At an already anxious time for many entrepreneurs and investors, the venture capital (VC) and startup community has recently added a major new worry: a debate over whether many startups will need to change their Charters in order to qualify for SBA Section 7(a) loans under the Paycheck Protection Program.
We believe that amending a Charter is one of several ways to achieve the desired goal, but it’s the most cumbersome and expensive way, and there are better solutions. Please read on for a brief explanation and a request for others in the startup community to accept this position. Please stay tuned for a subsequent longer, more detailed article expanding our analysis.
It’s not news that the Federal small-business program got off to a rocky start. There’s confusion around which “protective provisions” trigger “control” under the applicable rules – an important distinction, because a finding of “control” would mean that a startup would have to add together its employee headcount with that of its venture capital investor(s), as well as the many other startups funded by that same VC. If aggregated in this way, most VC-backed startups would likely be ineligible for these loans.
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