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Smarter Growth Matters

Vol. 1, No. 2
February, 2016

Sec Joins the Crowd:

The New Crowdfunding Rules start May 2016

On April 5, 2012 President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act which provided for a fundraising mechanism geared towards start-ups and growth companies – Crowdfunding.

In October 2015, the Securities and Exchange Commission (SEC) issued the much anticipated final rules for the new Crowdfunding mechanism.  Crowdfunding permits start-up and growth companies to access the general public for their capital needs – expanding the pool of available investors beyond accredited investors.

The final rules create somewhat of a mini-registration process which may increase the costs of the transaction, however, that is unknown until approved intermediaries start to register at the end of January 2016 and advertise prices for their services.  Highlights of the final rules, which go into effect May 16, 2016, include:

  • The company may not raise more than $1,000,000 every 12 months.  However, the monies raised under this exemption are not counted towards the threshold of other exemptions (e.g. 506).
  • Investors may invest the greater of: $2,000 or 5 percent of the lesser of either the investor’s annual income or net worth, if either annual income or net worth is less than $100,000; or (2) 10 percent of the lesser of the investor’s annual income or net worth, not to exceed an amount sold of $100,000, if both annual income and net worth are $100,000 or more.
    • If the investor is married, income and net worth are calculated jointly —- however, the married couple cannot invest any more than an individual investor at the same level of income or net worth.  Income and net worth are calculated under the same rules for accredited investors and married couple-non-accredited investors.
  • The Company is required to process the transaction through a SEC approved intermediary who provides an online portal to route investments.
  • The Company will need to file annual reports looking back two years to gain the exemption and file annually subsequently.
  • The Company will need to issue a business plan to prospective investors.
  • The Company will need to disclose:
    • Either the price of the of the securities to the public, or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount
    • The company’s financial condition
    • Its financial statements that, depending on the amount offered and sold during a 12-month period, must be accompanied by information from the company’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor.  A company offering more than $500,000, but not more than $1 million of securities relying on these rules for the first time is may alternatively  present its financial data  as a mathematically correct compilation without the imprimatur of a certified public accountant performing an audit
    • A description of the business and the use of proceeds from the offering is required
    • Information about officers and directors as well as owners of 20 percent or more of the company is required
    • Certain related-party transactions must be described

FGD, as a matter of practice, already incorporates many of these requirements in our representation regarding our clients’ capital needs. If a crowdfunding campaign is in your future, or if learning first-hand about the nuts and bolts of these new funding facilities interests you, do not hesitate to reach out.

State Crowdfunding for Maine and Massachusetts

The SEC also issued proposed rules which would allow individual states to create their own crowdfunding regimes for funding transactions that DO NOT extend beyond a particular state’s borders.  Maine and Massachusetts reacted to the new rules similar to numerous other states in adopting crowdfunding.

Maine – FUND-ME

The FUND-ME crowd-funding rules, to repeat, concerns EXCLUSIVELY transactions taking place within the state of Maine. The pertinent regulations include:

  • A company may raise no more than $1,000,000 in a twelve month period.
  • A company must identify a fund receipts floor that is no less than 30% of the maximum offering amount.
  • An investor is limited to an investment ceiling of up to $5,000 in any 12 month period.
  • All receipts must be held in escrow at an approved depositor until the disclosed funding floor is reached.  If the funding floor-minimum amount is not reached, and the company must refund to all investors the allocable amounts received from each.
  • The company must identify and disclose, through written documentation, significant risk factors with respect to the specific.
  • The company must produce and disclose a business plan to prospective investors.
  • The company must disclose certain financial statements to prospective investors.  If the company is seeking to raise less than $100,000, tax returns may be substituted in place of financial statements in the company’s discretion.   If the company is seeking to raise more than $100,000 but less than $500,000, financial statements that have been reviewed and approved (short of a complete audit in accordance with Financial Accounting  Standards Board generally accepted accounting principles (GAAP)  by a CPA are required.  If the company is raising more then $500,000 its financial statements must be audited according to GAAP by a Certified Public Accountant
  • The company must disclose how it is capitalized.
  • The company must disclose information regarding directors, officers, and key managers including their compensation and other financial/equity/ arrangements.
  • The company must disclose how it plans to use the funds.


Massachusetts has similar regulations to Maine with the significant difference that in Massachusetts a company may raise up to $2,000,000 on the condition that it has audited financial statements. In general, Massachusetts regulations tend to mirror the SEC income guidelines.

Legal Zoom Could Spell Legal Doom:

Be Proactive When Forming Your Business

When starting a business today many entrepreneurs will seek online help.  Although it has become common practice to seek assistance online for a variety of needs, online legal assistance can be a wolf in sheep’s clothing – saving time and money at the outset but, potentially costing more in time and expense for a fledgling organization.   

While creating a new business can be accomplished by using the cookie-cutter approach provided by online legal services, a successfully sustaining business interested in smart growth will require a more in-depth, less formulaic approach.  Online legal services, for the most part, provide their website users with the minimum documentation necessary to create a business entity that will be recognized as such in the respective jurisdictions.  This documentation typically ignores the nuanced relationship between equity participants as well as the future business needs of the entity.

In FGD’s decades of experience, when a client or potential client becomes entrenched in a business cycle in which these inadequacies become apparent, it often becomes difficult, complex, and costly to make the necessary documentary and legally sufficient changes to move the business forward.  Hiring an attorney at the time of formation provides companies with a strong, secure, and reliable foundation for relatively unimpeded growth.

FGD has come to the conclusion that one common misconception is that legal counsel is needed to assist in all steps in running a business.  To the contrary, most matters are best handled by the business owners —others most definitely indicate the use of a lawyer:

  • Actions that are typically managed by the business principals:
    • Forming a business plan
    • Selecting a name for your business
    • Lease a commercial space
    • Interview, hire employees and complete the necessary IRS paperwork
  • Actions that are  typically managed with the assistance of a lawyer:
    • Drafting of stockholders agreement, charter, LLC Agreement or other corporate documents which reflect and permit the implementation of the business plan.
    • Filing the appropriate state documents to ensure the business is legally functioning  not only in the state in which it is formed but also, in other  jurisdictions where the entity  may transact business
    • Drafting/reviewing/negotiating  a lease agreement for commercial space
    • Creating employment polices and employment contracts where necessary.
    • Creating equity incentive plans and other employee retention facilities consistent with the state and federal tax requirements.

Wage and Hour Act and Worker Misclassification Issues

In the start-up and growth phases of a company funds are constantly being reinvested while it subsists on a lean staff.   While employees are a necessary component to smart growth, when cash is lean, business decision makers are naturally attracted to accomplishing business income goals by expending the least amount of cash at minimal expense.

A specific task performed by an “employee” as the term is legally defined by the pertinent jurisdiction, will cost a business MUCH more than the same task performed by an “independent contractor” as the term is legally defined. Employees are beneficiaries of wage and hour legislation. Wage and hour rights impressed on employee status generally cannot be released or varied by contract.  Even if business decision-makers and an employee may agree to the amount and terms of compensation, if the agreement does not comport with the relevant law(s), the business remains at extreme risk of having violated the law.

In addition to  of wage and hour  legislation being a cost – income burden to a business, employees (UNLIKE INDEPENDENT CONTRACTORS)  subject  the employer-business  to various federal and state MANDATORY income, unemployment, Medicare, and social security  withholding protocols. The withholding protocols not only are a burdensome drain on business cash flow, the administration of which involves significant time and expense,  but also trigger faulty decision-making to  avoid the withholding — this is accomplished by the MISCLASSIFICATION of a worker  as an independent contractor (exempt from withholding)  when the worker is an employee.

One very efficient way to avoid complications with the wage and hour act is to pay the employee the minimum wage prescribed by the act and then sweeten the compensation package with equity incentives, time/revenue based bonuses, or additional deferred compensation.

FGD Law has advised many companies on employee/independent contractor and Wage and Hour Act issues from the on boarding of the employee to the litigation or administrative action that may ensue.

FGD Client Highlight

MEND-logoFGD Law is working with Healthy Weight Partnership, Inc. (HWP), a company that uses evidence-based weight management programs focused specifically on children and families since 2000. As exclusive licensees of MEND (Mind, Exercise, Nutrition…Do It!) programs in North America, they are part of the largest and most researched system of child weight management programs in the world.

HWP works closely with community-based, public, private, non-profit and academic organizations to reach some of the neediest families and communities in their quest to help turn the tide on childhood obesity. HWP team members have developed, implemented and continuously improved weight management programs internationally. These high quality programs include all the support training, resources, systems, reporting, evaluation and project management that organizations need to help their communities manage child obesity.

FGD Briefs

Bernard-PosnerFGD welcomes Attorney Bernard D. Posner in its Boston office. Mr. Posner joins Furman Gregory Deptula’s Litigation practice, bringing over 10 years of experience in complex litigation matters with an emphasis on commercial litigation, construction law, professional liability, and employment law. Such experience includes representing both businesses and individuals in complicated business disputes, large construction and surety matters, and appeals in both Federal and state courts. Mr. Posner has a J.D.from Boston College Law School. 

eric_collinsEric Collins will be attending the Workforce Training Fund Program on Feb 3rd at 12:00 in a collaborative effort with the Chestnut Innovation Center in Amesbury, MA. This center works to bring available resources to businesses and to broaden awareness. This session will include representatives of state offices related to workforce resources/training/talent acquisition and grants and explain how to access these resources for your business. For more information, visit their website here:

karin_gregoryKarin A. Gregory will moderate an all-star panel for the community development corporation, Coastal Enterprises Inc. (CEI) on Thursday, Jan 28th. CEI will address topics surrounding the role of technology in small business growth. Visit their web site.


FGD is an annual contributing sponsor of Mary’s Walk and the Kerryman 5K, held this year on March 20th in Saco, ME.  Mary’s Walk began in 1999 as a unique way to recognize and remember Mary Kerry Libby, a much-loved member of the Saco-Biddeford community who passed away from Burkitt’s Lymphoma. What started as a simple memorial stroll through town with a few hundred people has evolved into a major community effort that has attracted over 50,000 participants in its 16-year span and raised over $2.6 million to support Maine-based cancer programs. Last year Mary’s Walk, and it’s companion run, the Kerrymen 5K, raise over $300,000 and attracted at record 3,500 participants to downtown Saco.