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SAFE Round Basics

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By: Alyssa Ziegenhorn In the last few years, SAFEs have become the default method of early-stage fundraising – in Q2 of 2024, 88% of all pre-seed deals recorded by Carta were SAFEs. So what is a SAFE? How do you conduct a SAFE round? What are the terms? Are any securities filings required? Let’s walk… Read More

By: Alyssa Ziegenhorn

In the last few years, SAFEs have become the default method of early-stage fundraising – in Q2 of 2024, 88% of all pre-seed deals recorded by Carta were SAFEs. So what is a SAFE? How do you conduct a SAFE round? What are the terms? Are any securities filings required? Let’s walk through the process of holding a SAFE fundraising round for your company.

1. The Basics. “SAFE” stands for Simple Agreement for Future Equity. An investor gives money to the company, but they do not receive any shares (yet). Instead, the SAFE guarantees that their investment amount will convert into shares during the company’s first fixed-price fundraising round (when there is a set valuation and price per share for investors to buy in at). Usually, SAFE investors receive a reduced price per share for investing early. 

2. Board Authorization. First, the Board of Directors authorizes the SAFE round, including the template SAFE that is going to be used, and the valuation cap and/or discount rate. The valuation cap and discount rate are the mechanisms which provide value to investors in exchange for the higher risk of investing in an early stage company.

3. Discount Rate. If a SAFE investor gets a discount rate, that means they will pay less than new investors in the priced round when their investment converts. For example: 

  • The investor invests $100,000 via a SAFE with an 80% discount rate. When their investment converts, they only pay 80% of the price per share new investors pay – effectively a 20% discount.
  • If the company has 10,000,000 shares in the priced round and the valuation is $10,000,000, an investor purchasing shares in the priced round would pay $1.00/share. 
  • The SAFE investor pays 80% of that price, so they would pay $1.00 x 0.80 per share, or $0.80/share. 
  • Their $100,000 investment would then immediately convert into 125,000 shares, instead of the 100,000 shares a new investor would get for the same amount of money. 

4. Valuation Cap. If the SAFE instead includes a valuation cap, it creates a ceiling on the price per share the investor will receive during the priced round. For example:

  • Investor invests $100,000 via a SAFE with a $5,000,000 valuation cap. This means the highest price per share they will pay is $5,000,000 divided by the company’s total issued shares at the time of the priced round. 
  • If the company has 10,000,000 shares in the priced round with a valuation of $10,000,000, new investors in the priced round pay $1.00/share. 
  • Because investor’s valuation cap is $5,000,000, the highest price per share they will pay is $0.50 ($5,000,000 / 10,000,000 shares = $0.50). The SAFE investor’s $100,000 will buy them 200,000 shares, whereas a new investor in the price round would only get 100,000 shares for $100,000. 

**Don’t get too hung up on the specific numbers here – these are just examples to help illustrate the concepts.**

You can offer either a discount rate, valuation rate, or both – in that situation investors receive whichever price is lower during the priced round.

5. Round amount/length. Some companies choose a set amount of money they are looking to raise, after which the round will close. Others don’t have a set amount, and instead see how many SAFEs they can raise in a set amount of time. If the company doesn’t have a fixed amount it wants to raise, it can instead set a time limit for the round (one year is common).  It is good to have a fixed end point because you have to make certain securities filings related to the round, and having an end point makes it easier. 

6. Securities filings. You must file Form D with the SEC within 15 days after receiving the first investment capital. Form D is a very abbreviated securities filing that is allowed in certain circumstances which allows small fundraising rounds to be registered without going through the whole securities registration and disclosure process. Form D is then filed in any states where the company’s investors reside. Form D filing is free with the SEC, while most state filings have a fee associated. Usually the filing cost is around $300 – $600, but it varies depending on which states are involved. These filings are time sensitive and most are supposed to be filed within 15 days of signing! Because of this, it’s ideal to execute all the SAFEs around the same time. When you have multiple investors, try to line your investors up and prepare all documentation, then have everyone sign. This saves time and money and avoids any late filing fees. 

7. Accredited Investors. To take advantage of the Form D exemption, your investors must be what’s known as “accredited investors”. In the SEC context, this means they must meet at least one of the following requirements: (1) they have a net worth over $1,000,000, excluding primary residence (2) they have income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year, (3) they are a licensed investment professional, or (4) they are directors or officers of the company offering the investment. The time and cost involved in meeting the requirements if everyone is not an accredited investor mean that it usually doesn’t make financial sense to accept an investment from a non-accredited investor unless it is a significant amount (over $100,000). 

Every financing round is different with its own challenges and strategy. If you would like to have a complimentary initial consultation to discuss how to best navigate the potential challenges of your round, please contact us at info@bendlawoffice.com or (415) 633-6841.

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 or tax 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 Should I Work With An Experienced Business Attorney Instead of Using An Online Platform To Start My Business?

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By: Doug Bend We help launch 50+ legal entities a year and are often asked why a potential client should invest more money to work with an experienced business attorney to help set up their business instead of using an online platform such as LegalZoom. There are seven drawbacks to using an automated legal entity… Read More

By: Doug Bend

We help launch 50+ legal entities a year and are often asked why a potential client should invest more money to work with an experienced business attorney to help set up their business instead of using an online platform such as LegalZoom.

There are seven drawbacks to using an automated legal entity generator instead of working with a qualified business attorney who has been on the business formation journey dozens, if not hundreds, of times.

1. Not Completing The Formation Process

The only thing worse than not properly setting up your legal entity is thinking you did, when you did not.

Online platforms typically do not complete all of the required steps to properly lay the legal foundation for your entity.

Automated legal entity generating platforms are a one size fits all “solution” that often lack the legal analysis necessary to make sure that you obtain all of your required permits and registrations.

For example, most online platforms do not help you get a city business license or make sure that your fictitious business names statement (aka dba) is properly published in a legally adjudicated newspaper.

When we review the legal documents that were generated by an online platform for a new client, it is exceptionally rare for there to not be missing items.

This can be particularly problematic if your business were to lose a lawsuit or is audited. 

Many judges are more likely to allow a successful plaintiff to “pierce the corporate veil” to get at a business owner’s personal assets if the defendant’s legal entity was not properly set up.

If you want to have the most legal protection for your personal assets from the potential liabilities of your business activities, it is wise to invest in working with an experienced business attorney rather than an assembly line entity formation robot.

2.  Online Platforms Typically Do Not Teach You How To Properly Maintain Your Legal Entity

Even if your legal entity is properly set up, most online platforms do not provide much guidance, if any, on how to properly maintain your legal entity.

In a best case scenario this can lead to late payment penalties.

In the worst case scenario, a successful plaintiff is more likely to pierce the corporate veil to get at your personal assets if your legal entity is not properly set up and maintained.

For example, why should a judge provide you with the protection of your legal entity if it has been “FTB Suspended” or “FTB Forfeited” because you did not pay your fair share of annual franchise tax payments?

3. Online Platforms Provide Very Little, If Any, Guidance On What Is In Your Formation Documents

Our clients who have used online platforms before hiring us often have no idea what is required by the governing documents of their legal entities.

It is not out of the ordinary to have a conversation along the lines of:

Business Lawyer: “Your Operating Agreement requires X.”

Client: “Really? I didn’t realize that it requires X. Uh oh. I don’t like X. I had no idea. I just checked the box for the online platform’s standard one-size fits all form document.”

In contrast, an experienced business attorney’s formation documents should include plain English explanations of key provisions so you understand your legal game plan.

4. Online Platforms Provide Very Little, If Any, Opportunity to Customize The Terms Of Your Formation Documents

Online platforms usually provide a one-size fits all, take it or leave it template.

In fact, we are referred clients from online platforms when their users want to customize their documents because the online platform does not provide them with the flexibility to do so.

This can be particularly problematic for companies with more than one business owner. It is all rainbows and sunshine when you start a business but it is only a matter of time until there will be a fork in the road that not all of the owners agree on. You should thoroughly think through and customize key items while you have calm waters such as:

i. How will business decisions be made? Will all of the decisions require a majority vote? Or will certain key decisions instead require a unanimous vote?

ii. How can an owner be kicked out of the company?

iii. How will profits be distributed?

iv. When will profits be distributed?

v. When can your company be sold?

vi. When can your company be dissolved?

vii. What happens when a business owner dies?

viii. What happens if a business owner becomes divorced?

ix. What happens if a business owner becomes permanently disabled? What would be the criteria for determining whether the owner actually is “permanently disabled”?

x. What are the resolution mechanisms when there is a dispute between the owners (particularly if there are equal co-owners)?

and, well, the list goes on and on and on.

Instead of a one sized cookie cutter solution, a business attorney can strategically customize your formation documents so they are the best fit for you and your business.

5. What if you have questions about your formation documents? If you use an online platform, sorry. Too bad, so sad

We also get referred clients from online legal platforms when their customers have questions about the online platform’s documents. Online legal platforms often do not provide answers because, at least in California, it is a crime to provide legal services unless you are a licensed attorney.

If you want to ask questions to understand your formation documents, it is best to work with an experienced business attorney.

6. It Might Actually Be Less Expensive To Work With A Business Attorney

For example, when we work with a client to form a legal entity towards the end of the year we ask if they will get enough benefit from having the legal entity formed that calendar year to offset the additional expense of having to pay the $800 minimum California franchise tax for that year and to pay a CPA to prepare and file a separate corporate tax return which often costs $2,000 to $3,000 or if they instead would prefer to have the effective formation date to be January 1st of the next year.

The clients who wait to launch their legal entity save approximately $3,000 to $4,000 and so net they end up spending much less money working with a business attorney than if they had used an online platform.

Do you think an online platform is likely to ask you the same question and risk decreasing its revenue in the last few months of the year? Not likely.

7. Using An Online Platform Could Have Severe Negative Tax Ramifications If You Select the Wrong Legal Entity

Lastly, the type of legal entity that you form can have significant tax ramifications. Online platforms typically provide very little, if any, guidance on those ramifications. Instead, it is “Click here to form a corporation for $99!!!” With zero analysis.

If you form the wrong type of entity, it can be exponentially more expensive to fix that mistake than if you hire an experienced business attorney to properly set up the correct type of entity right out of the gate.

We usually charge a flat rate for forming a legal entity but we charge our hourly rates for corporate cleanup because it can take much more time to fix the mess.

The old saying “penny wise and pound foolish” might not ever be more true than if you decide to skimp on getting quality legal guidance from an experienced business attorney. 

Don’t get me wrong. Price is very important. I will never forget how psychologically difficult it was for me to spend each dollar from my personal savings when I first formed our law firm. I understand that business owners have a finite amount of financial resources and the more they spend on forming their business the less they might have to grow that business or to take home for their families. I get it.

But the most successful business owners recognize that the initial price should just be one variable in deciding whom to hire to help their business whether that is an attorney, a CPA or any other consultant. Many of our most successful clients are those who have been through the ringer once or twice and recognize that while it is not fun to pay an attorney, it is a pennies on the dollar investment that pays significant dividends in the long run. They know that who you hire to advise your business is not like buying a bag of Cheetos from Costco instead of from the corner store because Costco is less expensive. Instead, online legal platforms usually do not provide the same results as working with an experienced business attorney. The best business owners know that as much as the price of forming their company matters, what matters even more is the net savings they will harvest once it is all said and done from working with a qualified business attorney instead of relying on a one-size-fits all document from an online platform. Put another way, they recognize that what matters the most is the net cost after taking into account the savings that can be had from working with a strategic entity formation lawyer rather than just focusing on the lower initial upfront cost of an online platform.

To say it lightly, I clearly am not a big fan of online legal platforms for forming a business. But if you are still on the fence as to whether to work with an experienced business attorney to start your business, please contact us at info@bendlawoffice.com or (415) 633-6841. We would love to have the opportunity to provide you with a complimentary initial consultation to demonstrate the value we can add to you and your business. 

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 or tax 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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What Are The Options for Issuing Equity to Key Employees In Your Small Business?

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This article was originally published on Featured.com. By: Doug Bend 1. Profit Sharing Without Equity. The first option is to recognize that there are potentially negative tax implications if you give your employee equity and to not grant them any equity at all. You could instead have an employment agreement to provide the employee with a… Read More

This article was originally published on Featured.com.

By: Doug Bend

1. Profit Sharing Without Equity.

The first option is to recognize that there are potentially negative tax implications if you give your employee equity and to not grant them any equity at all. You could instead have an employment agreement to provide the employee with a percentage of the net profits from your business as a bonus. The employee would still get the benefit of getting a percentage of the net profits without having to go out of pocket to purchase their equity or potentially having to recognize as taxable income the fair market value of the equity.

A drawback to this approach is psychologically people are often motivated more when they own equity in a company than with a profit sharing plan even if the net take home is the same. Their is something innately appealing to owning a piece of the company that you work for.

2. Grant Equity.

If you grant your employee equity the employee might have to recognize as taxable income the fair market value of that equity just as if you had given the employee a car, a house or anything else of value. One of my favorite examples of this concept is if you were to get a World Series ring for working for a Major League Baseball team you would have to pay taxes on the fair market value of that ring. The same could go for the equity that you give to your employees.

You could pay your employee a bonus to cover that tax liability but the bonus would be taxed. For example, if you grant your employee $100,000 worth of equity and you wanted to cover that employee’s tax bill for getting the equity you might have to bonus the employee $100,000 so after the employee pays taxes the net amount is enough to cover the taxes they owe for being given their equity.

As such, a drawback to this approach is there could be two layers of taxation: (i) first when you pay the bonus and (ii) again when the empoyee pays taxes on the fair market value of their equity. Uncle Sam loves approach. Our clients? Not so much.

3. Sell the Equity To Your Employee For its Fair Market Value.

A third option is you could sell the equity to your employee for its fair market value. The advantage to this approach is the employee might not have an immediate taxable event.

A drawback is the equity would be less of an incentive as the employee would write a check to your company. “Thank you for the equity that I paid for?”

4. Sell Equity For its Fair Market Value Which is Paid with a Loan.

The approach that most of our clients like the most is to sell the equity for its fair market value but the purchase price is repaid pursuant to a promissory note.

An advantage to this option is the distribution payments the employee would receive from owning their equity could be used to make payments on the loan for the purchase of that equity. As such, not only will the employee might not have an immediate tax bill, but their equity could pay for itself from distribution payments.

5. Operating Agreement or a Shareholders Agreement.

For any of these options, it is a good idea to also have an Operating Agreement (if you have an LLC) or a shareholders agreement aka a buy/sell agreement (if you have a corporation) to provide the company with the option to repurchase the employees’ equity when there is a triggering event such as when the employee dies, becomes permanently disabled or is no longer working for the company.

The repurchase price could be: (i) the proceeds from a life insurance or permanent disability insurance policy, (ii) based on an equation (such as [x] times the prior years gross receipts) or (iii) an appraiser could determine the fair market value of the equity. The agreement could also provide that an appraisal would only be required if the parties cannot agree on the fair market value of the equity within a certain time period (often 30 days).

One of the advantages to this option is the employee would benefit if the value of their equity increases while they are working for the company but the company would have the peace of mind of knowing that it would have the option to repurchase the equity if the employee is no longer adding value to the company.

6. More Equity Could Be Purchased or Granted Overtime.

Lastly, with any of these options it is important to keep in mind that the employment agreement could provide that the employee would get more equity overtime in separate tranches. This could further motivate your employee to continue to work hard for your company knowing that their piece of the equity pie could increase.

As you can see, there is not a one sized fits all solution. You should invest in analyzing with your CPA and business attorney which option is best for you, your business and your employee. If you do not already have a great business attorney, please do not hesitate to reach to contact us at info@bendlawoffice.com or (415) 633-6841.

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 or tax 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 Beginner’s Guide to Filing a Delaware Annual Report

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By: Hank Brown If you have started a Delaware Corporation, it shouldn’t come as a shock that the Delaware Secretary of State’s Office will at some point want a piece of the pie. This is known in Delaware as the “Annual Report and Tax Filing,” which needs to be submitted no later than March 1… Read More

By: Hank Brown

If you have started a Delaware Corporation, it shouldn’t come as a shock that the Delaware Secretary of State’s Office will at some point want a piece of the pie. This is known in Delaware as the “Annual Report and Tax Filing,” which needs to be submitted no later than March 1 of each calendar year.

This filing window is somewhat inconvenient for most businesses, as it is a rarity for their corporate tax returns with the IRS to have been filed this early. The Delaware Annual Report requires the total “Gross Assets” of the entity to be disclosed, which is found on Schedule L of the corporate tax return.

That being said, it is acceptable to use an estimation of the gross assets total if you do not have it on hand, and then file an amendment with Delaware once the corporate tax returns have been completed.

Below is the information you will need to gather prior to filing the Delaware Annual Report and Tax Filing:

  • The Entity Filing Number found on the Delaware Articles of Incorporation or by searching for the entity name here.
  • The total number of shares issued to date by the corporation, typically found in the Share Purchase Agreements and/or Board Consents.
  • The corporation’s Gross Assets total, found in Schedule L of your corporate tax return with the IRS.
  • The street address for the Principal Place of Business of the corporation.
  • The preferred business email address and phone number for the corporation.
  • The names, titles, and addresses of all corporate Officers and Directors of the corporation.

Once this information is acquired, you’re ready to get started! First, you will need to head to https://corp.delaware.gov/paytaxes/ and select the “Click Here to Pay Taxes/File Annual Report” button. You will then be prompted to enter your corporation’s “Business Entity File Number.”

After entering your Entity File Number, you will arrive at a dashboard that displays the current tax year (and prior years if the entity has previously submitted returns). Find the tax year you are filing for and click “File Annual Report.”

You will then arrive at a page that looks overwhelming at first glance but is quite straightforward once you realize what you’re staring at.

First is the “Stock Details” section. This is where you will note the total number of shares issued to date by the entity. This can be found in the entity’s Stock Purchase Agreements, or Board Consents. If there are multiple stock classes between Common and Preferred shares, you will need to divvy up the issued shares into each class. Your business attorney or CPA may be able to assist with this step by checking the corporation’s cap (short for capitalization) table(s).

Once you have noted the shares, you will insert the Gross Assets total that you already gathered from Schedule L of the corporate tax return with the IRS. As a reminder, if the tax return has not been filed as of March 1, you may put a placeholder estimation in this section and then file an amendment Delaware Annual Report once the tax return has been taken care of.

Finally, you will note the “Asset Date,” which is typically be December 31 of the tax year you’re working on. After you have entered all the appropriate information, click “Recalculate Tax” and suddenly the tax amount due in the upper right-hand corner magically drops from an obscenely large amount to one that is far more reasonable—typically around $450 for most small businesses. However, this is subject to change depending on the values that have been entered in the other sections.

Now for the easy part! Simply enter the information you have gathered for the remaining “Principal Place of Business,” “Officer Information” and “Director Information” sections. Be sure to not enter the corporation’s Delaware Registered Agent address in the “Principal Place of Business” section.

Once you have completed the sections above, enter the name, address and title of the Officer filing the report and click the green “Continue Filing” button. You will need to review the return in its entirety before you are prompted to submit payment for the total taxes due.

And that’s it! Not too bad right? It’s important to note that this article is not a one-size-fits all guide to submitting this filing, as some details are subject to change depending on the information that is entered. We hope that it at least gets you off to a good start!

If you’re thinking that this still sounds like too much of a headache, Bend Law Group is here to help file the return on your behalf. We have submitted hundreds of these filings for our clients, so do not hesitate to reach out via email at info@bendlawoffice.com, by phone at (415) 633-6841, or by visiting our Contact page here.

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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Do you need a barber’s license to apply for an establishment license in California?

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By: Makenna Cox Here’s what you need to know if you’re considering opening a barbershop or salon in California: Understanding the Establishment License In California, an establishment license is required for anyone who wants to operate a business that provides services regulated by the California Board of Barbering and Cosmetology. The CA Board of Barbering… Read More

By: Makenna Cox

Here’s what you need to know if you’re considering opening a barbershop or salon in California:

Understanding the Establishment License

In California, an establishment license is required for anyone who wants to operate a business that provides services regulated by the California Board of Barbering and Cosmetology. The CA Board of Barbering and Cosmetology licenses and regulates the following individuals and establishments:

-Cosmetologists;

-Barbers;

-Manicurists (nail care)

-Estheticians (skin care)

-Electrologists (permanent hair removal)

-Apprentices

-Establishments (places where Board regulated services are provided)

No Barber’s License? No Problem!

This may be surprising, but in California, one does not have to be a licensed barber to apply for or obtain an establishment license for a barbershop. This may open doors for non-barbers to become involved in the management of barber businesses.

There are, however, important limitations to be aware of regarding what establishment license holders can do without a barber’s license. For example, an establishment license owner that is not a licensed barber cannot be in the area of a salon or barbershop where licensed barbers are working, cannot wash hair, or even perform cleaning tasks like sweeping up hair.

Establishment owners without a barber’s license may, on the other hand, manage appointments, handle paperwork, and take care of financial transactions.

Other things to know about Establishment Licenses

An Establishment License is non-transferrable—it is only valid for the location and owner(s) it is issued to. In other words, you cannot pass your establishment license to someone else, and if you move to a different location, you’ll need to obtain a new license.

The CA Board of Barbering and Cosmetology has some helpful FAQs which can be found here.

If you have further questions regarding licensing or are ready to take the next steps forward owning your own salon or barbershop, please do not hesitate to reach out to Bend Law Group at info@bendlawoffice.com or by calling (415) 633-6841.

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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Have you filed your Corporate Transparency Act Beneficial Ownership Report yet?

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By: Matthew Schumacher What is the Corporate Transparency Act? The Corporate Transparency Act (CTA) is part of the National Defense Authorization Act of 2021. Reporting obligation began to take effect on January 1, 2024. All “Beneficial Owners” of a Company are required to file a Beneficial Ownership Information (BOI) Report. These reports are to be… Read More

By: Matthew Schumacher

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is part of the National Defense Authorization Act of 2021. Reporting obligation began to take effect on January 1, 2024. All “Beneficial Owners” of a Company are required to file a Beneficial Ownership Information (BOI) Report. These reports are to be submitted to the Financial Crimes Enforcement Network (FinCEN) to aid in the government’s efforts to reduce terrorist financing, money laundering, and other illicit activities performed through a company.

Which Companies are required to report their Beneficial Owners?

A rule of thumb to go by is that every entity which had to file a formation document with the Secretary of State will need to submit a BOI Report. Think LLCs, PLLCs, Corporations, and Limited Partnerships. This doesn’t include sole proprietorships or general partnerships in California because these business forms don’t require a filing with the California Secretary of State. (This rule may differ depending on the state of formation, such as a general partnership formed in Delaware).

There are certain exceptions that may apply to a Company that would otherwise be required to report. Bend Law Group would be happy to schedule a consultation to see if your company fits under one of these exceptions.

When does my Company need to provide FinCEN with its BOI Report?

Companies formed before January 1, 2024, have until December 31, 2024 to submit their BOI Reports.

Companies formed between January 1, 2024, and December 1, 2024 will have 90 days from the date of formation to submit their BOI Reports.

Lastly, companies formed after January 1, 2025, will have 30 days from the date of formation to submit their BOI Reports.

Who are a Company’s Beneficial Owners?

There are two tests to determine whether or not an individual affiliated with a Company is going to be considered a “Beneficial Owner”

  1. Someone who owns or controls 25% or more of the ownership interest of the Reporting Company (this is determined on a fully diluted basis).
  2. Someone who “exercises substantial control” over a company.

The determination of whether or not an individual “exercises substantial control” over the reporting company is an open-ended question.  Please reach out to Bend Law Group for a consultation to determine if someone (whether they have equity ownership in the Company or not) is exercising substantial control over the Reporting Company.

What needs to be disclosed?

The following information about a Beneficial Owner will need to be disclosed to FinCEN:

  • The Beneficial Owner’s full legal name
  • Date of Birth
  • Current Residential Address
  • A copy of their state issued ID, their state issued driver’s license, their US passport, or their foreign passport.

What happens if my trust is an owner of the Company?

FinCEN seeks to identify the individual who own the reporting company – whether that be directly or indirectly through a trust.

In every instance, the trustee(s) who have control over the disposition of trust assets will be the individuals who must be disclosed in a BOI Report. In limited circumstances, the grantor/settlor or even the beneficiaries can be considered “Beneficial Owners” under the CTA. Bend Law Group could certainly make this assessment for you.

Does anyone else need to be included in my Company’s BOI Report?

For entities that were created on or after January 1, 2024, that entity’s “Company Applicant” will need to be included in the BOI Report.

A Company Applicant is the individual who actually submitted the formation documents of the entity to the Secretary of State. That means the Company Applicant could be one of the Company’s current owners, a trusted friend that helped you set up the Company, or even one of the attorney’s already here at Bend Law Group!

What happens if my Company doesn’t file its BOI Report by the deadline?

A company that fails to file within the deadline may be subject to steep penalties for CTA noncompliance.

This includes:

  • A civil penalty of $500 per day that the BOI Report remains unsubmitted after the deadline
  • A fine of up to $10,000 or imprisonment for up to two years upon conviction for individuals involved with willing failing to file or willfully filing inaccurate information.
  • Failing to file in connection with illegal activity (ex. Money laundering) involving more than $100,000 in a 12-month period would subject the company to a $500,000 penalty and up to 10 years in prison for the individuals involved.

Hasn’t the CTA been held unconstitutional though?

In March 2024, an Alabama Federal District Court Judge found that congress exceeded its foreign affairs, commerce, and tax powers in enacting the CTA. However, the Court limited enjoining enforcement of the CTA to the Plaintiffs in the matter – those small business that are associated with the National Small Business Association (NSBA).

This means that FinCEN still intends on enforcing penalties on all non-compliant companies that are not members of the NSBA. Further, FinCEN has already begun to appeal the decision as it applies to those NSBA members.

Allow Bend Law Group to Handle your CTA BOI Reports

Bend Law Group is more than happy to prepare and submit these BOI Reports for both existing and new clients. Reach out to Bend Law Group for a quote!

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 File a Fictitious Business Name Statement in California

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By: Hank Brown When starting a business in California, there is a dizzying array of state and local government filings to juggle to keep your entity in legal compliance—a “Fictitious Business Name Statement” being one of them. Fear not! We’re here to get you started. So what’s a fictitious business name anyway? A fictitious business… Read More

By: Hank Brown

When starting a business in California, there is a dizzying array of state and local government filings to juggle to keep your entity in legal compliance—a “Fictitious Business Name Statement” being one of them. Fear not! We’re here to get you started.

So what’s a fictitious business name anyway?

A fictitious business name, otherwise known as a “Doing Business As” name or “DBA” if you want to get fancy, is any name that your business will use in commerce other than the full entity name as listed on your Articles of Incorporation (for corporations) or Articles of Organization (for limited liability companies). You will also need to file for a fictitious business name as a Sole Proprietorship business if you are operating under a name other than your name as an individual.

For example, if your corporation’s full name is “California Plumbing Services, Inc.” but on your signage and other marketing materials you are operating under “John’s Plumbing,” you will need to file a fictitious business name statement for this name in the county in which you are doing business.

You will also need to file a fictitious business name statement even if the name is the same as your full entity name but simply lacking the entity identifier such as “LLC” or “Inc.” Some say that this isn’t necessary, but we always operate under the “better safe than sorry” motto, especially when it comes to protecting your business from legal troubles down the line.

This sounds like a pain, what’s the process for filing a statement?

The filing process is actually quite simple, but some counties are more difficult to work with than others. The overall process is as follows:

  1. Download the fictitious business name statement form from the appropriate county clerk website.
  2. Complete the form digitally or by hand but be sure to not sign at the bottom using an e-signature but rather good old fashioned pen ink as most counties are very particular about this detail. On most forms, all you will need to provide is your list of fictitious business names (more than one can be listed on a statement), your business and mailing addresses, entity type (LLC, Corporation, etc.), registrant name (your entity’s full name), and your individual name and title for the signee field.
  3. Submit either in person or via mail alongside a check for the appropriate filing fee listed on the form, however we would recommend submitting in person as sometimes the turnaround time can be up to a month for certain counties if filed by mail.
  4. Finally, submit the fictitious business name statement for publication in a local newspaper using the instructions provided by your respective county clerk’s office upon receiving the stamped FBN statement back. Please note that this step needs to be completed within 45 days of the county’s stamp date, otherwise you will need to file all over again!

I’ve filed the statement, now what?

This is the easy part! Once you have filed the statement with the county clerk’s office and published it in a local newspaper, all fictitious business names listed on the statement will be active for five years. All you need to do is set a reminder to refile and republish the statement all over again in half a decade.

What if some details on the statement have changed since filing?

If, for example, your business has changed its address or has begun using additional fictitious business names in commerce, a new statement will need to be filed and published.

In closing, it’s important to note that not all counties are created equal, and some require more involved processes than others such as including a notarized affidavit of identity or registering for a business license first. But for the most part, the general steps remain the same across most counties in California. If this sounds like too much of a hassle and you would like assistance in filing a fictitious business name statement for your entity, please do not hesitate to reach out to Bend Law Group at info@bendlawoffice.com or by calling (415) 633-6841.

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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