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The Importance of Website Privacy Policies in California

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As companies increasingly include an online presence, or are only located online, a common question is: do I really need a privacy policy? Unless you are operating a non-interactive website, such as a blog that has no way for users to enter any information, the answer in California is nearly always “definitely.” Who needs a… Read More

As companies increasingly include an online presence, or are only located online, a common question is: do I really need a privacy policy? Unless you are operating a non-interactive website, such as a blog that has no way for users to enter any information, the answer in California is nearly always “definitely.”

Who needs a privacy policy

Under the California Online Privacy Protection Act of 2003, any operator of a commercial website, mobile application, or online service that collects “personally identifiable information” from its users is required to post a privacy policy on its site and comply with that policy. “Personally identifiable information” means any individually identifiable information about a user, and includes data such as a user’s name, address, email-address, telephone number, social security number, and any other identifiers that permit the user to be contacted physically or online. This means that if a site is collecting payment information from users it absolutely needs to have a privacy policy, but even if a site is only collecting email addresses to add users to an email list, this still requires a privacy policy.

Privacy policy requirements

In order for a privacy policy to be compliant with the law, it must:

  • Identify the categories of personally identifiable information that the website collects;
  • Identify the third-party persons or entities with whom the operator may share the collected personally identifiable information;
  • Describe how users can review and request changes to their personally identifiable information;
  • Describe how users are notified of changes to the operator’s privacy policy for the website;
  • Identify the effective date of the privacy policy;
  • Disclose how the operator responds to web browser “do not track” signals; and
  • Be conspicuously posted on the operator’s website.

Moreover, if a site or online service is directed to children under age 13 or collects information about children under age 13, the Children’s Online Privacy Protection Rule imposes additional notice and consent requirements.

Consequences of not having a privacy policy

A website that does not have a privacy policy that collects personally identifiable information from users is in violation of the law, and therefore could be prosecuted by the government. Additionally, the California Attorney General’s Office recently released a new online form that allows website users to report sites that do not have privacy policies or whose policies do not comply with the legal requirements, which should increase the likelihood that violators will be penalized.

Not only does the privacy policy need to comply with the legal requirements, but the website owner must comply with the procedures and disclosures listed in its policy and update the policy if its procedures change. A site operator’s failure to comply with the policy could bring rise to a lawsuit by a user, and users can also report these types of violations to the Attorney General’s Office.

Conclusion

A well-drafted privacy policy not only ensures that the online company is complying with the law, but it also protects users and site owners by providing a greater level of understanding regarding how users’ information may be shared and updated. Additionally, all online companies should strongly consider posting Terms of Use on their site to make sure that they are adequately informing users about their policies and protecting themselves from potential lawsuits or intellectual property infringement.

Bend Law Group can assist online companies, including mobile application developers, by drafting privacy policies and terms of use that accurately describe the company’s practices and comply with the legal requirements. If you would like to talk more about your online legal needs or have any questions, please give us a call at (415) 633-6841 or send us an e-mail at info@bendlawoffice.com.

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

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The Four Layers Of Defense For Your Small Business

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By: Doug Bend & Ambere St. Denis This first appeared on Forbes. Our firm has counseled hundreds of business owners. But the ones who sleep best at night are those who have made strategic legal and insurance investments to protect their business and personal assets. That’s why we recommend the following four layers of defense… Read More

By: Doug Bend & Ambere St. Denis

This first appeared on Forbes.

Our firm has counseled hundreds of business owners. But the ones who sleep best at night are those who have made strategic legal and insurance investments to protect their business and personal assets. That’s why we recommend the following four layers of defense for small business owners:

1. Exceptional Customer Service

It is hard to overstate the amount of litigation that could be avoided by great customer service. The saying “penny wise and pound foolish” is never more true than when it comes to a customer potentially suing you for negligence. All it takes is for an unhappy customer to complain to an attorney at a cocktail mixer who responds, “You should sue!”

The least expensive legal defense you will ever pay is apologizing and comping a product if a client is unhappy. If a customer was harmed at your business, apologize and be quick to fix whatever might have caused the injury and err on the side of reimbursing the customer’s reasonable, documented expenses.

By doing so you will not only prevent potential lawsuits, but you might turn what could have been a 1-star Yelp review into a 5-star review.

2. A Solid Contract

Not every dispute can be solved with an apology or a free product or service. If that first line of defense fails, it is important to have a solid contract in place that plans ahead. Think of it as a chess game for worst-case scenarios. This way, you are able to tell customers, “We are sorry you are still unhappy, but Section 17 of our services agreement clearly provides that our liability is limited to X amount.”

3. Business Insurance

Even if there is a solid contract in place, there may be a lawsuit over whether the contract is enforceable or if the contract covers what occurred. A solid insurance policy can help cover the costs of the litigation, and if you lose the lawsuit, the damages.

Be sure to know what the insurance policy covers and what it does not. Many mistakes occur when a business believes they have coverage when they actually don’t. They are only left to find out after a potential claim has been brought to their attention.

4. A Legal Entity

A properly formed and maintained legal entity can serve as a crucial last line of defense to help protect your personal assets from your business activities. If a customer isn’t satisfied with your apology and your contract and insurance don’t cover the claim, a legal entity can serve as a final backstop to prevent the customer from going after your personal assets. Consult with a business attorney and your CPA about the best type of legal entity for your business, as there isn’t a one-size-fits-all legal entity choice.

This article was written by Doug Bend, the Founder of Bend Law Group, and guest author Ambere St. Denis, the Founder of Crimson Business Insurance Agency.

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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Determining Ownership from Restaurant Investment

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Determining the right investment terms for a new restaurant is a balance between the restaurant managers retaining the amount of control and payout that they need to run the restaurant that they are envisioning, and the investors receiving a percentage of the restaurant that they think is fair for the amount of money that they… Read More

Determining the right investment terms for a new restaurant is a balance between the restaurant managers retaining the amount of control and payout that they need to run the restaurant that they are envisioning, and the investors receiving a percentage of the restaurant that they think is fair for the amount of money that they are investing. Deciding on the membership interest amounts that achieve these goals can be tricky during the planning stages of the new venture, and the information below provides some considerations for determining these amounts.

Investing in an existing company is much easier to calculate than a brand new company, because the existing company has a determinable value. Thus the ownership that is purchased with a certain investment amount can be merely a matter of doing the math (i.e. if an existing restaurant is worth $2M and an investor puts in $500,000, the investor could receive 20% of the restaurant). Making an investment in a brand new restaurant is less straightforward, however, because it is difficult to put a value on something that does not exist. This is especially true because there are so many variables to a restaurant’s success, from location to price point to surrounding locations to service style.

Therefore, in order to determine the amount of interest in a new restaurant that an investor will receive, the managers should consider:

  • How much of the restaurant ownership they want to retain for themselves (generally at least a majority, usually 60-70%);
  • How much of the restaurant ownership they want to sell to investors and if any equity will be set aside for service providers;
  • Approximately how many investors will be involved;
  • Where the investor is located, and whether or not they meet the definition of an Accredited Investor for purposes of federal and state securities compliance;
  • The amount of investment money that the managers are seeking and a clear business plan detailing exactly why this exact amount of funds is needed (often described in detail within a private placement memorandum); and
  • What requests or demands, if any, the managers have already received from investors regarding ownership amounts.

Given the unique quality of most new restaurants, it is impossible to create a formula that says that if there are a certain number of investors and investment money, there is a specific amount of ownership that must be given. However, considering these factors and speaking with an attorney to discuss your options can help a new restaurant owner decide what to offer to investors for their early confidence in the new endeavor. The attorneys at Bend Law Group can help with these discussions and the related ownership documents and SEC filings. If you would like to talk more about raising investment money for a restaurant or have any questions, please give us a call at (415) 633-6841 or send us an e-mail at info@bendlawoffice.com.

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

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California ABC Announces Annual New Liquor License Lottery!

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The California ABC just announced the application period for new general liquor licenses, which gives restaurant and bar owners the very limited opportunity to purchase a new Type 47 or Type 48 license from the ABC. The general liquor license is the most coveted license, as it authorizes the sale of beer, wine, and distilled… Read More

The California ABC just announced the application period for new general liquor licenses, which gives restaurant and bar owners the very limited opportunity to purchase a new Type 47 or Type 48 license from the ABC. The general liquor license is the most coveted license, as it authorizes the sale of beer, wine, and distilled spirits (as opposed to beer and wine-only licenses that are available year-round). The number of general licenses that the ABC can issue in a county is restricted by county population. If the maximum number of licenses has already been issued for the county, the only way to obtain a general license is to buy one from an existing licensee in the county, very often at a high premium. However, as a county’s population increases, the ABC authorizes new general licenses once per year during a priority application period by allowing the issuance of new licenses in the county and intercounty license transfers.

During the priority period, applicants can submit an application to obtain a new original general license in the county ($13,800 filing fee) or to transfer a license from anywhere in the state to the priority county ($6,000 filing fee). However, because the number of licenses in each county is restricted by population, only certain, growing counties are included in the priority application period and only for a specific number of the licenses.

The following Northern CA counties are eligible for new on-sale general licenses:

Alameda County – 25
Contra Costa County – 25
Monterey County – 18
Sacramento County – 25
San Mateo County – 8
Santa Clara County – 25
Santa Cruz County – 4
Solano County – 15

Unfortunately San Francisco, Sonoma, Napa, and Marin counties do not have any new general licenses available.

If you are interested in applying for a new general license in one of the authorized counties, here are a few things to keep in mind:

• The application period is September 12 – September 23, 2016. If you miss it, that’s it until next year. 5pm on September 23, 2016 is the hard deadline.
• An applicant must be a resident for California for at least 90 days (which includes being incorporated in California if the applicant is an LLC or corporation) to be eligible.
• This is a lottery system. If the number of applicants is less than the number of licenses available (unlikely), everyone wins. If the number of applicants is more than the number of licenses available, a public drawing is held. Unsuccessful lottery applicants will be refunded their application fee, minus a $100 processing fee.
• Successful lottery applicants will have 90 days to complete a formal application for their specific premises (formal applications require proof of a 2-year right of tenancy at the applied-for premises).
• Licenses issued through the priority system are subject to unique transfer requirements and restrictions, so be aware of these prior to applying.

Bend Law Group assists restaurants and bars in the start-up process, including incorporation, investment strategies, and ABC and health permitting, plus compliance and contractual matters after opening. We can help you submit your priority application for a general license and then the formal application once (fingers crossed!) it is approved. Please contact us at info@bendlawoffice.com or 415-633-6841 for more information.

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 Single Member LLC Taxed as an S Corporation

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As a single member LLC your entity is considered a “disregarded entity” for federal tax purposes. That means that while you have the limited liability protection afforded an LLC, you are taxed the same as if you were a sole proprietor. All of the profits and losses flow down directly to you as an owner…. Read More

As a single member LLC your entity is considered a “disregarded entity” for federal tax purposes. That means that while you have the limited liability protection afforded an LLC, you are taxed the same as if you were a sole proprietor. All of the profits and losses flow down directly to you as an owner.

One potential downside to this structure is paying the self employment tax on the profits generated by the LLC. However, you have the option of making an S corporation tax election for your entity.

Like a single member or multi-member LLC, an S corporation is considered a pass-through taxation structure.

So why consider the S corporation tax election if they both are pass through entities?

One reason is that by making an S corporation tax election the owner can now make themselves an employee of the entity, pay themselves a reasonable salary (and take note that the IRS is serious that the salary must be reasonable), and take any other profits left over as a distribution. The distributions from an S corporation do not carry any employment related taxes. In comparison all profits in the standard single member LLC setup carry with them self-employment taxes.

While there can be tax advantages to electing to have your LLC taxed as an S corporation, there are limitations on who can be an owner of an S corporation. For example, corporations, partnerships, and nonresident aliens cannot be an owner of an S corporation. Instead, the owners of an S corporation must be U.S. citizens, residents or certain trusts, estates, and tax-exempt corporations (including 501(c)(3) corporations).

To elect S corporation tax status, you must file IRS form 2553. There are limitations for when the election can be made – it must be filed either within 75 days of forming the company or by March 15th to ensure it applies to the current year.

Aspects such as what you must set as a reasonable salary, when the S corporation election will apply, and the added administrative paperwork make filing the S corporation election a decision you should definitely run by your CPA or another tax expert. Simply making the election to avoid self-employment taxes can be an endeavor you’ll later regret as it does not make sense for all single member LLC owners.

If you have questions about forming a single member LLC, we recommend TRUiC’s guide HowToStartAnLLC.com or please don’t hesitate to contact us at info@bendlawoffice.com, or at (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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The Friends and Family Investment Round

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As the saying goes: your network is your net worth. For many startups that are just starting to raise capital, friends and family are the best source of funding. However, securities laws both at the state and the federal level require a startup issuing securities to either register the offering with the SEC and the… Read More

As the saying goes: your network is your net worth. For many startups that are just starting to raise capital, friends and family are the best source of funding. However, securities laws both at the state and the federal level require a startup issuing securities to either register the offering with the SEC and the state, or find an exemption that allows the startup to complete the offering without a great deal of regulatory compliance work.

The big hurdle with the friends and family round surrounds the idea of accredited investors. For many founders their network is full of contacts who believe in their vision, but do not fall into the definition of an accredited investor. To compound things further, many rules require increased disclosures, such as audited financials, if the startup will allow non-accredited investors into the round (see Rule 506). If a large chunk of friends and family round is chewed up with legal and accounting costs, the whole ordeal starts to become more of a hassle then it’s worth.

This post explores two viable options that allow a California company to raise capital from friends and family—some of which who are non-accredited investors— without the large burden of legal and accounting costs.

The two options we’ll analyze are SEC Rule 504 and SEC Rule 147, both of which require a California startup to also consider Section 25102(f) of the CA Securities Code.

Rule 504

Of the two ways Regulation D allows a company to accept investment from non-accredited investors, Rule 504 is the more practical. Rule 506 allows a startup to include up to 35 non-accredited investors, but you must provide the investors with the same information as is provided in a registered offering. This requirement generally makes it too costly to conduct a small raise from friends and family.

Under Rule 504, a startup can raise up to $1 million over a twelve month period, and you can accept investment from non-accredited investors without the information disclosures. The two things to factor into a Rule 504 raise are:

  • No general solicitation of the offering is allowed; and
  • Unlike Rule 506, which preempts state registration requirements, Rule 504 does not.

Therefore, if an issuer relies on Rule 504 they must find a state securities exemption to keep the compliance cost at a minimum. For a CA startup this is where 25102(f) comes in.

CA Rule 25102(f)

Pursuant to 25102(f) a company can sell securities to an unlimited number of accredited investors and company executive, and up to 35 non-accredited investors, as long as the unaccredited investors satisfy one of the following stipulations:

  • The investor has a preexisting personal or business relationship with the company or its principals/founders; or
  •  The investor has the ability to protect their interests due to their financial experience or the fact that they have experienced professional advisors.

Additionally, in order for the transaction to be compliant with 25102(f), all purchasers must state in writing that they are purchasing for their own account, the offering must not be advertised to the public, and you must file a 25102(f) exemption notice with the CA department of business oversight.

Speaking generally, the idea of a preexisting person and/or business relationship is to allow the investor to evaluate the character, experience and circumstances of the person with whom the relationship exists. As for financial experience, the rule is looking to see if the investor has previous experience investing in these types of offerings, and/or has experience operating or working with a similar venture.

For a first time startup it is all but imperative that the analysis of a pre-existing personal or business relationship and financial experience of the non-accredited investor be analyzed with the assistance of legal counsel. Unfortunately there is not a black and white rule for either, and the experience of a lawyer can go a long ways to protect the startup from downstream issues.

Intrastate Exception

The second federal exemption to consider (and remember, whenever you satisfy a federal exemption you must also consider state rules, such as 25102(f)) is the federal Intrastate Exemption. The federal Intrastate Exemption exempts “any security which is a part of an issue offered and sold only to persons resident within a single State or Territory, where the issuer of such security is a person resident and doing business within or, if a corporation, incorporated by and doing business within, such State or Territory.”

The goal of this federal exemption is to allow an a company who is doing business primarily in the one state to offer securities to investors in the same state without extensive regulatory compliance. This safe harbor rule is intended to make it feasible for startups to complete an offering to accredited and non-accredited investors provided some key factors are met.

To comply with Rule 147 the CA company must satisfy the following**

  • The startup must be incorporated in CA and its principal office must be in CA
  • 80% of the startup’s gross revenues and assets are in CA
  • The proceeds from the raise must be used for services or property in CA
  • Cannot offer the securities to non-residents for a period of nine months from the date of last sale and for the nine-month period all resales must be to CA residents
  • Securities must contain a legend evidencing that the securities have not be registered under the Securities Act and setting forth other limitation of resale, transfer and written confirmation of the purchaser’s residence

**Rules discussed at a high level, a longer discussion with legal counsel is necessary to ensure compliance with all of the Intrastate rules.

Just like Rule 504, if the Federal Intrastate Exemption applies the startup must now consider state rules. For CA startups, the rule generally relied upon is 25102(f) as discussed above.

Conclusion

A key consideration: just because you can take money from friends and family members who are not accredited investors doesn’t mean you should. With all startups there is a high chance of failure. For the sake of your relationships, and for legal reasons, it’s a good rule of thumb to only take investment from someone who can bear the risk of loss. The more likely it is that loss of the investment would be a significant hit to the investor’s savings, the more likely it is to damage the relationship and potentially cause legal trouble (such as claiming fraud or misrepresentation).

Completing a friends and family raise can be critical to your success and also very exciting, but it’s not without its traps. You should always consult an attorney to ensure that you’re taking the right steps to set you up for success.

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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Restricted Stock and Rule 144

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Under the Securities Act of 1933, all offers and sales of securities must be registered with the Securities and Exchange Commission (SEC) unless an exemption applies. One of the conditions of the Regulation D safe harbor from SEC registration is that the issuer must take reasonable care to ensure the issued securities are not bought by… Read More

Under the Securities Act of 1933, all offers and sales of securities must be registered with the Securities and Exchange Commission (SEC) unless an exemption applies. One of the conditions of the Regulation D safe harbor from SEC registration is that the issuer must take reasonable care to ensure the issued securities are not bought by Section 2(a)(11) underwriters. If a shareholder’s resale of stock is considered a “distribution,” the shareholder is considered an underwriter. Therefore, including a restrictive legend on securities helps establish that the issuer took reasonable care to comply with the conditions of Regulation D.

It is possible for shareholders to resell their securities in a way that would jeopardize the issuer’s original exemption from registration. One way for a startup to create mechanisms to prevent this is a stock legend. Thus, when a security is initially issued in an unregistered transaction, the company will typically include a restrictive legend on the security to:

  • Identify the restricted nature of the security;
  • Make clear the shareholder’s inability to freely resell; and
  • Demonstrate the company’s attempted compliance with the exemption requirements.

When it comes time for a holder of shares to consider selling, the same principle of finding a security exemption for an unregistered offering will apply and most holders rely on the safe harbor of Rule 144. If the shareholder resells its shares in accordance with Rule 144, the resale is considered exempt from registration under Rule 4(a)(1) of the Securities Act.

For questions about resales or ensuring that your offering is compliant as an unregistered offering, 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 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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