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How To Form A Subsidiary In The United States

This article was first published by the Young Entrepreneur Council. By: Doug Bend International companies that are looking to expand into the U.S. market often form a U.S. subsidiary. By doing so, they help isolate any liability that might arise in the U.S. to the subsidiary to protect the parent company. There are seven steps… Read More

This article was first published by the Young Entrepreneur Council.

By: Doug Bend

International companies that are looking to expand into the U.S. market often form a U.S. subsidiary. By doing so, they help isolate any liability that might arise in the U.S. to the subsidiary to protect the parent company. There are seven steps to forming the subsidiary:

1.  Certificate of Incorporation

More than half of all Fortune 500 companies and most U.S. subsidiaries are formed in Delaware because it is the preference of investors.

You first will need to file a Certificate of Incorporation with the Delaware Secretary of State’s Office.

If you do not have a U.S. mailing address, you could use a mail forwarding service. For example, some of our clients use Alliance starts which starts at $50 per month.

2. Federal Employer Identification Number (EIN)

Next, you will need to obtain a Federal Employer Identification Number (EIN) from the IRS for the subsidiary.

If you have a U.S. tax identification number, you can obtain the EIN online here.

If you do not have a U.S. tax identification number, you will need to file IRS Form SS-4.

3. Bylaws, Indemnification Agreements and A Board Consent

You should also prepare bylaws, indemnification agreements for the officers and directors of the subsidiary and an initial Board consent approving the issuance of shares to the parent company.

4. City Business License

You most likely will also need to obtain a city business license for the subsidiary.

5. Registering Any DBAs

Depending on where the subsidiary is headquartered you may need to register the additional names that the subsidiary will be operating under besides for its full legal name.

For example, if the subsidiary is headquartered in California you will file a Fictitious Business Name Statement with the county clerk’s office. Once Fictitious Business Name has been approved by the county clerk’s office, you will need to have it published in a legally adjudicated newspaper.

6. Bureau of Economic Analysis

You are also required to file a report with the Bureau of Economic Analysis.The initial report must be filed no later than 45 days after the date of the investment transaction.

Which form you file will depend on much money you are investing in the subsidiary. For example, if the total cost of expansion is less than $3m, then Form BE–13 Claim for Exemption can be filed.The BE-13 can be filed online here.

7. Additional Government Filings

There may be additional government filings. For example, if the subsidiary is headquartered in California and has employees, you will need to register it with the California Employment Development Department (EDD) so you can run payroll. If it is selling goods, you will also need to obtain a seller’s permit from the California Department of Tax and Fee Administration.

You should consult with your attorney as your jurisdiction might have different requirements, but this checklist is a good starting point for forming a U.S. subsidiary.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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The Corporate Transparency Act: A Guide For Small-Business Owners

This article was originally published on Forbes. By: Doug Bend The road to onerous corporate compliance is paved with good intentions. I believe there is no better example than the Corporate Transparency Act (CTA), which took effect on January 1, 2024. The goal of the CTA is to combat money laundering by requiring business entities… Read More

This article was originally published on Forbes.

By: Doug Bend

The road to onerous corporate compliance is paved with good intentions. I believe there is no better example than the Corporate Transparency Act (CTA), which took effect on January 1, 2024. The goal of the CTA is to combat money laundering by requiring business entities to report their beneficial owners. However, there are strict deadlines and steep penalties for noncompliance, so owners must understand the CTA and how it might affect their businesses.

Explaining The Corporate Transparency Act

Under the CTA, certain businesses are required to submit a Beneficial Ownership Information report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The report must include the names of each beneficial owner who either owns at least 25% of the business or exercises “substantial control,” according to FinCEN’s FAQ page about the act.

“Substantial control” can be direct or indirect, such as serving as a senior officer; having authority over the hiring and removal of senior officers or the majority of the board; having substantial influence over important decisions or “any other form of substantial control over the reporting company,” FinCEN’s FAQ page also said. You are required to disclose each beneficial owner’s name, date of birth and address and upload an image of either their driver’s license or passport.

Businesses formed after January 1, 2024, are required to file their first report within 90 days of creation or registration. Those formed before January 1, 2024, will have until January 1, 2025. Additionally, you are required to file an updated report within 30 days of any change in your company’s beneficial ownership information, according to FinCEN.

If you would like to file the report for your business entity, I suggest first obtaining a FinCEN ID for the report. You can obtain one here and file the report here.

Exemptions

There are 23 types of entities that are exempt. I recommend reviewing FinCEN’s Small Entity Compliance Guide checklist to see whether your company qualifies for any of these exemptions.

Fraudulent Solicitations

FinCEN has put out an alert to be careful of “fraudulent attempts to solicit information from individuals and entities who may be subject to [CTA] reporting requirements.” Be particularly cautious of e-mails with the subject line “Important Compliance Notice” and that ask you “to click on a URL or to scan a QR code.”

Penalties

If a report is not timely filed, FinCEN can impose civil penalties of $500 per day per entity, a $10,000 criminal penalty per entity and imprisonment for up to two years. To say the least, the consequences of not being in compliance are enormous.

An Ounce Of Prevention Is Worth A Pound Of Cure

Many small-business owners will likely either spend several hours navigating the details of these requirements each year or choose to hire an attorney to make sure each report is properly submitted. For owners who already have too much on their plates, this might feel like one more headache with very stiff penalties for noncompliance.

To make navigating changing compliance requirements more manageable and stay informed of regulatory changes, business owners can consider working with a reputable business attorney and a CPA. Have an annual check-in meeting with your business attorney to discuss any regulatory changes and to make sure you are completing the legal requirements for your business. I believe it is a good idea to meet with your CPA at least twice a year: once in the fall before the books have closed for the year and again early the next year to discuss your corporate tax return.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC, expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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Major Factors To Consider When Selling Your Business

Doug was recently quoted in an article on Forbes and about how you need to be wary of potential bad actors when you sell your business “[c]ompetitors often express an interest in purchasing a business merely to gain as much information about that business as possible with no intent of actually completing the purchase. Be… Read More

Doug was recently quoted in an article on Forbes and about how you need to be wary of potential bad actors when you sell your business “[c]ompetitors often express an interest in purchasing a business merely to gain as much information about that business as possible with no intent of actually completing the purchase. Be sure to have a solid mutual non-disclosure agreement in place before you share any of your confidential information, and trust your gut before you share too much of your company’s secret sauce.”

If you are interested in reading the remaining factors to consider when selling your business, feel free to check out the full article on Forbes!

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC, expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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Caution – Copyrights Ahead!

By: Alyssa Ziegenhorn A picture is worth a thousand words – and can spice up any blog  entry, business website, or  social media post. When so much content  is vying for people’s attention, every little bit of pizzaz matters to driving traffic to your online presence, whether it is for personal use, business promotion, or… Read More

By: Alyssa Ziegenhorn

A picture is worth a thousand words – and can spice up any blog  entry, business website, or  social media post. When so much content  is vying for people’s attention, every little bit of pizzaz matters to driving traffic to your online presence, whether it is for personal use, business promotion, or educational content. However, you must be careful when searching for images online. Although it may appear that an image is available for free, it’s easy to accidentally infringe on  a copyright holder’s rights. Unfortunately some  businesses make it their model to go after this accidental infringement and demand large sums of money for the infraction. Because the use is unauthorized, it can be hard to fight back against these demands.

First: Look for a caption or link next to the photo. If the name of the image creator, artist, photographer, etc. appears, you should look them up and request permission to use the photo. There may be a link to the author or owner’s website, or an email address. The caption may also include the license the image is distributed under. Some licenses allow for free commercial use, while others may allow use if you provide credit (attribution) to the author.

Second: Check the metadata. To view a photo’s metadata, right click the image and save or download it to your computer desktop. On the desktop, right click the file and select “properties” then go to the “details” tab. Stored information about the image will appear, which may include the author and/or owner of the image.

If you are frequently searching for images to use and want a more convenient option, you can add the EXIF Viewer extension to your browser in Google Chrome.  This allows you to right click an image in a web page on or your device and view its metadata.

Third: Run a Google reverse image search.

  1. Go to Google images and click the camera icon in the search bar. Then drag or upload the photo you want to check into the search box (you can do this directly from the image search results page, too – just click on the camera icon then drag the image from results up to the box).
  2. The results will pop up with the image in a large box on the left, with a button that says “Find image source” on top.
  3. Click on that image and you can see where Google is sourcing the image from. This may not directly display the owner of the image. However, the results can help lead you to that information. Magazine and newspaper articles will usually include photo credit to the owner of the image, so those are a great place to start.

Fourth: Look for images licensed under a Creative Commons license, or in the public domain.

  1. The Creative Commons 3.0 license allows copying, modification, and distribution of an image. Some versions are restricted to non-commercial uses, so make sure you check before using an image for business or commercial purposes.
  2. Images in the public domain are available for use without restriction, although it is still best to credit the image’s creator when possible.

If you are not sure about whether an image is available for use, it’s safest to move on. The benefits of a using particular image rarely outweigh the potential risk of infringing on a copyright. If you have questions about copyright restrictions, using a particular image, or need assistance with a copyright claim, please reach out to us at info@bendlawoffice.com  

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC, expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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How To Change The Legal Name Of A Delaware Corporation That Is Also Registered To Do Business In California

This articles was originally published in Forbes. By: Doug Bend For a variety of reasons, most startups that are looking to grow and scale are Delaware corporations. If you would like to change the full legal name of your Delaware corporation that is also registered to do business in California after it has been formed, there… Read More

This articles was originally published in Forbes.

By: Doug Bend

For a variety of reasons, most startups that are looking to grow and scale are Delaware corporations.

If you would like to change the full legal name of your Delaware corporation that is also registered to do business in California after it has been formed, there are ten steps:

1. Board And Shareholders’ Consents

First, you will need to have a shareholders meeting and a board of directors meeting, or written consents in lieu of the meetings, to approve the name change.

2. Amendment To The Certificate Of Incorporation

Second, you will need to file an amendment to the Certificate of Incorporation to change the official legal name of the corporation with the Delaware Secretary of State’s Office.

3. California Secretary Of State

Third, you will need to update the California Secretary of State’s Office of the name change.

4. City Business License

Fourth, you will need to update the city business license with the name change.

5. Fictitious Business Name Statement

Fifth, you will need to file an updated Fictitious Business Name Statement with the County Clerk’s Office. Once you get the endorsed FBNS back, you will need to have it published in a legally adjudicated newspaper.

6. Employment Development Department

If you run payroll for employees in California, you will need to update the California Employment Development Department of the name change.

7. Seller’s Permit

If you sell physical goods in California, you will need to update the Seller’s Permit with the California Department of Tax and Fee Administration.

8. IRS

You will also need to send a letter to the IRS about the name change and include the endorsed amendment to the Certificate of Incorporation. The good news is your corporation should keep its Federal Employer Identification Number (EIN).

9. Trademarks

If you have registered any trademarks, you will need to update the U.S. Patent and Trademark Office of the name change.

10. Vendors

Lastly, you will need to update the company’s vendors on the name change. For example, you will need to update the company’s insurance policies and bank account.

You should consult with your attorney as your corporation might have additional requirements, but this checklist is a good starting point for putting together a game plan for your company’s name change. As you can see, several government agencies and vendors would need to be updated, so you should make sure that the benefits of making the name change will outweigh the time and costs.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC, expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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The Importance of Stock Purchase Agreements for Founders

By: Alyssa Ziegenhorn You had a great idea, and you’ve just started your company – congratulations! At this early stage, the company is most likely just you and a few close friends or relatives. Without a large roster of executives, employees, and investors to keep track of, you might think that it isn’t necessary to… Read More

By: Alyssa Ziegenhorn

You had a great idea, and you’ve just started your company – congratulations! At this early stage, the company is most likely just you and a few close friends or relatives. Without a large roster of executives, employees, and investors to keep track of, you might think that it isn’t necessary to document your company’s stock ownership with a stock purchase agreement. After all, you and your sibling/college roommate/spouse are the only owners of the business. It’s obvious who owns the shares.

Or is it? Often founders of early-stage companies don’t feel it necessary to execute stock purchase agreements between themselves and the company. As sensible as this may feel at the time – you’re saving time and legal expenses, and reducing unnecessary documentation! – it can cause significant issues later on.

Ambiguity on ownership and decision-making

If the company has multiple founders or owners, not executing stock purchase agreements can make it unclear who has decision-making power. Is the ownership 50/50, or 49/51? If there is a disagreement down the road, it can be difficult to prove decisively what the ownership split was at the beginning of the company, especially if significant time has passed.  

Issues with future investors

If things are going well, your company might attract investors. That’s great! But part of landing an investor is due diligence – they’re going to want to see all the company’s records. If there is no documented stock purchase for the founders, investor confidence in your project may decrease. Having proper documentation from the beginning makes your company look more professional and increases confidence in your future success.

Significantly increased legal costs

Say you end up in the scenario from #2, and you need to get your documents in order for potential investors – fast! You can hire a law firm to help with that, but diving into old documents and records takes time. It might also involve tracking down old founders or employees who are no longer with the company and getting them to execute documents retroactively. This can be time-consuming and difficult, especially if the relationship with former co-founders or advisors has become negative. All of this means you are looking at significant legal costs; much higher than they would be to execute the agreements at the start.    

Increased tax burden on future shares (no backdating)

If you do need to execute stock agreements later on, it can also increase the tax burden for whoever receives the shares. Backdating stock agreements is strictly against the law. If you execute agreements for your company that was formed five years ago, the effective date has to be the date they are signed. That means if the value of your company shares has gone up, perhaps due to investor interest or successful revenue years, you are going to be responsible for the value of the shares at the time of the agreement – not the time of the company formation.

For all of these reasons, executing stock agreements at the time of formation is a crucial step to set your company up for success, whether you are a small business or an early-stage startup. For more information or help with your company formation, please contact us at info@bendlawoffice.com.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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The Six Factors For Determining A Fair Valuation Cap For Your Startup

This article was originally published in Forbes. By: Doug Bend We have helped dozens of startups raise their seed round of financing. Most of these companies have used the template Simple Agreement for Future Equity (better known as a SAFE) with a valuation cap that Y Combinator has open-sourced here. One of the best attributes of… Read More

This article was originally published in Forbes.

By: Doug Bend

We have helped dozens of startups raise their seed round of financing. Most of these companies have used the template Simple Agreement for Future Equity (better known as a SAFE) with a valuation cap that Y Combinator has open-sourced here.

One of the best attributes of the SAFE is the S, which stands for “simple” because only a few terms typically need to be negotiated with an investor. This helps to decrease the amount of time that the founders and the company’s attorney need to spend on negotiating terms.

The most important of these is often the valuation cap, which provides the investor with a ceiling valuation for calculating the number of shares the investor will own if the SAFE converts. The valuation cap, therefore, provides the investor with the peace of mind of knowing that even if the company is valued at a much higher amount, the investor will still have a floor ownership percentage in the company if the SAFE converts.

Determining the amount of the valuation cap is more of an art than a science, but there are typically six key factors—let’s take a look at them.

1. The Overall Fundraising Market

The first factor is the overall fundraising environment for early-stage startups.

For example, the current market for raising capital for startups has cooled off in recent months and is more pro-investor than it was in 2021.

2. Traction

The second factor is how much traction the company has. Investors are more likely to invest with a higher valuation cap if the startup can demonstrate that it has product-market fit. For example, does the company have any contracts that generate revenue? If so, how much revenue and who are those contracts with?

Another indicator of product market fit is the amount of user and revenue growth. For example, investors are more likely to invest in an early-stage startup if it has at least 20% in month-over-month revenue growth or steady, significant increases in the number of users.

3. The Prior Financial Returns Of The Founders

If the founders have a proven track record of prior exits, they are more likely to have a higher valuation cap.

Investors are more likely to invest with a higher valuation cap if the founder has previously provided the investor with a solid return. If the founder has done it before, they are more likely to do it again.

4. The Experience Of The Founders

Founders are likely to have a higher valuation cap if they have experience that is relevant to the startup, particularly if that experience is helping to grow and scale other startups in the same industry.

Investors are more likely to invest with a higher valuation cap not only if it is a great idea, but also if the right team is implementing that idea.

5. Industry

The industry the startup is in can also impact the valuation cap for the SAFE. For example, software companies often have a higher valuation cap because they can quickly grow and scale.

6. Leverage

Lastly, the valuation cap will likely be higher the more leverage the startup has. For example, the more interest there is in the investment round, the higher the valuation cap the startup will likely negotiate.

In contrast, if the startup has a short financial runway, the investor might use that as leverage to negotiate a lower valuation cap or not invest at all if they believe the startup is not as likely to be financially solvent.

As you can see, the valuation cap for a startup’s seed round is based on several variables. Founders are best served working with their company’s CPA and attorney to gauge what valuation cap amount is market and fair for both their company and its investors.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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