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Raising Capital For Rhode Island Businesses Under The New Crowdfunding Rules

By Attorney Michael Richards

Raising capital can be a company’s biggest challenge. Historically, federal securities laws only allowed companies to sell shares of stock in a company if the offering was registered with the Securities and Exchange Commission or if the sale of stock fell within a specified exemption from registration.

As registration with the SEC is rarely practical for early-stage companies, companies have relied on exemptions from registration – namely, restricting the offering to ‘accredited investors’, individuals with a net worth exceeding $1,000,000.00 or annual income exceeding $200,000.00.

But beginning on Monday, May 16, 2016, new “Regulation Crowdfunding” goes into effect that allows businesses for the first time to raise capital by selling shares to non-accredited investors.

For growing companies in need of capital, this is a revolutionary new way to raise critical funds needed to launch a new business or expand an existing business into new markets.

For non-accredited investors, this is the first time they can invest on the ground floor – not the Initial Public Offering after the rapid growth phase of a business is long past.

If you have any questions about raising capital for your Rhode Island business, we encourage you to call us. To learn more about the new “Regulation Crowdfunding” going into effect, have a look at the Wall Street Journal article, New Rules Give Startups Access to Main Street Investors.

Things to Consider When Buying a Small Business: Saving Money and Checking Cash Flow

You have numerous things to consider when buying a small business, even though buying an existing business has considerable opportunity. In the present, you’re ultimately saving money not having to start a small business from scratch, especially when a building already exists. The only thing you have to worry about is the future. And what those possible issues are can be scoped out by looking at the existing business’s past.

Cash Flow Issues

Study the financial past of the small business you’re buying and make sure they’ve maintained consistent cash flow. If they have, it means they don’t have lingering debts that could haunt you down the road once you start pulling in profit. Sometimes those debts can be hidden, so be sure to do a thorough financial investigation.

If you find out cash flow was consistent, it helps paint a slightly better picture about your next worry: A consistent customer base. [Read more…]

The 1031 Exchange – An Effective Real Estate Investment Resource

A 1031 exchange is known as a like-kind exchange and can be an effective tool for those who have investment real estate.  When selling investment real estate, most people face a significant tax burden. A like-kind exchange can significantly reduce or even eliminate this burden.

The 1031 Exchange Rule
Property can only qualify for a like kind exchange if they follow specific rules as laid out by the US tax code. Investment properties can only be exchanged for properties that are another investment. For example, you cannot trade a business property for a residential property unless the residential property is going to generate income. The second (and perhaps most often violated) rule for a 1031 exchange is how the proceeds of the sale are handled. For example, you cannot take the proceeds from one sale and buy a pay off another property you own nor can you purchase from one of your agents. This type of transaction will result in all proceeds being taxable. A qualified intermediary must be a person who is completely separate from the transaction. [Read more…]

Things to consider when creating an estate plan

Estate planning is not only for someone else or for some other time. Now is the time to put into place the safe-guards that will ensure that your family and finances that you’re working so hard for are protected. These are decisions that will be made, the question is whether they will be made by you or left to the whim of others and outside agencies. What makes the difference is planning now. Take some time to consider these things when creating an estate plan.

•    Everybody needs a will. It informs the world exactly what you want done with your assets. If you have children, it’s also the mechanism for determining who will be their guardian in the event of your passing. This can also be the same person that you would like to appoint to manage any assets that you leave to your children, should they be too young to do so themselves.

•    Trusts are basically how you put conditions on how and when your assets will be distributed.  It also provides a financial benefit to your remaining family by reducing estate and gift taxes, as well as the delay and publicity of having to resort to a probate court. Another way to avoid the probate process with your funds is to name a specific beneficiary for things like bank accounts and retirement plans, making them automatically “payable on death” to whomever you chose.
[Read more…]

The Legal Problems Associated with Renting a Room in Your Home

The number of people in Rhode Island who rent out space in their home…an extra room or an apartment…is skyrocketing. But many people don’t realize that doing so can create legal problems.

Craigslist reports that the number of people offering to rent a room in a home has nearly doubled over the last year or so. Some of this is due to the economic doldrums. But another phenomenon is that many baby boomers whose children have grown up and moved away have houses that are larger than they need, yet they don’t want to move – or they can’t sell because they owe more on their mortgage than their home is worth. Often, these people rent out extra space to generate income.

That’s all fine – but many people who rent out a room or convert a garage into a studio apartment don’t realize the complexities of landlord-tenant law. Even if you only have one apartment, or even if you only rent to “friends,” you still need to have a formal lease and understand the legal rules for tenancies, or you could find yourself facing unexpected legal issues down the road. [Read more…]

What you need to know about “mortgage contingency” terms

A very comon scenario: A RI couple put down a $45,000 deposit on an $885,000 home, and signed an agreement saying the purchase was contingent on the couple’s being able to get a mortgage for the remaining $840,000. Sometime later, the couple told the builder that they weren’t going to apply for a mortgage and weren’t going to go through with the deal.

The builder refused to return the $45,000 deposit, and the case went to court.

The result? The builder got to keep the $45,000 deposit.

A couple couldn’t back out of a deal just because their income went down and they thought they could no longer get a loan.

If a “mortgage contingency” in a contract says that the purchase is contingent on the buyer’s being able to obtain a mortgage, this creates an obligation on the buyer’s part to actually apply for a mortgage, the Court decided. A buyer can’t just change his or her mind and renege on the deal without applying.

In this case, the couple claimed that they had signed the contract assuming that a separate business deal would go through, and when it fell apart, they didn’t apply for a mortgage because they figured they wouldn’t be able to get one. The couple also claimed the builder knew the deal depended on the business deal going through. [Read more…]

Access to your power of attorney documents

It’s important to have access to the originals of your power of attorney documents, because a photocopy sometimes won’t be accepted.

Sometimes an estate planning attorney keeps the originals, and sometimes the client keeps them. Both are good ideas. But either way, make sure you can access them when you need them. If you keep them yourself, put them in a safe place. And if your estate planning attorney keeps them, be sure you leave enough time to obtain them if you’ll need them for a transaction.

This issue came up recently when a women signed a power of attorney. She was deploying overseas with the Air Force, and wanted her husband to be able to manage their affairs back home. Later, the husband refinanced the couple’s mortgage. But when it came time to record the new mortgage with the county, the clerk’s office refused to do so – because he couldn’t find the original notarized power of attorney, and only had a photocopy.

He explained that it would be very difficult to get a new power of attorney document when his wife was serving overseas, but the clerk’s office wouldn’t bend.

He eventually sued the county, claiming that he suffered damages because he couldn’t refinance or sell the property. But a federal appeals court said the county was within its rights, and the couple was out of luck.

New 3.8% tax on investment income starts in 2013

A new 3.8% tax on investment income will take effect in 2013, and anyone who has significant investments or who manages a trust should be planning for it now.

The tax was included in President Obama’s health care law. In the past, many people didn’t plan for the tax because they thought the law might be struck down by the Supreme Court. But now that the Supreme Court has upheld the law, the tax will take effect as scheduled starting January 1.

The tax applies to single filers with adjusted gross income over $200,000 and married filers with adjusted gross income over $250,000. It also applies to trusts (and estates) with undistributed investment income of more than about $12,000 – so the effect could be very great on them.

For single and married taxpayers, the flat 3.8% tax applies to (1) the total amount of investment income, or (2) the amount by which adjusted gross income exceeds the $200,000 or $250,000 thresholds – whichever is less. So for instance, if a single taxpayer has $225,000 in adjusted gross income and $10,000 in investment income, the tax applies to the $10,000. But if the same taxpayer has $225,000 in adjusted gross income and $50,000 in investment income, the tax applies to $25,000 (the amount by which the taxpayer’s income exceeds the $200,000 threshold). [Read more…]

RI Landlords collect on damage property

In Rhode Island, when an apartment is rented, the tenant pays a security deposit that can be applied if he or she damages the property. Usually, unless the lease says otherwise, the tenant is liable only for damageto the property…not for ordinary wear and tear. The landlord is typically supposed to maintain the property and perform routine upkeep.

Security deposits are normally a small matter, but in some cases, tenant damage can be a big issue. Two recent cases at opposite extremes show that it’s important to speak with an attorney if you have any questions or concerns.

In one case, a landlord leased a house and 25 acres to a married couple. The couple had two dogs, and the wife apparently also kept some horses on the property. Significantly, the couple also agreed in the lease to return the property in the same condition in which they received it. This was important, because while a tenant usually isn’t liable for ordinary wear and tear, this couple agreed to maintain the property even if it suffered the typical effects of use. [Read more…]

Is a “No Closing Cost” offer right for you?

A lot of Rhode Island lenders these days are offering a “no closing costs” option if you take out a mortgage. With this option, the lender pays the closing costs for you, but you pay a slightly higher interest rate on the loan.

This can be a good idea in some circumstances. But you have to run the numbers to find out if it’s right for you.

The appeal of a “no closing costs” loan is obvious: Closing costs can be expensive! The national average of closing costs for a $200,000 purchase-money mortgage is more than $4,000, according to a survey by And that figure can vary considerably by state: In New York, the most expensive state, the average total of closing costs for the same mortgage is $6,183.

On very expensive homes, it’s possible to have closing costs that are north of $10,000.

For many people who are struggling to come up with a 20% down payment, the idea of avoiding closing costs is very attractive.

On the other hand, if you accept a loan with a higher interest rate, you’ll be paying the higher rate for the entire life of the loan, which means you could be paying many thousands of dollars extra as the years go by. [Read more…]