USA Law and Practice Contributed by: D. Scott Bennett, Nicholas A. Dorsey, Virginia M. Anderson and Ellen H. Park, Cravath, Swaine & Moore LLP
party may also sue for damages post-closing. In practice, this fact pattern is unusual, as it results in a lawsuit between the company and its stock - holder. When a limited survival period is negoti - ated for general representations and warranties, between six months and two years is common; longer survival periods may be negotiated for specific categories, such as tax representations.
There are numerous technical requirements to qualify as QSBS, including: • that the business is organised as “C” corpo - ration under the US Internal Revenue Code (the “US Code” ) • that the investor acquires the stock at its initial issuance; and • that at such time the corporation conducts an active business and has less than USD50 million of value in gross assets. Certain businesses are not eligible for QSBS, including many professional services and bank - ing businesses. Even once stock qualifies as QSBS, additional rules apply to the business as well as transfers involving QSBS that must be considered to ensure QSBS stock retains its status as such. The favourable benefits available to QSBS are the subject of current political attention and leg - islative reform proposals. 4.3 Government Endorsement The US Department of Treasury runs the State Small Business Credit Initiative (SSBCI), which consists of USD10 billion in government funding that is distributed to US states, territories and tribal governments in order to provide capital to small businesses and start-ups. There is a spe - cific programme within the SSBCI for venture capital, whereby the funding is used either: • to provide capital directly to businesses in the form of equity investments; or • to provide funding to venture capital firms. There are also a number of state-by-state pro - grammes in the USA that allocate resources directly to small businesses owned by under- served or under-represented groups, such as
4. Government Inducements 4.1 Subsidy Programmes
Investment in growth companies in the USA is often focused on qualifying for benefits under the “Qualified Small Business Stock” (QSBS) regime. This is discussed in further detail in 4.2 Tax Treatment . Several states in the USA also offer an angel tax credit, whereby an investor is given a tax cred - it if they make investments in certain start-up companies. Bills have been proposed to create a federal angel tax credit, but none have been passed. As discussed in 4.3 Government Endorse- ment , there is also a variety of government pro - grammes in the USA that help facilitate equity investment in growth companies without the use Growth companies in the USA are often incentiv - ised to help their investors receive the tax ben - efits available under the QSBS regime, which is generally available only to early stage compa - nies. Under these rules, individual investors may exclude all or a substantial amount of gain upon the ultimate disposition of QSBS stock. of the US tax regime. 4.2 Tax Treatment
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