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There's always something going on here at Bend Law Group. Be sure to check back often to read about our personal and professional endeavors.

Why We Love Helping Small Business Owners and Startups.

Rose Rose Productions did an amazing job of producing this video on why we love helping small business owners and startups. We are very fortunate to spend our days helping entrepreneurs start and grow their businesses.

Rose Rose Productions did an amazing job of producing this video on why we love helping small business owners and startups.

We are very fortunate to spend our days helping entrepreneurs start and grow their businesses.

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How To Update Your San Francisco Business Address

If you change your business address in San Francisco, the following checklist is a good starting point for most businesses to make sure you update all of the necessary government agencies and service providers. 1.  California Secretary Of State’ Office. You will need to file an updated Statement Of Information with the California Secretary Of State’s Office. The filing fee for an… Read More

If you change your business address in San Francisco, the following checklist is a good starting point for most businesses to make sure you update all of the necessary government agencies and service providers.

1.  California Secretary Of State’ Office.

You will need to file an updated Statement Of Information with the California Secretary Of State’s Office. The filing fee for an LLC is $20 and for a corporation is $25. You can access the forms to do so here.

2.  IRS.

You will also need to update the IRS by filing Form 8822-B or by calling the IRS business hotline at 1-800-829-4933. There is no filing fee.

3. California Franchise Tax Board.

You will need to update the California Franchise Tax Board of your company’s new address, which you can do here. There is no filing fee.

4. San Francisco Business Registration Certificate.

In addition, you need to update your business account with the city of San Francisco by clicking here. There is no filing fee.

5. Fictitious Business Name Statement.

You are required to file a fictitious business name statement if you conduct business in San Francisco under a name other than your full legal name, the legal name of a legal entity, or any name that suggests additional owners. When you change your business address, you are required to file for an updated fictitious business name statement. The cost of publication varies depending on the newspaper, but the least expensive option we have found is The San Francisco Daily Journal. You can reach The San Francisco Daily Journal by e-mailing Tonya at tonya_peacock@dailyjournal.com.

6. Board Of Equalization.

If your business has a seller’s permit, you will need to update the Board Of Equalization of your company’s new address by filing BOE Form 345, which you can access here. If you do not have a seller’s permit, you can read about why you might need one here.

7. Employment Development Department.

You will also need to update the Employment Development Department by logging into your account online or asking your payroll service provider to do so. There is no filing fee.

8. Business Service Providers.

You should update all of the service providers for your business, such as your bank, insurance carrier, credit card companies, payment processing and other service providers.

9. Business Listings.

You should update all of the online business listings for your business, such as Yelp, Facebook business page and any other applicable listings. Once you think you have covered them all, Google the name of your business to make sure you have not missed any.

10. Registered Agent for Service of Process.

If you hired a third party to be your registered agent for service of process, you should update them of your new business address.

11. Subscriptions.

Does your business subscribe to any professional journals, magazine or other subscription services? If so, be sure to update those as well.

12. U.S. Postal Service.

Last but not least, you should file a change of address form with the United State’s Postal Service, which you can find here.

For many companies these are the steps necessary to change your business address in San Francisco, but please contact us at (415) 633-6841 or info@bendlawoffice.com to make sure no additional steps are required as each situation is unique.

Disclaimer: This article discusses general legal issues, but it does not constitute legal advice in any respect.  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 Top 4 Drawbacks to Incorporating in Delaware

More companies are incorporated in Delaware than any other state.  In fact, half a million businesses, including more than half of all U.S. publicly-traded companies and 60% of Fortune 500 companies, have incorporated in Delaware. So why wouldn’t you form your corporation in Delaware? This article highlights the biggest drawbacks to incorporating in Delaware and explains why it is not a… Read More

More companies are incorporated in Delaware than any other state.  In fact, half a million businesses, including more than half of all U.S. publicly-traded companies and 60% of Fortune 500 companies, have incorporated in Delaware. So why wouldn’t you form your corporation in Delaware? This article highlights the biggest drawbacks to incorporating in Delaware and explains why it is not a one-size-fits-all solution.

1.  Extra Initial Filing Fees.

If you incorporate in Delaware you will not only have to pay the filing fees for the state in which you are transacting business, but also Delaware filing fees, which include $89 for the Delaware Certificate Of Incorporation and $50 for the Certificate of Good Standing, which you will need to register the corporation in most states, including California.

These filing fees are in addition to the filing fees you will then need to pay to register your corporation in the state in which your corporation is actually conducting business.  For example, to register your Delaware corporation to do business with the California Secretary of State’s Office you will also need to file a California Statement Of Designation Of Foreign Corporation, which has a $100 filing fee in addition to the Delaware filing fees.

2.  Annual Costs For A Registered Agent for Service of Process.

In addition to extra filing fees, if you incorporate in Delaware you will be required to have a registered agent for service of process.  The annual fees for this service vary, but companies such as Biz Filings and Legal Zoom charge $129 to $149 each year.

3. Extra Franchise Taxes.

If you incorporate in Delaware you will not only have to pay the annual franchise tax in the states in which you are “doing business,” but also in Delaware.

For example, if your company is headquartered in California, but you incorporated in Delaware, each year you will not only have to pay the $800 annual franchise tax in California, but also the annual franchise tax in Delaware.

4.  Extra Reporting Requirements.

If you incorporate in Delaware, you will have a second layer of reporting requirements.  For example, if you incorporate your company in Delaware, but are headquartered in California, you would have to comply with the reporting requirements in both states.

For these reasons, not every company should incorporate in Delaware.  Instead, you should make sure that the benefits of incorporating in Delaware outweigh  the extra expense and time of being incorporated there instead of whichever state your company is headquartered in.

If you incorporated your company in Delaware, what have you found to be some of the biggest advantages and disadvantages?

Disclaimer: This article discusses general legal issues, but it does not constitute legal advice in any respect.  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 Dissolve A Delaware Corporation That Is Registered To Do Business In California

So your company’s life has come to an end. What now? Merely closing your doors is not enough to officially dissolve your company.  You should consult with your attorney and tax professional as it varies from company to company, but there are typically fourteen steps to dissolve a Delaware corporation registered to do business in… Read More

So your company’s life has come to an end. What now? Merely closing your doors is not enough to officially dissolve your company.  You should consult with your attorney and tax professional as it varies from company to company, but there are typically fourteen steps to dissolve a Delaware corporation registered to do business in California.

1.  Approval Of The Board Of Directors.

A majority of the board of directors needs to pass a written resolution approving the dissolution of the corporation.  

2.  Approval Of The Shareholders.

If shares have been issued, a majority of the outstanding shares will also need to approve the company’s dissolution in written resolutions.

3.  Notice of Dissolution To Creditors.

If the company has any creditors, it should provide them with notice of when claims must be submitted for payment to be considered.

4.  Final Delaware Franchise Tax Report.

A final annual franchise tax report for Delaware needs to be filed and and the company will need to pay any outstanding franchise taxes owed to Delaware.

5.  Delaware Certificate Of Dissolution.

Once all outstanding Delaware franchise taxes have been paid, a Delaware certificate of dissolution needs to be filed. If the entity has ceased transacting business and has no assets remaining then you may qualify for the short form certificate of dissolution.

6.  Discontinued Registered Agent For Service Of Process Services.

Notify whichever service provider your company is using for its registered agent for service of process in Delaware so you do not continue to get charged for the service.

7. File Declaration Of Closed Business With The City.

If the corporation is registered with a city, most cities require that the business registration be inactivated.  For example, if the corporation was registered to do business in San Francisco, a Declaration of Closed Business would need to be filed.

8.  File An Abandonment Form For Your Fictitious Business Name Statement.

In addition, most jurisdictions require you to file a form notifying the government that you will no longer be using the fictitious business name. For example, in San Francisco a company would need to file a Statement Of Abandonment Of Use Of Fictitious Business Name Statement.

9.  Cancel Any Other Licenses And Permits.

Cancel any additional licenses or permits, such as your California Seller’s Permit and your registration with  the Employment Development Department.

10.  California Certificate Of Surrender.

If the corporation is registered to do business in California, a California Certificate Of Surrender will also need to be filed.

11.  IRS Form 966.

Within 30 days of the board of directors approving the dissolution, IRS Form 966 must also be filed.

12.  IRS Forms 8594 and 4797.

If the dissolution involves the sale or exchange of corporate assets, IRS Forms 8594 and 4797 may also be necessary.

13.  Final State Tax Return.

You will need to work with your CPA or other tax professional to file a final state tax return.  You will also need to file any delinquent tax returns and pay any owed taxes.

In California, the Franchise Tax Board will continue to assess an annual franchise tax until the corporation has filed a final tax return with the FTB.  You should indicate it is the final return by checking the box that it is the final return and writing “final” on the top of the return.

14.  Final Federal Tax Returns.

Lastly, a final federal tax return needs to be filed for the corporation.  Like the state tax return, you should indicate on the form that it is the final return for the company.

For many companies these are the steps to officially close down a Delaware corporation registered to do business in California, but please contact us at (415) 633-6841 or info@bendlawoffice.com to make sure no additional steps are required as each situation is unique.

Disclaimer: This article discusses general legal issues, but it does not constitute legal advice in any respect.  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 Top 5 Reasons Your Early Stage Startup Should Use Restricted Stock Awards

Startups often use equity to help attract and keep talented workers.  This article outlines the differences and similarities of stock options and restricted stock awards and why most early stage startups which issue stock shortly after formation select restricted stock awards when compensating their workers. What are stock options? Stock options give employees the right… Read More

Startups often use equity to help attract and keep talented workers.  This article outlines the differences and similarities of stock options and restricted stock awards and why most early stage startups which issue stock shortly after formation select restricted stock awards when compensating their workers.

What are stock options?

Stock options give employees the right to buy a specific number of shares of the company at a specified price (the “strike price“) during a window of time.

What are restricted stock awards?

Restricted stock awards typically vest overtime, usually over a four year period for employees and two years for advisors.

If the worker or the advisor leaves the company before all of the stock has vested, the company has the right to repurchase the unvested stock.

How are stock options and restricted stock awards similar?

Both stock options and restricted stock awards encourage loyalty to the company by incentivizing the worker to remain with the employer for at least a minimum period of time.

In addition, both provide an important tool to startups that may not have much cash to attract top talent.

Finally, both encourage the worker to increase the value of the company, which creates a unity of interest between the worker and the employer.

How are stock options and restricted stock awards different?

One key difference is holders of restricted stock awards own their shares from the date of the stock grant.

In contrast, stock options provider the holder with the opportunity to purchase the stock in the future. In addition, stock options typically have an expiration date and the worker can only exercise their options during a specific window of time.

What are the benefits to stock options?

With stock options the worker is not out any money if the stock price does not rise because they can decide not to exercise the stock options.

That being said, for new startups the fair market value for shares is often only the par value of the shares and so the purchase price is typically very minimal.

Why are restricted stock awards often better than stock options for most early stage startups?

Each situation is unique, but most early stage startups use restricted stock awards rather than stock options for five reasons.

1.  No Need For a 409(a) Valuation.

The board of directors is required to determine the fair market value of stock for both restricted stock and stock options.

The key difference is for restricted stock awards it is the fair market value of the stock when it is purchased, which for very early stage startups is often the par value of the stock as the company shortly after formation does not yet have much value.

In contrast, the valuation of stock options is typically done by a professional valuation company. The thousands of dollars it costs to have 409(a) valuations completed, could instead be spent on other things for the company.

2.  Stock Options Could Become Worthless.

Also, a stock option could become worthless.  For example, a stock option grant with a strike price of $10 has no value if the fair market value of the stock is later determined to be $8.  In contrast, if restricted stock is granted when the stock is trading at $10 and is later worth $8, the stock is still worth $8 and has only lost 20% of its value.

3.  Restricted Stock Awards Might Better Motivate Workers and Advisors.

In addition, some workers and advisors might be better motivated with restricted stock than with stock options because workers will get shares of the stock regardless of whether its value increases.  In contrast, stock options are worthless if the value of the stock goes down or if the worker fails to exercise the stock option.

Restricted stock, therefore, might better motivate some workers and advisors to think and act like owners of the company, take a personal interest in the company and be more focused on meeting the company’s objectives because they will obtain shares regardless of whether the stock price goes up or down.

In contrast, stock options might do less to instill a sense of ownership because the worker could invest years in the company only to find that the value of the stock has decreased and so there is no value in the stock options. Because the value of the stock may not increase, the worker might not have the same amount of loyalty to the company than if they had been granted restricted stock.

4.  Immediately Start The Clock Running For The Lower Capital-Gains Rate.

If the worker makes an 83(b) election, the income from the restricted stock grant will be recognized at the time of the stock ”transfer” – its purchase date – rather than when the stock vests. The reason this is important is if an 83(b) election is made the long term capital gains holding period also begins on the purchase date of the restricted stock rather than when the stock vests.

5.  Workers’ May More Be More Likely To Focus On The Long Term Value Of The Company.

Finally, a worker with stock options might be more likely to be motivated to increase the short term stock price so they can exercise their stock options even if this comes at the detriment to the longer term growth of the company.

For all of these reasons, most early stage startups which issue stock shortly after formation use restricted stock awards instead of stock options as they often provide a superior method of compensating and motivating workers and advisors.

We typically see this switch to stock options being the preferred tool for motivating workers and advisors after the company has raised its Series A round as the fair market value of the stock has then gone up and it is more expensive to purchase the stock.

Please contact us at (415) 633-6841 or info@bendlawoffice.com to discuss whether restricted stock or stock options might be the best fit for your company.

Disclaimer: This article discusses general legal issues, but it does not constitute legal advice in any respect.  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 disclaim all liability in respect of any actions taken or not taken based on any contents of this article.

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Should Your California Professional Corporation Elect To Be Taxed As An S Corporation?

In California, certain professions that require a state license are prohibited from forming a limited liability company or a traditional corporation and instead must incorporate as a professional corporation. 1. Advantages To Electing To Being Taxed As An S Corporation. If you do not elect to have your California professional corporation taxed as an S… Read More

In California, certain professions that require a state license are prohibited from forming a limited liability company or a traditional corporation and instead must incorporate as a professional corporation.

1. Advantages To Electing To Being Taxed As An S Corporation.

If you do not elect to have your California professional corporation taxed as an S corporation, the default is for it to be taxed as a C corporation.

As a C corporation, your professional corporation would pay federal taxes on its profits and you would also pay individual taxes if you receive salary, bonuses, or dividends from the corporation.

By electing to be taxed as an S corporation, your professional corporation would instead be a pass-through tax entity, like an LLC or a partnership.  Electing to be taxed as an S corporation may also allow you to pass losses from the business to your personal income tax return, where you can use the losses to offset income that you may have from other sources.

Finally, if the corporation pays you a “reasonable salary,” you may not be required to pay self-employment taxes on any additional corporate profits that are paid to you as dividends as a shareholder in addition to your reasonable salary.

2. Disadvantages To Electing To Be Taxed As An S Corporation.

A drawback of electing to have your professional corporation taxed as an S corporation rather than a C corporation is in a C corporation the cost of the premiums for shareholder benefits, such as insurance coverage, are deductible as a business expense. In addition, the shareholders may not be taxed on the value of the benefits.

Another drawback to electing to have your professional corporation taxed as an S corporation is there are restrictions on who can be a shareholder of an S corporation. For example, S corporation may not have shareholders who are non-resident aliens.

Finally, S corporations may only issue one class of stock whereas C corporations can have different classes of stock that have different rights and liquidation priorities.

3. Conclusion.

You should consult with your CPA or tax professional to make sure being taxed as an S corporation is the best fit for your professional corporation, but for most California professional corporations electing to being taxed as an S corporation rather than a C corporation is likely to provide the most tax savings.

Disclaimer: This article discusses general legal issues, but it does not constitute legal advice in any respect.  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.  Doug Bend expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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What Is A California Professional Corporation?

In California, certain professions are prohibited from forming a limited liability company or a traditional corporation and instead must incorporate as a professional corporation. Professions that are required to be professional corporations include many of those that must have a state license, such as dentists, certified public accountants, doctors, veterinarians, lawyers, optometrists, marriage and family therapists,… Read More

In California, certain professions are prohibited from forming a limited liability company or a traditional corporation and instead must incorporate as a professional corporation.

Professions that are required to be professional corporations include many of those that must have a state license, such as dentists, certified public accountants, doctors, veterinarians, lawyers, optometrists, marriage and family therapists, psychiatrists and psychologists.

What Is Different About Professional Corporations?

Professional corporations have more restrictions than traditional corporations.

For example, with a few limited exceptions, officers, directors and shareholders of a professional corporation must be licensed to conduct the professional activity.

In addition, professional corporations are subject to the regulations of the applicable governmental agency overseeing the profession in which the professional corporation is engaged. For example, some agencies have restrictions on what you can name a professional corporation and require specific language to be included in the professional corporation’s bylaws regarding who can own shares and be officers of the professional corporation.

Who Can Be A Shareholder Of A Professional Corporation?

Professional corporations are also subject to specific rules in the California Business and Professions Code. For example, only licensed persons can be shareholders of a  professional corporation.

Why Form A Professional Corporation?

While professional corporations do not provide liability protection for malpractice, you could have limited liability protection for claims not based on malpractice, such as a slip and fall accidents.

In addition, by forming a professional corporation you may be able to deduct payments for benefit plans, such as disability or health plans or group term insurance.

Finally, you should speak with your CPA or other tax professional about whether there is the potential to have tax savings by forming a professional corporation and then electing to have it taxed as an S corporation.

Please contact us at (415) 633-6841 or info@bendlawoffice.com to discuss whether your company is required to be a professional corporation and, if so, the steps necessary to get it set up right.

Disclaimer: This article discusses general legal issues, but it does not constitute legal advice in any respect.  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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