Blue Dot Law https://bluedotlaw.com legal solutions for a small planet Fri, 20 Mar 2020 18:00:27 +0000 en-US hourly 1 https://wordpress.org/?v=5.3.2 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.

avpn_final

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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 […]

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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.

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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.

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Winter 2018 News

Thank you,

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