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Raising Capital: What Not to Promise
These articles were published in U.S. 1 Newspaper on May 12, 1999. All rights reserved.
Sell an interest in your company to an unsophisticated
person, and you might get yourself into trouble, says Robert D.
Frawley. He and
on "How to Start a Business" on Wednesday, May 19, at 7 p.m.
at the New Jersey Law Center, off Ryders Lane in New Brunswick. Call
the New Jersey State Bar Foundation at 800-FREE-LAW for reservations.
Frawley, a graduate of Lehigh and Georgetown University Law Center,
is of counsel to Smith Stratton Wise Heher & Brennan, sponsors of
the New Jersey Entrepreneurial Network, and also has a Morristown-based
practice (973-451-1100). He has written his own guide to the legal
aspects of starting a company, and his experience ranges from public
companies to family businesses.
Frawley reported on changes in the "blue sky" securities laws
at the New Jersey Entrepreneurial Network meeting last week, and he
will also discuss this at the bar association workshop. More than
just stocks can qualify as a "security" for legal purposes,
he warns, and these avenues to capital count as securities if you
are dealing with more than a very limited group of people.
to an unsophisticated person and — here is the important part
— they lose money. If they make money, obviously, they are happy.
Those who got in early on Ponzi schemes were also happy.
Don’t take people’s 401k money, says Frawley. Don’t promise short-term
results. Deal honestly with your investors — don’t use their money
for your car payment. Do give out news to your investors, even if
it’s bad. Bad news is better than no news.
What can count as a fraudulent promise of success on investment in
your company? Any promise of the future which is beyond reasonable
expectation, says Frawley. "Normal exaggeration," he warns,
"can constitute fraud. A good plaintiff’s lawyer can make that
Randy Harmon, meanwhile, is one of the three small business experts
to give tips to the Association of Internet Professionals on Wednesday,
May 12, at 6 p.m. The meeting is free and will be held at the Sarnoff
Corporation on Fisher Place. Call 609-924-8864 for information.Harmon
directs the Technology Help Desk and Incubator, a one-stop gateway
to accessing business and technology information (800-432-1832), and
at this seminar he will distribute his just-published business development
resource directory, with descriptions and contact information for
three dozen organizations ranging from Angel Capital Electronic Network
(which can connect investors with entrepreneurs over the Internet)
to the Washington Technical Liaison (which helps negotiate federal
The directory is also available at www.nj.com/smallbusiness
Also speaking: Nat Bender
and Dan Strombom
Business and Technology Center.
If there is one signal characteristic of the superwealthy,
says Brian H. Breuel, it is their willingness to seek help with
their planning. Breuel writes for both the rich and the rest of us
in his book for Bloomberg Press, "Staying Wealthy: Strategies
for Protecting Your Assets" (1998, $21.95). The adventures of
the rich can be an object lesson for those less well-endowed.
Breuel will be on a panel entitled "Managing Wealth" at MarketFair’s
Barnes & Noble on Thursday, May 20, at 7 p.m. Also speaking are Steven
Gittelson, senior editor at Bloomberg Press, and
author of "The Inheritor’s Handbook." The event is free; call
609-716-1570 for more information.
"The vast majority of wealth in this country escapes the federal
estate and gift tax," writes Breuel. "It happens by design
and through a dedication to the belief that it is permissible to pay
as few dollars in taxation as the law allows. In story after story,
one finds an enlightened team of professionals dedicated to helping
their clients minimize taxes."
Breuel has had all of these team jobs — attorney, financial planner,
stockbroker, insurance agent — at various times in his life. Breuel
graduated from the Lawrenceville School and Princeton University (Class
of 1966) and earned his law degree at University of Florida. He has
master’s degrees in financial services and management and the CLU
and CHFC professional insurance designations, as well as a securities
license. He had his own fee-based financial planning firm, his own
pension company, and now his own brokerage office, an Edward D. Jones
investment office at Princeton Shopping Center. He also spent six
years sailing around the world and writing novels. Recently he wrote
"The Complete Idiot’s Guide to Buying Insurance and Annuities"
(Alpha Books, published by Macmillan)
"It sounds easier to afford this planning on $20 million than
on $1 million," says Breuel. "However, in many cases, there
is some risk and significant expense involved."
Risk, indeed. He tells of how the Newhouse heirs took an aggressive
position that paid off well. S.I. Newhouse — who owned the
New Yorker magazine, the Times of Trenton, and the Star Ledger, among
other publications — died in 1979 with an estate of more than
$1 billion. "The family business was the largest asset, and the
IRS arguing that the control vested in the heirs made the stock even
more valuable, levied a tax bill of $609 million. The heirs argued
that the stock was worth much less because the voting shareholders
who were family members would have been reluctant to vote against
the decedent, but now were more inclined to be independent. This made
all of the minority interests worthless. They litigated the issue
in tax court, and in 1990, the court agreed with the taxpayers and
said the tax due was only $48 million."
Here’s another episode from the lives of the rich and famous: When
Joseph H. Lauder, founder of the firm named for his wife, Estee,
died with a $100 million estate, the IRS and the family valued the
stock differently. the IRS claimed the tax due was $89.5 million,
but the family said the amount should be $29 million. The court split
Tips for the wealthy that might work for the rest of us:
in your wealth-accumulation career , an excellent attorney plus
financial planner and an accountant, for valuing businesses and providing
insurance to prefund the estate tax.
dollars. Buy this insurance before your health fails and you are
uninsurable or must pay premium rates. If necessary, pay those rates.
"Don’t take rated policies personally; it’s about their willingness
to prefund your tax bill and your willingness to pay their premium."
"Just know what the risk is compared to the potential game. Put
yourself in your heirs’ shoes for a moment, and then make your decisions
based on your comfort level with the possible outcomes."
and non-asset-protection motivations. "This is not an area
for the weak of heart, but it represents a tremendously fertile ground
for estate planning in the decades to come, largely because of the
globalization of our economy and investments." For this, you need
$1 million to invest with foreign investment managers.
If you’ve got the million but prefer to be patriotic, consider an
Alaskan trust. For that, you don’t need to move to Anchorage.
While members of family firms usually care more about
the business, are more committed and are willing to invest more time
and energy into it, family firms have their own unique challenges,
says Clayton P. Alderfer, professor and director of the Organizational
Psychology Program at Rutgers Graduate School of Applied and Professional
Psychology. For instance, if the founder director should have retired
10 years ago, who is going to tell him that? This is where a board
of directors can help, says Alderfer.
While most non-family firms usually have boards, many family firms
do not, says Alderfer. He will address this problem on Thursday, May
20, at 8 a.m. at the Eagleton Institute, New Brunswick. The session
is sponsored by the Rutgers Family Business Forum, one of two family
business-oriented programs offered by universities in New Jersey.
(Fairleigh Dickinson has a curriculum for family businesses at its
Rothman Institute of Entrepreneurial Studies.) Cost for the May 20
session is $45. Call 732-445-7504.
The board of directors is a group of people above the CEO who set
the policy for the whole organization, says Alderfer. Their responsibilities
include evaluating the performance of the CEO and finding a replacement
when a CEO retires.
The session will address the responsibilities of boards, characteristics
of effective boards, what factors aid and impede the development of
effective boards, and the special opportunities and challenges that
face boards of family firms. Session participants will also be assisted
to take constructive steps in forming effective boards for their firms.
"Problems between family members should not become business problems,"
says Alderfer. Maintaining the family dynamics in a family firm is
very crucial. For this reason, family representation on the board
should be minimal, like 25 percent, and definitely not a majority,
says Alderfer. "What is good for the family may not be good for
the business and what is bad for the family is also bad for the business."
A group of people from different professions with no vested interests
will be able to provide an objective perspective.
Your favorite Mom and Pop business can win an award.
Nominations are now being accepted for the Seventh Annual New Jersey
Family Business of the Year program administered by the George Rothman
Institute of Entrepreneurial Studies at Fairleigh Dickinson University.
Any New Jersey-based family business which now includes, or has included,
more than one generation, and whose policies and business practices
have had a positive impact on business and the community, is eligible
Companies can be nominated in one of two categories: family businesses
with annual sales/revenues up to $10 million and those with sales/revenues
over $10 million. Deadline for nominations is May 28. Call the Rothman
Institute at 973-443-8842.
Other sponsors are New Jersey Monthly magazine, PNC Bank, Horizon
Blue Cross Blue Shield of New Jersey, McCarter & English LLP, Pricewaterhouse
Coopers LLP, PSE&G, and DKB Partners.
Semifinalists, finalists, and winners in each category will be honored
at a luncheon at the DoubleTree Hotel in Somerset on October 5. Winners
will be eligible for the National Family Business of the Year Competition.
Eight women have been named recipients of the Princeton
YWCA’s TWIN Award: Deborah Aldredge
Brenner-Gati,of Janssen Research Foundation;
of Covance; Mara Isaacs
of PNC Bank; Connie Mercer
Palsho of Dow Jones; and
The award ceremony and dinner will be Thursday, May 20, at the Princeton
Marriott at 5:30 p.m. Cost for dinner and the event is $85. Call 609-497-2104.
The Tribute to Women and Industry (TWIN) program was established nationally
by the YWCA in 1975 and adopted by the YWCA Princeton in 1984. The
selection process takes into account academic achievement, professional
responsibility, community service, demonstrated leadership, mentoring
of others, ability to communicate ideas, special projects or accomplishments,
and contribution to the bottom line.
Aldredge, a resident of Flemington, is responsible for support of
19,000 professionals in over 600 offices nationwide.
management at Janssen Research Foundation, is responsible for worldwide
development planning of research. She lives in Princeton Junction.
at Covance Inc. manages a staff in Brussels, London and Princeton
that handles the logistics for clinical drug trials. Harrison lives
in Holland, Pennsylvania.
is responsible for selecting plays and directors, casting, and hiring
artistic teams for the theater’s five-play season.
manager of PNC Bank’s Nassau Street office. She is responsible for
loans and deposits, business development, and customer service. She
also chairs a committee in the Princeton PNC community that provides
75 charities and organizations with financial support.
the eight-year-old agency that coordinates 800 volunteers to provide
food, clothing, counseling, and recreational activities to the homeless.
She lives in Lawrenceville.
a 600-person worldwide organization striving to become the world’s
leading publisher of electronic business news and information (U.S.
1, February 3). She is a resident of Princeton.
uses her science background and communication skills to explain complex
technologies to investors (U.S. 1, February 3). She lives in Augusta
in Sussex County.
The regional Small Business Administration has selected
Rocky Hill, as the SBA Small Business Person of the Year. She will
be honored at the New Jersey Conference for Small Business on Thursday,
May 13, at the Brunswick Hotel in East Brunswick at 11 a.m. The keynote
speaker is Warren G. Little, chairman of the U.S. Chamber of
Commerce. Call 973-645-6064.
Lasley Construction began as a one-person operation in 1985 and has
grown to employ 23 people and handle 30 to 50 construction projects
per year. Lasley just recently started another business — The
Kitchen Company — which designs and builds kitchens and distributes
cabinetry. Last year, Lasley was honored with the Princeton YWCA TWIN
Award and was named Small Business Person of the Year by the Princeton
Chamber of Commerce.
Learning better ways to do things, whether in business
or the rest of life, depends on a trial and error process with outcomes
that are often unpredictable, writes Virginia Postrel
and author of "The Future and Its Enemies: The Growing Conflict
Over Creativity, Enterprise, and Progress" (December 1998, Free
The foundation of entrepreneurship, innovation and experimentation,
Postrel writes, is under constant attack by those who prefer stability
and control to the challenges and promises of a dynamic, open-ended
future. She will speak at the next meeting of the Venture Association
of New Jersey on Tuesday, May 18, at 11:30 a.m. at the Westin in Morristown.
Cost: $55. Call 973-631-5680.
Postrel has been credited with launching a national debate on change.
A graduate of Princeton, Class of 1982, she is the editor of the California-based
Reason magazine and a columnist for Forbes and its high-tech companion
magazine Forbes ASAP.
For working women too pressed for time to make it to
a networking meeting, Central Jersey Women’s Network (CJWN) has the
solution. Telegroups. Groups meet by phone on a teleconference bridge
line and chat for an hour, sharing experiences and resources and supporting
CJWN currently runs two telegroups. The "Working Moms Telegroup,"
led by Natalie Gahrmann
meets on the second Wednesday of each month from 9 to 9:55 p.m. The
"Women’s Work Telegroup," led by Carol Gerrish
certified coach, meets on the first Wednesday of each month from 1
to 1:55 p.m.
Advance registration is required. Call 732-424-8413 for the Working
Moms Telegroup and 732-438-1468 for the Women’s Work Telegroup. The
group is free but participants incur normal phone charges.
Scranton ECRC will present two E-commerce workshops
— "Business Opportunities Through E-commerce" and "Business
On The Internet" — on Monday, May 17 at the Mercer County
Community College and on June 15 at the Raritan Valley Community College.
These free sessions will provide information on how to start doing
business with the federal government via E-commerce and ideas for
transitioning your everyday business activities to the Internet. Call
800-575-3272 or E-mail email@example.com to reserve your
Hands-on training is also available at the Trenton Business and Technology
Center on July 14, July 28, August 11, and August 25. Basic Internet
skills, Home Page Development, and Advanced Home Page Development
will be covered in two sessions at 9 a.m. and 1 p.m. on the first
three dates respectively, and a Business Opportunities Lab and Lecture
will be offered at 9 a.m. on August 25.
Human resources professionals from more than 100 New
Jersey businesses will be present at the Middlesex County Job Opportunity
Fair and Career Exploration Day at Middlesex County College on Thursday,
May 13, at the Physical Education Center from 9 a.m. to noon. The
event is free. Call 732-906-4653.
Those seeking entry, mid-level, and management positions will be able
to network with potential employers, gather information about a variety
of companies, and set appointments for interviews. The fair has partnered
with the Middlesex County Regional Chamber of Commerce’s Expo ’99
to increase the number and variety of companies registering for the
fair this year.
Seton Hall University offers evening and weekend classes
leading to a masters in Corporate and Public Communication. The degree
covers effective writing and interpersonal communication, presentation,
and web page design. The program can be combined with other market-responsive
Courses include Writing for the Media, Cross Gender Communication,
Cross Cultural Issues, Events Management, and Writing and Editing
from the Technical Perspective. A summer session begins June 1 and
the fall session begins September 1. Call 973-761-9490 or visit http://www.shu.edu/depts/gradcomm.
If your employer signs up for the new transit benefits,
you can pay for your transportation costs with pre-tax money. NJ Transit
will tell about his plan in a seminar entitled "Improving Employer’s
Bottom Line while Improving Employees’ Morale" on Tuesday, May
18, at 8:30 a.m., at NJTPA, 1 Newark Center, 17th Floor, Raymond Boulevard,
in Newark. Among the speakers are Mark Daniele
English in Newark and Patricia Farrell
Consulting at the Carnegie Center. Call 973-491-7108.
Thanks to new federal TEA-21 legislation, the NJ Transit Business
Pass allows nearly every kind of company — including public agencies,
non-profit organizations, and government entities — to set up
a payroll plan for deducting up to $65 per month from a worker’s pre-tax
salary. This money goes to pre-purchase public transportation costs,
and no cost is incurred by the employer.
Soon, with one online search, you will be able to access
the state’s public, academic, and school libraries. Soon, says John
H. Livingstone, state librarian, New Jersey will have the first
statewide electronic interlibrary loan system. By the end of this
year 180 of the state’s 312 public libraries will be online, and the
entire system is expected to be operational in two years.
The New Jersey State Library has entered into a contract with Ameritech
Library Services to allow simultaneous searches of the major libraries’
book collections and provide library patrons with quick access to
books not available locally. "This will insure a fast, efficient
way to make New Jersey’s vast library resources available to all our
residents," says Livingstone.
Earlier this year the library, affiliated with Thomas Edison State
College, made INFORME, the Spanish language magazine database, available
in its public libraries.
The Geraldine R. Dodge Foundation has awarded
a $60,000 grant to Newgrange, a school and educational outreach center
for people with learning disabilities, to fund teacher training programs
for charter schools. The training will help teachers to reconsider
their students’ capabilities and re-envision the classroom environment
as one which facilitates teaching to diverse needs, styles, and cognitive
strengths. Call Newgrange at 609-924-6204.
Main Street Project’s "Century Campaign," to raise $600,000
for parking enhancements and streetscape improvements for the Village
of Lawrenceville. Designed by Clarke Caton Hintz and the Main
Street Design Committee, parking enhancements encompass a complete
redesign and landscaping of the parking lots behind the stores along
Main Street (Route 206). Call the Main Street Project at 609-219-9300.
semester from Rider University’s department of communication for video,
public relations, and multimedia work. "This exciting and innovative
partnership is a win-win situation for everyone," says Robert
Prunetti, Mercer County executive. "It allows us to tap the creative
minds of our students trained in public relations and the latest video
and multimedia technology to create work products such as videos and
scoreboard messages that will be used at events. At the same time,
these students will receive real life experience that will benefit
them tremendously in the workplace after graduation." The state-of-the-art,
multipurpose arena will open this fall.
a forum for meaningful dialogue between educators and the business
community, open to secondary level educators — teachers, administrators,
and guidance counselors. 30 educators will be selected by the Chamber
of Commerce to represent a cross-section of Mercer County. The institute
will be held from June 28 to July 2.
National Science Foundation has awarded a $750,000 grant for wetlands
research to the Stony Brook-Millstone Watershed Association. "This
grant will help take the Watershed Association into the next century,"
says Congressman Rush Holt, former chairman of the association.
"The creation of the Stony Brook Millstone Association marked
the beginning of a new era — an era in which local residents would
change the way they perceived their natural resources and their connections
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