"Corporate Transparency Act: What Companies Need to Know and How to Comply"

Effective January 1, 2024, the Corporate Transparency Act and its corresponding regulations (the “CTA”) requires certain entities created or registered to do business in the United States to disclose certain company information to the Financial Crimes Enforcement Network, a bureau of the United States Department of Treasury. This information, referred to as Beneficial Ownership Information, must be filed online at the Financial Crimes Enforcement Network website.

Companies that are required to report are referred to as “Reporting Companies.” Generally, all companies are Reporting Companies unless they fit into one of the 23 exemptions provided by the CTA. The report requires certain information about the Reporting Company and its Beneficial Owners, as defined by the CTA.

For Reporting Companies formed prior to January 1, 2024, the report must be filed before January 1, 2025. For Reporting Companies formed in 2024, the report must be filed within 90 days of the Reporting Company receiving notice of its formation. Reporting Companies formed after 2024 will have 30 days from the Reporting Company receiving notice of its formation to file the report.

The report is only required to be filed one time. However, if there is any change to the required information, an updated report must be filed within 30 days of such change. These changes include, but are not limited to, the name of the company (including a new trade name), a change in Beneficial Owners, a change to a Beneficial Owner’s name, address, or unique identifying number (including a change to their driver’s license or other identifying document, in which case the Reporting Company will need to upload a new image of the identifying document).

A person who willfully violates the reporting requirements may be subject to civil penalties of up to $500 per day for each day the violation continues. They also may be subject to criminal penalties of up to two years in prison and a fine of up to $10,000.

If you need assistance determining whether your entity is a Reporting Company, who its Beneficial Owners are, or filing the report, the attorneys at Erickson Sederstrom can assist you in complying with these new federal requirements.

Declaration of Dissolution for Nebraska Limited Liability Companies and Nonprofit Corporations

In odd-numbered years, Nebraska limited liability companies and nonprofit corporations are required to file Biennial Reports with the Nebraska Secretary of State. If you have not filed the Biennial Report for your limited liability company or nonprofit corporation and you did not organize or incorporate in 2023, you likely received a Declaration of Dissolution, which states that the Nebraska Secretary of State has dissolved your company and it is now inactive. If you did not file your Biennial Report and you did not receive a Declaration of Dissolution, you will want to be sure to review the Nebraska Secretary of State records to ensure your company’s information is up to date.

If your company has been dissolved, you can reinstate it by filing an Application and Declaration of Reinstatement along with the 2023-2024 Biennial Report with the Nebraska Secretary of State.

If you would like assistance in reinstating your entity so that it is active and in good standing with the Nebraska Secretary of State, the attorneys at Erickson Sederstrom can assist you with this process.

2022-2023 Occupation Tax Report

The 2022-2023 Occupation Tax Reports (“OTRs”) are now due for all domestic and foreign Nebraska corporations. OTRs are biennial reports that must be filed with the Nebraska Secretary of State by March 1, 2022. If the report is not filed, along with the applicable fee, by April 15, 2022, the entity will be administratively dissolved by the Nebraska Secretary of State.

The OTRs may be filed online at the Nebraska Secretary of State website or by mail. The Secretary of State has begun mailing out reminder cards to the registered agent for each domestic and foreign Nebraska corporation. If you have not received your notice, make sure your records are up to date with the Nebraska Secretary of State.

If you would like assistance in filing your OTR or with updating your records with the Nebraska Secretary of State, the corporate attorneys at Erickson Sederstrom can provide you with the help you need to assure that your entity remains active and in good standing with the State of Nebraska.

SBA Removes Loan Necessity Review for Certain PPP Loans

The United States Small Business Association (“SBA”) will no longer require loan necessity review for Payment Protection Program loans of $2 million or more and any open requests for additional information regarding the loan necessity review can be closed.

 The loan necessity review required completion of the Loan Necessity Questionnaire (SBA Form 3509 for for-profit borrowers and SBA Form 3510 for not-for-profit borrowers) which led to a lawsuit by the Associated General Contractors of America against to the SBA that challenged the legality of the forms.

The changes are effective immediately and the SBA will issue guidance on this issue which will provide more details.

The Trademark Filing Process

Trademarks are important pieces to many businesses. They are how people associate a business with a particular service or product. While there are certain common law protections provided to trademark holders even if they do not file with the United States Patent and Trademark Office (“USPTO”), filing with the USPTO provides the most protection for a mark. This will serve as a general outline of the process for filing trademark applications with the USPTO. 

Identifying the Mark and Goods and/or Services Provided

The first step is to identify the mark you wish to protect. This could be a design mark (ie. a logo), a wordmark (ie. a word or phrase), or both. The key is to determine how you are using or plan on using the mark and identifying whether certain colors or fonts are going to be integral portions of your mark. Another key thing to identify is what goods and/or services are going to be provided in connection with the mark. This aids in the review of existing marks and is required in the application process.

Reviewing Existing Marks

Once you have identified your mark, you should review USPTO records to determine whether there are any existing registered marks that will create issues for your application. The most common would be a mark that creates a “likelihood of confusion.” The determination of whether there is a likelihood of confusion involves an analysis of numerous factors, including the similarity of the marks, the similarity of goods and/or services, and the geographic proximity of where the goods and/or services are provided.

Use in Commerce

The next step is to determine whether you are, or will soon be, using the mark in commerce. A “use in commerce” is a public-facing use, such as use in advertising, on a website, or on packaging for a product. This determination drives which type of application will be filed with the USPTO.

Which application to file

Whether your mark is being used in commerce will guide which application needs to be filed with the USPTO. A Section 1(a) application is used when the mark is being used in commerce. A Section 1(b) application is used when the mark has not been used in commerce. There are various other types of applications but Section 1(a) and Section 1(b) applications are the most common.

Application Timeline

Section 1(a)

After filing a Section 1(a) application, the USPTO reviews the application and the applicant receives a response in approximately three months. The response is typically one of two types: an office action or a notice of publication.

An office action is a letter from the USPTO identifying issues with the application that must be addressed before the mark can be registered. These range from administrative issues such as disclaimers as to certain portions of the mark or adjusting descriptions of the marks or the goods and/or services, to likelihood of confusion refusals.

If an office action is issued and the applicant decides to continue to pursue registration, the applicant has 6 months from the date the office action was issued to file a response. If an applicant does not respond within 6 months, the application will be abandoned. If a response is filed, within 1-2 months the USPTO will either approve the mark for publication or issue a final letter which an applicant can appeal.

Once an application is approved for publication, the mark will be published in the Trademark Official Gazette, allowing others to oppose the registration and, if no one opposes, the mark will be officially registered with the USPTO in approximately 3 months.

Section 1(b)

A Section 1(b) application follows a similar pattern to the Section 1(a) application except for one key distinction: once the application is approved and the mark is published for opposition, the applicant has 6 months to file either a Statement of Use showing the mark being used in commerce or an extension, which provides an additional 6 months for the applicant to start using the mark in commerce. An applicant can file up to 5 separate 6 month extensions.

Post Registration Maintenance

Once your mark is officially registered, there are certain filings that need to be done between the 5th and 6th year after registration, between the 9th and 10th year, and then every 10 years thereafter to show that you are still using the mark.

 The trademark filing process is lengthy with various nuances throughout. If you have a mark that you believe could be registered with the USPTO, Erickson | Sederstrom has attorneys that can assist with this process from start to finish or anywhere in between

Buy-Sell Agreements

Buy-Sell Agreements, sometimes referred to as Shareholder Agreements in corporations or Members’ Agreements in LLCs, serve as a valuable tool in small businesses, especially in the area of transition planning. Generally, Buy-Sell Agreements are entered among equity holders and the business and dictate when and how an equity interest can or must be purchased or sold, and by whom. Some attorneys refer to them as “prenups for business owners,” because they generally govern how business owners can or must separate from one another, and what will become of the respective ownership interests upon such separation. The primary functions of these types of agreements are to protect the value of the various stakeholders’ interest in the business and ensure smooth and workable transitions in ownership of the business by preventing disagreements and potential lawsuits from undercutting the efficient operation of a business. Every business lawyer has stories of disputes, costs and expenses, time and even businesses that could have been saved had the lawyer advised and the client or clients agreed that a properly drafted Buy-Sell Agreement should be negotiated and entered. This article will discuss some of the key concepts Buy-Sell Agreements typically cover.

General Structure
Most Buy-Sell Agreements are intended to allow the equity holders in a business one or more mechanisms to divest themselves of their interest in the business, and/or protect their interest in the business in the event another equity holder elects to divest. This means, most often, that one stakeholder or another has either (1) a right or an obligation to purchase another stakeholder’s interest in certain events; or (2) a right or an obligation to sell such stakeholder’s interest in certain events. These mechanisms take many forms and should be specifically designed and drafted to meet the needs and goals of the applicable small business and its equity holders. In the most typical agreements, they prevent a party from divesting without meeting certain requirements.
For example, in some small businesses, the most important goal is to achieve some stability and consistency and a clear process and power structure in the event of a transition. In others, the primary objective is to protect one party’s investment in the company, or the value derived therefrom, either for that equity holder or that equity holder’s family and loved ones. In other businesses, the primary objective is to allow an equity holder to avoid being locked into a company controlled by others. All of these are potential interests that can be balanced in negotiating and implementing a Buy-Sell Agreement.

Triggering Events
One of the core features of a typical Buy-Sell Agreement is that certain events or circumstances trigger a right or obligation to sell or purchase an interest in the business. The most commonly agreed upon triggering events include those over which the relevant member has little or no control, such as death, disability or termination; those over which the relevant member may have some measure of control, such as divorce or bankruptcy; and those over which the member likely has control, such as an election to transfer or sell such member’s interest in the business, retirement, or other voluntary separation from the business. There may be others, depending on the specific circumstances of the business and its stakeholders. Depending on the surrounding circumstances, and the exact interests the stakeholders intend to protect, different triggering events may trigger different rights and obligations. For example, the operators of a business may wish to treat a retirement more favorably than a voluntary resignation prior to retirement age, or may wish to treat a termination for cause differently from an election to leave the business for health or other reasons. A Buy-Sell Agreement is flexible enough to allow for these variations in treatment in order to conform to the needs and desires of the stakeholders.

The Purchaser
Another important concept to build into a Buy-Sell Agreement is the appropriate purchasing party – who specifically has the right or obligation to purchase the equity interest? The most common potential purchasers are 1) the company or 2) the other equity holder(s). This portion of a Buy-Sell Agreement allows for some creativity. The Agreement can be structured so that, upon a triggering event, the remaining equity holders have the option to purchase the interest and if they decline, the company then has the option (or obligation) to purchase the interest. The roles can be flipped, with the company having the first option and the equity holders the second. There is flexibility in determining who will purchase the interest and whether they have the option or obligation. This is an important conversation topic for equity holders and gives them some flexibility to achieve a good result for all interested parties from a variety of perspectives, including tax treatment, operations, cash flow, and others.

Valuation
Another important element of a Buy-Sell Agreement is how the purchase price or other consideration to be paid in connection with a transaction will be determined. In most scenarios, this starts with a methodology for valuing the interest to be sold and determining what value the parties seek to protect. This valuation can take many different forms, including an agreement among the equity holders (annual or otherwise), a third-party appraisal, or implementation of a predetermined formula for calculating value. It can also account for certain discounts or other adjustments at the parties’ discretions, such as marketability and lack of majority control. These valuation methods and potential adjustments should dovetail with the agenda of the parties in making the agreement, including possible variation for precise circumstances, as contemplated previously in discussing triggering events. In considering and fleshing out these issues in advance, parties can take full advantage of a Buy-Sell Agreement in preventing uncertainty and attendant disputes down the road.

Transaction Terms
Another key element to consider is how the sale and purchase of the equity interest will play out. This includes determining when, where, and how the payment will be made. The process is dependent on the facts and circumstances surrounding the company, such as whether the company or other buyer has sufficient cash available at any given time to pay in full or if financing will be required. The stakeholders have to weigh and balance the potentially competing interests of a departing equity holder receiving value, the remaining equity holders’ access to and available resources, the company’s cash flow and other operational considerations. A Buy-Sell Agreement can be negotiated and structured to protect any or all of those interests to the extent the stakeholders deem it necessary or appropriate.

Specific Provisions
Buy-Sell Agreements often address other potential transaction scenarios, providing stakeholders with certain rights or obligations on account thereof. For example, drag-along rights generally allow a majority stakeholder to force a minority stakeholder to participate in a transaction the majority stakeholder has elected to consummate. Conversely, tag-along rights generally allow a minority stakeholder a right to force its way into such a transaction. Shootout provisions generally allow one stakeholder to elect to trigger a mechanism for a buyout and another stakeholder to elect who will purchase and who will sell, or some other material aspects of the transaction. Buy-Sell Agreements can contain preferential rights for certain buyers or other acquirers, or provisions intended to benefit certain groups of stakeholders to the exclusion of others. All of these provisions depend, again, on the particular circumstances surrounding the business and the parties’ balancing of potentially competing interests in the business.

Conclusion
Buy-Sell Agreements, “pre-nups for business owners,” are an adaptable tool that stakeholders can use to manage transition in a business to properly balance the potentially competing interests among various stakeholders and the business itself. As discussed, they can be negotiated and implemented to fit a wide variety of circumstances and address a wide variety of needs or interests. Business owners should consider implementing a Buy-Sell Agreement or similar arrangement in some form at the earliest opportunity, as they allow business owners to achieve a degree of certainty in the business environment, which is rarely, if ever, a negative. Lawyers should raise the possibility as early as possible and do what they can to educate business owner clients about the advantages a solid Buy-Sell Arrangement can provide.

Third Party Solicitations – Are These Services Necessary?

When you are forming a new entity, registering a trademark, or even just filing deed, you will be receiving numerous documents from your attorney in order to facilitate that process. Be wary of solicitations you receive from third parties requesting payment for services or documents you may not need or which may already be taken care of by your attorney. Some of these solicitations include the following:

• Obtaining Certificates of Good Standing;

• Name publishing;

• Federal Labor Law poster;

• Annual Records Statement;

• Obtaining a copy of your recently filed deed; and

• Publication of your trademark registration on a third-party site.

These solicitations are sent to request payment for services that may not be required. While some of these items or services are necessary, they may already be handled by your attorney as part of the services they are providing to you. If you receive a letter soliciting payment for something you feel may be handled by your attorney or may not be necessary, reach out to an attorney to make sure. They can verify whether what you received is something you need or whether it can be disregarded.

Small Business Protection and the CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (“CARES”) has been signed into law to aid against the economic impacts created by the spread of the coronavirus. One program under the CARES Act, known as the Paycheck Protection Program (“PPP”), provides protection to small businesses and nonprofits by providing low interest loans (with interest capped at 4%) with loosened requirements compared to those generally applicable to small business loans. The loans are made by private lenders and will be guaranteed by the Small Business Administration (“SBA”). The loans are nonrecourse loans, meaning there is no recourse against an individual shareholder, member, or partner so long as the proceeds are used for one of the reasons outlined below. There are no personal guarantee or collateral requirements for these loans. In addition, these loans may be fully forgivable, subject to certain requirements outlined below.

Beginning April 3, 2020, small businesses and sole proprietorships can apply for the loans under the PPP through existing SBA lenders. Applications can be submitted beginning April 10, 2020 for independent contractors and self-employed individuals through existing SBA lenders. Applications can be submitted through all other lenders once they enroll in the PPP. Although the PPP is open until June 30, 2020, borrowers are encouraged to apply as quickly as possible because there is a cap on the amount allotted for the loans.

These loans apply to businesses that employ no more than the greater of:
• 500 employees; or
• The size standard established by the SBA for the industry in which the business operates.

The loans also apply to certain restaurant, hotel, food and beverage service and hospitality industry businesses with an NAICS code beginning with 72 that employ fewer than 500 employees per physical location. For the purposes of determining the 500-employee threshold, applicants should include full time, part-time and other basis employees. General SBA affiliation rules apply, subject to certain waivers for NAICS 72 businesses, franchises, and businesses licensed under Section 301 of the Small Business Investment Act. This may preclude many companies owned by private equity from taking advantage of the program.

The maximum loan amount is determined as the lesser of:
• 2.5 times the average monthly payroll costs during the 1-year period prior to the date the loan is made plus the outstanding amount of certain SBA loans made on or after January 31, 2020; or
• $10,000,000.

The maximum loan amount equation outlined above varies for seasonal employers and those not in business during the period beginning 2/15/2019 and ending 6/30/2020.
These loans can be used for the following payments (subject to certain specified exclusions):

• Payroll costs;

• Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;

• Employee salaries, commissions, or similar compensations;

• Mortgage interest payments incurred before February 15, 2020;

• Rent under leases entered into before February 15, 2020;

• Utilities for which service began before February 15, 2020; and

• Interest or other debt obligations that were incurred before the covered period.

Guidance from the United States Treasury Department has indicated that the loans will be forgiven so long as they are used for the purposes outlined above over the 8 weeks after receiving the loan and employee headcount and compensation levels are maintained. Also, it is anticipated that no more than 25% of the forgiven amount can be used for non-payroll costs. Borrowers have until June 30, 2020 to restore full-time employment and salary levels for any changes made between Feb. 15, 2020 and April 26, 2020.

In order to obtain a loan, the borrower must make the following certifications:

• The uncertainty of economic conditions makes necessary the loan request to support operations;

• The funds will be used for one of the above-listed uses; and

• Borrower has not previously submitted an application or received proceeds for the same purpose and amount.

Further, borrowers will need to have been in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes.

We understand the SBA has been working to create a streamlined loan application through an electronic portal to facilitate its and the participating lenders’ ability to move applications through the system and disburse the $349 billion as quickly as possible. We also understand that the SBA is working on regulations implementing the PPP and providing guidance in anticipation of the CARES Act enactment. The regulation may come out in stages, and we will attempt to provide further guidance to our clients as new information becomes available. If you have any questions regarding the PPP, please contact a member of our Corporate/Business Law group.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.