Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Chris Ryan
William Breck
Julie Butler
December 6, 2010
ABSTRACT
Small businesses are the backbone to “The American Dream” and the American
economy, they are responsible for more than 65% of the United States Growth
Domestic Product (GDP), and represent our country’s greatest chance of creating
new employment for Americans. Unfortunately, access to capital and the capital
markets is limited to these ventures which are the cause of more than 90% of all
small business failures.
501(c)(3) and other qualified charitable organization are also suffering from the
recession in a term known as “Donor Fatigue” which has caused an across the
board drop in donations. Charities need to find a new instrument of value above a
tax deduction to offer a new market driven value proposition to donors in order to
be successful in new fundraising initiatives.
The non registered common stock capital of the small business gifted to the
nonprofit is then placed in a segregated escrow account. The nonprofit then being
an exempt SEC INSERT then can issue and sell single stock futures contract (SSFC)
representing rights to purchasers the underlying securities gifted by small business,
to charity in the future for a certain predetermined delivery price which is
determined prior in the SSFC.
The initial premiums raised by selling the SSFC(s) is then passed directly to the
nonprofit, which then executes a business development initiative on behalf of the
small business to increase the value of the underlying common stock in the SSFC.
The purpose of this is to increase the value of the common stock capital to be more
valuable than the delivery price of the SSFC when the contract becomes due.
Among other business development initiatives the nonprofit would assist the small
business in being eligible to file a registration statement S-1 with the Securities and
Exchange Commission. This would include: fine tuning the business plan;
developing and implementing revenue generating systems and procedures; market
research assistance; identification of strategic alliance and joint venture partners;
protection of intellectual property; developing a revenue recognition policy;
developing an accounting system and internal controls necessary to be within
compliance with (Insert) MORE; and other needed implementation identified.
Purchasers of the Single Stock Futures Contract also enjoy that the tacking of their
investment for Fair Market Valuation purposes under Internal Revenue Code
1234(b) starts on the day the initial contract premium is paid.
Upon the small business having a class of equities registered under Section 12(g) of
the 1934 Act, and a trading symbol, the nonprofit can approach purchasers of the
SSFC to take pay the additional money to take delivery of the stock underlying the
SSFC.
The nonprofit becomes the owner of a certain amount of convertible preferred stock
in a publicly traded company.
The purchaser of the Single stock futures contract decided to take delivery of the of
the underlying stock due to market value of the stock being more valuable than the
delivery cost.
CLAIMS
14.A method in support of the charity to sell single stock futures contracts to
previous donors.
15.A method in support of the charity to sell single stock futures contracts to
the public, via electronic means.
21.A method of returning the purchasers premium of the single stock futures
contract upon non performance of identified benchmarks of underlying
securities.
22.
DESCRIPTION
[0001] The present application claims priority from provisional application Ser. No.
**/**,*** entitled "INSERT NAME," filed on (Date Filed),
FIELD OF INVENTION
[0002] This invention relates to a nonprofit businesses financing method for small
business growth. It is a system which creates a mechanism whereby the Small
Business (SB) can execute on its business model and grow its company, by
participating in a structured financial arrangement created by this invention. More
specifically, the invention relates to an improved method of financing small
business by aligning the SB and a nonprofit entity (NP) in creating future value
buildup of small business which creates a market driven value proposition for
donors to participate in which is created by the following mechanism: 1) Shares
donated to NP by SB are passed through to NP as Single Stock Futures Contract
(SSFC); 2) NP issues to SB a deferred purchase agreement to purchase a certain
amount of SB preferred stock in the future based upon certain business
development initiatives being accomplished; 3) NP enters into a business
development agreement with SB to assist in accomplishing the business
development initiatives describe in 2. above; 4). NP offers the purchasers of the
single stock futures contract (SSFC) a method of having the right to take delivery of
a large amount of shares donated by SB in the future (leverage) for a nominal
amount (premium) today; 5).Premiums collected by the sale of the SSFC are
passed directly to the charity in a segregated account to pay for the business
development initiatives negotiated in the Deferred Purchase Agreement; 6). SB
creates value in via the execution of certain business development initiatives; 7).
NP approaches purchasers of SSFC to take delivery of same by demonstrating value
buildup of SB shares from 6 above; 8). Premiums collected by NP upon Delivery of
shares underlying the SSFC are held in a segregated escrow account; 9). NP
purchases from a SB an amount of Preferred Stock indentified in the Deferred
Purchase Agreement (DPA).
[0003] Small businesses in the United States are predominantly founded and or
created by what has been known as entrepreneurs. Usually these businesses start
by the observation of such entrepreneurs who see a solution to a problem or an
opportunity created by the creation of niche markets. Unfortunately most small
businesses fail to reach potential and profitability due to lack of proper
capitalization. It is with respect to these considerations and others treat the present
invention has been made. In order to understand the background of the invention,
current business practices are presented below, followed by legal frameworks,
structures and tools available to conduct business transactions under U.S. law.
[0027] A series of securities (SOS) from the FPC is then donated to the designated
NPC.
[0028] The FPC then enters into a Soft Put Securities Purchase Agreement (SPSPA)
with the NPC to sell a Second Series of Securities (SSOS) at a predetermined future
date to the NPC upon Identified Benchmarks of Performance (IBP) being satisfied.
[0029] The NPC being the beneficiary of the donated stock of the FPC then issues
and sell to various individuals and institutions investors (INV) a Single Stock Futures
Contract (SSFC) having three components: (1) The first component being the Future
Contract Value (FCV) at issuance of the SSFC; (2) the second component being the
Future Delivery Price (FDP) of the SSOS at the Future Delivery Date (FDD); and (3)
the third component being the Future Market Value (FMV) of the SSOS at the FDD or
other future Date.
[0030] The clearing of the SSFC will commence on a date certain. (aka Bermuda
Option Style).
[0031] The IBP supporting the binding effect of the SPSPA consists of the following 3
requirements:
[0032] 1. The original class of shares the FPC donated to the NPC, at the time
of the exercise of the SPSPA, is registered and current under section 12(g) of the
1934 Act or equivalent if the original issue was a foreign issuer;
[0033] 2. The original class of shares the FPC donated to the NPC, at the time of the
exercise of the SPSPA, is trading on an exchange (Foreign/US/ OTC/Other);
[0034] 3. The amount of the liability to the NPC from the SPSPA will be capped to
the amount of the FCV collected on date certain exercise.
[0035] The FPC may deliver to the NPC a performance bond or guarantee relating to
the performance of the Identified Benchmarks of Performance (IBP) described in
[0031, 0032, 0033, and 0034].
[0036] The NPC upon delivery of the performance bond or guarantee in [0071] the
NPC then releases the FCV premium to the FPC and or guarantor via a
predetermined contractual arrangement in [0071] above.
[0037] Before the expiration of 12 calendar months the FPC via IBP has been
designated a Company with a Class of Securities regulated under section 12(g) of
1934 Act and or equivalent if a foreign issuer of securities and the NPC can then
deliver the Stock to the original Futures buyer upon payment of the Future Delivery
Price (FDP) of the SSOS.
[0038] The NPC collects the FDP of the contract & delivers the SSOS shares of the
FPC to the INV.
[0039] The Shares of the FPC will be exempt from restriction in accordance to Code
of Federal Regulations Title 17.230.144 inclusive.
[0040] The Shares of the FPC distributed to the INV will represent a Minority Interest
(MID) as determined by the Code of Federal Regulations Title 17.230.144 inclusive.
[0041] NPC delivers to purchaser an opinion that The SSFC and SSOS are defined as
a single class of capital asset under Section 1234(b) of the U.S. Internal Revenue
Code (IRC) and with a tacked holding period under Section 1223(14) of the U.S.
Internal Revenue Code (IRC) of more than 1 year and 1 day which in experts opinion
qualifies for Charitable Donation at Fair Market Value (FMV) at date of Donation to
the NPC.
[0042] With conditions precedent satisfied in [0037, 0038, 0039 0040, and 0041]
NPC will provide opinion of expert that the Fair Market Value Formula to establish
valuation for IRS donation purposes will of the (SSOS Bid + SSOS ASK) / 2 on the
date of Donation at close of trading of Stock in the FPC.
[0043] A simultaneous collection and donation mechanism may be created for IRS
Donation and Transfer Recognition (IRSDTR), whereby the NPC calling for the FDP
from INV’s can instantly give the INV a Certificate of Donation (CD) based on FMVF
on the date when the NPC receives the Charitable Donation of the SSOS.
[0044] The mechanism of action stems from the basis that the SSFC is considered
as a single class of capital asset defined by IRC 1234B, with the FCV premium
payment date marking the commencement of the Holding Period of the SSFC as
defined by IRS 1221 and also the commencement of the Holding Period for the
SSOS as defined by IRS 1223(14), provided only that the SSFC is qualified as a
capital asset under IRS 1234B.
[0045] On the date the NPC corporation issued the SSFC the risk of the associated
premium was offset via a performance bond guaranteeing that section 3 (a-c)
respective. Further FDP would be contingent section 3 (a-c) respective and as such
the anticipated Stock value of the FPC SOS would be significantly higher than the
exercise price and in most case the contribution of SOS to a 501(c)(3) would be
complete or the original futures premium would be returned.
[0047] FIG. 1 illustrates one example of a logic flow for supporting charitable giving
by a business in furtherance of a profit objective of the business;
[0048] FIG. 2 illustrates the issuance of the initial Series of Securities (SOS) by the
For-Profit Company (FPC) to the Non-Profit Company (NPC) or 501(c)(3)
organization.
[0049] FIG. 3 illustrates the commitment of the For-Profit Company (FPC) to issue
the Second Series Of Securities (SSOS) to the Non-Profit Company (NPC) pursuant to
the Soft Put Securities Purchase Agreement (SPSPA), subject to the satisfaction of
the Identified Benchmarks of Performance (IBP).
[0050] FIG. 4 illustrates the sale of the Single Stock Futures Contract (SSFC) by the
NPC to Investors (INV).
[0051] FIG. 5 illustrates the holding of the SSFC by the Investors until the Future
Delivery Date (FDD), at which date it is anticipated that the Fair Market Value of the
SOS (&/or SSOS) is likely to be higher than the Future Delivery Price (FDP).
[0052] FIG. 6 illustrates the application of SEC Rule 144, Securities Act section 12,
and FINRA sections 15(c) and 211, and IRC sections 1223(14) and 1234B to the
transaction.
[0053] FIG. 7 illustrates the method of determining the value of stock on date
donated. (SCREEN SHOT)
[0054] The present invention is described more fully hereinafter with reference to
specific illustrative embodiments. This invention may, however, be embodied in
many different forms and should not be construed as limited to the embodiments
set forth herein; rather, these embodiments are provided so that this disclosure will
be thorough and complete, and will fully convey the scope of the invention to those
skilled in the art. The methods may involve one or more entities (including a person,
business, non-profit, computer device, or the like) performing some or all parts of an
action, or set of actions. The entities may communicate in-person, over a network,
including a computer network, or the like. The following detailed description is,
therefore, not to be taken in a limiting sense.
[0055] Throughout the specification and claims, the following terms take the
meanings explicitly associated herein, unless the context clearly dictates otherwise.
The phrase "in one embodiment" as used herein does not necessarily refer to the
same embodiment, though it may. Furthermore, the phrases "in another
embodiment" or "in an alternate embodiment" as used herein does not necessarily
refer to a different embodiment, although it may. Thus, as described below, various
embodiments of the invention may be readily combined, without departing from the
scope or spirit of the invention.
[0056] In addition, as used herein, the term "based on" is not exclusive and allows
for being based on additional factors not described, unless the context clearly
dictates otherwise. In addition, throughout the specification, the meaning of "a,"
"an," and "the" include plural references. The meaning of "in" includes "in" and
"on."
[0057] As used herein, the term "decision maker" refers to a director, an officer, an
employee, a committee, a partner, a general partner, a manager, a member, a
trustee, trustee in bankruptcy, agent, attorney-in-fact, advisor, singly or in any
combination, who or which is in a position to make decisions for or on behalf of a
business or affecting a business.
[0058] The term "asset" means an item of property in which the business owns or
holds an ownership interest or beneficial interest, directly or indirectly, and
encompasses all forms and varieties of assets, including without limitation, partial
interests, undivided interests, jointly held interests, co-tenancy interests, stock,
equity interests, tangibles, real estate, personality, as well as intangibles of every
variety and description, including without limitation goodwill, paper, interests in
litigation, records, intellectual property, and investment interests.
[0059] The terms "stock" and "equity" refer to any type of equity ownership in a
business, including preferred stock, common stock, LLC units, partnership units, or
the like.
[0062] In addition to the ‘essential criteria’ indicated above, ‘other criteria’ may
include:
[0065] continuing education regarding choice of legal entity form for business
operations, intellectual property protections, trade secrets, trademarks & trade
names, tax planning and compliance issues, securities laws and business financing
issues, and bankruptcy;
[0069] The ‘invention’ describes the steps in the ‘process’, and the specific order of
the steps in the ‘process’, required to accomplish the desired ‘objectives’ or
‘outcomes’ of the ‘process’, i.e.:
[0070] to obtain and/or provide initial (start-up or early stage) capital funding
(directly or indirectly) to or for the ‘target company’; [(FCV) Amount Paid for Futures
Contract]
[0071] to establish realistic ‘benchmarks’ and/or ‘intermediate goals or objectives’
required to position the ‘target company’ to obtain supplemental capital funding ;
[(IBP) management and operational ‘benchmarks’ on way to public company
status]
[0072] to establish a ‘holding period’ for potential future ‘investors’ in the ‘target
company’, which starts at the earliest possible point in time of connection between
an ‘investor’ and the ‘target company’, with minimal ‘risk of loss’ to the ‘investor’;
[(HP) commencement of ‘holding period’ at purchase of the Single Stock Securities
Futures Contract]
[0073] to establish a ‘market value’ for the company in excess of the amount of the
‘financial commitment’ of the ‘investor’ at or prior to the date that the ‘investor’ is
required to make a ‘substantial financial commitment’ to invest in the capital stock
of the ‘target company’; [(IBP) company registration and reporting events to
increase stock price]
[0074] to permit the ‘investor’ the choice to realize a ‘profit’ on the ‘investor’s’
‘investment’ in the ‘target company’s’ capital stock by ‘holding’ the capital stock of
the ‘target company’ or by ‘donating’ the capital stock of the ‘target company’ to a
qualified charitable organization (which may include the charitable organization
operating the ‘entrepreneurship program’); [investor choice to donate at FMV at
Date of Donation or ‘hold’ at FDP] and
[0076] STEP #1: The first step in the process (in sequence) is to establish the
procedures necessary to select ‘target companies’ that meet, or can be formed or
re-structured to meet, the ‘essential criteria’ required to achieve the several
‘objectives’ of the ‘entrepreneurship program’, plus the ‘appropriate criteria’
established by the charitable organization, which may include one or more of the
‘other criteria’ listed above, as well as other ‘criteria’ established by the charitable
organization which are consistent with the goals, purposes, programs and
philosophical ‘criteria’ of the charitable organization.
[0077] STEP #2: The second step in the process (in sequence) is to create,
establish or obtain a ‘training & development program’ and other IBP which meet
the ‘essential criteria’ of the ‘entrepreneurship program’ described above, such of
the ‘other criteria’ described above as the charitable organization deems necessary
to the success of its ‘entrepreneurship program’, and any other ‘criteria’ established
by the charitable organization which are consistent with the goals, purposes,
programs and philosophical ‘criteria’ of the charitable organization.
[0078] STEP #3: The third step in the process (in sequence) is to create, establish
or obtain a ‘financial instrument’ (SSFC) required to obtain the desired benefits of
the ‘entrepreneurship program’, including specifically but without limitation a
‘securities futures contract’ (SSFC) meeting the conditions of the definition of a
‘securities futures contract’ in Section 1234B(c) of the U.S. Internal Revenue Code,
which incorporates the definition of a ‘security future’ in Section 3(a)(55)(A) of the
Securities Exchange Act of 1934, which permits the ‘tacking’ of the holding period
of a ‘securities futures contract’ onto the holding period of the capital stock
acquired pursuant to the ‘securities futures contract’, under Section 1223(14) of the
U.S. Internal Revenue Code, to meet the holding period for ‘long-term capital gain’
treatment at an earlier date than is permitted by use of an ‘option contract’ (or
similar contractual device) which limits the investor’s risk to a nominal amount
(e.g., option price) which is substantially less than the purchase price of the
underlying capital stock
[0079] STEP #4: The fourth step in the process (in sequence, but interchangeable
with STEP #5 below) is to obtain the required governmental rulings, approvals
and/or registrations or exemptions to permit the sale of the ‘securities futures
contract’ by the charitable organization, which may include the ‘exemption’
contained in Section 3(a)(4) of the Securities Act of 1933 and/or the ‘exemption’
contained in Section 3(e) of the Securities Exchange Act of 1934.
[0080] STEP #5: The fifth step in the process (in sequence, but interchangeable
with STEP #4 above) is to obtain the required governmental rulings, approvals
and/or registrations or exemptions to accomplish the ‘listing’ of the capital stock of
the ‘target company’ on a registered or licensed ‘public securities exchange’ which
regularly provides daily bid-ask quotations for the securities listed on such ‘public
securities exchange’.
[0081] STEP #6: The sixth step in the process (in sequence, but interchangeable
with STEP #7 below) is to assist, create or develop the ‘market value’ of the capital
stock of the ‘target company’ listed on the ‘public securities exchange’ to the price
level required to achieve the ‘objectives’ or ‘outcomes’ (IBP) described in paragraph
0010, 0011, 0012, 0013, 0014, 0015 and 0016 above.
[0082] STEP #7: The seventh step in the process (in sequence, but
interchangeable with STEP #6 above) is to assist, create or develop the ‘income
producing capacity’ and/or ‘asset values’ of the ‘target company’ to support the
‘market value’ of the capital stock of the ‘target company’ on the ‘public securities
exchange’ to the price level required to achieve the ‘objectives’ or ‘outcomes’ (IBP)
described in paragraph 0010, 0011, 0012, 0013, 0014, 0015 and 0016 above.
[0083] STEP #8: The eighth step in the process (in sequence) is to permit or
require the delivery of the capital stock of the ‘target company’ to the holders of the
‘securities futures contract’ pursuant to and in accordance with the terms and
conditions, and at the price specified in the ‘securities futures contract’ described in
STEP #3 (at paragraph 20 above) at, prior to or after the expiration of the ‘holding
period’ required for the capital stock of the ‘target company’ in the hands of the
holder of the ‘securities futures contract’ (or his/her/its successor in interest) to
qualify as ‘long-term capital gain property’.
[0084] STEP #9: The ninth step in the process (in sequence) is to permit or require
the ‘donation’ of the capital stock of the ‘target company’ to a ‘qualified charitable
organization’ (which may include the charitable organization operating the
‘entrepreneurship program’ described hereinabove) which generates a ‘charitable
tax deduction’ to the donor under Sections 170(c), 2055(a) and/or 2522(a) of the
U.S. Internal Revenue Code.
[0085] STEP #10: The tenth step in the process (which may occur at any stage in
the sequence) is to permit or require the ‘qualified charitable organization’, by
contract or other means or mechanism, to allocate part or all or none of the
proceeds received from the sale of the ‘securities futures contract’ (FCV + FDP) to
the purchase of shares of capital stock in the ‘target company’, which may be of the
same or a different class than the capital stock in the ‘target company’ which is sold
by and delivered pursuant to ‘securities futures contract’.
[0086] The End Result of this process to the For-Profit Company (FPC) is that the
NPC has created or assisted, through the operation of its ‘entrepreneurship
program’, a start-up or early-stage ‘target company’ and its ‘investors’ to:
[0089] achieve ‘public trading’ of the capital stock of the ‘target company’ on a
‘public securities exchange’;
[0092] The End Result to the ‘qualifying’ Non-Profit Company (NPC) is that the:
[0093] charity obtained funding (directly or indirectly) for the development of start-
up or early-stage companies through the sale of a ‘securities futures contract’ at an
earlier point in time than the sale of capital stock in the ‘target company’ might
otherwise be possible or attractive from an ‘investment’ perspective;
[0094] the charity has assisted the ‘target company’ and its key personnel to
develop the skills and attributes necessary or desirable for the ‘target company’
and it key personnel to achieve success in an ‘entrepreneurial’ or ‘capitalist’
environment;
[0095] the charity has obtained additional funding for its ‘entrepreneurial program’
(and other permitted objectives and programs of a ‘qualified charitable
organization’) from the fulfillment of the ‘securities futures contract’;
[0096] the charity has obtained additional investments for its ‘investment portfolio’
through the purchase of additional capital stock or other securities from the ‘target
company’ utilizing the funds received from the fulfillment of the ‘securities futures
contract’;
[0097] the charity has obtained additional funding and investments for its
‘investment portfolio’ from the ‘charitable donations’ made to the charity by the
purchasers of the ‘securities futures contracts’ who elect to ‘donate’, rather than to
‘hold’, the capital stock in the ‘target company’ after acquisition pursuant to the
‘securities futures contract’.
[0098] Depending on the Fair Market Value of the capital stock of the ‘target
company’, as indicated by the bid-ask prices at the close of trading on the relevant
‘public securities exchange’, the value of the ‘charitable tax deduction’ to the
purchaser through the ‘securities futures contract’ may equal, exceed or be less
than the purchase price paid by the holder of the ‘securities futures contract’ to
acquire the capital stock in the ‘target company’.
[0099] Depending on the desires of the NPC and the FPC, at the origination of the
process described above, a Put Contract or provision and/or a Call Contract or
provision may also be used to establish a minimum or maximum price at which the
FPC may or shall redeem or repurchase the SSOS that is subject to the SSFC.
F I G . 2
F P C S O S N P C
F I G . 3
2
S S O S
3
F P C I B P N P C
4
S P S P A
F I G . 4 .
2
F P C S O S N P C
S S F C
I N V I N V I N V I N V I N V
F IG . 5
$ 1 .0 0 3
C o st p er sh are
$ 0 .1 0 2
$ 0 .0 0 5 1
0 1 2 3 4 5 6 7 8 9 1 0 1 11 21 31 41 5
T i m e lmi n oe n t h s
F I G . 6 1
S S F C
R U L E 1 4 4
3 3 6 6 D a y s
4 5
F O V S e c t i o n 1 2 ( g )F I N R A 1 5 ( c ) F2 1D 1 V
C B < 1 8 0 d a y s o f < I s2 s 7 u 0 a nd ca ye s o of f F I O s sV F u Ma n Vc e o f F O V
6
6
3 6 6 D a y s
7
I R C 1 2 3 4
I R C 1 2 2 3 ( 1 4 )
9
I R C 8 2 8 3
1 0
I R C 5 6 1
1 1
( B i d + A s k ) / 2
[0100] Accordingly, the reader will see that at least some embodiments of the
invention provides the mechanism for the shareholders or other business owners to
obtain disclosure of information about charitable contributions made by the
businesses they own.
[0101] It will be understood that the steps of the flowchart illustrations described
herein can be performed in different orders and some steps may be omitted,
without departing from the spirit of the invention.
[0102] It will also be understood that certain steps in the flowchart illustrations, and
combinations of steps in the flowchart illustrations, can be implemented by
computer program instructions. These program instructions can be provided to a
processor to produce a machine, such that the instructions, which execute on the
processor, create means for implementing the actions specified in the flowchart
step or steps. The computer program instructions can be executed by a processor
to cause a series of operational steps to be performed by the processor to produce
a computer implemented process such that the instructions, which execute on the
processor to provide steps for implementing the actions specified in the flowchart
step or steps. The computer program instructions can also cause at least some of
the operational steps shown in the steps of the flowchart to be performed in
parallel. Moreover, some of the steps may also be performed across more than one
processor, such as might arise in a multi-processor computer system.
[0104] Since many embodiments of the invention can be made without departing
from the spirit and scope of the invention, the invention is to be defined by the
claims hereinafter appended.