Home
Entrepreneurship
Sometimes small details can create big headaches

Sometimes small details can create big headaches

Posted by Dave Broadwin on September 04, 2009

One of our partners, Rick Schaul-Yoder tells this story:

When you prepare an IRS Form SS-4 to apply for a taxpayer identification number for an entity formed in the United States, you must use a U.S. address on the form. If you use a non-U.S. address, the IRS will issue a taxpayer identification number that begins with "98". "98" numbers are issued to non-U.S. entities. Having a "98" number will cause significant headaches. If the entity doesn't have its own U.S. address, use a reliable "care of" address in the U.S.

Sample headache: a large London-based investment manager client recently formed a new Delaware limited partnership as an investment fund. The SS-4 for the Delaware limited partnership was incorrectly filed with a non-U.S. address. The IRS issued a "98" number. The fund went to open a brokerage account with JP Morgan, and gave Morgan an IRS Form W-9 using the new taxpayer identification number. Morgan rejected the Form W-9 because it used the same non-U.S. address. (IRS regulations won't allow brokers to rely on a W-9, as certification of U.S. status, if the W-9 shows a foreign address.) The client contacted us, and we corrected the address, using a U.S. "care of" address on the Form W-9, but Morgan then asked why the fund had a "foreign" 98 number. We had to say that the IRS incorrectly issued the 98 number, and we assured Morgan -- ultimately by supplying a certified copy of the Delaware certificate of limited partnership -- that the partnership is indeed a U.S. entity. Dealing with Morgan took several days, with the client understandably more than a bit concerned because the fund was ready to launch and couldn’t do so without the account being opened. The client also understandably failed to comprehend why it could take so much effort to prepare a simple, half-page IRS Form W-9 consisting of no more than 3 lines (name, address, identification number) and a signature.

Tags:
taxpayer id

Comments RSS Feed

No comments yet

Start the discussion by using the form below

Dave Broadwin Partner

Dave heads the Emerging Enterprise Center. His practice focuses on representation of technology companies from start up to exit. Dave also handles venture financings, merger...

Prithvi Tanwar Associate

Prithvi Tanwar is an Associate in the firm’s Business Department. His practice focuses on advising emerging life science and technology companies as well as U.S....

Q1 venture activity levels and what will Q2 show?

It has been a long time since I wrote a blog post. In part, I just ran out of steam. In part, I have been running non-stop since May. Why? Because business has picked up in a major way. Since May the pace of financings and exits has picked up in a very noticeable way. So, here is a prediction, when I write the comparison of Q2 deals published by by Foley Hoag, Fenwick, it will show a major jump from the Q1 numbers.

Here is what my partner, Dave Pierson, had to say about Q1 activity, “The total number of New England Series A transactions dropped 46% from Q4 …. The total number of New Englsnd Series B and Later round transactions during Q1 decreased 21% from Q4…”

Fenwick had similar observations. Fenwick had this to say, “Venture capitalists invested $6.4 billion in 661 deals in the U.S. in 1Q11, compared to $7.6 billion in 735 deals reported in January 2011 for 4Q10, according to Dow Jones VentureSource (“VentureSource”). Although this represents a 16% decline in dollars and a 10% decline in deal volume from 4Q10, the 1Q11 results were generally flat with the average of $6.6 billion raised per quarter in 2010.”

All I can say is that either Foley Hoag is lucky or the venture world took off in Q2.

Here is the open question, given the turmoil in the public markets, will I have written plenty of new posts and be lamenting the amount of time available for such pursuits?

Without further adieu, below is the same table I produce each quarter. This is, of course, a table reflecting Q1 activity.

Term	Foley Hoag New England Series A	Foley Hoag New England Series B and Later	Fenwick Silicon Valley All Series
Cumulative Dividends	42%	52%	8%
Preference with Participation	42%	35%	43%
Redemption	85%	82%	20%
Pay to Play	15%	40%	5%

There is no surprise in these numbers. They have followed a consistent pattern from quarter to quarter for as long as I have been tracking them. Note the greater frequency of dividends and redemption provisions in New England deals. Having wondered about why there is not convergence on terms, given that so many of the leading venture firms do deals on both coasts and having asked a number of people in the business about it, I have come to the conclusion that it the divergence in these terms reflects a basic cultural bias. New England just has more of a lender mentality than the Valley.

Download & read (PDF)

EEC Events Calendar

About Us

The Emerging Enterprise Center Blog is where we plan to cover a wide range of topics that arise from our...

Emerging Enterprise Center Blog

Emerging Enterprise Center at Foley Hoag LLP

Bay Colony Corporate Center, North Entrance
1000 Winter Street - Suite 4000

Waltham, MA 02451

tel:

781 895 5900

fax:

781 895 5999

Foley Hoag LLP

Seaport West
155 Seaport Boulevard

Boston, MA 02210-2600

tel:

617 832 1000

fax:

617 832 7000

Foley Hoag LLP

1875 K Street., N.W., Suite 800

Washington, D.C. 20006-1238

tel:

202 223 1200

fax:

202 785 6687

Blog design, marketing and support by LexBlog™

Emerging Enterprise Center Blog - Commentary and Analysis For Entrepreneurs and Startups

Foley Hoag LLP