What Congress Can Do For Startups

Barbed_wireJust about every day we read in the mainstream media about how important startup companies are to job creation. Yet, I don’t see or hear of hardly any bills in Congress that would ease the legal and regulatory framework in which startups operate. It would seem that if we wanted to encourage startup creation and growth, Congress ought to be making life easier on startups from a legal burden/compliance standpoint.

I have some suggestions for Congress…

  • Repeal or substantially ease the thresholds to qualify as an “accredited investor.” The Dodd-Frank Act made it harder to qualify as an “accredited investor.” Why? For startups to grow, they need capital. Why would we reduce the number of people who can invest in startups?
  • Repeal the prohibition on “general solicitation” in the course of securities offerings. Right now, in a typical stock or equity financing, startups have to work primarily through known networks and word of mouth only. They have to be very careful in how they attempt to raise funds, lest they blow their securities law exemption. This results in some startups leaning on finders or brokers. Why not just allow startups to announce to the world that they are in the middle of a fundraising?

[Rule 502 of Regulation D currently states that “neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following: 1. Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and 2. Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.”]

  • Repeal Section 409A as it applies to startups and small companies. Startups should not have to spend a bunch of money on lawyers, accountants and valuation experts in order to grant stock options and otherwise comply with this very complex and onerous law. Startups and small companies ought to be exempted. Better yet, Congress, just repeal Section 409A in its entirety.
  • Repeal the new Form 1099 requirements which are going to require persons in business to issue Forms 1099 to anyone they buy more than $600 in goods from during the year.
  • Disallow states from imposing fees or imposing merit reviews on startup financing securities offerings (these rules still come into play in Regulation D, Rule 504 offerings).
  • Allow investors to make charitable gifts to startups when the funds are used to hire employees. Or allow investors the ability to write off their investments in their entirety in the year of investment.
  • Or even better, allow investors a dollar for dollar tax credit when they invest in startups and the funds are used to hire employees.

Congress ought to be working on making life easier for startups from a legal compliance/burden point of view. I am waiting on someone in Congress to introduce a bill that will ease the legal burdens on startups. Who will it be?

(The above ideas are mine only. I am sure that there are many people who have better ideas than the ones above. Please share.)

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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