Frequently Asked Questions
1) Must the business I invest in be registered as a qualified business at the time of investment in order for me to be eligible for a tax credit for that investment?
Yes. The business must be registered with the Secretary of State at the time the investment is made in order for the angel investor to be eligible for a tax credit under the High Growth Small Business Job Creation Act. Beginning in 2014, investments made prior to the business registering as a qualified business are not eligible for a tax credit.
2) Under the Act, the headquarters of the business must be located in South Carolina at the time the qualified investment is made. My business has offices in other states. What is meant by “headquarters”?
The High Growth Small Business Job Creation Act defines “headquarters” as a facility where corporate staff employees are physically employed, and the majority of the company’s financial, personnel, legal, planning, information technology, or other headquarters-related functions are handled.
3) The High Growth Small Business Job Creation Act states that a qualified business cannot be “substantially engaged” in certain types of activities, such as retail sales. How do I know if my business is substantially engaged in a prohibited activity
Under the Act, a business is “substantially engaged” in a prohibited activity if proceeds from the prohibited activity constitute more than 25% of the gross revenue of the business in a fiscal year. In addition, a business is considered to be substantially engaged in a prohibited activity if the prohibited activity is listed as one of the primary activities of the business in its articles of incorporation, articles of organization, operating agreement, or other organizational document.
4) I’m the owner of a qualified business. Will the investments I make be eligible for a tax credit under the High Growth Small Business Job Creation Act?
Ultimately, the South Carolina Department of Revenue determines whether an investor qualifies for a tax credit under the High Growth Small Business Job Creation Act. The High Growth Small Business Job Creation Act defines “angel investor” as an accredited investor as defined by the U.S. Securities and Exchange Commission, who is either:
- An individual who is a resident of South Carolina or a nonresident subject to the South Carolina Income Tax Act; or
- A pass-through entity that is formed for investment purposes, has no business operations, does not have committed capital under management exceeding $5 million, and is not capitalized with funds raised or pooled through private placement memoranda directed to institutional investors.
Under Securities and Exchange Commission rules, a director, executive officer, or general partner of the company selling the securities is considered an accredited investor.
For a complete listing of types of accredited investors, please follow this link to the U.S. Securities and Exchange Commission website. Additional information is also provided in the Department of Revenue’s Angel Investor Credit Application. This application may be found on the Department of Revenue’s website.