Welcome to the Winter 2014 edition of the Golan & Christie Newsletter. We hope this issue is a small reprieve from this particularly brutal winter. Here you’ll find the following articles addressing timely and significant issues that may impact you and your business:

IS CROWDFUNDING A GOOD FIT FOR YOU?

Rita W. Garry discusses the oft-used yet commonly misunderstood business model of crowdfunding. This article highlights the requirements and guidelines that a business should be aware of if they plan to explore crowdfunding options. 

NEW LABOR LAWS & TRENDS

Illinois employers are now prohibited from discriminating against registered medical marijuana users, and the NLRB is targeting overly broad employment policies. Discover how this may impact your business.

BUSINESS BEWARE

A corporate scam is sweeping through the state of Illinois in the form of a phony fee collection. Find out how to protect yourself and who to contact should you fall victim to this nefarious scheme. is targeting overly broad employment policies. Discover how this may impact your business.

Golan & Christie is humbled and honored by the business relationships we have developed with our clients over the years. While our main focus is to provide legal counsel in a wide range of practice areas, we also look at you and your business from a variety of perspectives in order to determine the most appropriate way to help you prosper.

Your success is our goal and we strive to carry out that powerful philosophy every day.

-Stephen L. Golan
 Managing Partner

In April 2012, Congress passed the JOBS Act, which included Title III that created a new securities offering exemption under Section 4(a)(6) that sets the framework for equity crowdfunding.

On October 23, 2013, the Securities and Exchange Commission issued 595 pages of proposed rules that will eventually govern the regulation of equity “crowdfunding” for public comment. “Crowdfunding” is a method of raising investment capital by selling securities on the Internet.

To qualify for this exemption, crowdfunding transactions must meet these broad requirements, which include the following:

• The amount raised must not exceed $1 million in a 12-month period (adjusted for inflation at least every five years);
• Individual investments in a 12-month period are limited to:
  a. the greater of $2,000 or 5 percent of annual income or net worth, if the investor’s annual income or net worth is less than $100,000; and
  b. 10 percent of annual income or net worth (not to exceed an amount sold of $100,000), if annual income or net worth is $100,000 or more;
• Transactions are conducted through an intermediary that is either registered as a broker or is registered as a new type of entity called a “funding portal.”

Crowdfunding is often confused with “crowd-sourcing,” which is a non-equity based model of sourcing crowd funds for a wide array of activities and campaigns ranging from artistic endeavors to local community projects where contributors either receive nothing for their donations or other token items. The companies that host the Internet venues for these types of crowd-sourcing are numerous and, in some cases, like Kickstarter, well known. Crowd-sourcing does not, and more importantly, cannot involve the offer and sale of securities because the offer and sale of securities triggers regulation federally by the SEC, by all 50 states’ securities’ regulators, and the self-regulatory organization, FINRA. a.the greater of $2,000 or 5 percent of annual income or net worth, if the investor’s annual income or net worth is less than $100,000; and b.10 percent of annual income or net worth (not to exceed an amount sold of $100,000), if annual income or net worth is $100,000 or more;

Unlike the current federal private placement exemptions of Regulation D, which were created using the SEC’s rulemaking authority in 1982, the Crowdfunding exemption was created by Congress, which tasked the SEC to adopt implementing rules for its use by December 31, 2012. As the proposed Crowdfunding rules are nearly a year over-due, those in the entrepreneurial community are anxious to learn how this exemption will work and take advantage of this new source of capital access for emerging businesses.

While this brief article cannot provide a comprehensive review of all the Crowdfunding proposed rules, Golan & Christie wants to take this opportunity to highlight key elements of the Section 4(a)(6) exemption as addressed in the proposed rules:

Intermediaries – It appears all Crowdfunding securities offerings will be conducted elec-tronically by registered intermediaries hosting Web-based platforms that foster communication channels, information sharing, and qualification of potential investors.

Integration – Generally, to comply with existing private placement exemptions issuing companies must take care to avoid the “integration” of one exempt offering with another exempt offering that could void its ability to claim either or both exemptions. The proposed SEC Crowdfunding rules address the concept of “integration” but also recognized that the $1 million limit may be too low and identified that Section 4(a)(6) does not explicitly prevent an issuer from raising capital through means other than this exemption and, therefore, “capital raised through other means should not be counted in determining the aggregate amount sold in reliance on Section 4(a)(6)” thus, allowing for the possibility of an issuer conducting concurrent offerings raising in excess of $1 million.

Investment Amount Limits – The JOBS Act sets a floor of $2,000 and a ceiling of $100,000 investment limits in Crowdfunded offerings depending on the investor’s annual income or net worth (to be determined consistently with Regulation D’s definition of an “accredited investor”), but does address when or how these tests are to be applied. The SEC proposes to interpret this part of the legislation using a “greater of” test so that the applicable percentage (5% or 10%) is to be applied to the greater of the investor’s annual income or net worth.

Investor Characteristics – The proposed Crowd-funding rules discuss the possibility of creating different investor criteria depending on whether the investor is an individual or an institution and on whether the investor is a U.S. citizen or domiciled company. The proposals indicate that the SEC does not favor a tiered regulatory structure for this element, nor will non-US based investors be prohibited from participating in Crowdfunded offerings.

Nature of and Requirements for Issuers – Indications are that only US domiciled issuers will be permitted to use Section 4(a)(6) and that the issuers must provide prospective investors with written disclosure documents prior to accepting equity subscriptions.

Issuer Disclosure Requirements – SEC proposes to use a base Form C to streamline issuers’ filings to meet their disclosure obligations, including Form C (Offering Statement); Form C-A (Amendments); Form C-U (Progress Updates); Form C-AR (Annual Report); and Form C-TR (Termination).

Advertising and Notice Requirements – Issuers may not “advertise” or “generally solicit” for their offerings, but the SEC believes a “central tenant of the concept of Crowdfunding is that members of the crowd decide whether or not to fund an idea or business after sharing information with each other.” Therefore, issuers will be required to give investors and potential investors “notices” of a variety aspects of the offerings, including the identity of the intermediary, the terms of the offering, the legal identity and other basic facts about the issuers and its capital structure.

To discuss whether your business should explore Crowdfunding, please contact Rita W. Garry at (312) 696-1366 or rwgarry@golanchristie.com and keep an eye out for details about how to register for the complimentary Golan & Christie breakfast seminar in April.

On January 1, 2014, the Illinois Compassionate Use of Medical Cannabis Pilot Program Act, 410 ILCS 130/1, et seq., (the “Act”) became effective, allowing registered marijuana users to purchase marijuana from a registered, licensed dispensary. The Act specifically prohibits employers from discriminating against registered users and caregivers solely on the basis of their status as a registered user or caregiver unless discrimination is necessary to comply with federal law or the employer will lose federal funding.

The Act allows employers to adopt reasonable regulations on the consumption and storage of marijuana. For example, employers may discipline registered users who appear to be impaired or in possession of marijuana during work. Employers should review their current employment policies, including drug testing, zero-tolerance and a drug-free workplace with their attorneys to ensure they are complying with the Act.

Even non-union employers can be liable under the National Labor Relations Act (NLRA), which protects certain comments by employees about their wages and working conditions. The National Labor Relations Board (NLRB), the federal agency which enforces the NLRA, has ramped up its enforcement efforts and is targeting employers that have broad policies limiting employees’ protected speech. Specifically, the NLRB is scrutinizing employers’ social media, workplace investigation, confidentiality, media and anti-disparagement policies. For instance, the NLRB recently ruled that a blanket prohibition on employees discussing workplace investigations violated the NLRA because it bans protected speech. Employers should carefully review their policies with their attorneys in light of the NLRB’s heightened scrutiny.

To discuss how these issues apply to your company contact:
Laura A. Balson, (312)696-1351, labalson@golanchristie.com
or Margaret A. Gisch, (312)696-2039, magisch@golanchristie.com.

Andrew S. Williams has relocated his transactional and employee benefits practice from Aronberg Goldgehn Davis & Garmisa, where he had practiced as an associate and partner for more than thirty years.

Mr. Williams received his J.D. degree from The University of Michigan Law School, with honors, and a B.A. degree in political science and economics from Wabash College, magna cum laude and Phi Beta Kappa. He advises individuals, professional groups, as well as business and tax-exempt organizations on private placements, acquisitions, and succession planning, as well as ERISA and employee benefit compliance involving retirement and 401(k) plans, group health plans, ERISA fiduciary and prohibited transaction issues, employee stock ownership plans (“ESOPs”) and non-qualified deferred compensation and severance arrangements. Mr. Williams has experience with specialty matters such as COBRA continuation coverage, HIPAA, Rollover Business Start-Ups (“ROBS”) transactions, Section 409A compliance, Internal Revenue Service VCP submissions, Affordable Care Act issues and ERISA subrogation.

Mr. Williams has been recognized as one of Illinois’ Leading Lawyers in both the “Small, Closely and Privately Held Business Law” and “Employee Benefits Law” categories, and has Martindale-Hubbell’s top AV Rating.

Golan & Christie acts as Registered Agent with the Illinois Secretary of State for many of our corporate clients, receiving and preparing their entity’s annual reports each year. We recently received correspondence from a firm called Corporate Records Service targeting Illinois corporations in a scam to collect a fee for preparation of “Annual Minutes Record Form.”

Corporate Records Service sends a form resembling the Illinois Annual Reports and attempts to collect a $125 fee for preparation of an Annual Minutes Record. For those with a corporation, it is important to know the Illinois Business Corporation Act does not require corporations to file Annual Minutes or a “Minute Record Form.” The Annual Report fee is normally the only fee a corporation is responsible for in Illinois.

In an October 2012 news release, Illinois Secretary of State Jesse White warned of the scam attempting to swindle businesses. “The problem is that the form this bogus firm is sending out looks similar to our Secretary of State’s annual report form,” White said.

We ask that our clients maintaining corporations be alert for the false notices, mailed in a green envelope. Should you receive correspondence from Corporate Records Service, we recommend disregarding any request seeking fees.

The Illinois Secretary of State is urging those who have fallen victim to the scam to contact the Secretary of State’s Business Service Office at (312) 793-3380 or (217) 782-6961. The information provided will be important in attempting to recover funds and prosecute offenders.