Heads-up, Illinois early-stage companies and investors: time is running out to take advantage of the Illinois Angel Investment Credit Program, which is scheduled to expire on December 31, 2016.
Launched in 2011 by the Illinois Department of Commerce and Economic Opportunity (DCEO), the program was designed to encourage investment in innovative early-stage Illinois companies. It provides investors an Illinois income tax credit equal to 25% of the investment in a Qualified New Business Venture. For example, an investor who contributes $100,000 in a Qualified New Business Venture is entitled to an Illinois income tax credit of as much as $25,000. Although the credit may not exceed the investor’s Illinois income tax liability for the year, the credit can be carried forward for up to five years.
Each year, an aggregate of $10 million is allocated for the program. According to the DCEO, the remaining Angel Investor Credit available for 2016 is $7-8 million.
To qualify for the credit, an investor must make an equity investment in a registered Qualified New Business Venture approved by the DCEO. The maximum amount of an investment that is eligible for the credit is $2 million per Qualified New Business Venture, and investors may aggregate the amount of the tax credits claimed, up to $10 million. Funds must remain invested in the Qualified New Business Venture for at least three years. Investments made before a business is a registered Qualified New Business Venture do not qualify for the credit.
Businesses looking to attract investors interested in the credit must apply with the DCEO to become a Qualified New Business Venture. To be eligible, the business must be headquartered in Illinois and must satisfy the following requirements for the year in which the investment is made:
- Be registered with the Illinois Secretary of State to transact business in Illinois;
- Have not received more than $10 million in aggregate private equity investments or $4 million in investments that qualified for tax credits;
- Have fewer than 100 employees, with at least 51% of all employees located in Illinois;
- Have been in operation in Illinois for no more than 10 consecutive years;
- Have the potential to create jobs or capital investments, or both; and
- Demonstrate that the business is either:
- Principally engaged in innovation in any of the following fields: manufacturing; biotechnology; nanotechnology; communications; agricultural sciences; clean energy creation or storage technology; processing or assembling products, including medical devices, pharmaceuticals, computer software, computer hardware, semiconductors, other innovative technology products, or other products that are produced using manufacturing methods that are enabled by applying proprietary technology; or providing services that are enabled by applying proprietary technology; or
- Undertaking pre-commercialization activity related to proprietary technology that includes conducting research, developing a new product or business process, or developing a service that is principally reliant on applying proprietary technology.
Certain businesses are ineligible to be designated a Qualified New Business Venture, such as those principally engaged in real estate development, insurance, banking, lending and lobbying.
If you would like more information about the Angel Investment Credit Program, either as an investor or an Illinois early-stage company seeking ways to attract potential investors, please contact Matt Galo.