Working on a live small-ish deal (LOI signed) with an operator in an ETA type of structure where we intend to use an SBA 7(a) loan and ROBS structure. I have seen some info out here on ROBS, QSBS, etc. but the more we've dug in, the more it seems this concept should be much more pervasive and well known / understood in the ETA / search fund world - and it doesn't seem to be. Or at least I haven't intersected a lot of good info on it. So to that end, sharing about an ongoing live deal where we will attempt to get this structure done, and hopefully prod others to explore / learn. Will be happy to keep posting about our journey here in hopes it may be informative for others.
- We found what appears to be a really good attorney whose firm focuses on ERISA matters, and does a lot of ROBS deal. The firm is KLB Benefits Law Group (https://www.erisadc.com/) and the attorney is Dorothy "Doll" Lank. Found Doll via a podcast which is worth listening to if you want a quick primer (https://tech-money.com/podcast/27/).
- This is a highly regulated structure - how you set it up, how you maintain it, etc. are critical or one will be at risk of the whole thing being unwound (i.e. HUGELY expensive and time consuming). Using an attorney expert in my opinion is crucial. Between a 7(a) and a ROBS, you have to understand what you are getting into, and have strong legal and service provider support to keep you out of trouble. For what it's worth, my strong recommendation for things like this is to find a good attorney, and ask them what service providers they like / trust for the admin side. There are plenty of people "marketing" ROBS, but you really need to view it as a something you cannot risk screwing up. We will use a separate attorney for the deal side.
- For ROBS, company has to be a C-Corp, and investor has to be a W-2 employee with significant amount of time spent out of the gate.
- If done this way, and your hold period and other factors are met, you and your investors could also get QSBS (Qualified Small Business Stock) treatment on the after-tax invested dollars and potentially avoid cap gains tax on some / all gains from the transaction
That's a quick update, happy to post more as we go.
Rollover As Business Start-Up (ROBS) Structure, Attorney, etc.
by an investor from University of Illinois at Urbana-Champaign
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