By Amy McIntire & Jonathan Brouk, Chaffe McCall LLP. Amy and Jonathan are attorneys on Chaffe McCall’s Entrepreneurs and Emerging Companies Team, the firm’s multi-disciplinary practice group that focuses on the legal needs of today’s entrepreneurs and early-stage businesses.
1. What is the Louisiana Angel Investor Tax Credit?
The Louisiana Angel Investor Tax Credit encourages Accredited Investors to make investments in early-stage, local businesses by offering the investors a tax credit that can be used to offset their state income tax and corporate franchise tax liabilities. Investors can receive a 35% tax credit on up to $1 million of investments per business per year and up to $2 million per business over the lifetime of the program. The program is administered through the Louisiana Economic Development Office (LED).
2. As an Entrepreneur, is there anything I should do now to prepare my business to take advantage of these tax credits if we raise capital?
Yes. In order to be eligible to receive investments that qualify for the tax credit, a business must be certified by the LED as a “Louisiana Entrepreneurial Business” (LEB). Generally, a business qualifies as long as it is a small or emerging company operating within the state. The complete list of requirements for LEB certification can be found online (http://opportunitylouisiana.com/page/angel-investor-tax-credit). There is no formal application form for LEB certification; rather, a business can simply email its business plan and documents that address the listed eligibility criteria for LEB certification to email@example.com. If a business meets the qualifications, the LED sends a letter to the company that certifies that company qualifies as a LEB.
3. If a capital raise appears to be imminent, are there any additional steps I should take?
Yes. In order to get the ball rolling, the certified business can submit an application to firstname.lastname@example.org requesting that tax credits in a specific amount be reserved. The online application can be found at http://opportunitylouisiana.com/page/angel-investor-tax-credit. Upon approval, the LED will then send a letter stating that the requested tax credits have been reserved in the name of the business. From the date of this letter, the business has 60 days to provide the LED with proof that the investment has been made (a Subscription Agreement, wire transfer confirmation, etc.). Put another way, you wouldn’t want to submit this application more than 60 days prior to the anticipated closing date of the qualifying angel investment.
Assuming proof is provided within 60 days, the LED will then issue a tax credit certification letter which the investor can use against his or her tax liabilities. It is also important to note that applications must be submitted in the same calendar year that the investments are made.
4. You mentioned reserving the tax credit. Is there a cap on the amount of credits available under the program?
Yes, there is a $5 million rolling annual cap on the program, but according to the LED, there are still plenty of tax credit dollars available in 2014. In fact, due to a surplus from 2013, as of April 2014, there were some $7 million in tax credits available for the remainder of this year. Notably, this program is scheduled to sunset in July of 2015, and there does not seem to be any concerted legislative effort to extend it.
5. Anything else I need to know about the program? And where can I go for more information?
There are a handful of other considerations that come into play when considering this tax credit, perhaps the most important of which is whether or not the investor meets the LED definition of an “angel investor.” An “angel investor” must be (1) a natural person who has an individual or joint net worth with a spouse exceeding $1 million at the time of the investment, (2) a natural person who has individual income exceeding $200,000 or joint income with a spouse exceeding $300,000, or (3) an Angel Pool, all of whose participants are Accredited Investors.
Additional information regarding the program, including program contacts, may be found on the LED’s website at http://opportunitylouisiana.com/page/angel-investor-tax-credit.
Disclaimer: This post discusses general legal issues, but it does not constitute legal advice in any respect. This post is not a substitute for legal advice and is intended to generate discussion of various issues. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel. Chaffe McCall LLP and the authors expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post. The views expressed herein are personal opinion.