Emerging
Policy
New rules by the Securities and Exchange Commission allow anyone to risk $2,000 a year or more investing in small companies in exchange for a stake in the business. Known as Regulation Crowdfunding, most private companies can now advertise shares for sale to anyone, regardless of income. And individual investors can invest $2,000 to $100,000 a year in crowdfunding offerings, depending on their earnings and net worth.
This is a tremendous shift in capital funding. Previously, only accredited investors - those with an annual income of at least $200,000 or a net worth of at least $1 million - had been permitted to take equity stakes in most private companies.
This change has been a long time in the making. The push towards the new rules began more than four years ago, when President Obama signed the Jump-Start Our Business Start-Ups Act. Concerns about protecting the ordinary investor led the Securities and Exchange Commission to spend years drafting the proposed rules. Many within the financial industry fear a large portion of the companies that take crowdfunding money will fail because businesses that choose this option will be those that are passed over by professional investors.
While reasons for caution remain, the rules are largely being heralded as the democratization of business finance. It is a significant opportunity for start-ups and other small businesses, which can raise money with fairly few regulatory burdens. Small companies seeking less than $500,000 and most first-time issuers will only need to provide unaudited financial statements to potential investors. A concession on audited financial important because there is a considerable cost to providing audited statements.
the Pennsylvania Job Creation Tax Credit. The main problem is these huge incentives, which are aimed for the purpose of job creation, have become a retention mechanism for a corporation that threatens to leave. Meanwhile, small business leaders are rooted in their communities and have repeatedly watched large subsidized incentive companies come and go.
It is widely acknowledged that local, small businesses are the primary driver of employment growth in the region. Small businesses form the backbone of Philadelphia’s economy and create jobs at a faster pace than larger companies. 98 percent of Philadelphia businesses are small businesses with fewer than 50 employees. Many fill gaps in services that larger businesses do not prove, while others implement business strategies that address individualized community needs, such as allowing payment arrangements for needy patrons and providing skill development to local youth through job experience. Small businesses create over half of the jobs in the city (54%), and, yet despite all this, their interests in economic development issues are not effectively represented.
Attracting large corporations that will leave after their incentive is finished is not the authentic investment our communities need. We need investment that ensures more Philadelphians have stable jobs, earn decent wages, and have access to the benefits they need to keep their families healthy and economically secure. We must foster a business culture that says “if we are striving for business and job creation in the city, we are seeking to create good jobs and better companies-- those don’t just have an economic impact, but a broader social one, too.”
using the incentives to increase the adoption of clean energy technologies. So, it is not surprising that the issue became an important topic during the most recent mayoral election, with several candidates offering their own proposals containing varied aims.
Domb, a realtor elected to City Council last November, stated his goal is to spur private investment in underdeveloped, outlaying neighborhoods - such as North and West Philadelphia - that have been largely left out of the recent development boom. However, the potential beneficiaries of this legislation will not be limited to these neighborhoods. It could be a huge boon for condominium development as well. A developer could construct a 20-unit complex in which each condo buyer is entitled to receive a 20-year abatement so long as the purchase price is less than $250,000.
Regardless of who stands to gain, the bill is headed for an uphill political climb. It must clear a series of hurdles both here as well as in Harrisburg. The General Assembly will have to grant permissive legislation considering a clause in the Pennsylvania Constitution requires municipalities to tax all properties uniformly.
effective tax rate of negative 11.1 percent between 2008 and 2012, receiving refunds in the billions. While the Joint Committee on Taxation estimates that the CFC Look-Through Rule would reduce revenues by about $21.8 billion over the 2016-2025 period. These figures levy a broader public cost aside from their sheer financial magnitude. Lost tax revenue bring about changes to public spending priorities as well as increase the federal deficit.
Despite their substantial price tag, Congress permanently enshrined the Active Financing Exception into law and extended the CFC Look-Through Rule for another five years as part of the omnibus spending deal.
These two tax loopholes benefit multinational corporations at the expense of small business. Multinational corporations are permitted to thrive off of American infrastructure, economy, and education, while, at the same time, failing to contribute their fair share in taxes. A 2014 report by U.S. Public Interest Research Group found that 82 of the 100 largest publicly traded U.S. companies diverted revenue offshore to avoid taxes. Small businesses, in turn, are proud to pay taxes and invest in their communities. However, this commitment to domestic investment should not be at the expense of multinational corporations. Pennsylvania small businesses would need to pay an average of $4,217 in additional taxes in order to make up the difference in government revenue lost by tax avoidance.
Businesses should compete on the provision of goods and services, not their ability to hire special interest lobbyist. For this reason, the small business community has shown such strong support for measures to close offshore tax loopholes. Sixty-four percent of small business owners support ending the ability of corporations to defer paying U.S. taxes indefinitely on income diverted overseas, according to a 2013 poll conducted by the Main Street Alliance and American Sustainable Business Council.
What you need to know about this emerging policy
For small businesses, where employees often work long hours and are earning more than $455 per week, the proposed rule could be significant. If multiple employees are routinely working beyond normal work hours, overtime pay could reasonably increase personnel expenses.
What dO you need to know about this emerging policy
New rules by the Securities and Exchange Commision allow anyone to risk $2,000 a year or more investing in small companies in exchange for a stake in the business.
Many within the financial industry fear a large portion of the companies that take crowdfunding money will fail because businesses that choose this option will be those that are passed over by professional investors.
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Regulation Crowdfunding