President Obama Signs a Temporary Bill to Encourage More Angel Investing

A three month window that started last month?<p>Seems like this bill was custom crafted for some specific person that has already made his move. It seems very unlikely that many investors hearing about this bill today will be able to change their strategy in such a short time period, it would only affect deals where they have the agreement made and paperwork and financing all ready to go with just the final signatures remaining.<p>Therefore it is not a bill to encourage investment. It is a bill to help out some specific person.

Text of the bill:<p><a href="http://www.opencongress.org/bill/111-h5297/text" rel="nofollow">http://www.opencongress.org/bill/111-h5297/text</a><p>And related tax code:<p><a href="http://uscode.house.gov/download/title_26.shtml" rel="nofollow">http://uscode.house.gov/download/title_26.shtml</a>

"The investor must hold the stock for more than five years" and you must realize the gain before Jan 1, 2011. How does that encourage new investment?

note that this does not apply to any of the following types of businesses:<p>• Businesses that performed services in health, law, engineering, architecture, accounting, performing arts, consulting, athletics, financial services or brokerage. • Businesses that have as their principal asset the reputation or skill of one or more employees. • Any banking, insurance, financing, leasing, investing or similar business. • Farming, mining or petroleum production. • Hotels, motels, restaurants and similar businesses.

I heard about this a while back. One thing that I haven't heard any talk about is how this affects early employees who may have had options in their company.<p>It sounds like this could benefit people exercising options. At least, I don't recall reading anything that would preclude these benefits from being applied to option purchases.<p>Does anyone have any insight into this?

So why does this only run for a few months - until the end of the year?<p>If you want to encourage investment in startups doesn't this have to be permanent - not just a hand out for deals that are already in progress.<p>(assuming it's not just a technical point that it needs a special bill for the current year and then becomes permanent as part of some other legislation)

Does this have to be an ordinary corporation, or does an LLC taxed as a C corporation count as a corporation here? It's a lot less hassle and paperwork to have an LLC.

I have money in my own personal savings. I also am on the verge of incorporating.<p>Can I invest some of my own money to save some money in taxes down the line if I pay dividends to investors?

This will help founders as much as it helps angel investors. Assuming you're building a business which is likely to exit at $50mm or less (i.e. most consumer internet companies), the biggest hardship is holding on for 5 years, which could be a couple years after M&#38;A exit.<p>This also encourages founders to bring early employees into equity ownership by purchasing founders stock, vs. options, so those employees can get this favorable treatment. (generally, buying your stock with a right of repurchase ends up being a win because it converts ST to LT capital gains, anyway).<p>i.e. on day 0, the company is worth $10k, because the founder puts in $8k of his own money, and the first 4 employees buy their grants for $500 each.

What a weird bill, it only affects a 4 month period, what is so special about Sept 27, 2010 to Jan 1, 2011?

"The investor must not be a corporation" seems key. Do angel investors really invest out of their own bank accounts or do they form LLCs for this?

Better idea: eliminate the capital gains tax entirely, forever and ever.

A very obscure, complicated and short term bill that lets democrat congressmen go back to their districts and run political advertisements that claim they "passed legislation to help america's small businesses", etc.<p>Minimal effect, and on top of it, it is overwhelmed by bills already signed that do significant damage to the economy. For instance, the bill that massively increases the size of government, putting a permanent burden in taxation or inflation on the economy that Obama claims will "Stimulate" it. Making things more expensive and preventing businesses from expanding is not stimulative. Adding more workers to the government payroll is a drain.