws responding to the Coronavirus outbreak. A few key items for employers:

1)  Paid sick leave is required, even for small companies. The Act specifically applies to employers with fewer than 500 employees.

2)  Employees are permitted leave under the Family Medical Leave Act (“FMLA”) as well as under a separately mandated sick leave requirement. The Act contains two separate leave requirements: first, a 12-week leave permitted under the FMLA; and second, up to 2 weeks paid sick leave.

Employees of smaller employers may now take leave under the provisions of the FMLA, including also if their child’s school or place of care has closed due to the Coronavirus. During this leave, the employer must pay at least 2/3rd wages for 10 of the 12 weeks.

The Act also provides for mandated sick-leave wages for up to 2 weeks under a broad set of situations, including an employee’s diagnosis of Coronavirus, experience of symptoms of Coronavirus, recommendation to quarantine, need to care for a family member, or need to care for a child where a school or place of care has closed.

3)  This new sick leave requirement is in addition to any policies already in place. Under the Act, Employers are required to provide this unique 2-week paid leave benefit regardless of the employer’s policies already in place. In other words, employers cannot take the position that their existing policies already meet these requirements, but must offer these benefits in addition to benefits already in place.

4)  The Act provides a tax credit to (help) offset employers’ costs. Importantly, the Act provides a dollar-for-dollar credit against payroll taxes (i.e., FICA taxes) for employers required to provide leave wages under this Act. A few key points about this credit:

  • The credit applies to payroll taxes, so employers with historic losses or no net income may still reduce their tax burden even if they owe no income taxes.
  • However, this credit is capped at $200 per day of leave ($511 in certain cases).
  • This credit is refundable, so employers that pay leave-wages in excess of their payroll tax liability may receive a payment (but subject to the per-day caps, above).

5)  The Act includes a notice requirement. The Act requires that employers post a conspicuous notice about these rights and requirements for employees. The US Department of Labor is required to develop a form for general use within seven days of the Act’s effectiveness.

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FoCo Brain Crawl https://bluedotlaw.com/brain-crawl/ Fri, 28 Feb 2020 16:00:51 +0000 https://bluedotlaw.com/?p=4012 Mindfulness in Business RESOURCES February 28, 2020 Fort Collins Startup Week Contemplations for Busy People Mindful Business Commitment Mindful Co-Working Day CSU Mindfulness Resources

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Mindfulness in Business
RESOURCES
February 28, 2020
Fort Collins Startup Week

Contemplations for Busy People

Mindful Business Commitment

Mindful Co-Working Day

CSU Mindfulness Resources

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Impact Investing – Fort Collins Startup Week https://bluedotlaw.com/foco-imp-inv/ Thu, 27 Feb 2020 15:00:07 +0000 https://bluedotlaw.com/?p=4035 Fort Collins Startup Week IMPACT INVESTING RESOURCES February 27, 2020 Colorado Resources Global Resources Impact Investing 101

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Fort Collins Startup Week
IMPACT INVESTING RESOURCES
February 27, 2020

Colorado
Resources

Global
Resources

Impact
Investing
101

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US Tax Code Section 956 https://bluedotlaw.com/section-956/ Thu, 23 Jan 2020 21:02:14 +0000 https://bluedotlaw.com/?p=3984 Lenders to Non-US Businesses: Can you ask for more better pledges and guarantees? Most US lenders to multinational enterprises eventually encounter the tax rules under Code Section 956. Section 956 generally imposes a tax cost when certain non-US companies invest their earnings in US property, by deeming a dividend paid by the non-US company to its […]

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Lenders to Non-US Businesses: Can you ask for more better pledges and guarantees?


Most US lenders to multinational enterprises eventually encounter the tax rules under Code Section 956.

Section 956 generally imposes a tax cost when certain non-US companies invest their earnings in US property, by deeming a dividend paid by the non-US company to its US owners. However, in an arguable overreach, Section 956 also often deems dividends when a non-US subsidiary guarantees the debt of its US parent, or serves as an indirect guarantor via a pledge of the non-US subsidiary’s equity.

Parties often avoid Section 956 in these circumstances by avoiding guarantees by the non-US subsidiary and pledges of two-thirds or more of the outstanding equity of the non-US subsidiary, much to the annoyance of many lenders. Many lenders we’ve worked with encounter these restrictions frequently, and have historically acquiesced to a pledge of only 65% of the subsidiary equity.

However, Congress overhauled many of the international tax rules of the Code in their 2017 tax act, including the treatment of dividends received from non-US corporations. In those changes, Congress added an effective exemption for most foreign dividends received by US corporations. In recent regulations, the IRS noted that this new exemption on actual dividends creates an inconsistency with the Section 956 treatment of deemed dividends, and therefore clarified that deemed dividends under Section 956 should be exempt from tax to the extent that the affected taxpayers would have benefited from an exemption on actual dividends under the new rules.

As a result, non-US subsidiaries of corporate parents may now guaranty the parent’s debt and/or the parent may pledge 100% of the subsidiary equity, without incurring the tax under Section 956.

Practically speaking, lenders may now require that borrowers with non-US subsidiaries revise their guaranty and pledge agreements to provide further security. Additionally, it is possible that some outstanding loan agreements may automatically require a further guaranty or equity pledge, where agreements used limiting language that only excused these guarantees or pledges to the extent any such guaranty or pledge caused materially adverse tax consequences.

Therefore, lenders should consider the effect of these regulations on their outstanding loans, as well as in negotiations on loans going forward. However, lenders and borrowers should seek tax counsel on these new rules, particularly given their limited application to corporate owners of non-US entities and the limited IRS authority that has been provided on these new rules.

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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.

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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!

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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.

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Summer 2018 News

Thank you,

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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. […]

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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.

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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 […]

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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.

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