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Major Factors To Consider When Selling Your Business

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

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

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

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

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Caution – Copyrights Ahead!

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

By: Alyssa Ziegenhorn

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

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

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

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

Third: Run a Google reverse image search.

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

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

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

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

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

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

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

This articles was originally published in Forbes.

By: Doug Bend

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

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

1. Board And Shareholders’ Consents

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

2. Amendment To The Certificate Of Incorporation

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

3. California Secretary Of State

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

4. City Business License

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

5. Fictitious Business Name Statement

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

6. Employment Development Department

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

7. Seller’s Permit

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

8. IRS

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

9. Trademarks

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

10. Vendors

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

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

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

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The Importance of Stock Purchase Agreements for Founders

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

By: Alyssa Ziegenhorn

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

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

Ambiguity on ownership and decision-making

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

Issues with future investors

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

Significantly increased legal costs

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

Increased tax burden on future shares (no backdating)

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

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

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

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

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

This article was originally published in Forbes.

By: Doug Bend

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

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

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

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

1. The Overall Fundraising Market

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

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

2. Traction

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

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

3. The Prior Financial Returns Of The Founders

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

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

4. The Experience Of The Founders

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

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

5. Industry

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

6. Leverage

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

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

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

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

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Challenging USPTO Trademark Registrations Based on Lack of Use: Trademark Expungement and Reexamination

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By: Vivek Vaidya When a trademark application is filed with the United States Patent and Trademark Office (USPTO), it is examined for a host of issues including whether there are confusingly similar trademarks that have already registered.  However, the USPTO doesn’t perform a deep dive of actual use when a trademark application is first filed,… Read More

By: Vivek Vaidya

When a trademark application is filed with the United States Patent and Trademark Office (USPTO), it is examined for a host of issues including whether there are confusingly similar trademarks that have already registered.  However, the USPTO doesn’t perform a deep dive of actual use when a trademark application is first filed, so it is possible that a trademark may register fraudulently in the US, even though the registrant never sold a good or provided a service in the country.

For years, the only way to challenge a trademark registration was through Cancellation Proceedings before the Trademark Trial and Appeal Board (TTAB).  However, that process places a heavy burden on those challenging trademarks from a time and cost perspective. 

The Trademark Modernization Act seeks to simplify the process of challenging certain types of trademark registrations by asserting that certain goods and services were never used in the United States, so a particular trademark registration should be altered or altogether cancelled.  This is done by filing either a Petition for Expungement or a Petition for Reexamination.

A petition for expungement would be used if the registered trademark has never been used in commerce or connected with some or all of the goods and/or services listed in the registration. The time frame for filing a petition for expungement is between three and ten years after the registration date.

A petition for reexamination would be used to claim that the trademark was not in use in commerce on or in connection with some or all of the goods and/or services listed in the registration on or before the date that the USPTO required the registrant to file its proof of use (whether with the application or, later, through a Statement of Use.) The time frame for filing a petition for reexamination is within the first five years after registration.

Once either filing is submitted, the petitioner no longer needs to participate and the USPTO takes it from there – which is a much simpler procedure than a full-blown Cancellation Proceeding that can take up to 18 months.

If you have a situation where a registered trademark that is not actually is in use in the US is blocking your trademark application, Expungement or Reexamination may be a viable option to remedy your situation.

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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Should I Use SAFEs Or Convertible Promissory Notes For My Startup’s First Investment Round?

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This article was originally published on Forbes. By: Doug Bend Startups raising their first round of capital have to decide which type of investment vehicle to use. The two most popular options are convertible promissory notes and SAFEs, or simple agreement for future equity. Convertible promissory notes and SAFEs are similar in that the startup… Read More

This article was originally published on Forbes.

By: Doug Bend

Startups raising their first round of capital have to decide which type of investment vehicle to use.

The two most popular options are convertible promissory notes and SAFEs, or simple agreement for future equity.

Convertible promissory notes and SAFEs are similar in that the startup gets investment capital now in exchange for the investor having an opportunity for their investment to convert into equity if there is a triggering event—such as a Series A round—down the road. A key difference is, unlike convertible promissory notes, SAFEs do not have an interest rate nor do they have a maturity date.

Convertible promissory notes used to be more popular, but the increasing trend is that most startups are instead using SAFEs—for four reasons.

1. No Interest Rate

Unlike convertible promissory notes, SAFEs do not include an interest rate.

As such, startup founders have to give up less equity in their company by using SAFEs instead of convertible promissory notes with comparable valuation terms.

2. No Maturity Date

Also unlike convertible promissory notes, SAFEs do not have a maturity date.

The maturity date for convertible promissory notes is often 18 or 24 months. Startups that instead use SAFEs do not have a looming maturity date deadline.

If a startup uses a convertible promissory note and the note has not converted by the maturity date, the investors have the leverage to negotiate better terms in exchange for extending the maturity date.

3. Speed And Simplicity

SAFE stands for simple agreement for future equity, which can lead to faster investment rounds that not only often cost less money in legal fees but also are less likely to burn through the relationship capital the founders have with the investors.

For example, founders can send investors a redline showing what changes have been made to the SAFE templates that have been open sourced by Y combinator. Experienced investors often review those redlines, nod their heads and only focus on the valuation cap that is in the SAFE as they know the other terms in the SAFE are market and fair.

This helps to facilitate quick rounds of raising capital, which not only eats up less of the founders’ time but also decreases the risk that an investor might lose interest in the investment. This feature is particularly valuable now when the investment landscape is quickly changing.

4. Not A Debt Instrument

Unlike a convertible promissory note, a SAFE is not a debt obligation. This might make it easier for a startup to get traditional financing from banks because there is less debt on the books with a SAFE compared to a convertible promissory note.

Of course, the reasons why founders prefer SAFEs are the same reasons why investors often prefer convertible promissory notes. Investors would prefer for their investment to earn interest and to have the opportunity to renegotiate the terms of the investment if the triggering event has not occurred by the maturity date. In addition, the investors might be more familiar and comfortable with convertible promissory notes as they have been in the startup ecosystem longer than SAFEs.

Long lawyer-story short, if you are a startup founder, you most likely would be best served using SAFEs. Whereas if you are an investor, you most likely would prefer a convertible promissory note.

Either way, founders need to be careful and collaborate with their attorney and CPA to help make sure that the terms and the amount of capital being raised will not overly dilute their ownership allocation in their 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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