After you’ve celebrated your first successful funding round, you’ll likely have a moment of discomfort thinking about having an investor on your board of directors. What do you, as CEO, now need to do? Are there best practices to follow? Of course, there are! And we’ve got you.
Here are 11 tips for running a kick-ass board meeting that will impress your investors and foster a good working relationship.
1. Meet at least once per quarter. In terms of frequency, you'll want to strike a balance between meeting often enough to keep the board apprised of the company's progress, but not so often that you’re constantly prepping for the next meeting.
2. Your investors have busy schedules too; calendar all meetings 12-18 months in advance.
3. Develop a habit of scheduling regular phone updates with your board members about a week before the board meeting. Doing so allows you to preview important issues that are likely to come up at the meeting. It also ensures that any bad news isn't being delivered for the first time at the meeting.
4. Make a board deck that covers:
5. Circulate the board package at least one full day before the meeting.
6. Be forthcoming, candid and straightforward about any challenges the company is facing. Allow your company to benefit from the experience your investors bring to the table – it's an important part of why you brought them on board.
7. At the meeting, cover one of two areas from your board deck that you judge to be particularly significant this quarter. An agenda that covers too many areas becomes counterproductive.
8. Limit the time frame. As an early- or mid-stage company, your regular board meetings should last no more than two and a half hours. This practice signals respect for everyone's busy schedules and promotes the efficient use of time.
9. Besides the CEO and CFO (who should attend all board meetings), consider inviting other members of your team to participate in board meetings and showcase the work they're doing.
10. Take notes and action. When board members ask numerous questions about a certain area of the business, make sure you focus on it too. After the meeting, consider analyzing these key topics further with your team; then, at the next meeting, provide the board with an update. Pulling action items from the discussion at past meetings and addressing them in subsequent meetings shows board members you are actively listening to them and helping them to better understand your company.
11. Finally, even though most meetings are virtual these days, you should still find a way to connect with your board and show them some love. Share (quick) jokes or personal facts about you and your team and occasionally mail them a copy of a book you love.
Guess what else Sir Issac Newton did? He figured out the math behind satellites in 1687. Today there are 2,666 satellites orbiting the earth doing all sorts of amazing things like monitoring glacier melt and providing internet access to remote areas. They’ve been used to prove the existence of China’s Uighur internment camps and one, the International Space Station, has been home to over 200 astronauts and cosmonauts since its launch in 2000.
I learned all of this fascinating information on satellites this week when a friend asked me if it was legal to store satellite images of people’s backyards for use in his landscape design app?
The short answer is yes, it’s completely legal. Once you purchase the images, they are yours to use. It’s like purchasing a stock photo.
Our privacy is currently protected by one regulation that limits the resolution of images taken by commercial satellites to 25 centimeters, or about 10 inches. That’s close enough to see a car, but not close enough to tell the make and model. Importantly, this regulation only governs U.S. satellites.
Currently, there are 700 observational satellites in orbit. The U.S. controls about 50%, China 18% and India, Japan, and Russia control about 3% each. As technology improves, a global standard for privacy will be necessary.
Advances in satellite technology have already reached the point where one U.S. company, BlackSky Global, has built a constellation of small satellites that will revisit most major cities up to 70 times per day. That might not be enough to track an individual’s every move, but it would certainly show what times of day someone’s car is typically in the driveway.
While companies have been mindful of privacy concerns, Google’s algorithms automatically blur faces and license plates, for example, an international policy is necessary. International space law today is mainly governed by five documents, the last of which was enacted in 1979. None of these documents adequately address individual privacy issues.
While we wait for further regulation, our privacy may be protected by cost. It’s expensive to launch satellites that can take images under 25 centimeters because the satellites have to be large enough to hold a big telescope. Large satellites can easily cost $200 million to launch and it’s unclear if there will be enough demand for detailed photos to make it a viable business model.
For now, keep user privacy in mind when designing a product. For U.S. users, follow the The National Institute of Standards and Technology (“NIST”) Privacy Framework which was published earlier this year. The Privacy Framework offers guidance on how to comply with the privacy regulations individual states have adopted. For example, if you are storing personally identifiable information of Colorado residents you must have a “written policy for the destruction or proper disposal” of that information. The Privacy Framework provides guidance on what constitutes "proper disposal."
Scroll down a touch for the sample, but a few things to note:
When people are working together on something without having incorporated, the law, by default, will treat the group as a partnership. There is some risk that comes along with partnerships because each partner has "joint and several liability" for the obligations of the partnership. So if you lost a lawsuit and your cofounder is broke, you would be liable for the entire judgment, not just 50% of the judgment. (That's not the case once you've incorporated) Also, partnerships are "pass-through businesses" for tax purposes.
The "project description" given in the Agreement is important because it's what describes the intellectual property that will be assigned to the company. In general, it's good to have a broad description (so a disgruntled cofounder can't steal any IP) followed by a specific example of its use (so it's descriptive enough for the courts to enforce).
Some jurisdictions, such as California, will not enforce the non-compete clause in the Contract. It can be removed without invalidating the Agreement.
You can add a Roles and Responsibilities Schedule to the Agreement. If you do, base the roles and responsibilities on expertise. Each founder should be there because of a specific skill and their job description and authority should align with that skill. For example, the technical cofounder should run technology. Other founders can have input, but on technology, the final say is with the technical cofounder.
This agreement governs the partnership between the Founders, doing business as [company name] (the “Company”). The Company will continue perpetually, unless dissolved in accordance with this agreement. The Founders will cause the Company to register its fictitious name in the jurisdiction where it conducts its business, as soon as reasonably practicable after the date hereof. The Company’s principal office address will be set by a majority of Founders, and initially is: [address].
The following individuals are hereby admitted as partners in the Company (“Founders”)
The Founders have created the Company for the sole purpose of [description of project] (the "Project").
The Founders may make capital contributions in the form of cash and prepaid expenses from time to time to fund the Company’s ongoing capital and operating needs. The written consent of all Founders is required for any Founder to make a capital contribution. No Founder may be required to make a capital contribution except pursuant to such mutual written consent.
Expenses and Budgeting
The Founders will budget for Company expenses on a rolling basis. All budgets must be approved by all Founders in writing. Any Founder may pay budgeted expenses on the Company’s behalf, and the Company will reimburse each Founder for properly budgeted expenses paid on the Company’s behalf, within a reasonable time period after the paying Founder submits an expense report supported by receipts.
Ownership of the Company
Each Founder will have an equal ownership interest in the Company. The Founders’ ownership interests need not be represented by a certificate or any other evidence beyond that contained in this agreement. If a Founder requests, the Company will issue a certificate evidencing the Founder’s interest. The certificate must contain a legend noting that the ownership interest is subject to legal and contractual restrictions on transfer.
The Company will elect to be taxed as a partnership, and will maintain separate capital accounts for each Founder in accordance with applicable US Treasury Regulations. If the Company earns more than de minimis revenues it will retain an accountant or tax advisor to keep its books and prepare all tax returns and filings on its behalf.
The Company will allocate items of income and losses as if the Company were liquidated, its assets sold at their fair market value, and the resulting proceeds (net of liabilities) distributed to the Founders in accordance with this agreement.
The Company will specially allocate income and losses in accordance with applicable US partnership income tax safe harbor provisions to avoid, to the extent permissible, any Founder having a capital account deficit at the end of any tax year.
The Company will allocate any item of nonrecourse deduction to the Founders equally; provided, that any Founder’s partner nonrecourse deductions for any fiscal year or other period will be specially allocated to the Founder who bears the economic risk of loss with respect to the nonrecourse debt to which such partner nonrecourse deductions are attributable. It is intended that the Company be treated as a pass-through entity for tax purposes. Subject to applicable law, the Company will allocate income, gain, loss, deductions, and credits in the same manner as described above and, solely for tax purposes, any items related to contributed property will be allocated taking into account any difference between the Company’s adjusted basis in such property and the property’s fair market value upon contribution. Any elections or decisions relating to such allocations must be made in a manner that reasonably reflects the intent of this agreement.
[founder name] will act as the Company’s tax matters partner, and will act as the primary point of contact with any taxing authorities and other third parties with regard to the Company’s financial and tax matters. The tax matters partner may make any tax election with respect to the Company, provided he obtains the prior written consent of a majority of Founders.
The Company may (but is not required to) make ordinary distributions to the Founders out of cash received by the Company (excluding new capital contributions or loans), less all accounts payable and reserves against anticipated expenses from time to time as determined by a majority of Founders. All distributions must be made in the following order:
First, in equal proportion to all Founders who have contributed cash that has not been repaid, until each Founder has been paid out to the extent of such contributions in full;
Second, to all Founders in equal proportion.
Management and Approval Rights
The Company will be managed by the Founders, and a majority of Founders may take any action on behalf of the Company except where explicitly stated otherwise in this agreement. The unanimous written approval of all Founders is required to:
incur any debt on the Company’s behalf or employ its credit, other than receivables to trade creditors in the ordinary course of business not to exceed $250 individually and $500 in aggregate;
initiate any voluntary bankruptcy proceeding;
liquidate or dissolve the Company, or distribute substantially all of its assets and business;
enter into any inbound or outbound license, transfer, or other assignment of protectable intellectual property used in the Project, including any patentable inventions, copyrights, trade secrets, or trademark rights (except for inbound end user licenses for software applications in the ordinary course of business);
approve any contract with a Founder, or an immediate family member or domestic partner of a Founder, or an affiliate of any of the foregoing persons;
raise any equity capital in any amount from any person;
admit any partner to the Company; and
amend this agreement.
Duties to the Company
The Founders must refer to the Company, in writing, all opportunities to participate in a business or activity that is directly competitive with the Project within [geographic region], whether as an employee, consultant, officer, director, advisor, investor, or partner. The Company will have 15 days to decide whether to pursue any referred opportunity, and to notify the referring Founder of its decision in writing. If the Company elects not to pursue the opportunity, or if it does not notify the referring Founder of its intent in writing within the 15 day period, then the referring Founder will be free to pursue the opportunity independently. If the Company elects to pursue the opportunity, but later abandons it, then the referring Founder will be free to pursue the opportunity independently at such time.
Other than pursuant to the preceding paragraph, to protect the Company’s legitimate business interests, no Founder may participate in any business or activity that is directly competitive with the Project within [geographic region], whether as an employee, consultant, officer, director, advisor, owner, sole proprietor, investor, or partner. The ownership of 1% or less of the securities of any publicly-traded company will not be considered participation in a competitive business or activity. The Founders’ obligations contained in this section (Duties to the Company) will continue with respect to each Founder until the later of the date that is 3 months after (i) he ceases to be a partner of the Company, and (ii) he ceases to provide any services to the Company, whether as a partner, employee, officer, director, or otherwise.
Other than as explicitly provided herein, no Founder will have any duty to the other Founders or to the Company, including any fiduciary duty, and including any duty to refer business opportunities to the Company, or to refrain from engaging in activity that is competitive with that conducted or planned by the Company.
Project-Related Intellectual Property
“Project IP” means:
(a) contributions and inventions, discoveries, creations, developments, improvements, works of authorship and ideas (whether or not protectable under patent, copyright, or other legal theory) of any kind that are conceived, created, developed or reduced to practice by any Founder, alone or with others, while such Founder is a member of, or provides services to, the Company, regardless of whether they are conceived or made during regular working hours or at the Company’s place of work, that are directly or indirectly related to the Project, result from tasks assigned to a Founder by the Company, or are conceived or made with the use of the Company’s resources, facilities or materials; and (b) any and all patents, patent applications, copyrights, trade secrets, trademarks (whether or not registered), domain names and other intellectual property rights, worldwide, with respect to any of the foregoing.
The term “Project IP” does not include any inventions developed by a Founder entirely on such Founder’s own time, without using any Company equipment, supplies, facilities or trade secret information, unless the invention related to the Project at the time of the invention’s conception or reduction to practice.
Each Founder hereby irrevocably assigns to the Company all right, title, and interest in and to all Project IP owned by such Founder. Each Founder agrees (i) to assist the Company from time to time with signing and filing any written documents of assignment that are necessary or expedient to evidence such Founder’s irrevocable assignment of Project IP to the Company; and (ii) to assist the Company in applying for, maintaining, and filing any renewals with respect to Project IP anywhere in the world, in each case at the Company’s expense.
The Founders agree to keep all non-public information with respect to Project IP confidential and not to disclose it to any other party, except (i) to attorneys and advisors who need to know in connection with performing their duties, (ii) to potential business development partners and/or investors approved by the Company in writing, and who are bound by a confidentiality agreement in writing, and (iii) in response to an inquiry from a legal or regulatory authority.
Third-Party Offer to Invest
The written consent of all Founders is required to approve any additional investment in the Company from any party, including a Founder, and to issue any equity securities or rights convertible into the Company’s equity to any party.
Any Founder who receives an offer from any party to invest in the Company will notify the other Founders of the same, and provide each Founder an opportunity to participate meaningfully in the negotiations surrounding the potential investment in the Company. The Founders will use their best efforts to obtain terms that are no less favorable to any Founder than those outlined in the term sheet attached as Exhibit A hereto. The Founders understand that they would likely be required to submit their equity interests in the Company to vesting and other restrictions in such event, to assign all Project IP to the Company, and to submit to other employment-related covenants.
The Founders anticipate that any transaction resulting from such an offer would require that the Company convert to a business entity that provides limited liability to its members, or else to contribute the Company’s assets and liabilities to a newly-formed business entity with limited liability.
Resignation and Removal of Founders
Any Founder may resign from partnership in the Company for any reason or no reason at all by giving written notice to the other Founders. A majority of Founders may remove a Founder from the partnership at any time, for any reason or no reason at all, by giving written notice to such Founder. Upon a Founder’s resignation or removal, the Company will continue and will not dissolve, so long as at least one Founder remains as a member of the Company. The Company will pay out to the resigning or removed Founder his positive capital account balance (if any) within 180 days of resignation, either in cash or with an unsecured note payable within 2 years and bearing interest at 8% per year.
If only one Founder remains a partner of the Company at any time, then the Company shall continue as a sole proprietorship of the remaining Founder until he resigns, without affecting any rights due to any Founder or former Founder under this agreement.
If no Founder remains as a partner of the Company at any point in time, then the Company will dissolve, and this agreement will terminate immediately upon completion of the winding up of the Company and distribution of its assets and liabilities in accordance with this agreement.
If the Founders determine by unanimous consent to dissolve the Company and wind up its affairs, or if the Company dissolves because no Founders remain as partners, then any persons who were Founders immediately prior to the dissolution event will cause the Company to sell all its property (including Project IP) for cash only, and to liquidate in an orderly fashion. All Founders must be afforded a full opportunity to bid on any Project IP in connection with such liquidation process. The Company will distribute any property that remains after paying for the expenses of dissolving and winding up, and repaying all indebtedness owed by the Company, as follows:
Title to any Project IP that is not sold in connection with dissolution and liquidation of the Company must, however, be distributed to all Founders as owners in common.
All disputes arising from or related to this agreement must be submitted for binding arbitration before a single arbitrator under the rules of the American Arbitration Association as in effect at such time. The location for such arbitration will be New York, New York. The Founders agree that either party may, within 7 days after the filing of a Demand for Arbitration, demand that the parties' dispute first be submitted to a neutral evaluator pursuant to the American Arbitration Association's Early Neutral Evaluation Procedures prior to proceeding with arbitration.
Any resulting arbitration award may be enforced in any court having valid jurisdiction, wherever located. In addition, the Founders hereby irrevocably submit to the jurisdiction of the state and federal courts located in Manhattan for the enforcement of any such arbitration award.
Assignment. This agreement may not be assigned by any party hereto without the written consent of all Founders.
Successors / Assigns. This agreement shall be binding upon and inure to the benefit of the Founders, the Company, their successors, and their permitted assigns.
Notices. Any notice or other communication required or permitted under this agreement may be addressed to the recipient at its address given above, or such other address as that party may provide from time to time, and shall be deemed duly given (A) when delivered, if by hand delivery; and (B) if otherwise delivered, when written confirmation of receipt thereof is obtained (i) from the recipient; or (ii) from a nationally recognized mail carrier.
No Third-Party Beneficiaries. Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person other than the parties hereto, except as explicitly provided otherwise herein.
Amendment / Waiver. This agreement may only be amended with the written consent of all Founders, and none of its provisions may be waived except with the written consent of the party waiving compliance.
Governing Law. This agreement shall be governed by and construed in accordance with New York State laws applicable to contracts signed and to be performed solely within this state.
Severability. If any provision in this agreement is held to be invalid or unenforceable in any jurisdiction, the validity and enforceability of all remaining provisions contained herein shall not in any way be affected or impaired thereby, and the invalid or unenforceable provisions shall be interpreted and applied so as to produce as near as may be the economic result intended by the parties hereto.
Entire Agreement. This agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior arrangements or understandings (whether written or oral) with respect thereto.
By signing below, each Founder indicates acceptance of the terms of this agreement in their entirety as of the date first written above, and represents and warrants to the Company and each other Founder that he has fully read and understood this agreement, and that to each Founder’s knowledge, no law or third-party obligation would prevent each such Founder from entering into and performing this agreement in full. For the convenience of the parties, this agreement may be executed electronically and in counterparts. Each counterpart shall be binding, and all of them shall constitute one and the same instrument
You’ve found the perfect candidate for your growing business. But your work’s not done yet. Here’s how to put the red tape in your rearview mirror and concentrate on building success with your new team member.
If you didn’t do this when you incorporated, apply for an Employer Identification Number (EIN) (IRS Form SS-4). You’ll need this for tax forms.
Register with your state’s department of labor. As an employer, you’ll have to pay into the state unemployment fund. (Don’t worry, it’s not a big expense.)
Get Workers Comp Insurance (required in most states and wise in all), even if you have only desk jobs
Have your employee fill out IRS Form W-4, Withholding Allowance Certificate.
Set up payroll: you’ll need to withhold federal, state, and perhaps local taxes based on the W-4 and also make regular Social Security and Medicare payments to the IRS.
Fill out Form I-9, Employment Eligibility Verification, and keep it on file for 3 years. You need this form for ALL employees.
Report each new employee to your state’s new hire reporting agency. (States use this to locate parents for child support payments.)
Post any required notices in your office. You can find Federal notices here
File IRS Form 940 for any year in which you either 1) paid wages of $1,500 or more in any quarter or 2) had an employee work for you for 20 or more weeks of the year. (The weeks need not be consecutive.)
Make sure you comply with the requirements of the Occupational Safety and Health Act (OSHA).
Set up any benefits you will offer: health, retirement, vacations, disability, etc.
Create an Employee Handbook. Your business is not too small! Having company policies in writing avoids awkward conversations. Templates are available online, and you can add to your handbook as your company grows.
If you want to outsource most of this try Gusto.com You answer a few questions, they create the forms and file them. Their customer support is excellent too.
Employers may be exposed to legal liability if sufficient precautions are not taken when employees return to the office. This Guide gives a broad overview of topics employers should consider when formulating their plans. We recommend that employers have their plans reviewed by legal counsel.
Decide whether to require temperature checks, symptom checks, testing or vaccinations. Given the current pandemic, the EEOC permits temperature checks of employees. Symptom checks may also be permitted, or even required, in some jurisdictions. Employers implementing such checks should implement them thoughtfully and in compliance with all local laws. Ensure you have the equipment, personnel and protocols in place to implement such checks and respond properly to any signs of illness. If employers plan to use vendors to implement such checks, they should reach out to such vendors proactively, as such services will be in increased demand.
Perform enhanced and routine workplace cleaning. Prior to reopening a facility, employers should consider conducting enhanced cleaning. After reopening, employers should also consider routine cleaning, particularly of frequently touched workspaces. The CDC has provided guidance on cleaning and disinfection procedures, including cleaning after a sick person enters the workplace. Again, employers should contact vendors proactively to arrange for such cleaning, as such services will be in increased demand.
Coordinate with landlords and building management teams. Employers in multi tenant buildings should proactively work with their landlords and building management teams to ensure adequate cleaning and social distancing measures are taken in all common areas, including elevators. Employers may also explore the possibility of staggering work hours among tenants in the building.
Reconfigure workspaces. When workplaces reopen, they will need to be refigured to comply with social distancing requirements. Employers should start reviewing floor plans now to think through how the facility may need to be reconfigured so that, for example, all workspaces are at least six feet apart. Consider marking quadrants on the floor of open areas, such as labs or manufacturing facilities, so there is only one employee per section at a time. Also consider the use of protective barriers for workspaces that cannot be separated by more than six feet.
Implement social distancing protocols. The CDC defines social distancing as deliberately increasing the physical space between people to avoid spreading illness. Employers should consider implementing additional social distancing rules, such as requiring employees to stay six feet apart at all times, unless closer contact is required for a particular job duty, discouraging employees from shaking hands, and prohibiting sharing headsets or other items.
Consider staggering shifts. Another element of social distancing can be staggering work shifts so that fewer employees are in the office at the same time. Staggering can be implemented in numerous ways: having teams of employees come in every other week, every other day or at different start times within the same day. Cleaning between shifts increases the effectiveness of this measure. Employers may also consider keeping employees on the same shifts, to the extent possible, so that any potential exposure between employees can be contained.
Consider employees' commutes. Employees may hesitate to return to work if their commute involves public transportation. Staggered shifts and flexible schedules will help employees avoid using public transportation at peak times. In areas where employees often commute using public transportation, employers may consider offering a commuting stipend that incentivizes employees to use a private vehicle instead.
Reconsider Food Policies Food service may be limited to pre-packaged foods, and floors may be marked with lanes or quadrants to enforce social distancing. Common areas such as kitchens and break areas should be closed or reconfigured to meet social distancing requirements and meal and rest breaks should be staggered, to the extent consistent with applicable law, to ensure any open common spaces are not overcrowded. Employers may consider arranging for food catering or delivery to help minimize the need for employees to frequent other public facilities and then return to the office during their shift.
Require the use of face coverings. Employers may consider either requiring or encouraging the use of such face coverings and providing materials for employees to use.
Remind employees about proper hygiene. Once employees return to the workplace, employers should regularly remind employees about cough and sneeze etiquette and hand hygiene. The CDC also recommends that employers place posters relating to these concepts in the entrance to the workplace and other workplace areas they are likely to be seen (such as bathrooms and kitchens).
Reconsider travel policies. Employers should continue to regularly consult the travel health notices posted by the CDC. Employees returning from high-risk areas, whether for business or personal travel, likely need to self-quarantine before returning to the office. If an employee expresses concerns or refuses to engage in business travel due to fear of COVID-19, the employer should take such concerns seriously and explore alternatives, such as holding videoconferences or postponing the travel.
Respond swiftly to any COVID-19 diagnosis. If an employee reports that they have tested positive for COVID-19, the employer should respond swiftly but carefully, to both protect other employees from exposure but also respect the privacy of that individual. Employers should consider taking similar steps if an employee has a suspected case of COVID-19 or has had close contact with someone who has tested positive. Consider using a third-party contact tracing vendor; various solutions are currently being developed.
Employers may also be required to notify relevant public authorities and should consider taking steps to decontaminate or temporarily shut down the workplace. Employers should consult OSHA guidance on whether to record the diagnosis as a work-related illness and should also consider notifying their workers' compensation carriers.
Avoid discrimination and harassment. Employers should be careful to implement policies, procedures and protocols in a way that does not single out employees based on any protected characteristic, but particularly national origin or ethnicity.
Be prepared for restrictions to change. Monitor daily for official updates.
Be responsive to employee sensitivities.
The CARES Act expands access to SBA’s economic injury disaster loans (EIDL) program to businesses with fewer than 500 employees.
Eligible businesses that suffer substantial economic injury as a result of a disaster or emergency, which now includes COVID-19, can apply for a loan under this program between January 31, 2020, and December 31, 2020.
No personal guarantee is required for EIDLs under $200,000, and the loan can be made solely upon the applicant’s credit score.
Initial advances of up to $10,000 can be issued within three days and need not be repaid.
The loan will bear a low rate of interest; however, unlike PPP 7 loans, the act does not provide for forgiveness for EIDLs.
Businesses may receive both PPP loans and EIDLs, so long as both loans are not used for the same purpose or otherwise duplicative.
IRS Notice 2020-32 has clarified that standard business deductions, such as payroll, will not be deductible if the payment of the expense results in forgiveness of a PPP loan.
This policy is consistent with deduction limitations intended to prevent a double tax benefit– if a business receives income, does not pay tax on that income, pays an expense with that income, and claims a deduction for that expense, then it will have received a double tax benefit: first when it received income and did not pay tax on it and second when it paid an expense with the untaxed income and claimed a deduction for the payment of that expense- but seems remarkably inconsistent with the intention of the CARES Act.
It appears that the drafting of the PPP provisions simply failed to take into account, or potentially even consider, how the IRS would treat the impact of PPP Loan forgiveness of expense deductions. Notice 2020-32 makes it clear that, to avoid this problem and insure that borrowers do not have a significant and unexpected tax liability, Congress will have to enact an amendment to the PPP provisions of the CARES Act.
An 83(b) election is a letter you send to the IRS letting them know you’d like to be taxed on your equity on the date the equity was granted to you rather than on the date the equity vests.
In response to the pandemic, the IRS recently issued Notice 2020-23 to extend the deadline to July 15, 2020, for any Internal Revenue Code Section 83(b) election that would otherwise have been due on or after April 1, 2020, and before July 15, 2020.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a $2 trillion economic relief package enacted to help individuals and businesses in the United States weather the severe financial impact of the COVID-19 pandemic.
A key feature of the relief package is the creation of the Paycheck Protection Program (PPP), which will be administered by the Small Business Administration (SBA). PPP loans will be made by participating commercial lenders between February 15, 2020, and June 30, 2020, subject to certain eligibility requirements, and will be 100% guaranteed by the SBA.
Who is eligible for a PPP loan?
In addition to small businesses, any business, nonprofit, veterans organization or Tribal organization is eligible if it employs not more than the greater of:
Additionally, to be eligible an applicant must have been in operation on February 15, 2020, and certify that:
How do I count my total employees?
Applicants will count their own employees (including anyone employed on a full-time, part-time or other basis) and employees of their “affiliates”, and will exclude independent contractors.
Applicants that are deemed to be “affiliated” with other entities (including their investors) must include affiliates’ employees into their headcount for purposes of the PPP eligibility determination. Subject to certain limited exceptions, the SBA’s method of determining “affiliation” will potentially make loan eligibility challenging for venture capital (VC) and private equity (PE) backed companies because "affiliation" is often determined by stock ownership.
For companies for which the primary NAICS code begins with a 72 (accommodation, food services and drinking places) and for which there is more than one location, the company will be eligible if no one location has more than 500 employees. Additionally, if the company’s primary NAICS code begins with a 72 and the company has no more than 500 employees, the business has been assigned a franchise code by the SBA, or the company receives financial assistance from an SBIC licensed company, the company need not aggregate “affiliates” employees with its own.
For all other companies, the applicant’s employee head count will be aggregated with that of any “affiliates” and of any affiliates of an affiliate.
What if I have access to credit elsewhere?
The PPP waives the ordinary requirement that a 7(a) business loan applicant be unable to obtain credit elsewhere.
What amount can I apply for?
The PPP loans may not exceed 250% of the applicant business’s average monthly “payroll costs” from the year prior to the loan, up to a total maximum of $10 million.
How can the loan be used?
During the period from February 15, 2020, to June 30, 2020 (the covered period), the loans can be used for payroll costs, health care benefits, mortgage interest, rent, utilities and interest on any other debt obligation that was incurred before February 15, 2020.
Does the loan need to be repaid?
Recipients can apply for and receive forgiveness of all or a portion of a PPP loan. Generally forgiveness will be equivalent to the amounts the applicant can document that it paid in the eight weeks following origination of the loan for payroll, mortgage interest, rent and utilities. No amounts paid outside of the 8 weeks are forgivable.
No personal guarantee or collateral is required.
The loans are fee-free, and payments of principal and interest are deferred for at least six months and up to a year.
Any remaining balance on the loan after forgiveness will remain fully guaranteed by the SBA and subject to a maximum interest rate of 4% and maturity of 10 years.
How and when should I apply?
The act authorizes the SBA to guarantee up to $349 billion for this and its other lending programs, meaning that once that monetary threshold is reached, absent further Congressional action, no further loans could be guaranteed. Because the covered period for loan uses ends on June 30, 2020, and the maximum forgiveness period is eight weeks, any loan obtained after May 5 may not enjoy the full forgiveness period.
For this reason, companies should begin discussing potential applications with their lender and collecting documentation and information related to its employee headcount, average monthly payroll costs and other permitted loan costs for the past year, and SBA Form 1919, which the SBA may modify specifically for the PPP. If a company’s existing lender does not plan to offer PPP loans, companies can contact other banks in their area that are SBA loan program participants. Existing participating lenders are listed on the SBA website for the district in which the company is located, and the SBA is authorized to add additional lenders for this program.
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