Sc Sch.tc-56 - Angel Investor Credit (Page 2 of 4) in pdf

INSTRUCTIONS

General information

An angel investor is entitled to a nonrefundable income tax credit of 35% of qualified investments made between 2013

and 2019 in a qualified business.

Purpose of credit

The purpose of the credit is to:

(1) encourage individual angel investors to invest in early stage, high-growth, job-creating businesses;

(2) enlarge the number of high-quality, high-paying jobs within the State;

(3) expand the economy of this State by enlarging its base of wealth-creating businesses; and

(4) support businesses seeking to commercialize technology invented in this state's institutions of higher education.

Angel Investors

An “angel investor” is an accredited investor as defined by the U.S. Securities and Exchange Commission, who is either:

a South Carolina resident individual or a nonresident individual subject to South Carolina income taxes; or

a pass-through entity formed for investment purposes that has no business operations and no committed capital under

management exceeding $5 million and is not capitalized with funds raised or pooled through private placement

memoranda directed to institutional investors. A venture capital fund or commodity fund with institutional investors or a

hedge fund does not qualify as an angel investor.

“Pass-through entity” means a partnership, an S corporation, or a limited liability company taxed as a partnership.

The definition of "accredited investor" in 17 CFR 230.501 includes:

a director, executive officer, or general partner of the company selling the securities;

a business in which all the equity owners are accredited investors;

a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the

time of the purchase, excluding the value of the primary residence of such person; and

a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse

exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.

$100,000 is the maximum credit that an individual can earn in a single tax year. Any pass-through entity making a qualified

investment directly in a qualified business must allocate the credit allowed to each individual who is a shareholder, partner,

or member of the entity in an amount determined in the same manner as the proportionate shares of income or loss of the

pass-through entity would be determined. The pass-through entity must make an irrevocable election with the Department

of Revenue as to the manner in which the credit is allocated. If an individual's share of the pass-through entity's credit for a

tax year is reduced to the $100,000 maximum amount, the pass-through entity and its owners may not reallocate the

unused credit among the other owners.

Qualified Investments

“Qualified investment” means an investment by an angel investor of cash in a qualified business for common or preferred

stock or an equity interest or a purchase for cash of subordinated debt in a qualified business. Investment of common or

preferred stock or an equity interest or purchase of subordinated debt does not qualify as a qualified investment if a broker

fee or commission or a similar remuneration is paid or given directly or indirectly for soliciting an investment or a purchase.

Qualified Businesses

A “qualified business” is a registered business that:

is a corporation, limited liability company, or general or limited partnership located in this State that has its headquarters

in this State at the time the investment was made and has maintained the headquarters for the entire time the qualified

business benefitted from the tax credit;

was organized no more than 5 years before the qualified investment was made;

employs 25 or fewer people in this State at the time it is registered as a qualified business;

has had gross income of $2 million or less on a consolidated basis, as determined in accordance with the Internal

Revenue Code, in any complete fiscal year before registration;

is primarily engaged in manufacturing, processing, warehousing, wholesaling, software development, information

technology services, or research and development, or is a qualifying service-related facility; and

36572014

Sc Sch.tc-56 - Angel Investor Credit Page 2

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