By: Kun Zhao, Esq.

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law. The law provides many exemptions and lifts many restrictions under securities laws which allow small businesses and startups to access capital market more easily. The law provides an easy option called “Crowdfunding” for startups and small businesses to raise capital publicly by issuing securities online without registration with the Security Exchange Commission (SEC).

It exempts small offers or the sale of securities by an issuer (a startup or small business) from registration with the SEC, provided that:

(1)   The aggregate amount of securities sold during the 12-month period does not exceed $1,000,000.

(2)   Any investor that makes under $100,000 per year or whose net worth is less than $100,000 can only invest the greater of 2,000 or 5% of the annual income or net worth; 10% of the annual income or net worth if the investor’s annual income or net worth is $100,000 or more.

(3)   The sale or offer must be through a broker or funding portal (website) that is registered with the SEC.

(4)   The securities acquired generally may not be transferred within one year from the date of purchase.

To be exempted under this law, the small business or startup is required to provide to the SEC, investors and the relevant broker of the funding portal, information that is necessary for the investors to decide whether they want to acquire a piece of the company, including the capital structure, financial information, a business plan, and the offering itself. The small business or startup can not advertise the offering except for notices that direct investors to the funding portal or broker.

The broker and funding portal are required by law to make sure the investors are protected by conducting a background check of the securities, enforcement and regulatory history of each person on the management team and the major shareholders, verifying and disclosing information provided by the issuer, affirming that the investors understand the risk of the investment.

The SEC is going to have about 270 days from the enactment date to set forth specific rules and regulations to implement the law. The legislation is expected to be fully implemented by early 2013.

While small businesses and startups will gain a new avenue for raising capital, investor relations will pose a significant new challenge to management. Overnight, management will have to answer to and will owe a fiduciary duty to hundreds of shareholders who will have the right to access corporate information and have a say on how to run the business.

By: Kun Zhao, Esq.

As more and more Chinese individuals and companies invest in the U.S. and break into the U.S. market, they recognize that the first hurdle to setting up shop is their status as foreign nationals or entities. Since U.S. citizenship and residency are not required, however, foreign nationals are able to start and expand their businesses much in the same way that domestic individuals and companies would.

Although details vary slightly from state to state, the following steps are generally required for foreign nationals to establish businesses or operations in the U.S.:

1. Incorporate or form a LLC in the chosen state.
2. Obtain a federal Employment Identification Number.
3. Open a business bank account.
4. Register the business with state government.
5. Obtain a business license from local and state government if required by law.

Incorporate or Form a LLC

Foreign business entities are incorporated as corporations or formed as limited liability companies (“LLCs”) at the state level in the U.S. If one operates the business offshore and has no physical presence here, Delaware, Wyoming and Nevada are most popular states for purposes of registration; otherwise, choosing the home state where most of the business is to be transacted is optimal. The process varies from state-to-state, but usually it is quite simple and straightforward. For example, to incorporate in New Jersey, an authorization certification needs to be filed and the basic information required for the filing is as follows:

1. Corporate name.
2. Business purpose.
3. Total number of stock shares.
4. Registered agent information.
5. As least one director information.
6. At least one incorporator information.

Usually, one needs to have several corporate names as candidates, just in case that the most preferred corporate name has already been used by another business. The business purpose could be just stated as “general,” which permits the business entity to engage in any legal business. A registered agent can be an individual or a corporation, but must have a physical address in the U.S.  The director and incorporator can be the same person. This filing process can be done entirely online.

Obtain a federal Employment Identification Number (“EIN”)

Each new entity needs a federal Employer Identification Number (“EIN”) to open a bank account and have employees in the U.S. To obtain an EIN, the Internal Revenue Service typically requires the corporation to provide the social security number (SSN) of a “principal officer”. The principal officer must be someone who “controls, manages, or directs the applicant entity and the disposition of its funds and assets”. For those foreign “principal officers” who do not have a SSN, the IRS does not reject the EIN application if a SSN is not included. In such a situation, one must contact the IRS to obtain an EIN by telephone and follow the specific procedures and requirements.

Open a Business Bank Account

A foreign owned corporation or LLC may open a business bank account at a U.S. bank. The requirements for opening a business account vary from bank to bank. Most Banks require (1) incorporation documents of your U.S. Business (corporation or LLC); (2) EIN Number of the U.S. Corporation or U.S. LLC; (3) A copy of a photo ID (passport) of all signers of the account. The representative of the corporation or LLC should be present in person to open the bank account with original documents.

Register Your Business with State Government

For state tax and employer purposes, most states require all businesses to file registration with the state tax department. For example, in New Jersey, all businesses must register for state tax purposes by completing the form NJ-REG to report their business information and profile. This process can be completed online in New Jersey.

Obtain a Business License from Local and State Government If Required by Law

Special state and local licenses may be required in some industries which are regulated under state laws and local rules, such as childcare, construction, telemarketing and environmental mitigation. Therefore, all businesses should check with local and state government agencies to ascertain the regulatory requirements.

Obviously, registering a business as a legal entity is merely the first step towards establishing a successful business in the U.S. In order to flourish, a new corporation or LLC will have to also consider organizational and structuring issues, employment issues, immigration issues regarding employees sent from Chinese parent companies to work at U.S. affiliates, etc. It certainly requires a strategic plan, an experienced executive team, and a group of experienced, sophisticated and efficient legal, accounting, and business consulting professionals here in the U.S.

By: Kun Zhao, Esq.

In today’s business climate, recognizable names are extremely valuable. Most businesses are serious about promoting their brands and increasing their publicity. However, many business owners often confuse business entity names and trade names with trademarks. Such concepts are often related but quite different.

Business Entity Names

A business entity name is the legal name registered with the Secretary of State when creating a separate legal entity to operate a business in commerce. One business entity can only have one legal name. When registering a business entity, the Secretary of the State  checks the availability of the legal name for the new entity to make sure that it is distinguishable from the names of other existing business on the records in the office of the Secretary of State. Therefore, the business entity name is a name that identifies a business entity, such as Apple, Inc., Doctor’s Associates, Inc. (owner of Subway franchise) and General Electric Company.

Trade Names

The Secretary of State also allows an individual or business entity to use a name other than its legal name in commerce by registering with the Secretary of State. Such names are called “alternative names,” also known as “trade names.” For example, if one registers a company named ABC, Inc. which operates a seafood restaurant, it would be more appealing to operate the seafood restaurant under the name of “Deep Blue.” If one registers “Deep Blue” with the Secretary of State, then he can use it as the trade name in doing business instead of using “ABC, Inc.” By registering trade names with the Secretary of the State, the public can trace them to ascertain the legal name of the business entity. Therefore, a trade name is basically a substitute of the legal name of a business in commerce.

Trademarks

A trademark is any word, phrase, symbol, design or any combination of those that identifies the source of goods or services. It is often used on goods or services that the business entity provides, such as “GOOGLE” on its digital storage service, “NIKE” on sporting goods, and “Subway, eat fresh” on sandwich wrappers.

Oftentimes business entity names and trade names can be registered as trademarks if they are distinctive and not similar to other trademarks used in the commerce. For example, “Google” may identify Google Inc.’s services for electronic storage of digital media and “Nike” may identify Nike, Inc.’s sporting goods. One business entity can only have one legal name, but can have a number of different trademarks to identify the origin of its products. For example, Google, Inc. owns “YOUTUBE,” “ADWORDS,” “CHROME,” and “G+” to designate various kinds of services.

Business owners should recognize that registering a business entity name or trade name with the Secretary of State does not necessarily mean that one may use the business entity name or trade name freely. The Secretary of the State only makes sure that the business entity name and trade name are distinguishable for the records of existing businesses. However, if there are trademarks out there that are similar or identical to the business entity name or trade name you register, the trademark rights may trump the authorization of use by the Secretary of State.

Therefore, when one chooses and registers a business entity name or trade name, he should take the additional step of ensuring that the name will not infringe any trademark in commerce, especially if he plans on using and registering the business name or trade name as a trademark.

By: Kun Zhao, Esq.

The second annual Chinese Investment in the U.S. Real Estate Forum is scheduled to be held on June 21, 2012 in Los Angeles, California. U.S. real estate professionals will gather there to address the latest trends and opportunities in China-U.S. real estate investments and transactions. Given the current drop in housing prices and a strong and rising RMB, Chinese investors have shown a greater than ever interest in the U.S. real estate market.

Chinese investors are increasingly targeting commercial properties in New York and New Jersey. According to a report, China’s HNA Group, which owns Hainan Airlines, acquired 1180 Avenue of the Americas, a 23-story office building in Manhattan for $265 million, and the luxury Cassa Hotel and Residences near Times Square for $126 million last year. Hong Kong billionaire Cheng Yu-tung’s family also invested in five U.S. luxury hotels in 2011, including Manhattan’s iconic Carlyle, for $570 million.

Chinese investments in New Jersey’s port area have been growing substantially as well. China is the largest source of goods imported through Newark, accounting for 27.8 percent of all goods entering the Port of New York and New Jersey. Chinese investments will continue to grow with the imminent widening of the Panama Canal, the expansion of the New Jersey Terminal, the dredging of New York Harbor and the raising of Bayonne Bridge. All these projects aim to substantially increase the New Jersey’s ports’ capacity to handle more containers. These projects will allow large cargo ships that currently anchor in California to sail directly to New Jersey, which would eliminate the need to deliver goods cross-country via trucking or railway. To Chinese companies, it means that a new distribution center in the east coast will be established.

Resonant with the port expansion in Newark, Chinese companies have invested substantially in in industrial properties near the Port of Newark. According to a real estate newsletter, last November, Sun Taiyang Co. signed a lease for a new 95,542-square-foot industrial facility in Moonachie. Early this year, Asian food distributor, Walong Marketing, renewed its 175,456-square-foot lease at 99 Caven Point Rd. in Jersey City. The facility has served as the company’s east coast distribution center for 10 years and Walong will stay in place for an additional 20 years. Currently, many Chinese companies are seeking to lease warehouses to handle their products. It is anticipated that these companies will need to acquire their own warehouses to accommodate their rapid growth.

The Real Estate Practice Group at Hill Wallack LLP stands ready to handle your real estate issues with the skill and sophistication necessary to achieve the desired results.

By Kun Zhao, Esq. On February 16, 2012, the House Financial Services Committee approved the Schumer-Toomey bill, which makes it easier for growing small and mid-sized companies to go public. The measure is aimed to help growing companies raise capital through public markets to spur job creation. The bill would establish an exemption for “emerging growth companies” that have less than $1 billion in annual revenue at the time they register with the SEC for an Initial Public Offering (IPO) and less than $700 million in public float to meet certain SEC compliance requirements for up to five years until they reach the thresholds. These so-called emerging growth companies would be exempted from paying an outside auditor to attest to a company’s internal controls and procedures under Sarbanes-Oxley Act. The bill would allow investors to have access to research reports about emerging growth companies prior to the IPO. It would also permit emerging growth companies to evaluate the possibility of success in a potential offering by allowing some pre-filing communications to institutional investors which are previously prohibited during the so called “quiet period.” The bill also allows filing a registration statement with the SEC on a confidential basis. Under the bill, CEOs and chief financial officers would still be required to be personally liable for the adequacy of the internal controls and procedures that they have certified. A similar bill is pending in the Senate and President Barack Obama has called for Congress to pass it. If passed and signed into law, the bill will ease the compliance obligations for growing companies and substantially reduce the high compliance costs, thereby encouraging small and mid-sized companies to raise capital through public markets.

By: Henry T. Chou, Esq.

Even in the aftermath of the worst recession in American history and today’s uncertain economic climate, the U.S. remains a very desirable destination for immigrants.  Today, there is a new breed of immigrants who do not arrive penniless like the generations before them, but come flush with cash and a mission of invigorating the American economy.

The Chinese, in particular, have taken on this mission more than any other immigrant group.  According to the U.S. Citizenship and Immigration Service (USCIS), thousands of wealthy nationals of the People’s Republic of China (PRC) have applied for the EB-5 visa, which comes with a green card and a path towards citizenship.

Under the EB-5 visa program, foreign investors must finance commercial projects in the U.S. by investing at least $1 million (or $500,00 in a targeted employment area) and create at least 10 full-time jobs. EB-5 investors must undergo a background check, identify the source of their wealth and create and sustain 10 full-time jobs. If all of the requirements are satisfied and sustained after five years, the investors and their families are eligible for citizenship.

While the EB-5 visa program attracts a diverse range of applicants, Chinese nationals comprised a dominant majority – three quarters – of the applicants in 2011.  According to USCIS, 2,969 Chinese nationals applied for the program and 934 of those applicants were approved in 2011.  These figures represent a huge increase from previous years.  For example, in 2007, only 270 Chinese nationals applied and only 161 were approved, accounting for only about a third of the totals.

The explosion of Chinese applicants is attributable to the rapid economic development of China, which has created an abundance of millionaires and billionaires.  Surveys indicate that a majority of these newly rich are either considering emigrating or have already implemented plans to do so.  Those surveyed cite education, advanced medical treatment, environmental issues and due process rights as their reasons for emigrating.

New Jersey, which is a highly populated state located strategically between the metropolitan areas of New York City and Philadelphia, is one of the top destinations of EB-5 investors.  USCIS has established a regional center in New Jersey, which presently facilitates investment in Bergen, Essex, Hudson, Mercer, Middlesex, Passaic and Union Counties.  Permitted investment options currently include hotels, restaurants, retail stores, office buildings, light industrial warehouses, civic buildings, apartments, condominiums and various types of mixed use development.

As one of the largest full-service firms in central New Jersey, Hill Wallack LLP is well-positioned to assist Chinese EB-5 investors with their immigration applications and business transactions and operations in New Jersey.  The firm has attorneys on staff who are both fluent in Chinese and experienced in the areas discussed above.