The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
This is a fantastic new viral advertising video produced by Volkswagen about the Fun Theory and it is certainly doing a great job spreading the VW logo around the web. Cleverly, the video does not mention the Volkswagen brand until the very end; instead it showcases an experiment. Does turning a set of subway stairs into a real-life piano encourage people to use them? (answer: yes, 66% more). This video has nothing to do with business but it got me thinking....How can we apply this fun theory to business or office environments? How can we make the mundane tasks at work more fun?
Please share your thoughts/ideas in the comments. We would love to know how you take the ordinary work day and turn it into something extraordinary!
Self-proclaimed as “The World Organization for Cross-border Cooperation in Civil and Commercial Matters,” the Hague Conference on Private International Law has been a major influence on the international legal community since its inception in 1893. Its name comes from the city in the Netherlands where it is convened, La Haye or anglicized, The Hague. With nearly 70 member states (including Regional Economic Organizations), this global body works to unify differences in personal, family and commercial laws between legal systems in more than one country. Meeting in principle every four years, The Hague Convention became a permanent inter-governmental organization in 1955 and has adopted 38 international Conventions over the years, one of the most notable being the elimination of a process called legalization. More commonly known as an Apostille de la Hague, the Convention abolishing the requirement of legalization for foreign public documents was adopted by the Hague Convention on October 5, 1961.
The purpose of the Apostille de la Hague Convention is to aid the flow or distribution of public documents executed in one nation party to the Convention for use in another party nation. It replaces what is known as “legalization”, the often expensive and burdensome process of chain certification between nations. What this means for international incorporations and LLC businesses is that with the issuance of an Apostille (or also called Certificate of Apostille) your publicly filed formation documents are ready for legal use in member countries and have proven useful in parts of the world that do not require the process of legalizing foreign public documents in their domestic law. By facilitating the legalization process, an Apostille can make opening an international bank account or obtaining required licensing in member nations a much smoother and simpler process.
If you need a Certificate of Apostille for your Delaware company or if you’re wondering if you need one for doing business in a particular part of the world, you can find out and see a full list of the Hague member nations.
When starting a business, one of the most intimidating factors is the taxation issue and the fear of having to deal with the IRS. Here at HBS, we have read numerous tax-related books to help provide a resource for our clients when they have tax-related questions. Most of the books do a mediocre job of explaining the many issues. Finally, we came across Tax Savvy for Small Business. This is a book that we feel comfortable recommending to our clients to help answer their questions and address their concerns. The book covers a wide array of topics.
Some of the topics covered are:
Entrepreneurs wear many hats, so they often write and edit their own business proposals, white papers and press releases. Below are some good questions to ask yourself as you review your own work.
Approximately how many errors do you expect to find per page? (Knowing the density of errors common to the writer, even when you are the writer, makes you a better editor.)
Have you checked numbers, capitalization, names of people and organizations, hyphens, punctuation, often-confused-words and difficult-to-spell words?
Read your work aloud. It helps you catch errors that Spell Check and Grammar Check won't pick up, such as a correct word used incorrectly or the wrong version of a correctly spelled word used incorrectly. Have you reworked the sentences in the text that caused you to hesitate or stumble when reading aloud?
Is there any block of text that you can cut without sacrificing meaning? On the sentence level, are there words you can cut that do not add meaning? If you can communicate your idea in 15 words rather than 20, excise the superfluous words.
Are there blocks of text or sentences that would benefit from further explanation or clarification? If so, consider writing one additional sentence.
Are there words that lack precision, either because they are either too formal or too informal?
What sentence most succinctly captures the core of my message? Knowing the location of the heart of your meaning allows you to consider its placement.
Which sentence makes the best beginning? The best closing?
Are there any long sentences that would read better as two separate sentences?
Are there ideas expressed in several sentences that could be delivered in just one?
After you are done editing, proofread your work at least twice. Remember, you never get a second chance to make a first impression, and words matter.
Financial professionals involved with wealth management need to be aware of the effects of court cases relating to valuation of minority interests in small businesses and related securities. Cases brought to the tax court in recent years have shed some light on the relatively obscure subject of discounted values caused by reduced marketability and control for minority interests. This is an issue that is faced by professional advisors regarding gift and estate taxes, and for financial planning. The cases will be pointed out in this article.
Prior to these cases, appraisers generally treated valuation of such discounts as a relatively minor adjunct to the valuation of the basic (majority) position. Many either used “industry standards” for marketability discounts of, say, 35% without support, or they attempted to support these values with statistics from studies of restricted stock of public companies (which can be sold, usually at a discount, from their unrestricted brethren, and by IPO studies of stock values before and after the Initial Public Offering. The courts have virtually all rejected such valuations in the case of closely held securities, and laid down some principles which, if adhered to in appraisals, should significantly limit the chances of litigation. And, if litigated it should dramatically enhance the chances of winning.
All appraisals are a defensible opinion of value, prepared by an expert, for an ownership interest. Such an ownership interest is often referred to as a “bundle of rights.” Normally ownership in fee contains the most valuable bundle of rights, and lesser forms such as ownership of a security interest, lease, license, or other such instrument will reduce the bundle of rights – and hence the value. Further, restrictions on marketability or control of such minority interests results in a reduction of value.
If the asset to be valued is a minority interest, and/or if it is subject to restricted marketability, and/or lack of control, appropriate discounts to value must be applied. Over the years, many appraisers have adopted policies that separated the lack of control discount from the lack of liquidity or marketability discount. However, this appears to be a difference without a distinction. All discounts from value appear to be, in the end, evidence of impairments in marketability. The fact that such discounts, even if treated as separate discounts, are multiplicands which are multiplied by each other to derive a final discount figure illustrates this point.
Though the appropriateness of applying such discounts in these situations has been universally accepted by the IRS and the courts, recent court decisions have shown a fair amount of disagreement over the means of quantifying the appropriate discounts. (IRS Revenue Ruling 77-287 deals with marketability discounts for “restricted securities,” but it is silent on “exempted securities,” which make up the vast majority of privately held securities. Both are defined and described in the Securities Act of 1933.) The cases indicate a complete analysis is required.
To quantify the “marketability discount,” because of a lack of available specific data, some appraisers have been relying on two sources of data from public company transactions; Initial Public Offering Studies, and Restricted Stock Studies to defend their discount opinion. The “standard” discount often derived from these studies is typically between 30% to 40%. Three cases against the Commissioner in 2003 found that such studies, based upon data from public companies, were not sufficient basis to value closely held private (exempt and unregistered) ownership. Upon a deeper look the reasons are fairly obvious:
* Initial Public Offering Studies (IPO) show the difference in the price of a stock before the offering and after, and an appraiser may attempt to infer that this is direct evidence to support a marketability discount for an exempt security. This is erroneous for the following reasons:
* Stock values of privately held companies typically are based upon investment value – that is, an investor will be interested in both the current return, and the amortization factor (risk abatement factor) which indicates how long it will take to recover the initial investment. This is necessary because of the high degree of illiquidity of non-public securities.
* The IPO price, on the other hand, reflects a speculative value – that is, the investor is looking mainly towards price appreciation. By its nature once publicly traded, the stock should have high liquidity, so recovery of the investment is not an investment concern. Thus, this study is relevant only to companies anticipating an IPO. Unfortunately, these companies represent less than 1% of the companies extant in the U.S.
* Restricted Stock Studies deal with stocks of public companies that have been temporarily restricted from sale for two years (later for one year) in the public markets (usually by virtue of securities regulations under Rule 144). Nonetheless, there is no prohibition in selling these securities in private transactions where they usually sell at an average of 30% or so less than publicly traded stock. But these are applicable only to publicly traded stocks that have only a temporary restriction from public markets, and not on the general ”permanent” illiquidity problem faced by small privately held companies which would make them far less marketable.
* Control discounts, (or more appropriately control-based marketability discounts) for small privately held companies are magnified in comparison with publicly held companies for a simple reason – in privately held companies the only practicable way to recover the investment is liquidation (sale) of the company. Without control, an investor does not have the right to exercise this option. Thus minority interests in closely held companies are very difficult to sell. In practice, in the past appraisers have often attempted to base discounts for lack of control on control premium studies of public companies. The two are not the same at all.
The case of Mandelbaum v. Commissioner, T.C.M 1995-255 determined that use of irrelevant data is unacceptable, and sets forth some basic factors which might comprise the discount, but specified that this list was not exclusive, and other factors may (and should) apply as the situation dictates. It basically states that a complete analysis must be done which is relevant to the subject. The factors listed to be evaluated included but were not limited to:
IRS Revenue Ruling 77-287 deals with marketability discounts for “restricted securities”, but it is silent on “exempted securities,” which make up the vast majority of privately held securities. Both are defined and described in the Securities Act of 1933.