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Entries in Corporate Attorney (13)

Friday
Oct152010

Selling Your Business? Here's a Checklist (Part 1).

In my M&A Law Practice, I work with clients who are selling a business all the time.  This can be an exciting and stressful time for business owners - and often times they become overwhelmed by the process.  In addition to the legal advice and services I provide, I always try to help them the other aspects of this process.  Below I have created a simple checklist of the things I usually share with business owners to help them wrap their mind around the process of selling a business.

Some Practical Considerations

  1. Make sure you think through the reasons you are selling a business.  This may sound obvious, but there are lots of implications to selling a business.  Are you tired of the business?  Do you want to retire?  Do you want to remain involved with the business, but just need/want the capital from the sale?  All of these sorts of things should be considered when working with your M&A attorney and other advisers in determining the terms of the sale of the business
  2. Is this a "family business" in which your children or other family members have an interest or expectation of long term involvement?  Sometimes people sell off a closely held business without considering the options of keeping the business in the family for future generations.  While this might not be a possibility or option for some, it is something I always recommend people give some thought to.  There are ways to step away from the a business, generate passive income, and still hand it over to family.
  3. Is finding the right buyer important to you?  A business owner who has spent years building a business might often be reluctant to sell the business for fear of a potential buyer not maintaining the business in the vision of its founder.  Some business owners don't care about this - but if you do - finding the right buyer for your business becomes very important.
  4. Determine what you want to get out of the sale of your business before you begin negotiating terms.  Don't let a buyer dictate the terms when you sell a business. Before you begin the process, put a great deal of thought into what you want or need to get out of the sale. Use that as the primary driver as you negotiate terms.  For people selling a business out of desperation, this might not help things all that much - but still - it is important to remember why you are selling your business as you work through the details.

Check back soon for  a checklist of some legal stuff you should add to your checklist when selling a business.


Tuesday
Aug112009

Buy-Sell Agreements - Attorney

A good buy-sell agreement can prevent conflicts between business owners and help maintain the closely held status of a small businesses. In the context of a corporation, this issue is typically dealt within a buy-sell agreement between the shareholders; in the context of a limited liability company, buy-sell provisions are usually drafted into the operating agreement. Any business that has multiple owners should always deal with this issue, in writing, before potential arguments and problems arise.

If you would like to see more information regarding the types of questions business owners should consider when having a buy-sell agreement prepared, check out my recent blog post on the topic over at IndianaStartup.com.

Tuesday
Jul282009

Mergers and Acquisitions Attorney - Methods of Selling a Business

Buying or selling a business is not like buying or selling a car.  This "business" consists of the assets and equity of the business, along with the various ongoing liabilities of the business.  The assets can include physical assets, as well as intangible assets such as intellectual property, contractual rights and the goodwill the business has developed over time.  When you buy or sell a business, it typically means that some or all of the foregoing will be transferred.  There are many ways to do this.  I have outlined a few over at IndianaStartup.com - check out the post on buying or selling a business.  

The process is very complicated - and is best accomplished with the help of a Mergers and Acquisitions Attorney.

Monday
Jun222009

Business Start-Up Attorney - Employees vs Independent Contractors

 One question I get from quite a few start-up clients of my business start-up law practice, is whether they should hire employees or independent contractors. After a brief discusion, those clients usually will opt to classify new workers as independent contractors instead of employees. This is mainly a cost saving decision. The costs attributable to hiring employees can be substantial, including workers’ compensation, unemployment insurance tax, social security tax and withholding and local payroll taxes.


A good start to identifying workers as independnt contractors vs employees is to have a properly drafted agreement signed in writing by the company and the worker, although simply identifying a worker as an independent contractor, even in a signed agreement, does not mean that the law will recognize the worker as such. The law will look to factors such as the degree of control and direction the company has over the worker. Misclassification of a worker can lead to obligations to pay back taxes, penalties, and interest payments.

If you are a start-up and have questions about how to classify your workers as independent contractors, make sure you seek the legal advice of a good business start-up attorney.

Tuesday
Jun092009

Small Business Law - SBA Interest Free Loan Program

The Small Business Administration has a new loan program for certain established small businesses that provides interest free loans - America's Capital Recovery Loan Program.  The new SBA loan program, according to the SBA:

ARC loans can be used to make payments of principal and interest, in full or in part, on one or more existing, qualifying small business loans for up to six months. ARC loans provide an immediate infusion of capital to small businesses to assist with making payments of principal and interest on existing debt. These loans allow borrowers to redirect cash flow from making loan payments to investing in their businesses, to help sustain the business and retain jobs. For example, making loan payments on existing loans with proceeds from an ARC loan can allow a business to focus more funds on core operations, such as buying inventory or making payroll.

ARC loans are interest-free to the borrower, carry a 100 percent guaranty from the SBA to the lender, and require no fees paid to SBA. Loan proceeds are provided over a six-month period and repayment of the ARC loan principal is deferred for 12 months after the last disbursement of the proceeds. Repayment can extend up to five years.

The best candidates for ARC loans are small businesses that in the past were profitable but are currently struggling, yet have been making loan payments or are just beginning to miss loan payments due to financial hardship.FAQs for Lenders and Borrowers.

ARC loans are made by commercial lenders who are SBA participants. The SBA will pay these banks a monthly interest rate throughout the term of the loan. Lenders can find more information here. Non-SBA lenders can easily become SBA participants by working with their nearest SBA district office. Businesses interested in applying for an ARC loan should first contact their current lender.

In order to qualify, a small business must be an established business, have financial statements demonstrating it was profitable in one of the past three years, and be able to project sufficient cash flow to meet current and future loan payments over a two-year period from loan approval. If your business does not meet these criteria, you can discuss your eligibility with your lender. ARC loans are not designed for start-up businesses.

You should always consider consulting a corporate finance attorney prior to taking out any sort of business loan to help you understand and receive favorable terms.

 

 

Monday
Jun082009

Private Placement Attorney - Brief Overview of Rule 504

One of the exemptions from the federal securities laws regarding the registration of securities offerings comes in Rule 504. Rule 504 provides an exemption for the offer and sale of up to $1MM of securities in a single twelve month period. In general, an issuer may not use public solicitation or advertising to market the securities. Purchasers must receive restricted securities, meaning that the securities may not be sold without either registration or an applicable exemption. Unlike some other exemptions, Rule 504 allows for a private sale without any specific disclosure requirements, although care should be taken to provide sufficient information to investors to avoid violating the anti-fraud provisions of the federal securities laws - as I mentioned in an earlier post - disclose, disclose disclose. Make sure there are not only no false statements, but no misleading statements either, and no omissions that might make what you have disclosed misleading.

As always, make sure you get the advice of a securities attorney with private placement experience.  There are lots of complicated regulatory requirements to comply with, both on the state and federal level.  A private placement attorney can help you navigate the regulations and to draft your private placement memorandum.

Sunday
May312009

Business Incorporation - Why you should consider your home state.

Martin Zwilling over at Startupprofessionals.com has a nice post regarding why start-ups should consider incorporating / organizing their business in their home state.  The post can be found here, but here is a brief summary:

  • Don't automatically flock to incorporating in Delaware.  Sure there might still be some advantages to doing so, but they don't really apply to start-ups.
  • In Indiana, where I practice law, the filing fees for incorporating a business are inexpensive and the process is relatively straightforward - not the case in popular states such as Delaware and Nevada.
  • Attorneys in your home state, if you are using an attorney (hopefully you are), will be more familiar with your state incorporation laws.
  • Your company may qualify for an intrastate securities law exemption in the event it offers securities for sale.
  • There is no need to register as a foriegn entity in your home state - and added expense if you incorporate elsewhere. 

As he points out, there are many other concerns that should be addressed when determining in what state you should incorporate - concerns you should address with a corporate attorney in your home state.

Friday
May292009

Private Placement Attorney - The Basics of Raising Capital with a PPM

If you are looking to raise capital for your business, a private offering of securities might be one avenue for you to consider. Selling securities, whether it be to friends and family, or to angel investors, is an excellent way to raise capital if you are prepared and do it the right way. But beware, as the sale of securities (i.e. stock, notes, LLC interests...etc) is a highly regulated area on both the state and federal level. The following is intended to provide a basic understanding of raising money through a private placement. You should retain the services of a private placement attorney to advise you through the entire private placement process.

The SEC created Regulation D, which sets forth certain rules for private offerings. By following these rules, an issuer (i.e. a company selling stock or other form of security to raise capital) generally may raise up to $5,000,000 without a public offering.

Generally, a private offering may have no more than 35 investors. On the federal level, though, certain high-net-worth investors defined as "accredited investors" may be excluded when calculating the number of investors. There must also be NO general solicitation for investors by the issuer - no advertising, no seminars. Just this weekend I came across someone soliciting the "private" sale of securities on Twitter - definitely not a good idea if you are trying to comply with the registration exemptions under Regulation D.

The federal securities laws for both public and private offerings are based on the premise that investors in securities are best protected by the disclosure of all relevant information regarding the securities and the issuer. The underlying guideline in this respect is Rule 10b-5, which requires the issuer to disclose to investors anything material that a reasonable investor would want to know prior to making a decision to invest. This is why PPMs are stocked to the brim full of material facts, disclaimers, and lots and lots of risk factors. Failure to properly include these and other items may subject the issuer to serious liability, including being forced to buy back the securities from the investor, as well as damages. If you want to avoid liability, overdisclose, do not hide anything, and do not mislead (among other things of course).

Keep in mind that there are also state "blue sky" laws to comply with - and they will need to be complied with in every state that a security is offered and/or sold.

Make sure to consult a private placement attorney  / securities law attorney before you raise capital for your business.

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The Law Office of Brian V Powers can help your business raise capital and help draft a private placement memorandum (PPM). Contact us today.

Friday
May222009

Raising Venture Capital - What documents do you need?

Raising venture capital / private equity requires more than just pitching your idea and business plan to a group of people with money to invest - although your pitch is obviously a crucial component.  There are lots of documents that will be required, and those documents will usually require the careful scrutiny of a venture capital attorney.  Below is a short, but not inclusive, list of what you might expect:

  1. Venture Capital AttorneyVenture Capital Term Sheet - These are typically non-binding outlines of the terms of a venture capital deal.  Don't let the "non-binding" portion fool you, though.  Terms laid out in a term sheet serve as the basis for all future negotiations, and any attempt to deviate from those terms will not be met kindly during deal negotiations. 
  2. Stock Purchase Agreement - This is the definitive agreement setting forth the terms of the venture capital investment, such as the purchase price, the closing date, and the conditions surrounding the issuance of stock - which more likely than not will be preferred stock.   There will also be numerous representation and warranty provisions, among other provisions, that will need to be carefully crafted by a venture capital attorney.
  3. An Amendment to the Bylaws - Assuming the company is a corporation and that the VC is conditioning its investment on the receipt of preferred stock (which it likely will), the bylaws of the corporation will need to be amended.  This amendment will create a new class of preferred stock and will include anti-dilution provisions. dividend rights, liquidation rights and conversion rights.  Some states require a "Certificate of Designation" to accomplish this, rather than an amendment to the bylaws.
  4. Right of First Refusal / Voting Agreement - This agreement will grant the VC a right of first refusal to purchase any shares in the company that come available for sale.  It will also likely contain a number of restrictions on the transfer of common stock, as well as tag-along rights allowing the VC to participate in the sale of any common shares.  Finally, there will likely be a voting agreement requiring that the common shareholders elect the VC's nominee(s) to the company's board of directors.
  5. Consulting Agreement - Often times a VC will require payment of a monthly fee by the company in return for certain management services provided by the VC. 

These are just a few of the documents that a company might normally expect to see during the process of raising capital.  As always, you should consult an attorney with knowledge of the venture capital process.

Business lawyer Brian V Powers represents businesses raising venture capitalContact us today to discuss your needs.

Wednesday
May132009

Technology Law - Beware of Creating an Enforceable Agreement Via Email

It is no secret that a great deal of modern business is conducted via email.  What most people don't realize is that an email exchange can be construed as creating a valid and enforceable contract, sometimes inadvertently.

If an e-mail or chain of e-mails clearly states an offer to enter into a transaction with all of the material terms, and the recipient / offeree responds by email accepting the terms, then it is entirely possible that an enforceable contract has been formed — without any printing or actual exchange of signatures. 

With the adoption of the Uniform Electronic Transactions Act (“UETA”) in most states and the passage of Electronic Signatures in Global and National Commerce Act (“ESIGN”) by the federal government, the stage was set to allow contracting via email.  Each of these acts is based on the principle that electronic signatures carry the same legal effect as handwrittten signatures.

Both laws accomplish this by establishing a procedural approach to meeting “writing” and “signature” requirements:

  1. A document or signature cannot be denied legal effect or enforceability solely because it is in electronic form;
  2. A contract cannot be denied legal effect or enforceability solely because an electronic record was used in its formation;
  3. If a law requires that a record be in writing, then an electronic record satisfies the law; and
  4. If a law requires a signature, then an electronic signature satisfies the law.

Under ESIGN and UETA, parties must agree to use electronic signatures and records. Between businesses, consent to do business electronically can be established either explicitly or by implication based on the parties’ interactions

Federal and state law specify certain types of documents that cannot be signed electronically, including wills, trusts and estates; marriage, divorce, adoption, and other family agreements; court documents and filings; utility service terminations; eviction, foreclosure, and repossession notices; health and life insurance termination notices; documents referring to the handling or transportation of hazardous materials, real estate purchase agreements and deeds.  While this list will vary from state to state, generally these types of agreements require a writing, signed (in ink)by the parties.

What does all this mean?  Be careful in your email exchanges that contain the material terms of an agreement. If all you intend is to negotiate the terms and issues leading to a formal written and signed contract accepted by both parties, make sure that you explicitly say that in your e-mails. On the flip side, if you are trying to enter into a contract via email, there are safeguards to take to make sure you have a complete and enforceable agreement - which you should consult with your attorney about.  You could also check out an electronic document services such as DocuSign.

My technology law practice can help you deal with issues like this, along with other technology law issues including licensing agreements, e-commerce, and click-wrap agreement for websites.