On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”) into law.  The law is meant to provide small businesses and start-ups with easier access to capital, with the result being an increase in jobs.  The JOBS Act loosens regulations for private placements, which has many fans, but an equal number of critics who believe that incidences of fraud will explode.

The JOBS Act moved through Congress very quickly.  Now the SEC will need to engage in rulemaking for some provisions, while others are in effect immediately.

The JOBS Act provides relief to smaller companies (less than $1 billion in revenues) conducting an IPO, an increase in the funding available in a Regulation A offering and the facilitation of “crowdfunding” on the internet to solicit a large quantity of small investments.  The more practical benefit to MarketCounsel’s clients, however, is the changes to the private placement regulations.  In particular, the prohibition on general solicitations and advertising has been eliminated for Regulation D filings.  Currently, private offerings can not be offered to the general public.  Issuers (such as hedge fund managers) need to have an existing relationship with those that they solicit.  While issuers have been liberal in claiming existing relationships, the requirement is a hurdle.  The JOBS Act gives the SEC 90 days to revise certain private offering regulations to eliminate the general solicitation and advertising prohibitions.  All purchasers will have to be Accredited Investors (as opposed to the current regulations that allow a certain number of non-accredited investors).

A January 1st Investment News article suggests the following five resolutions for advisors in 2012:

1. Create a succession plan.  Citing a TD Ameritrade Institutional recent survey showing that only 40% of registered investment advisors have a formal succession plan in place, the article characterizes that statistic as “unacceptable” and reminds advisors that they have a moral, ethical and fiduciary obligation to make sure their clients’ asset are protected and also that succession planning makes good business sense.

2. Communicate more frequently with clients.  Especially with continuing turmoil and volality, this is crucial to build and maintain client trust and loyatly.

3. Incorporate social media into your marketing plan.  The message here is that social media is here to stay and is a powerful tool that advisors should be using.

4. Do something to pave the way for the next generation of advisors.  From the premise that it is abundantly clear that the industry is doing a pitiful job of replenishing its aging ranks, the article encourages advisors to be more proactive at recruiting, training and assisting the next generation includng through formal internships.

5. Don’t ignore the women.  The article cites sobering statistics that 70% of widows leave their financial advisors in the first year after their husband’s death and that widows outnumber widowers 4 – 1 in the over 55 age group.  Concluding that advisors who fail to earn the trust and respect of their client’s spouses are doing themselves a grave disservice, it recommends that in 2012 advisors insist that spouses attend meetings and go out of their way to make sure the spouses are actively engaged and shown respect.

A recent article in the Wall Street Journal reports on some of the newer types of legal entities now available for social entrepreneurs who are creating companies that seek profit but are also devoted to a social purpose.  This segment was previously limited to choosing between a nonprofit corporation that would prevent the company from being too much of a business or a for-profit corporation that would not serve the mission-driven purpose of the social entrepreneur.

Three legal structures are emerging to address this tension and provide a more appropriate vehical for social entrepreneurs:

1. L3C (Low Profit Limited Liability Company)

Ideal for companies that want to blend traditional capital with “philanthropic” capital, such as from foundations.  Available to start-ups in Vermont, Michigan, Wyoming, Utah, Illinois, North Carolina, Louisiana, Maine and soon in Rhode Island.

An L3C offers the same liability protection and pass-through taxation as an LLC. But it must be organized primarily for a charitable purpose – and secondarily for profit. Unlike a traditional nonprofit, it may distribute its profits to owners.The L3C is designed to attract both traditional investment and a very specific type of philanthropic money called Program Related Investments (PRI). PRI is capital – in the form of equity or debt – from a foundation to a for-profit company that is doing work in line with the charitable purpose of the foundation.

2. Benefit Corporation

Ideal for companies that want to create a measurable positive impact while and providing greater transparency to the public.  Available to start-ups in Maryland, Vermont, Virginia, New Jersey, Hawaii, California and soon New York.

The Benefit Corporation is a new class of corporation with a corporate purpose to create public benefit, a broader fiduciary duty and is transparent about its overall social and environmental performance.  By definition, it must operate for the general public benefit – defined as a material positive impact on society and the environment. Every benefit corporation is required to publish an assessment using an independent, third party assessment tool. To create a material positive benefit, a benefit corporation operates in a manner that not only creates value for the company’s shareholders, but also its community, environment, employees and suppliers.  The structure also calls for a high level of transparency and accountability. Within 120 days after the end of each fiscal year, a benefit corporation is required to publish a “Benefit Report,” which states how it performed that year on a social and environmental axis.

3. Flexible Purpose Corporation

Ideal for companies seeking to do good on their own terms.  Available to start-ups in California.

The Flexible Benefit Corporation a new class of corporation that creates the maximum amount of flexibility for socially/environmentally conscious companies. It is designed for businesses that want to pursue profit along with a special purpose of its own designation.  The structure allows the designation of a special purpose that the company will pursue in addition to profit. For example, a flexible purpose corporation might be a for-profit developer that has a special purpose of building a public park in each of its developments.  This type of corporation must issue an annual report that is available to the public and provides details on the following: the special purpose; the annual objectives that it has set to achieve its special purpose; the metrics used to gauge the success of the special purpose; how it has achieved or fallen short of the stated objectives; and how much money was spent in furtherance of the special purpose. But it does not require any measurement against an independent third-party standard.

As reported in Bloomberg News, the bipartisan deficit reduction plan gaining momentum in the U.S. Senate would likely put an end to the current preferential tax treatment of capital gains and dividends.  Under current tax laws, which are set to expire at the end of 2012, dividends and capital gains on most assets held longer than one year are taxed at a rate of 15 percent.  Under the proposed terms of the plan, both dividends and capital gains would instead be treated the same as ordinary income, which is taxed at a top rate of 35 percent.