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Buying or Selling a Small Business? Here Are 5 Ways to Assess the Value

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When buying or selling a small business, you want to make sure to assess the value accurately. There are five ways to determine a fair purchase price: 1.  Look At Similar Businesses The least accurate option is to look at similar businesses that are for sale on the Internet. The advantage to this option is… Read More

When buying or selling a small business, you want to make sure to assess the value accurately. There are five ways to determine a fair purchase price:

1.  Look At Similar Businesses

The least accurate option is to look at similar businesses that are for sale on the Internet. The advantage to this option is you can look at similar listings from the convenience of your home whenever you would like.

This is, however, the least accurate option as there can be a wide variety of factors that might make the fair market value of the business you are buying or selling more or less than other listings online.

In addition, the asking price of an Internet listing is often not the ultimate selling price. If you work with a business broker or appraiser, they will have access to comps of the sale of similar businesses both in California and across the country.

2.  Back Of The Napkin Calculation

You can also use a multiplier times the revenue of the business. While this option is also free, it is often not accurate as it does not take into account a variety of factors, such as the projection that the future revenues of the business are moving in or net profits. For example, two businesses in the same industry could have the same sales but one business could net $200,000 a year whereas another business could net $59,000 a year because it has more expenses.

3.  Hire A Business Appraiser to Assess the Value

You can have a certified business appraiser do a very extensive valuation. This is often the most accurate valuation of the business because the business appraiser digs deep on your particular industry, market forces, anticipated future returns and other factors. The drawback is it is also the most expensive option and takes several weeks for the business appraiser to complete. However, at the end of the process you have a detailed report of the fair market value of the business.

4.  Hire A CPA

You can also hire a CPA who specializes in valuation work to review the financials of the business and provide a valuation. This is a less expensive and intrusive option than hiring a business appraiser, but the valuation is also not as detailed. You should ask the CPA how much experience they have doing valuation work and whether they have been certified by the AICPA or the CBV as most have no formal business valuation experience and are not certified to provide valuations.

5.  Work With A Business Broker to Assess the Value

If you are selling a business, you can have a business broker review your business and provide a suggested listing price.

If you are buying a business, a business broker can advise you on whether the listing price is fair or if there are better opportunities on the market.

The advantage: initially, working with a business broker is often free because they are typically only compensated if the sale of the business is completed.

The drawback: if you do not work with a trustworthy business broker who keeps your best interests in mind, they might suggest a listing price that is less than the full fair market value to encourage a quick sale and therefore a quick commission payment.

It is fair to ask the business broker how many sales they have completed and hire one who has completed at least fifty transactions. They are more likely to have the necessary experience and competency to set the value appropriately.

If the broker provides you with a suggested valuation, you should request that they provide you with comparable sales to make sure it is a logical sales price.

Some business brokers are willing to credit the cost of a business valuation by a certified appraiser from their commission if the seller agrees to list the business at the valuation price. For many business owners, this is the best of both worlds as you get a detailed, accurate valuation by a certified business appraiser, but the cost is paid by your business broker.

If you have any questions about buying, selling, or setting the value of a small business, or would like an introduction to a great CPA or business broker to help you value a business, please contact us at (415) 633-6841 or 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 Five Steps To Obtaining A Trademark

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Trademarks are often an important investment in protecting the intellectual property of your business. Obtaining a trademark involves five steps: 1.  Search For Conflicting Trademarks Your first step is to make sure there are no conflicting trademarks. You should search on the United States Patent & Trademark Office’s website to see if there are any… Read More

Trademarks are often an important investment in protecting the intellectual property of your business. Obtaining a trademark involves five steps:

1.  Search For Conflicting Trademarks

Your first step is to make sure there are no conflicting trademarks.

You should search on the United States Patent & Trademark Office’s website to see if there are any conflicting trademarks that have already been registered.

You should then work with an attorney to run a more comprehensive search. Even if a trademark has not been registered, it could still have superior intellectual property rights over your trademark if it was in use first.

Note: if the USPTO rejects your application due to a conflict with an existing mark, it will not refund filing fees.

2.  Date Of First Use

Once you have confirmed there are no conflicting trademarks, you will need to complete a trademark application.

You will need the following two dates to complete the application:

(i)                 Date of First Use of Trademark In Commerce Anywhere.

You will need to include the date you first used the trademark “in commerce anywhere.”

(ii)                Date of First Use in Interstate or Foreign Commerce.

You will also need to include the date you first used the trademark in interstate commerce or commerce with a foreign country.

3.  Trademark “Specimen”

The trademark application also requires a trademark “specimen” – an image showing the trademark being used in commerce in the class of goods or services for which you are applying for the trademark.

4.  Class Of Goods & Services

You will need to select the class of goods or services you would like to register the trademark.

You should be strategic in selecting the class of goods or services to register the trademark, as there is an additional filing fee for each class of goods or services in which you register the trademark.

5.  Contact Address

Finally, you will need to include a contact address for the trademark registration.

It is important to remember that anyone can view this address if they search for the trademark on the U.S. Patent and Trademark Office’s website once the trademark application has been filed.

If you have any questions or would like help obtaining a trademark for your business, please contact us at (415) 633-6841 or 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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Why We Love Helping Small Business Owners and Startups

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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 Change Your San Francisco Business Address

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If you change your business address in San Francisco, it is important to avoid potential issues. 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’s Office You will need to file an updated Statement… Read More

If you change your business address in San Francisco, it is important to avoid potential issues. 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’s 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 for online filing here.

2.  IRS Address Change

You will also need to update the IRS by filling out and mailing 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. California Department Of Tax And Fee Administration

If your business has a seller’s permit, you will need to update the California Department of Tax and Fee Administration of your company’s new address by filing Form CDTFA-345. 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, magazines, 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 States’ 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 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 Top 4 Drawbacks to Incorporating in Delaware

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More companies incorporate 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… Read More

More companies incorporate 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 have to pay the filing fees for the state in which you are transacting business and also Delaware filing fees. These include $89 for the Delaware Certificate Of Incorporation and $50 for the Certificate of Good Standing. You will need the Certificate to register the corporation in most states, including California.

These filing fees are in addition to the filing fees you must pay to register your corporation in the state where it actually conducts 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.

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 $220 to $249 each year.

3. Extra Franchise Taxes

If you incorporate in Delaware, you will have to pay the annual franchise tax in the states in which you are “doing business,” and also in Delaware.

If your company is headquartered in California, for example, but you incorporated in Delaware, each year you will have to pay California’s $800 annual franchise tax and Delaware’s annual franchise tax.

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.

These drawbacks to incorporating in Delaware mean it is not the ideal solution for every company.  Instead, you should make sure that the benefits of incorporating in Delaware outweigh the extra expense and time of being incorporated there instead of the state of your headquarters.

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 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 Dissolve A Delaware Corporation Registered In California

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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.  Board Of Directors Approval

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

  1.  Shareholder Approval

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

  1.  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.

  1.  Final Delaware Franchise Tax Report

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

  1.  Delaware Certificate Of Dissolution

Once all outstanding Delaware franchise taxes have been paid, a Delaware certificate of dissolution must 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.

  1.  Discontinue Registered Agent For Service Of Process

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

  1. 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.

  1.  File An Abandonment Form For Your Fictitious Business Name

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

  1.  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.

  1. California Certificate Of Surrender.

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

    11. Corporate Transparency Act. 

You may need to file a final report with the U.S. Treasury Department’s Financial Crimes Enforcement Network to be in compliance with the Corporate Transparency Act.

    12. IRS Form 966

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

13. 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.

    14. 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.

     15. 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 dissolve 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. Each situation is unique!

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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Top 5 Reasons To Use Restricted Stock Awards In Your Early Stage Startup

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Startups often use equity to help attract and retain talented workers.  This article outlines the differences and similarities of stock options and restricted stock awards and why most early stage startups that issue stock shortly after formation utilize 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 retain talented workers.  This article outlines the differences and similarities of stock options and restricted stock awards and why most early stage startups that issue stock shortly after formation utilize 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 over time, 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 provide 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. Thus 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 that fair market value for restricted stock awards is the fair market value of the stock when it is purchased. Shortly after formation the stock usually does not have much value, so this is often the par value of the stock.

In contrast, the valuation of stock options is typically done by a professional valuation company (a 409(a) valuation) and can cost thousands of dollars. If the company uses restricted stock awards, this money can instead be spent on the company’s other priorities. 

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 the options have no value. Because the value of the stock may not increase, the worker might not have the same amount of loyalty to the company as they would 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 Be More Likely To Focus On The Long-Term Value Of The Company

Finally, a worker with stock options might be more motivated to increase the short term stock price so they can exercise their stock options. This may be to the detriment of 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. At that point, the fair market value of the stock has gone up and it is more expensive to purchase.

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 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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