Category Archives: Business Law

Why Do Companies Go For Private Placement?

Why Do Companies Go For Private Placement?

A private placement is a sale of stock shares or bonds to pre-selected investors and institutions rather than on the open market. It is an alternative to an initial public offering (IPO) for a company seeking to raise capital for expansion. Investors invited to participate in private placement programs include wealthy individual investors, banks and other financial institutions, mutual funds, insurance companies, and pension funds. One advantage of a private placement is its relatively few regulatory requirements. There are minimal regulatory requirements and standards for a private placement even though, like an IPO, it involves the sale of securities. The sale does not even have to be registered with the U.S. Securities and Exchange Commission (SEC). The company is not required to provide a prospectus to potential investors and detailed financial information may not be disclosed. The sale of stock on the public exchanges is regulated by the Securities Act of 1933, which was enacted after the market crash of 1929 to ensure that investors receive sufficient disclosure when they purchase securities. Regulation D of that act provides a registration exemption for private placement offerings. The same regulation allows an issuer to sell securities to a pre-selected group of investors that meet specified requirements. Instead of a prospectus, private placements are sold using a private placement memorandum (PPM) and cannot be broadly marketed to the general public. It specifies that only accredited investors may participate. These may include individuals or entities such as venture capital firms that qualify under the SEC’s terms.

Advantages and Disadvantages of Private Placement

Private placements have become a common way for startups to raise financing, particularly those in the internet and financial technology sectors. They allow these companies to grow and develop while avoiding the full glare of public scrutiny that accompanies an IPO. Buyers of private placements demand higher returns than they can get on the open markets. Above all, a young company can remain a private entity, avoiding the many regulations and annual disclosure requirements that follow an IPO. The light regulation of private placements allows the company to avoid the time and expense of registering with the SEC. That means the process of underwriting is faster, and the company gets its funding sooner. If the issuer is selling a bond, it also avoids the time and expense of obtaining a credit rating from a bond agency. A private placement allows the issuer to sell a more complex security to accredited investors who understand the potential risks and rewards.

A More Demanding Buyer

The buyer of a private placement bond issue expects a higher rate of interest than can be earned on a publicly-traded security. Because of the additional risk of not obtaining a credit rating, a private placement buyer may not buy a bond unless it is secured by specific collateral. A private placement stock investor may also demand a higher percentage of ownership in the business or a fixed dividend payment per share of stock.

Regulatory Requirements for Private Placement

When a company decides to issue shares of an initial public offering, the U.S. Securities and Exchange Commission requires the company to meet a lengthy list of requirements. Detailed financial reporting is necessary once an initial public offering is issued, and any shareholder must be able to access the company’s financial statements at any time. This information should provide enough disclosure to investors so they can make informed investment decisions. Private placements are offered to a small group of select investors instead of the public. So, companies employing this type of financing do not need to comply with the same reporting and disclosure regulations. Instead, private placement financing deals are exempt from SEC regulations under Regulation D. There is less concern from the SEC regarding participating investors’ level of investment knowledge because more sophisticated investors (such as pension funds, mutual fund companies, and insurance companies) purchase the majority of private placement shares.

Saved Cost and Time

Equity financing deals such as initial public offerings and venture capital often take time to configure and finalize. There are extensive vetting processes in place from the SEC and venture capitalist firms with which companies seeking this type of capital must comply before receiving funds. Completing all the necessary requirements can take up to a year, and the costs associated with doing so can be a burden to the business. The nature of a private placement makes the funding process much less time-consuming and far less costly for the receiving company.

Because no securities registration is necessary, fewer legal fees are associated with this strategy compared to other financing options. Additionally, the smaller number of investors in the deal results in less negotiation before the company receives funding. The greatest benefit to a private placement is the company’s ability to remain a private company. The exemption under Regulation D allows companies to raise capital while keeping financial records private instead of disclosing information each quarter to the buying public. A business obtaining investment through private placement is also not required to give up a seat on the board of directors or a management position to the group of investors. Instead, control over business operations and financial management remains with the owner, unlike a venture capital deal. Private placement occurs when a company makes an offering of securities to an individual or a small group of investors. Since such an offering does not qualify as a public sale of securities, it does not need to be registered with the Securities and Exchange Commission (SEC) and is exempt from the usual reporting requirements.

Private placements are generally considered a cost-effective way for small businesses to raise capital without “going public” through an initial public offering (IPO).

Restrictions Affecting Private Placement

The SEC formerly placed many restrictions on private placement transactions. For example, such offerings could only be made to a limited number of investors, and the company was required to establish strict criteria for each investor to meet. Furthermore, the SEC required private placement of securities to be made only to “sophisticated” investors—those capable of evaluating the merits and understanding the risks associated with the investment. Finally, stock sold through private offerings could not be advertised to the public and could only be resold under certain circumstances. In 1992, however, the SEC eliminated many of these restrictions in order to make it easier for small companies to raise capital through private placements of securities. The rules now allow companies to promote their private placement offerings more broadly and to sell the stock to a greater number of buyers.

It is also easier for investors to resell such securities. Although the SEC restrictions on private placements were relaxed, it is nonetheless important for small business owners to understand the various federal and state laws affecting such transactions and to take the appropriate procedural steps. It may be helpful to assemble a team of qualified legal and accounting professionals before attempting to undertake a private placement. Many of the rules affecting private placements are covered under Section 4(2) of the federal securities law. This section provides an exemption for companies wishing to sell up to $5 million in securities to a small number of accredited investors.

Companies conducting an offering under Section 4(2) cannot solicit investors publicly, and the majority of investors are expected to be either insiders (company management) or sophisticated outsiders with a preexisting relationship with the company (professionals, suppliers, customers, etc.). At a minimum, the companies are expected to provide potential investors with recent financial statements, a list of risk factors associated with the investment, and an invitation to inspect their facilities. In most respects, the preparation and disclosure requirements for offerings under Section 4(2) are similar to Regulation D filings.

Regulation D—which was adopted in 1982 and has been revised several times since—consists of a set of rules numbered 501 through 508. Rules 504, 505, and 506 describe three different types of exempt offerings and set forth guidelines covering the amount of stock that can be sold and the number and type of investors that are allowed under each one.

Rule 504 covers the Small Corporate Offering Registration, or SCOR. SCOR gives an exemption to private companies that raise no more than $1 million in any 12-month period through the sale of stock. There are no restrictions on the number or types of investors and the stock may be freely traded. The SCOR process is easy enough for a small business owner to complete with the assistance of a knowledgeable accountant and attorney. It is available in all states except Delaware, Florida, Hawaii, and Nebraska. Rule 505 enables a small business to sell up to $5 million in stock during a 12-month period to an unlimited number of investors, provided that no more than 35 of them are non-accredited. To be accredited, an investor must have sufficient assets or income to make such an investment. According to the SEC rules, individual investors must have either $1 million in assets (other than their home and car) or $200,000 in net annual personal income, while institutions must hold $5 million in assets. Finally, Rule 506 allows a company to sell unlimited securities to an unlimited number of investors, provided that no more than 35 of them are non-accredited. Under Rule 506, investors must be sophisticated. In both of these options, the securities cannot be freely traded.

Advantages to the Company

• Going for an FPO involves a plethora of compliances, disclosures and is altogether a time-consuming procedure.
• Speculations in the market can result in low valuation in the capital market when the market is bleak. In such a situation private placement provides the best solutions to raise capital with good valuation.
• The investors investing through private placements are well educated and informed investors who look forward to long term holdings are ready to invest in the company with higher valuation if they see the significant future value.
• It is surreal for a company to go for an FPO after its valuation is eroded pursuant to an IPO.
Advantages to the Investors
• Investors are able to capture a good stake in the companies at attractive prices when the company raises capital during bleak markets.
• There is a lesser regulatory framework compared to the traditional routes
• There are easy exit opportunities in the listed companies.
• Investors can invest in the bearish market in attractive prices and later sell the stake at high prices during the bull cycle.

Private Placements

• Regulation 14(2)(a) of Companies (Prospectus and Allotment of Securities) Rules, 2014 states that a special resolution by the shareholders of the company is necessary in order to initiate the process of private placement.
• For the purpose of invitation for non-convertible debentures, a special resolution one a year for all the offers during the year is sufficient.
• The offer for Private Placement is made only to selected people who are recognized by SEBI.
• Not more than 50 of these people can participate in the procedure. These number does not include QIB.
• Any company who intends to make an offer to subscribe to securities needs to send placement offer form along with Form PAS-4 to the identified persons either in electronic mode or writing.
• No person other than the addressee can fill up the application.
• The company has to maintain a record of the private placement offer in form PAS-5
• A company cannot advertise publicly or through agents or distribution channels about an issue.
Registrar
• A copy of the complete record of private placement along with placement offer form is to be filed with Registrar and stock exchange in case the company is listed and along with requisite fee.
• Pursuant to the allotment of the securities, a return of allotment has to be filed within fifteen days which includes the details of the allotters.
• A company can only utilize money raised through private placement when allotment is made and the return of allotment is filed with the Registrar.
Applicants
• Persons willing to subscribe have to apply in the private placement along with subscription money; the mode of payment cannot be in cash.
• If the private placement is not in accordance with the SEBI regulations then it will be considered as on public offer and Securities Contracts (Regulation) Act, 1956 will be applicable.
• In case of any default in contravention, the promoters of the company are subjected to a fine of 2 cores or the money raised through the placement whichever is lower. Moreover, the company has to refund all the money with interest to the subscribers. The company has to allot securities within a period of sixty days from the date of receipt of application money. In case the company is not able to do so then it is liable to repay the money with interest of twelve percent per annum.
• A fresh offer cannot be initiated unless allotment to the prior issue has been given or the offer is abandoned.

Institutional Private Placement

Rationale

• Minimum Public Holding was introduced through the Securities Contract Act which mandated the listed companies to maintain a minimum public holding of 25%.
• Companies are fined or even delisted if they do not comply with this norm and moreover is not an uncommon affair. Institutional Placement is an efficacious way to increase public holding.
• Institutional Placement is an exclusive placement for the Qualified Institutional Buyers in off-market mechanism.
• Institutional Placements can be either through the new issue of shares or Offer for Sale.
• Firstly, the placements offer the shares only to a fixed number of investors which would otherwise be floated in the secondary market. In such an instance there is a high possibility of erosion of the share value. Secondly, the shares are offered to the group of people who have an appetite for large holdings.
• Institutional Placements are useful during divestments of Public Sector Undertaking shares by the government and for the dilution of the promoters stake.

Statutory Framework

• A special resolution by the shareholders is mandatory for carrying out institutional placement program.
• The offer document has to be registered with the Registrar of Companies and file a company with a stock market. A soft copy of the offer document has to be filed with SEBI.
• The merchant banker has to submit a due diligence certificate Form A schedule VI
• The allocation of the securities in an IPP is made through; proportionate basis, price priority basis, any other criteria mentioned in the offer document.

Allotment

• Minimum 25% of the securities have to be allotted to the Mutual Funds & Insurance companies.
• The bids have to be accepted using ASABA facility only.
• The minimum number of allottee for each offer of eligible securities made under the institutional placement programme shall not be less than ten: Provided that no single allottee shall be allotted more than twenty-five percent.
• The aggregate of all the tranches of institutional placement programme made by the eligible seller shall not result in an increase in public shareholding by more than ten percent. or such lesser percent. as is required to reach minimum public shareholding.
• The issue shall be kept open for a minimum of one day or the maximum of two days.
• The allotted securities are locked in for the period of one year from the date of allocation and can only be sold on the recognized stock exchange.

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It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
Ascent Law LLC

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Why Would A Company Do A Private Placement?

Performing An Employee Background Check
Why Would A Company Do A Private Placement?

The much-awaited Companies Bill, 2013 got the President’s assent on 29 August 2013. The new Companies Act, 2013 (“Act”) seeks to consolidate and amend the law relating to the companies and intends to improve corporate governance, raise levels of transparency and to further strengthen regulations for corporate. The Act has made significant changes to the provisions of law and has introduced several new concepts. This article deals with the changes made to provisions relating to private placement of securities, which has been an important route of fund-raising for companies. The tightening of private placement norms is done in the backdrop of the recent dispute between the securities market regulator SEBI and Sahara Group where the Supreme Court had ordered the Sahara Group companies to refund the amounts collected from investors. The intent behind the changes is to make the practice more transparent and to prevent misuse of the provisions.

Private placement provisions under Companies Act, 1956

As per the proviso to section 67(3) of the 1956 Act, when a company makes an offer or invitation to subscribe for shares or debentures to 50 or more persons, such offers is treated as made to public. Where an invitation in made by the management of a company to selected persons for subscription or purchase by less than fifty persons receiving the offer or invitation, the shares or debentures and such invitation or offer is not calculated directly or indirectly to be availed of by other persons, such invitation or offer shall not be treated as an offer or invitation to the public.

“Private placement” means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section It is to be noted that the provisions for private placement apply to issue of “securities” and not “shares”. The new provisions cover a whole host of instruments such as shares, bonds, debentures and other marketable securities. Section 42(4) provides that any offer or invitation not in compliance with the provisions of the section shall be treated as a public offer and all provisions of the Act, SCRA and SEBI Act shall be required to be complied with in such a case. Offer can be made only to 200 persons in a financial year [Section 42(2) and rule 3.12(2)] Unlike the 1956 Act, under which the number of members in a private company is restricted to 50, private companies under the Act can have members up to 200. As per rule 3.12(2)(b)the Draft Companies Rules, 2013 (“Rules”), an offer or invitation for private placement shall be made to not more than two hundred persons in the aggregate in a financial year, excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option as per provisions of section 62(1)(b) of the Act. Section 42(5) of the Act states that all monies payable towards subscription of securities by private placement shall be paid through cheque or demand draft or other banking channels but not by cash.

All securities under private placement are to be allotted within a period of 60 days from the receipt of application money. If not the securities are not allotted within the specified period, the application money is to be refunded within a period of 15 days from completion of 60 days’ time. The entire amount raised by the issue of offer or invitation will have to be parked in a separate bank account and cannot be used until allotted. The particulars of every private offer shall be filed with the Registrar within 30 days of circulation of offer letter. The companies offering or inviting subscriptions under private placement cannot advertise or utilize any marketing media.

Compliance required under the Rules

Part II of Rules deals with private placement. Rule 3.12 prescribes certain additional requirements to be complied with in case of private placement. A private placement offer letter shall be accompanied by an application form addressed specifically to the person to whom the offer is made and shall be sent to him, either in writing or in electronic mode, within thirty days of recording the names of such persons in accordance with section 42(7) of the Act. No person other than the person so addressed in the application form shall be allowed to apply through such application form and any application not so received shall be treated as invalid. The proposed offer of securities or invitation to subscribe securities must be approved by the shareholders of the company, by way of a special resolution, for each of the offers/ invitations. The offer or invitation shall be made to not more than two hundred persons in the aggregate in a financial year, excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62 of the Act. The number of such offers or invitations shall not exceed four in a financial year and not more than once in a calendar quarter with a minimum gap of sixty days between any two such offers or invitations. The value of such offer or invitation shall be with an investment size of not less than fifty thousand rupees per person. The payment to be made on subscription of securities shall be made from the bank account of the person subscribing to such securities. However, monies payable on subscription to securities to be held by joint holders shall be paid from the bank account of the person whose name appears first in the application.

Penalty for non-compliance

Section 42(10) of the Act prescribes the penalty for contravention of section 42. If a company makes an offer or accepts monies in contravention of the section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation whichever is higher. Also, the company is required to refund all monies to subscribers within a period of thirty days of the order imposing the penalty.

Position of unlisted public companies

In December2011, the Ministry of Corporate Affairs had issued Unlisted Public Companies (Preferential Allotment) Amendment Rules, 2011 (“2011 Rules”) and made the preferential allotment rules as applicable to public companies more stringent. Some of the provisions of 2011 Rules are listed below: The offer for preferential allotment cannot be made to more than 49 persons. Any offer or invitation not in compliance with provisions of section 81(1A)read with section 67(3) of the 1956 Act would be treated as public offer and provisions of the SCRA and SEBI Act will need to be complied with. The money payable on subscription should be paid only by way of cheque or DD or other banking channels but not by cash. Allotment of securities should be completed within 60 days from the receipt of application money. If not so allotted, the company should repay application money within 15 days thereafter, failing which it should be repaid along with an interest at the rate of 12% per annum. The application money should be kept in a separate bank account and should not be utilized prior to allotment. Company offering securities cannot release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about the offer. The private placement provisions as contained in the Act have incorporated the provisions of the 2011 Rules. While the 2011 Rules were applicable to public companies only, the provisions of the Act on private placement will apply to all companies. Once the Act comes into force it is to be seen whether the 2011 Rules will be repealed or the public companies will be required to comply with both the Act as well as the 2011 Rules.

In to make money with stocks there are steps you need to takes, below are some of the steps:
• Conduct research before buying stocks: avoid buying the wrong shares by conducting research before buying the shares, because the worst share is the wrong shares, Before buying any shares look into the following to prevent buying a stale stock.
• Look at composition of the board of directors or management team of the company you want to buy to buy their shares. Whether the share is in the secondary or still in the primary market, ensures that they are tested and trusted, also check the stability of the board of directors and the management team for the past five years. It is advisable to buy from company that has their management team tested and trust or are known to be successful in the pass.
• Look in to the track record: check the record of the company you intends to buy the shares from, find out the financial performance, and the investor’s interest in the past years. Have they been fulfilling their promises a good company will always be exceeding its financial projection.
• Look in their dividends policy: check their dividends and bonus issuance policy, if they have being doing or not, if it is every year or two years then it is good to buy.
• Look into their institutional investors: look into the insurance companies, and fund manager and other institutional investors that buy their stocks, these companies has effective research tools and the market more than you can do if these companies can decides to do business with them then fine , you can go on to do buy their stocks.
• Contact a stock broker. You need stockbroker to start stock business. The stockbroker act as a platform through which you buy and sell shares.
Buy into private placements and initial public offers.

A private placement memorandum is an offering document, sometimes called a prospectus, offering circular, or PPM. The majority of early startups and emerging growth companies commonly raise money through what are known as private placements. It is simply a sale of stock (or debt) in the company to private investors that become shareholders in the company. The reason they are classified as private, is not because they are private investors, but because the offer and sale of stock (a security) does not involve any public advertising or general solicitation of investors.

For example, when a stock goes public, they are offering stock publicly by filing a registration statement, press releases, etc. This process of registering the securities with the SEC allows the company to utilize the media and other methods to offer its stock for sale. Since most companies don’t have the money or resources to file a registration statement with the SEC, they rely upon selling the stock through exemptions from registration. Although there are other exemptions that are used, the most common exemptions used under federal securities laws (Securities Act Section 3(b)) for startups raising money are:
• Regulation D: Private offer and sale of securities requiring compliance with manner of offering requirements and limitations on resale of securities requirements. The common categories are listed under the following 3 classes:
• Rule 504: raise up to $1 million within 12 month period; no specific information requirements for PPM
• Rule 505: raise up to $5 million in a 12 month period; unlimited number of accredited investors and only up to 35 unaccredited investors; 502(b) information disclosures required
• Rule 506: unlimited amount of money raised within a 12 month period to accredited investors; unlimited number of accredited investors and up to 35 unaccredited, but “sophisticated” investors; Rule 502(b) information disclosures required

If Rule 505 or 506 placements are only sold to accredited investors, there is no information specifically required to be provided. If there is even one non-accredited investor, the company must provide (unless they are already a reporting company with the SEC) certain financial and non-financial statement information. The term accredited investor was amended recently under the Dodd-Frank Act. There are a number of categories to qualify based upon things such as recent income and net worth, but the main change was to limit the definition for net worth to not include the investor’s primary residence as an asset and not include the mortgage on their primary residence as a liability (except for debts taken out within 60 days, for example a cash out refinance).

Rule 502(b) does also required the company to provide reasonable access to information requested by potential purchasers for Rule 505 and 506 offerings prior to their purchase. Even though a sale may be exempt from registration and have limited or no information requirements to provide to potential investors, the anti-fraud rules still apply and a company can get into a serious bind if they misrepresent, lie, omit, or misstate items about the company, its business, its management, future business, and other items. Those exemptions require that no public advertising or general solicitation is used in the offer and sale of those securities. So, the company is not able to start issuing press releases, posting website ads, or sending mass mailings to potential investors in most cases.

This does make it more difficult to get your message out there, but it must be complied with for the offering and sale to qualify for the exemption and not violate securities laws. Often this results in needing to be introduced to prospective investors through connections. When the company decides to raise money through a private placement (which can also be in the form of a loan, which is still classified as a security), they have certain rules they must follow for the placement to qualify for the exemption and comply with securities laws. A recommended list of categories for your business plan (which will also cover many of the PPM information requirements):
• Executive Summary– A brief, usually one page or so, overview of what your company does, how it is different or solves an existing problem, who your team is, and what your plans are to grow the business (i.e. how are you going to make money for the investor)
• Management Team– Name, title, and a bio on each top member of the management team (officers and directors) to show what experience or assets they are bringing to the table
• Product or Service Description– What do you do and how is it novel or better than something else out there and how do you make money from it?
• Intellectual Property Protection– How have you or will you protect your company’s ideas, brand name, developments?
• Manufacturing and Operations– How will you produce the product or provide the service, as well as manage and operate the administrative side of things?
• Human Resources– How many people do you have now and how many do you plan to bring on? Any other challenges, such as using independent contractors versus employees? Do you still need to identify and hire certain positions in the company?
• The Market– What market are you targeting and where do you fit into it? What are the landscape and current trends in the market or industry?
• Competition– You are probably not the first person to think of this, so how are you better or different than your current or future competitors?
• Sales and Marketing– How do you plan to get your message out about your produce or service?
• Company Background and Structure– things like current capitalization, how the company was formed, is it a C corporation formed in a certain state…
• Financial Information– current, historical, and future pro forma financial statements such as balance sheet, statement of cash flows, and profit and loss statement.

• Exhibits & Footnotes– At the end when you may want to attach full pro forma financial statements as exhibits, you should also think about other things related to the business. Some people add a copy of the patent filings and issued patents the company owns, research/white papers, SEC filings, license or joint venture agreements, process flow diagrams, and other information that you can summarize in the body of the business plan, but provides more detailed info if the investor wants to read more. In place of these sometimes lengthy documents, you may want to add footnotes in the body with hyperlinks to the source for your information for the investor to read through those links. Of course, you want to think about confidentiality when it comes to any documents provided, but showing your sources for information can help to show that you have done your homework.

It becomes essential for the company and management during this process to cover all bases and be sure it is protected from lawsuits and SEC or other regulatory action. When a company fails to execute what they said they would do and the investor loses their investment, the plaintiff’s lawyers start circling looking for someone to go after, like the board of directors and upper management or just about anyone involved with the investment process. This is where a private placement memorandum can be a valuable tool to help protect the company and its officers, directors, and others.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews


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Why Would A Company Do A Private Placement?

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Why Would A Company Do A Private Placement

Why Would A Company Do A Private Placement

A private placement is a method for both public and private companies to raise capital through the private sale of corporate debt or equity securities, to a limited number of qualified investors (aka lenders); it is an alternative to traditional capital sources, such as bank debt, or issuing securities on the public bond market.

Advantages of private placement

One major advantage of private placement is that the issuer isn’t subject to the SEC’s strict regulations for a typical public offering. With a private placement, the issuing company isn’t subject to the same disclosure and reporting requirements as a publicly offered bond. Furthermore, privately placed bonds don’t require credit-agency ratings. Another advantage of private placement is the cost and time-related savings involved. Issuing bonds publicly means incurring significant underwriter fees, while issuing them privately can save money. Similarly, the process can be expedited when done in a private manner. Furthermore, private placement deals can be custom-built to meet the financial needs of both the issuer and investors.

Advantages of Raising Capital through Private Placement

Small businesses face the constant challenge of raising affordable capital to fund business operations. Equity financing comes in a wide range of forms, including venture capital, an initial public offering, business loans, and private placement. Established companies may choose the route of an initial public offering to raise capital through selling shares of company stock. However, this strategy can be complex and costly, and it may not be suitable for smaller, less-established businesses. As an alternative to an initial public offering, businesses that want to offer shares to investors can complete a private placement investment. This strategy allows a company to sell shares of company stock to a select group of investors privately instead of the public. Private placement has advantages over other equity financing methods, including less burdensome regulatory requirements, reduced cost and time, and the ability to remain a private company.

Regulatory Requirements for Private Placement

When a company decides to issue shares of an initial public offering, the U.S. Securities and Exchange Commission requires the company to meet a lengthy list of requirements. Detailed financial reporting is necessary once an initial public offering is issued, and any shareholder must be able to access the company’s financial statements at any time. This information should provide enough disclosure to investors so they can make informed investment decisions. Private placements are offered to a small group of select investors instead of the public. So, companies employing this type of financing do not need to comply with the same reporting and disclosure regulations. Instead, private placement financing deals are exempt from SEC regulations under Regulation D. There is less concern from the SEC regarding participating investors’ level of investment knowledge because more sophisticated investors (such as pension funds, mutual fund companies, and insurance companies) purchase the majority of private placement shares.

Saved Cost and Time

Equity financing deals such as initial public offerings and venture capital often take time to configure and finalize. There are extensive vetting processes in place from the SEC and venture capitalist firms with which companies seeking this type of capital must comply before receiving funds. Completing all the necessary requirements can take up to a year, and the costs associated with doing so can be a burden to the business. The nature of a private placement makes the funding process much less time-consuming and far less costly for the receiving company.

Because no securities registration is necessary, fewer legal fees are associated with this strategy compared to other financing options. Additionally, the smaller number of investors in the deal results in less negotiation before the company receives funding.

Private Means Private

The greatest benefit to a private placement is the company’s ability to remain a private company. The exemption under Regulation D allows companies to raise capital while keeping financial records private instead of disclosing information each quarter to the buying public. A business obtaining investment through private placement is also not required to give up a seat on the board of directors or a management position to the group of investors. Instead, control over business operations and financial management remains with the owner, unlike a venture capital deal.

Reasons to issue a private placement

Privacy and Control

Private placements enable companies that value privacy to remain private. In contrast to public debt and equity offerings – which require public filings, disclosures of company information and financing documents and terms – private placement transactions are negotiated confidentially, and public disclosure requirements are limited. With a private placement, companies would not be beholden to public shareholders.

Long Maturities

Private placements provide longer maturities than typical bank financing arrangements. They are ideal for companies seeking to extend or layer their refinancing obligations out beyond the typical 3-5-year bank tenor. Additionally, longer maturities often allow for limited amortization, which can be attractive to companies seeking to invest in capital assets, acquisitions and/or invest in projects that have a longer investment return runway.

Fixed Rate

Typically, private placements are offered at a fixed-interest rate, minimizing interest rate risk. Through a fixed-rate financing, companies can avoid the concern commonly associated with floating-rate coupons, should underlying interest rates rise. A fixed coupon generally allows companies to allocate the cost of debt capital for specific project financings, acquisitions or large capital investment programs.

Diversify Capital Sources

Private placements help diversify a company’s sources of capital and capital structure. The stable investment appetite shown by insurance companies and other large institutional investors in the private placement market is typically independent from many of the market variables that impact bank market lending activity. Since the terms of private placements can be customized, these transactions are typically crafted to complement existing bank credit facility capacity as opposed to directly competing with these relationships. Creating capital access in both the private debt and bank markets can allow companies to optimize their access to debt capital. Diversification of financing sources becomes particularly important during market cycles when bank liquidity may be tight.

Additional Capacity

Many companies issue private placements because they have outgrown their borrowing capacity and need capital beyond what their existing lenders (banks, private equity firms, etc.) can provide. Private placements typically focus on cash flow lending metrics and can be completed on either a secured or unsecured basis, depending on the issuer’s existing capital structure.

Buy-and-Hold

Private placements are typically “buy-and-hold,” meaning the debt investment wouldn’t be purchased with the intent to sell to another investor. Thus, private placement borrowers benefit from the ability to create a long-term relationship with the same investor throughout the life of the financing.

Ease of Execution

Private placement financings are regularly completed by both privately-held, middle-market companies as well as large public companies. These transactions provide issuers with access to capital on a scale that rivals underwritten public debt offerings, but without certain preconditional requirements, such as ratings, public registrations or minimum size restrictions. For public companies, private placements can offer superior execution relative to the public market for small issuance sizes as well as greater structural flexibility.

Cost Savings

A company can often issue a private placement for a much lower all-in cost than it could in a public offering. For public issuers, the Security and Exchange Commission (SEC) related registration, legal documentation and underwriting fees for a public offering can be expensive. Additionally, in contrast to banks that often rely on ancillary services and fee generation to enhance investment return, private placement lenders rely exclusively on the yield from the notes that they purchase. Taking into consideration the yield-equivalent savings on avoided underwriting fees, in conjunction with the yield premium often associated with first time issuers and small issuance premiums, private placements can provide a very attractive alternative to the public debt market.

Fewer Investors

Unlike issuing securities on the public market, where companies issuing debt securities often deal with hundreds of investors, private placement transactions typically involve fewer than 10-20 investors, and in many cases, are completed with a single large institutional investor. This approach can materially simplify the investor tracking burden for issuers as well as allow them to concentrate their investor-relationship efforts on a few key financial partners.

Familiar Pricing Process

The process for pricing private placements debt transactions is very similar to that of public securities. The coupon set for fixed-rate notes issued reflects the underlying U.S. Treasury rate corresponding to the tenor of the notes issued, plus a credit risk premium (a “credit spread”). This process allows for general transparency as to the approach that institutional investors undertake when establishing the economics of the transaction.

Speed of Execution

The growth and maturity of the private placement market has led to improved standardization of documentation, visibility of pricing and terms as well as increased capacity for financings. As a result, the private market can accommodate transactions as small as $10 million and as large as $1-$2 billion. That, when combined with standardized documentation and a smaller universe of investors, fosters quick execution of an investment, generally within 6-8 weeks (for an initial transaction, with follow-on financings executed within a shorter time frame). As noted, it can be much faster to issue a private placement versus a public corporate bond (particularly for first-time issuers) due to the elimination of prospectus drafting, rating agency diligence and registering requirements with the SEC.

Private Placement Program Advantages

Long Term Advantage

If it is a debt security, the Company issues private placement bonds which generally have a longer time to mature than a bank liability. Thus, the Company will have more time to pay back the investors. This is ideal for the situations where the Company is investing in new businesses that would require time to learn and grow. Further, if this placement is done on equity shares; they are generally done to strategic investors with a “buy-and-hold” strategy. These investors invest for a longer duration and also provide strategic inputs on running the business. Thus, the Company benefits from having a long-time relationship with the investor.

Less Execution timeframe

As the market for this placement has matured this has increased standardization of documentation, better terms, and pricing and increased the size of raising funds. Further, the issuer does not have to register and market such a fundraising exercise with the regulator, hence it can be executed in lesser time and cost. If the issuer is issuing private placement bonds that will be privately held, he may not be required to get credit rating which will further reduce the cost to be paid to the credit agency.

Diversification of Fundraising

Fundraising by this placement helps the Company to diversify Company’s funding sources and its capital structure. It aids the Company in raising capital when market liquidity conditions are not good. It helps the Company to organize the capital structure in terms of debt-equity structure and help it to manage its debt obligations.

Lesser Regulatory Requirements

This placement requires limited public disclosures and is prone to less regulatory requirements than that would be needed in a public offering. Thus, the Company would negotiate the deal privately and offer the securities at a negotiated and fixed price.

Sell to Accredited Investors

This placement issuer can sell complex securities to the investors participating in the issue because such an issue will be limited to a select group of investors (accredited investors). Further, they would understand the potential risk and return on such securities.

Is a private placement a good investment?

Like As we all know, private placements are a funding round of securities which are sold outside of a public offering and mostly to a small number of chosen investors. Investments in companies that are privately owned. In other words, these placements can be can be sold by:
• Private companies; these are non-negotiable companies whose shares are negotiated outside of in the public stock market, like NYSE, NASDAQ, AMEX, etc.
• Through private investment in public equity, which are the selling of publicly traded common shares, preferred stocks or convertible security to private investors.
• Or, via a standby equity distribution agreement. Basically, a relatively flexible and customizable type of share allocation agreement between a company and an investor.
Advantages of investing in private placements:
• Private placements imply lower expenses in commissions and advertising. Once the company starts trading its shares publicly, they tend to increase their price considerably, which would allow the investor to sell their shares at a greater price.
• In some cases, private placements are not made to become public. And the good news is you don’t have to register with the SEC, nor require public disclosure of the company’s statements.
• As an investor, you’ll have the chance to participate in the purchase of shares for a portion of the project (i.e. construction of office/apartment buildings, condos, malls, airports, etc.), and once the project is sold (usually after several years), the investor receives the return plus a percentage for procedures.

Risk factors

The main risk factor is the concern about the participation of the company in the stock market or not (meaning, whether it will be traded in a public stock market). Many elements factors can affect a company’s profitability;, the delay or even deny the refusal of participation of or a private company in the stock market can negatively affect your investment profit and liquidity. Some private companies are family businesses that have grown and become important players in their respective markets. However, it’s often difficult for the owners to give up control, which something that happens when most of the company’s shares are sold in a public stock market. Another factor is the company’s financial health, accounting records or outdated tax returns. A company must present extensive regulation documents to obtain the necessary permission to market its shares in the public stock market. If the financial health of the company is not on point, if the accounting books are not in order, or if there is any inconsistency, it will delay or even deny negate the company’s participation in the stock market. Finally, if the private placement is done in a company that has no intention of going to the public stock market (i.e. a development project) then the risk will can be rather associated with company’s rate of success and the shares’ liquidity success as such.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews


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The Hiring Process

The Hiring Process

No matter what kind of business you run, your success or failure depends largely on the quality of your staff. The hiring process, including everything from writing a job description to conducting interviews and choosing the best candidates, should always be done with careful attention to detail. There are a host of laws that an employer must follow during the hiring process. In this section, you can also find information about what distinguishes an employee from an independent contractor, and the consequences of misclassifying a worker.

Federal Hiring Laws

There are various hiring laws that employers must comply with, both on a federal level and state level. Many of the federal laws are in place to prevent discriminatory practices in both hiring and during the course of employment. Federal laws prevent discrimination based on various factors including age, race, color, national origin, sex, religion, and genetic information. Federal law also requires that men and women who perform substantially the same work, in the same or similar positions (at the same company) must be paid equally. The federal government also requires employers to verify that a person is legally eligible to work in the United States within three days of an employee’s start date. It’s important that your business has interview questions that are in line with federal laws, and that they do not come across as discriminatory toward any group.

Independent Contractors vs. Employees

It’s very important to classify your workers correctly because failure to do so can land you in hot water, particularly with the Internal Revenue Service (IRS). Classifying a worker takes more than just giving him or her a job title. In fact, the job title doesn’t matter; it’s the core of the relationship between the worker and the business that defines a person’s status as either an employee or an independent contractor. There are several factors used to determine the status of a worker, but the root of the issue is the degree of control an employer has over the worker. Basically, the more control the employer has, the more likely it is that the worker is an employee.

The classification of a worker matters for both the employer and the worker. Employers are required to perform certain actions on behalf of employees. These include withholding a portion of an employee’s paycheck and paying employment taxes. Employers are also required to comply with federal laws related to family and medical leave when it comes to employees. Independent contractors, on the other hand, have to pay their own employment taxes and do not receive the benefit of federal family and medical leave laws.

Hiring an Attorney

It’s important that your business has hiring policies and practices that comply with all federal and state laws. If you would like help setting up sound policies and practices – or would like the policies and practices you have in place reviewed by a professional – you should consult with a local employment law attorney.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews


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Monitoring Employees

Monitoring Employees
Monitoring Employees

Technology has made monitoring employees easier than ever now that almost every mode of communication has gone digital. As many as three out of four companies reported that they monitored their employees to some extent, with the most commonly monitored activities being internet use and email.

Employers understandably don’t want employees surfing inappropriate websites, trading stocks, or playing poker while on the clock. More important to many companies, however, is that employees aren’t engaging in corporate espionage, selling trade secrets, or using workplace computers to harass other coworkers.

As an employer, the law generally allows you to monitor your employees’ communications while on the job and within reason. The major exception to this is if the monitoring runs afoul of an employee’s right to privacy. Each form of monitoring has its own rules and exceptions, so it’s important to know how the law treats each type of monitoring.

Monitoring Internet Use

Monitoring general internet use is probably the least restricted form of monitoring. Employers are allowed almost without exception to keep track of internet sites that their employees visit. Employees generally have no right to privacy regarding their viewing history, and many companies install software that either severely limits what websites may be viewed or how much time employees can spend on non-approved sites.

Monitoring Emails

Emails are the modern form of letters and correspondence and accordingly have more protection based on precedent than something like general internet viewing habits. However, courts have generally sided with employers and allowed them to read the email of their employees unless the employer has indicated that emails will be private or confidential. This policy can be communicated to employees explicitly, by telling employees that emails are confidential, or indirectly, by giving employees unique passwords that only they know.

To be careful, as an employer you should try to always have an established reason for viewing employee emails, such as a policy justification or a record of an incident which prompted the monitoring. Courts have rarely denied an employer the right to read employee email if there was a justification in place before the employer read the employee’s email (such as reports of harassment).

Monitoring Phone Calls

Phone calls are the most protected form of employee communication and employers should be especially careful when monitoring phone calls. Almost all states allow an employer to monitor or record employee conversations with customers for quality assurance purposes. Although only a few states require that you announce that the call is being recorded, it is a good business practice to let customers know they are being recorded.

The major exception to monitoring rules for phone calls is when the employee makes a personal call. Although federal law allows employers to monitor calls without warning or announcement, once the employer realizes that it is a personal call, the employer must stop monitoring the call. The only caveat to this is that if the employee has explicitly been told not to make personal calls from the particular phone, then the employer may be allowed to continue monitoring the call.

Monitoring Voice Mail

Voice mail is a gray area of the law and it is likely that the rules in place for other forms of monitoring apply here. Employers are likely able to access an employee’s voice mail, provided that the employer hasn’t given employees the impression that their voice mail is private. The best practice is to have a good work-related justification established before monitoring an employee’s voice mail.

How to Keep Your Monitoring Legal

Employers generally have access to employee communications while on the job, but there are a few steps to always take before monitoring employee communications:
• Establish a Policy: Don’t let there be any confusion about whether a particular form of communication will be monitored or not. Create a clear policy that outlines what forms of communications are monitored, why they are monitored and under what circumstances they are monitored. To be extra careful, consider having employees sign a consent form acknowledging that they understand and agree that their workplace communications will be monitored.
• Have a Justification for Monitoring: Courts are far less likely to find you liable for violating an employee’s right to privacy if you had a good, work-related reason for monitoring communications. If you’ve had past experiences that prompted monitoring or have received complaints, these all qualify as perfectly good justifications for monitoring employee communications.
• Be Reasonable: Be smart about how and when you monitor employee communications. If you create a draconian atmosphere of surveillance or implement a system that seems excessive given the potential problems, a court is much more likely to find that you are violating employee privacy rights. Ensure that your monitoring system is proportional to any potential problems because overreaching is a good way to ensure a lawsuit from a disgruntled employee.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews


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What You Should Keep In Your Employees’ Personnel Files

What You Should Keep In Your Employees' Personnel Files
What You Should Keep In Your Employees’ Personnel Files

In some circumstances, personnel files can become evidence in a lawsuit brought against your company by an unhappy former employee or employees. As a result, you should always ensure that certain documents are maintained and updated in your employees’ personnel files in order to protect yourself. For example, personnel files should always contain periodic employee evaluations, notices of raises, employee commendations, and any evidence of any disciplinary proceedings that were taken against the employee.

You should never keep documents or entries that do not relate to the employee’s job performance or qualifications. Many employers have gotten into trouble for keeping documents or notes that relate to an employee’s political views, private life, or unsubstantiated criticisms about an employee’s race, gender, or religion.

Include Everything Relating to Employee Performance in the Personnel Files

One good practice to get in the habit of is to periodically inspect and clean out all of your employee personnel files. You should set a time to do this at least once a year, perhaps at the same time you are conducting employee performance reviews. When you go through the personnel files, you should be looking to take out any documents that are not necessary. Here are some questions to keep in mind when performing this task:
• Does the employee personnel file that you are holding contain every written evaluation of that employee, to the best of your knowledge?
• Does the employee personnel file that you are holding contain every written document that pertains to all raises, promotions and commendations that the employee has received?
• Does the employee personnel file that you are holding contain all written documentation that pertains to all warnings or other disciplinary action taken against that employee?
• If your company has policies in place about removing documents regarding warnings and discipline after a certain period of time, have all documents meeting these criteria been removed from the personnel file?
• If your company engages in “performance plans” or “probationary periods” for struggling employees, are all files updated to reflect each employee’s current status?
• If you have updated your employee handbook since an employee has started working for you, do you have a written and signed acknowledgement of receipt of the new handbook from the employee?
• Does the employee personnel file you are holding contain copies of current contracts or other agreements between you and the employee?

You should keep these questions in mind when going through your personnel files. Updating and cleaning out personnel files is much like keeping a computer running smoothly by periodically removing unnecessary files — it is a chore, but it must be done.

Other Items to Keep in Your Personnel Files

You should always remember that employee personnel files are very important to your company. As such, most, but not all, documents relating to employment should be kept in your employees’ personnel files, including:
• A job description for the position that the employee holds;
• The job application and resume of the employee;
• Your offer of employment to the employee;
• The employee’s W-4 Form (Employee’s Withholding Allowance Certificate);
• A receipt or signed acknowledgement of receiving your company’s employee handbook;
• All performance evaluations;
• Any forms relating to benefits that your employee enjoys;
• Emergency contact and next of kin forms;
• Any written complaints from customers or co-workers;
• Awards or certificates of excellent performance on the job;
• Any documents pertaining to completed training programs;
• Records and notes of any disciplinary proceedings taken against the employee;
• Any notes or warnings on bad attendance or tardiness to work;
• Any employment contracts, written agreements, or acknowledgments between the employee and the employer (including, but not limited to, noncompete agreements, agreements about company vehicles…etc); and
• Any documents that relate to an employee leaving the company (such as an exit interview or a document that lays out clearly the reasons why an employee was terminated). In addition, this can include documents relating to continuing benefits (such as COBRA), or agreements about future filings for unemployment benefits.

It is always a good practice to start an employee personnel file for each employee at the time you hire him or her.

What You Should Not Keep in Your Personnel Files

There are some items that you should not keep in your personnel files, either for reasons relating to potential lawsuits, or because of state or federal laws. Here are some items that you should be careful with:
Employee Medical Records — If you employ someone that has a disability, you are required by the Americans with Disabilities Act (ADA) to keep that employee’s medical records in a separate file and limit the access to that file. Even if you plan on keeping medical records for employees without disabilities, you may not be allowed to keep their medical records in their personnel files.
• I-9 Forms — You will get Form I-9s from the United States Citizen and Immigration Services (USCIS). These forms are used for all employees to verify that you have checked their eligibility to be employed within the United States. Instead, you should keep all of these forms within a separate folder for the USCIS. The government maintains the right to inspect these forms. If the government does come to inspect the Form I-9s, you do not want the government seeing the other documents contained within your personnel files.
• Unneeded Records — Although there is not much that stops you from keeping other documents within your personnel files, you should try to keep a limit on what gets put in them. You should always keep in mind that, depending on your state, your employees may have the right to inspect their own personnel file.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews

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Procedures To Reduce The Risk Of Litigation And Liability For Employment Terminations

Procedures To Reduce The Risk Of Litigation And Liability For Employment Terminations
Procedures To Reduce The Risk Of Litigation And Liability For Employment Terminations

If you run a business, you will inevitably have to face the situation of discharging an employee. While terminating an employee may never be pleasant, sometimes it’s necessary. Before you terminate an employee, you’ll want to be sure you are following the law to ensure you don’t face a lawsuit later.

The following guidelines can help companies limit their liability with regard to employment termination decisions:
1. Carefully train supervisors about personnel matters and their obligations under the applicable laws governing the employment relationship.
2. Insist on thorough and complete documentation of supervisory decisions involving all personnel matters.
3. Review employee handbooks, work rules, job applications, and other forms of employee communications to delete or limit statements regarding fair treatment, progressive discipline, and permanent employment.
4. Review all employment handbooks and personnel policies at least annually. Appropriate disclaimers and legal safeguards should be incorporated as advised by counsel.
5. Use “at-will” language in both employee handbooks and employment applications.
6. Consider defining the employment relationship to clarify the employer’s right to exercise its sole discretion in implementing such actions as demotions, transfers, and changes in assignments, duties, responsibilities, and rate of pay. By contrast, consider not using a probationary period. If you use a probationary period, define its purpose and state that completion of the period does not increase the employee’s rights in his or her job.
7. Review what recruiters and interviewers, including supervisors, say to prospective employees. Avoid references to “the good future that exists here if you work hard.” Use standardized language in all interviews — and make certain interviewers stick to the script. Avoid references in recruiting to job tenure, partnership track, career path, security, permanent, the future.
8. Ensure that employee reviews are conducted on time, and are accurate and consistent with company policy and practice. Establish a system to review evaluation forms so that the evaluation correlates with the particular job the employee performs. Review completed evaluations to ensure that individuals are not being overrated. Consider using narrative rather than checklist evaluations, and generalizing the standards for evaluation.
9. Review all employment policies to ascertain what obligations they impose (for example, an obligation to consider alternate job placement when an individual demonstrates inadequate performance). Delete those obligations that are not usually followed, and follow those policies that remain.
10. Establish a system to review employee terminations when they involve individuals in protected classes or with long service.
11. Standardize the procedures used for communicating and implementing terminations. Do not deviate from the established method. Carefully monitor all statements made by the employer in describing the termination. And, consider offering reemployment immediately when you determine that a substantial exposure to liability exists or a material error has been made.
12. Consider providing an internal appeal procedure or mandatory arbitration.
13. Any time an employee leaves, consider using exit interviews.
14. Never provide a letter of reference that contains inaccurate statements (either positive or negative) regarding a terminated employee.
15. Consider obtaining a release and/or settlement agreement from certain terminated employees.

Supervisor’s Checklist for Personnel Decisions

Supervisors should carefully review the following considerations in making decisions affecting personnel:
• Consider whether the decision is based solely on the employee’s individual performance, or whether general assumptions have been made about an ethnic minority, women, persons who are 40 years of age or older, persons with disabilities, and so on.
• Are there solid business-related reasons for the decision? Document the reasons for the decision, giving specific examples. Ensure that the decision and its implementation are consistent with company policies.
• Consult with the personnel department regarding any inconsistency.
• If there is a performance problem, document your efforts to help the employee improve. The employee’s failure to respond to counseling should also be documented.
• Be accurate and straightforward in evaluating employees, both in praising and criticizing when warranted. Rate employees as satisfactory only when you really believe their work is satisfactory. Consult with the personnel department when you believe a problem is developing, before it gets out of hand.
• Ensure that the bases for the decision are consistent with the employee’s work record and what other supervisors have told the employee.
• Check that actions taken against this employee are consistent with treatment accorded other employees.
• Be complete and accurate in telling the employee the reasons for the discharge.

Insurance Coverage

Whether an employer’s liability insurer is responsible for defending or indemnifying the company against claims of intentional wrongful discharge will depend on the terms of the policy, and the facts involved in the case. Employers should review their insurance policies carefully should such a claim arise, and seek professional guidance on this issue. Consideration should be given in every case to tendering a complaint to the insurance carrier.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews


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What Happens If You Don’t File Taxes For 10 Years Or More?

What Happens If You Don't File Taxes For 10 Years Or More?
What Happens If You Don’t File Taxes For 10 Years Or More?

It’s not hard to get behind on your taxes. Perhaps there was a death in the family or you suffered a serious illness. Whatever the reason, once you haven’t filed for several years, it can be tempting to continue letting it go. However, not filing taxes for 10 years or more exposes you to steep penalties and a potential prison term.

There’s No Time Limit on the Collection of Taxes

If you have old, unfiled tax returns, it may be tempting to believe that the IRS or state tax agency has forgotten about you. However, you may still be on the hook 10 or 20 years later. If you don’t file and owe taxes, the IRS has no time limit on collecting taxes, penalties and interest for each year you did not file.
It’s only after you file your taxes that the IRS has a 10-year time limit to collect monies owed. State tax agency have their own rule and many have more time to collect. For example, California has up to 20 years after you file to collect.

You Could be Charged with a Crime

The IRS recognizes several crimes related to evading the assessment and payment of taxes. Penalties can be as high as 5 years in prison and $250,000 in fines. However, the government has a time limit to file criminal charges against you. If the IRS wants to pursue tax evasion or related charges, it must do this within six years from the date the unfiled return was due. Non-filers who voluntarily file their missing returns are rarely charged.

Determine If the IRS Filed a Substitute Return

Just because you didn’t file your return doesn’t mean the IRS won’t file one for you. The IRS may file a Substitution for Return or SFR on your behalf. Don’t think of this as a complementary tax filing service. The IRS won’t give you any of the exemptions or deductions that rightfully belong to you.

Once an SFR is filed, you will be sent a notice to accept the tax liability as filed in this alternate return. If you don’t respond, the IRS will issue a notice of deficiency. At this point the tax is consider owed by you and the IRS can begin the collection process. To encourage payment, a levy can be placed on your wages or bank accounts. A federal tax lien may also be placed against your real property.

If a SFR was filed, you don’t have to accept the outcome. You can go back and refile those years and include any available deductions. Chances are you can decrease the tax owed, as well as the interest and penalties.

File Your Missing Returns

You may want to file your old returns before a demand is made. There’s no time limit for submitting a previously unfiled return. However, if you’d like to claim your refund, you have up to three years from the due date of the return. It may be a good idea to speak with an experienced tax attorney or CPA before filing old returns. But, here’s some benefits of getting missing tax returns filed:
• Protect you Social Security benefits: If you’re self-employed and don’t file, you won’t receive credits toward Social Security retirement or disability benefits.
• Avoid issues obtaining loans: Loan may be denied or delayed if you cannot prove income by providing tax returns or reportable income.
• Not having to worry about your unfiled taxes: Once your tax issue is resolved, it will free up your time for more enjoyable pursuits.

Negotiate Your Tax Bill

If you tax assessment is too high, you may be able to negotiate a better deal. Penalties may represent 15 to 20 percent of what you owe to the IRS. Getting these removed can make a real difference. File Form 843 to request an abatement of taxes, interest, penalties, fees, and additions to tax.

If your debt is more than $10,000, you might consider a Partial Payment Installment Agreement (PPIC) where the IRS agrees to accept less than the total you owe. The IRS will only agree to a PPIC if it’s clear that the monthly payments you can make will not cover your total taxes due for many years.

An offer in compromise (OIC) is an agreement between a taxpayer and the IRS that settles a taxpayer’s tax liabilities for less than the full amount owed. If you can fully pay your liability through an installment agreement or other means, won’t generally qualify for an OIC.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews


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Performing An Employee Background Check

Performing An Employee Background Check
Performing An Employee Background Check

Employee background checks are a vital way for an employer to learn more about the applicant, but can also be a source of potential liability. The Internet has made it much easier to obtain both personal and professional information about job applicants, but it pays to be careful about where you look, which information you trust, and which questions you ask.

Make Your Employee Background Check Reasonable

Here are some things to keep in mind when performing an employee background check:
• Be reasonable: The best advice for an employer running a background check is to keep such an investigation reasonable. Running a credit report and checking up on references makes a lot of sense, but combing court records, interviewing neighbors and requiring physicals for all of your applicants may not make much sense and may get you in trouble.
• Make your investigation business-related: Part of being reasonable is ensuring that your background check is really business-related. If you are hiring a security guard, then digging heavily into a person’s criminal background may be extremely relevant and justified. If you are hiring a part-time janitor, you may not need to go to such lengths. In order to avoid being sued, make sure to tie what you’re asking for directly to the job at hand.
• Get the applicant’s consent: Another way to avoid liability in general is to get the applicant’s consent before accessing potentially sensitive information. Some things, like credit checks, expressly require you to get the applicant’s consent, but even if you might otherwise have access to sensitive information, it pays to be careful and get the applicant’s consent in writing. The easiest way to do this is to simply ask for the consent on a job application.

Records an Employer Can Likely Consider when Performing an Employee Background Check

Some of the records below, such as credit reports, drug tests and driving records, require the consent of the applicant, but are still considered routine records to be used when performing a background check. As discussed above, regardless of the record type, always make sure that such an inquiry is related to the job.
Here’s a list of the types of records routinely involved in an employee background check:
• Credit reports
• Drug tests
• Driving records
• Social Security number
• Court records
• Character references
• Property ownership records
• State licensing records
• Past employers
• Personal references
• Sex offender lists

Finally, if you decide not to hire someone based on his or her credit report, you must provide the applicant with a copy of the report and advise the applicant of his or her right to challenge it. Also be aware that several states have even stricter rules limiting the use of credit reports, so check your state’s laws before turning down an applicant based on their credit.

Records You May Not be Able to Consider when Performing an Employee Background Check

• Criminal records: Whether employers can access criminal records varies greatly between states, but in many states such records can only be used by certain employers such as public utilities, law enforcement, security guard firms, and child care facilities. Even if employers cannot access criminal records, whether employers can ask about past criminal activity also varies greatly between states, but some states allow employers to ask about a criminal past even if they won’t allow employers to access criminal records. This is probably a potential employer’s biggest area of liability and it is highly recommended that you consult a lawyer to find out the rules applicable in your particular state.
• Bankruptcies: Although bankruptcies are a matter of public record, employers generally cannot discriminate against applicants because they have filed for bankruptcy.
• Worker’s compensation: When a person files a worker’s compensation claim, the case becomes a public record. An employer may usually only use this information if the injury might interfere with the applicant’s ability to perform the work required by the job, however.
• Medical Records: Medical records are confidential and generally cannot be released without an applicant’s knowledge or authorization. Employers can require a physical examination for the job if it makes sense, however, in which case the employer will have access to those results.
• Military Records: Under the federal Privacy Act, military records are confidential and can only be released in very limited circumstances
• Educational Records: Generally, transcripts, recommendations, discipline records, and financial information are confidential and cannot be released without consent. If the applicant gives their consent and it makes sense for the job, however, transcripts can be, and often are, requested.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews


Recent Posts

Monitoring Employees

The Small Business Lawyer And Product Liability

Writing Effective Job Descriptions

Business Lawyers

Estate Planning Lawyer

Divorce Lawyer and Family Law Attorneys

Ascent Law St. George Utah Office

Ascent Law Ogden Utah Office

Writing Effective Job Descriptions

Writing Effective Job Descriptions
Writing Effective Job Descriptions

A job description describes the major areas of an employee’s job or position. A good job description begins with a careful analysis of the important facts about the job — such as the individual tasks involved, the methods used to complete the tasks, the purpose and responsibilities of the job, the relationship of the job to other jobs, and the qualifications needed for the job.

It’s important to make a job description practical by keeping it dynamic, functional, current, and legal. A well-written, practical job description will help you avoid hearing a refusal to carry out a relevant assignment because “it isn’t in my job description,” while helping you hire the right people.

This article focuses on how to write an effective job description, whether it’s for a job listing or to help define an existing employee’s job duties and expectations.

Make Sure Your Job Description is Flexible

Realistically speaking, many jobs are subject to change, due either to personal growth, organizational development and/or the evolution of new technologies. Flexible job descriptions will encourage your employees to grow within their positions and learn how to make larger contributions to your company. For example: Is your office manager stuck “routinely ordering office supplies for the company and keeping the storage closet well stocked,” or is she/he “developing and implementing a system of ordering office supplies that promotes cost savings and efficiency within the organization?”

When writing a job description, keep in mind that the job description will serve as a major basis for outlining job training or conducting future job evaluations. And remember, job descriptions may change with time.

Main Components of a Job Description

The first component of any job description is the title. Job titles vary widely from one employer to the next, although certain job titles suggest a certain level within the company (such as “Vice President”) or require certain certifications.

The title is closely followed by the main objective or overall purpose statement. Generally, this is a summary designed to orient the reader to the general nature, level, purpose, and objective of the job. The summary should describe the broad function and scope of the position and be no longer than three to four sentences.

Every job description must also include a list of principal duties, continuing responsibilities, and accountability of the occupant of the position. The list should contain each and every essential job duty or responsibility that is critical to the successful performance of the job, beginning with the most important functional and relational responsibilities and continuing down in order of significance. Each duty or responsibility that comprises at least 5 percent of the incumbent’s time should be included in the list.

Another important element is a description of the relationships and roles the occupant of the position holds within the company, including any supervisory positions, subordinating roles, and other working relationships. For instance, it may state that you will be managing employees or that you will report to a certain individual.

Job Descriptions for Recruiting Purposes

If you are in the process of recruiting an employee, you need to clearly state the job specifications, standards, and requirements. These are generally the minimum qualifications needed to perform the essential functions of the job, such as education, experience, knowledge, and skills. Any critical skills and expertise needed for the job also should be included.

A receptionist — for example — might need to possess: (1.) a professional and courteous telephone manner; (2.) legible hand-writing if messages are to be taken; (3.) the ability to handle a multiple-lined phone system for a number of staff members; and (4.) the patience and endurance to sit behind a desk all day.

Other details that should be in a job description used for recruiting purposes include the following:
• Job Location: Where the work will be performed.
• Equipment to be used in the performance of the job: For example, does your company’s computers run in a Apple MacIntosh or PC Windows environment?
• Collective Bargaining Agreements: agreements and terms that relate to job functions, if applicable, such as when your company’s employees are members of a union.
• Non-Essential Functions: functions which are not essential to the position or any marginal tasks performed by the incumbent of the position.
• Salary Range: range of pay for the position. Keep each statement in the job description crisp and clear.
• Structure your sentences in classic verb/object and explanatory phrases: Since the occupant of the job is your sentences’ implied subject, it may be eliminated. For example, a sentence pertaining to the description of a receptionist position might read: “Greets office visitors and personnel in a friendly and sincere manner.” Omit any unnecessary articles such as “a”, “an”, “the” or other words for an easy to understand, to the point description.
• Use un-biased terminology: For example, use the “he/she” approach or construct sentences in such as way that gender pronouns are not required.
• Avoid using words which are subject to differing interpretations: Try not to use words such as “frequently,” “some,” “complex,” “occasional,” and “several.”

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

4.9 stars – based on 67 reviews


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