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The Corporate Transparency Act: What Is It, and How Does It Affect Small Businesses?

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Investors with business entities have had the flexibility to maintain their privacy about the ownership and control of LLCs, LPS, and corporations. However, the Final Rule under the Corporate Transparency Act (CTA) changes these obligations significantly. This is by divulging previously private information concerning the ownership and control of various business entities. This blog will discuss what the CTA is and how the CTA will impact small businesses.

Enacted on January 1, 2021, by congress, this new anti-money laundering legislation imposes extensive reporting requirements for beneficial owners of most entities. The Act aims to provide significant transparency of legal entities to pinpoint and tackle illegal activities. These include money laundering, terrorism financing, and related illicit activities.

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The Benefits of a PPM

ppm-document-with-pen-glasses-and-calculator-on-desk

Many individuals and business owners operate under the incorrect assumption that when looking to raise capital, they can simply sell securities to any person on the street. However, the general rule is that any public offering of a security must be registered with the SEC, unless an exemption exists.

For many small businesses, registration with the SEC is not feasible due to the expense. Luckily, several exemptions from registration are offered. Some of the most common exemptions are found under regulation D (specifically Rule 506, which is a Safe Harbor under Section 4(a)(2)). Yes, it’s confusing. A Private Placement Memorandum (or PPM) is a document that businesses use to take advantage of such exemptions.

Read on to learn more about PPMs and how they can benefit your business when raising capital.

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Should Your Startup Be an LLC or Corporation?

paper-with-llc-on-chart-with-calculator-pen-and-magnifier

Search Google for the best legal entity for your new startup, and you will get different opinions. Startup advisors and CPAs will probably recommend a limited liability company (LLC). That’s because an LLC isn’t subject to double taxation and is easier to set up.

On the other hand, many startup lawyers will recommend the C-Corporation structure (typically a Delaware C-Corp) because corporate law is typically more “stable,” equity (stock) ownership is passive, and the entity is more structured.

How you choose to incorporate your startup business will have massive implications down the road. This blog explores the basic advantages and disadvantages of each option.

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The Benefits of S-Corps

business attorney setting up an S-Corp from her desk

Anyone starting a new business is faced with a lot of decisions. Arguably the most important is choosing the business entity type and tax status. Business lawyers and CPAs will present entrepreneurs with several options to choose from depending on the legal entity, including “S” election. 

Each type of legal entity has its benefits and limitations. Technically, there’s no legal entity called an “S-Corp.” A company that makes an “S” election for tax purposes is typically referred to as an S-Corp. However, various types of legal entities including LLCs and Corporations can elect S-Corp status. This blog will discuss the benefits of “S” election.

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New York Cannabis Law and Licensing: A Brief Overview

oil hemp

In recent years, the legal landscape around cannabis has undergone a significant transformation, especially in New York. As New York joins a growing list of states to legalize recreational cannabis use, businesses and individuals must familiarize themselves with the state’s specific regulations. In this blog post, we’ll provide a concise overview of New York’s cannabis laws, focusing on the various license types available.

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What is a SAFE?

A provision of a SAFE that says raising capital on a paper and glasses.

Raising capital is among the top priorities of startup companies. As a result, startups receive money from investors in various ways. One of those ways is through a Simple Agreement for Future Equity (SAFE). A Silicon Valley accelerator, Y combinator, created this document in 2013 to allow startups to structure seed capital without interest or maturity dates. Specifically, a SAFE is a legally binding contract that permits an investor to buy shares in a company for an agreed-upon price at some time in the future.

As you consider your options to seed your startup, you should understand the benefits and disadvantages of SAFEs and how they differ from convertible notes.

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