Archive for the ‘Business Law’ Category

Buying a Business, Essential Qualities: Commitment

September 9, 2010

This blog is part of a series of blogs on buying a business. We are first exploring the qualities you need when deciding to whether or not you are should buy a business. I encourage you to go back and read the previous blogs.

This week we are discussing access to commitment.

Commitment. The one indispensable characteristic of a successful Buyer is commitment. By this I mean that although a Buyer will not succeed simply because they ARE committed to the business; it is certain that the business will fail if they are not.  Business commitment takes many forms. Business ownership can take a toll on the Buyer’s social and family life in addition to their financial situation. Accordingly, a Buyer, and to some extent their family and friends, must be willing to make some short term sacrifices to reap long term benefits. Among the commitments successful Buyers make is to be “life long learners.” There are many good business books and courses. Four books that we strongly recommend are: “Getting to Yes” by Roger Fisher and William Ury; “Guerilla Marketing” by Jay Conrad Levinson; “From Good to Great” by James Collins and “E-Myth Revisited” by Michael Gerber.

If you would like assistance in regards to the purchase/sale of a business, please contact me at http://www.kreamerlaw.com.

Buying a Business: Essential Qualities, Expansion of Products and Services

June 9, 2010

In the 30 +/- years of since I began practicing law, I have worked on hundreds of sales and purchases of businesses. This is the second chapter in a series of blogs wherein I will share my observations and experiences.  I encourage you to go back and read this blog series from the beginning “insert date”.

The second reason a strategic buyer will purchase a business is to provide expansion of products/services.

Expansion of products/services. Most business purchases by Buyers seeking to expand their product line/services are successful. These types of transactions are typified by Buyers with related industry experience. Examples of this type of acquisition could include:

An insurance agency who focuses on sales of life insurance buying an agency with expertise in property and casualty insurance.

A car dealership which buys another car dealership which represents a different manufacturer.

Sellers in these types of transactions are often motivated by personal reasons such as retirement, health issues, or unrelated indebtedness. It is not uncommon in these types of transactions for the Seller (or a key employee of Seller) to remain involved in the operation of the business after its acquisition. In the examples above the Seller might run a “division” of the Buyer’s business which engages in the Seller’s business. In these types of transactions, it is very important that as part of the transactions the Seller agrees that he/it will not compete with the Buyer for a period of time (normally 2-5 years) after the Seller is no longer involved with the business.

Next  I will be covering Entry into the Market.

Buying a Business: Essential Qualities

May 4, 2010

In the 30 +/- years of since I began practicing law, I have worked on hundreds of sales and purchases of businesses. This is the first in a series of blogs wherein I will share my observations and experiences.

There are several “qualities” which are common to Buyers in successful sales/purchases of businesses.  These qualities are:  industry knowledge, personal operational knowledge, capital, access to expertise, and commitment In the next few weeks I will be exploring these qualities with you.  Before you consider buying any business, you should ask yourself if you have these qualities:

This week we are examining industrial knowledge and Personal knowledge.

Industry knowledge. Industry knowledge includes knowing the “market” (both customers and competition), as well as “industry standard” revenue/costs/expense ratios for the business. This information can sometimes be obtained from associations which are comprised of similar businesses.

Personal operational  knowledge. Unlike “old dogs” it IS possible for Buyers to learn “new tricks”. HOWEVER, in most successful transactions the Buyer himself/herself has had PERSONAL experience in the operational side of a business similar to that which they are considering buying. Often one of the terms of a transaction is that the Seller agrees to “train” the Buyer. This approach can be successful if the business operation is not very complicated, or if the business has revenues of less than $250,000. Our experience is that in most (but not all) cases the teacher/pupil model does not translate well to Sellers and Buyers.

A hybrid between buying a business and starting one “from scratch” is the purchase of a franchise. At its core, a franchise is a tested business “model”. Their terms and conditions vary among industries and among companies within an industry, but most offer some level of industry/market knowledge and training of franchisees. Obtaining a franchise can reduce the “learning curve” but it is not a guaranty of success.

If you would like assistance in regards to the purchase/sale of a business, please contact me at http://www.kreamerlaw.com.

BE PREPARED: CUT YOUR LEGAL FEES WHEN STARTING A BUSINESS

March 1, 2010

The client who comes prepared for meetings with their attorney save significant amounts on their legal fees. This is because the attorney can work much more efficiently to address your needs.

The nature of the preparation is dependent on the type of matter involved, but, at the very least, you should consider writing out a list of questions and/or issues to be discussed. This will help you “focus” the discussion, stay on track, and avoid forgetting something which needs attention.

If we were asked to assist you in the formation of your business, we would urge you to consider the following:

  1. The business name
  2. Principal address of the business
  3. Names, addresses and social security numbers of all “owners”
  4. How much (as a percentage of the total equity) each owner will own
  5. What each owner will contribute to the business in return for their ownership
  6. Names, addresses, and titles of officers
  7. If the business will be leasing space, a copy of the lease
  8. If the business will have employees how many and when the first payroll will be paid (you are considered an employee of a corporation of which you are an owner; you are NOT an employee of a limited liability company in which you are an owner)

We strongly recommend, but do not require, that you prepare a business plan. The biggest value a written business plan is that it will cause you to think through the business on a practical logistical level. A “completed” business plan should include:

  1. A marketing plan
  2. A projection of revenue and expense, and
  3. An analysis of the Strengths, Weaknesses, Opportunities and Threats (a S.W.O.T. analysis) which you may confront in your business.

Although there are several business plan software packages available, we HIGHLY recommend you work with a nearby Small Business Development Center (“SBDC”), which is a governmental entity charged with assisting entrepreneurs.

The adage “time is money” is particularly true when working with your attorney. By spending some of your time preparing for your meeting with your attorney, you could save a substantial amount of money.

Will You Be Personally Liable For Your Actions of Your Employees?

December 2, 2009

Are you personally liable for damages arising from the actions (whether negligent or intentional) of your employees? If one of your employees, during normal business hours, causes a serious accident while driving a company vehicle, are you (personally) liable for the damages/injuries? Are you personally liable for your business’ accounts payable to vendors, or loans from creditors?

The answers may depend, on your company’s books and records.

In virtually every state, the law provides that if the owners of the company do not follow general business protocols creditors (including people who file lawsuits) can “pierce the veil” and attribute personal liability to the owners of the company.

Your best defense to a lawsuit seeking to “pierce the veil” is to maintain good company records. This includes, but is not limited to:

  • The existence of a company Minute Book. This is the repository of the company’s records. It normally will contain not only minutes of meetings[1], but also stock[2] or membership unit ledgers[3].
  • The existence of Bylaws[4] or an Operating Agreement[5]. These documents normally address issues of business governance (including, but not limited to: who votes, the issues on which votes are taken, and how votes are counted), as well as tax issues. These documents may address relationships among the owners (buy/sell; rights of first refusal, transfers on death), but these issues are often addressed in separate documents.
  • The issuance of Stock or Unit certificates. These are tangible evidence of business ownership. Most commonly the number of shares/units is less important than the percentage of ownership of the total outstanding shares/units. Not all shares or units need be exactly alike. For instance: there could be non-voting owners who share in the economic returns, but have no “voice” in the management of the company (“silent partners”); or certain owners may have a right to a preferential return (either as to income or as to liquidation, or both).
  • Minutes of shareholder/member and director/manager meetings. Anything “material” (i.e. important and/or significant) should be documented in minutes. Determination of what is “material” will vary from business to business. Elections of directors/managers should be documented (particularly if there is a change of directors/managers). Meetings need not be held in person, or face to face. Telephonic, and/or e-meetings are becoming increasingly common. Resolutions affirming, authorizing, or directing, an action can be adopted without a meeting is the resolutions are contained in a signed document.
  • Filing of all applicable tax forms on a timely basis.
  • Absence of co-mingling of funds of the business and the owners; absence of payments of the owner’s personal expenses with company funds.

In short: if those who own and manage the business ignore business formalities, the law will ignore the separate existence of the business entity.


[1] Shareholder and director meeting minutes in the case of a corporation; member and manager meetings in the case of a limited liability company.

[2] For a corporation

[3] For a limited liability company

[4] For a corporation

[5] For a limited liability company


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