Friday, August 17, 2012

The SEC is Delayed in its JOBS Act-Related Rulemaking


An important part of the JOBS Act that was adopted into law on April 8, 2012 is the revisions to Rule 506. Transactions pursuant to Rule 506 of the Regulation D are often referred to as the “Reg D private placements.” The Rule allows startups to issue unlimited amount of securities to an unlimited number of accredited investors and up to 35 sophisticated non-accredited investors. Accredited investors’ definition includes individuals who have (i) a net worth (or joint net worth with his/her spouse) that exceeds $1 million at the time of the purchase (not including the value of the primary residence); or (ii) income exceeding $200,000 in each of the two most recent years (or joint income with spouse exceeding $300,000 for those years) and a reasonable expectation of such income level in the current year. Currently, one of the conditions of a Rule 506 offering is that there cannot be general solicitation or advertising. Compliance with the Rule is simple as long as the offering is made only to accredited investors. If, however, an offering involves investors who are not accredited, the company is required to provide more disclosure, which increases the offering's legal costs.

The JOBS Act lifted the ban on general solicitation and advertising in Rule 506 offerings so long as all investors are accredited, and asked the SEC to adopt rules relating to the verification of the investors’ accredited status. Changes to Rule 506 will not become effective until the SEC develops the rules. The SEC had 90 days from April 8th to accomplish this task. The 90-day period expired on July 7th but no rules came about.

Once effective, changes to Rule 506 will radically change the private placement process. Companies looking for funding will no longer be limited to contacting their wealthy friends, family members and people with whom they have a pre-existing relationship. Startups will be able to solicit and advertise openly, as long as all investors who end up investing in the company are accredited. Hopefully, the SEC is not delayed much longer in its rule-making that would enable more companies to raise the much-needed capital.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

Tuesday, August 14, 2012

Unlimited Vacation Time: Is it Here to Stay?

In an effort to retain the best talent, a new human resources policy has emerged among technology companies: unlimited vacation time. Companies like Evernote, Best Buy, the Motley Fool, Netflix, Zynga, Gilt Groupe, Chegg, TIBCO Software, Bluewolf, NerdWallet, WeddingWire, among others, have adopted this policy. Evernote even takes a step further and pays $1,000 to those employees who actually take a vacation during their time-off and produce an airline ticket as evidence. Companies are correct in believing that a well-rested employee is a happier and a more productive one. The latest theory behind the unlimited vacation policy is the Results-Only Work Environment (ROWE), where employees are judged based on their performance and not based on the number of hours they spend in the office. However, only 1% of the U.S. companies have formally adopted the ROWE, according to a research report of the Society forHuman Resource Management. So far, little or no complaints have been voiced by the companies with unlimited vacation plans regarding the abuse of vacation time by the employees. In fact, employees at these companies tend to take less rather than more vacation time.

So, why do these companies choose to adopt the ROWE? Mainly, to retain top talent, as the lack of experts (especially in the technology sector) becomes apparent. Currently, the unemployment rate for those in the technology field (4.4% in the Q1 of 2012) is about one half of that of the general population (8.3%). In 2011, McKinsey & Co. published areport on the big data market, where it predicted that “The United States alone faces a shortage of 140,000 to 190,000 people with analytical expertise and 1.5 million managers and analysts with the skills to understand and make decisions based on the analysis of big data.” According to an April survey from GigaOm, 45% of business intelligence projects fail due to a lack of data expertise on staff.

The technology sector is rapidly expanding and this expansion dictates new rules. Human resource specialists and management should stay informed of the trends and be willing to adopt quickly in order for the companies to stay competitive and be able to retain the best qualified personnel. In a world where personal time is ever more precious, unlimited vacation may be just the right incentive for top engineers, data scientists and other technology specialists to switch over to the companies that have adopted the ROWE.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.