Our robust business law focuses upon the following areas:
I. Formation of Business Entities
II. Operation of Business Entities
D. Extraordinary Business Actions
IV. Purchases and Sales of Business Interests
V. Private Placements of Securities
I. Formation of Business Entities
A large part of our practice consists of forming business entities for clients. These entities fall into two categories: for profit companies and tax-exempt organizations.
A. For profit companies. There are many reasons that clients come to us to form a new for profit business entity: starting a new business (perhaps for the first time), providing a better and more formal structure for an existing business, combining with others for a larger business, etc.
In every case, our approach is the same: we begin with a detailed attorney-client meeting to discuss the goals of the client. In this meeting, we address the pros and cons of various entities, including tax treatment, ability to limit liability from company operations, protection of company assets from owner creditors, differences in voting rights among owners, burdens of company operations, and required ongoing maintenance. The object of our meeting is to help the client select the proper entity for his needs from the following options: Sole proprietorship Partnership General partnership Limited partnership Limited liability partnership Joint venture Corporation C Corporation S Corporation Statutory close corporation Limited Liability Company Disregarded entity Partnership Corporation (C Corp or S Corp) The above options are available to both business and professional corporations that are being operated for profit. Once the appropriate business entity has been selected, our firm provides all the services necessary to form the entity in conformity with the client’s needs.
B. Tax-exempt organizations. Clients often engage us to form tax-exempt organizations. The preferred form of such organization is a not-for-profit corporation, although LLC’s are also acceptable. The Internal Revenue Code (“Code”) requires that certain language be inserted in the organizing documents, such as the exclusive purpose being for acceptable charitable purposes, no profit can inure to the benefit of any individual associated with the organization, and upon dissolution the property must pass to another tax-exempt entity. Once the entity is formed, tax-exempt status must be established.
If the organization is a church, it automatically qualifies as being tax-exempt under Section 501(c)(3) of the Code. Other organizations must file for tax exemption with the IRS under the appropriate provisions of the Code. Our firm has significant experience in forming exempt organizations. We also prepare and file applications for tax-exempt status with the Service. The complexity of such filings differ according to the purpose of the organization (schools being particularly difficult), but detailed facts concerning the organization must be submitted to the IRS in every case. We work with each client to develop a game plan for gathering the required information and disclosing it on the form with a minimum of wasted effort.
II. Operation of Business Entities
After the business entity is formed, our services continue with advice regarding business operations.
A. Annual meetings. Every business should have an annual meeting to reflect on the results of the previous year and make decisions for the new year. The IRS treats business entities with more respect if annual meetings are held and minutes are recorded. We assist clients in holding annual (or special) meetings, and provide advice regarding action that should be taken. Upon request, we will prepare the appropriate minutes for the client. We also serve as registered agent for many of the business entities we form. The registered agent is the person who is served by the sheriff in the event of a lawsuit or other event invoking strict rules of notice to the business.
B. Trade names and trademarks. Business clients often want to use trade names and trademarks in connection with their operations. A trade name permits the client to use a name other than its own to conduct operations. This is sometimes necessary when an entity name is not available through the secretary of state’s office because someone in a different part of the state is using such name. A trade name is also helpful to present the same business to different markets (ABC of Albany, ABC of Columbus, etc.) or different segments of the business within the same market (ABC Hardware, ABC Nursery, etc.). The use of trade names permits one individual or entity to project a market presence for numerous types of products and in various locations under different names without having to form separate business entities for each division.
A trademark is a distinctive logo for the business, which sometimes includes some kind of motto. Trademarks can be very effective in branding a business. A business may have multiple trademarks to represent different product lines, locations, and so forth.
Our attorneys are experienced in advising clients on the use and protection of trade names and trademarks. They are also experienced in helping clients avoid infringing on existing trade names and trademarks that have already been established by another business.
C. Buy-Sell Agreements. Business owners usually select their partners with great care to ensure compatibility in business. Sometimes their selection proves to have been poor and there needs to be a parting of the ways. A break-up can also be the result of the death or disability of a partner, which leads to the affected partner’s family taking over his share of the business. Seldom do co-owners want to be in business with their business partner’s family. When such a break-up occurs, serious damage can be done to the business – often without effective legal recourse. The cure: a buy-sell agreement.
A buy-sell agreement is a contract between the owners of a business that provides for the purchase of an owner’s interest upon certain triggering events, such as death, disability, termination of employment, and management deadlock. This type of agreement provides in advance what happens if a triggering event occurs. The remaining owner or owners are usually required to or have the option to purchase the affected owner’s interest at a price and upon terms specified in the document.
Our firm routinely recommends that multiple-owner business entities have a carefully considered buy-sell agreement upon formation or as soon thereafter as possible. We have significant experience in drafting such agreements and enforcing them when a triggering event occurs. Buy-sell agreements provide much needed insurance against business break-ups and also serve to provide a market for closely held stock that may not be saleable to any other person.
D. Extraordinary business actions. Our firm provides advice to our business clients who need extraordinary action to be taken. Such action includes:
- Recapitalization of the company
- Mergers and consolidations
- Company separations
- Conversion into a different entity
- Dissolutions
All these actions entail serious tax consequences, which our experienced attorneys will minimize to the extent permitted by the client’s goals. We prepare all documentation required for the business to take such extraordinary action upon the terms desired by the client.
III. Contracts
We advise clients on all types of contracts. When large contracts are involved, we suggest that our client check out the other party to the maximum extent appropriate under the circumstances. We do so because even the best contract cannot fully protect a client against someone who (i) does not intend to honor his commitments or (ii) lacks the capacity (financial or otherwise) to comply with its terms. Once such due diligence has been completed, we typically ask the client for a detailed term sheet listing what the client and the other party have agreed upon. We use those terms to develop a first draft of the contract for review by the parties. We prefer to furnish opposing counsel with an electronic version of the draft so that changes can be made and tracked. Those changes are then presented to our client for agreement or further revision until the agreement is in final form for signature.
- Some types of contracts we handle on a regular basis are the following:
- Employment Agreements
- Buy-Sell Agreements
- Prenuptial Agreements
- Leases
- Promissory Notes and Security Agreements
- Asset Purchase Agreements
- Stock Purchase Agreements
- Settlement Agreements and Releases
Once the contract has been signed, we stand by our client to enforce his rights under such agreement.
IV. Purchases and Sales of Business Interests
Our firm assists clients in buying or selling business interests. This includes partial interests or the whole business. When a client brings us a proposed transaction, we normally process it in the following stages:
Stage 1: Structure of the deal. Every transaction, but particularly complex ones, must be structured properly to accomplish the client’s objectives. This entails the attorney applying tax and other legal concepts to the facts of the case and presenting the proposed deal structure to the parties.
Stage 2: Letter of intent. Once the parties have agreed to the legal structure of the transaction, we assist them in negotiating the specific terms, including valuation, allocation of purchase price, and security of payment, which are then incorporated into a nonbinding letter of intent.
Stage 3: Due diligence. The letter of intent nearly always is subject to due diligence. This gives each party the right to review important information about the other party and confirm the underlying premises of the deal. Often the parties will have their accountants crunch the numbers to determine the precise tax results of the transaction.
Stage 4: Final documents. Upon completion of due diligence to the satisfaction of the parties, the attorney prepares the final documents that will govern the transaction. Some additional negotiation will usually occur over specific contract provisions. The attorney then places the documents in final form for signature by the parties.
Stage 5: Closing. At the time specified in the contract, the attorney conducts a closing to complete the deal. The closing is usually held shortly after the final documents are signed but sometimes takes longer when contingences, such as regulatory approvals, employment issues, or bank financing, must be met.
Our firm has substantial experience in representing both buyers and sellers through all stages involved in selling a business interest. We represent the parties by either drafting the documents or reviewing the documents drafted by the other party’s attorney.
V. Private Placements of Securities
Our firm represents both investors and issuers of private placements of securities. Representing the investor is simply reviewing the deal he is being offered and explaining it to him along with our analysis of the investment and its suitability for him. The final decision to invest or not is a business decision that only the investor can make.
Representing the issuer is much more involved. In just about every case, the issuer is a business with inadequate capital to implement its business plan. We are very careful in accepting a client who wants to raise his business capital from third parties and will do so only under special circumstances.
Once we accept an issuer as a client, we work closely with him to determine what exemption from registration best suits his deal, and to assist him in preparing the appropriate offering documents.
The level of disclosure depends upon the sophistication of the investors and the exemption from registration that is being relied upon. The least amount of disclosure is required for accredited investors ($200,000 annual income; $1 million net worth) under a Regulation D offering, which is an exemption from registration granted by the SEC that is either coordinated with or preempts state law, depending upon the specific Regulation D exemption being used. Most private placements involve filings with the SEC or state securities commissioners, or both.
VI. Business Disputes
Every area of the law has its share of disputes. Business law is no exception. We encourage our clients to remain in touch with us and to hold regular business meetings with co-owners. Good communications and regular disclosure of pertinent facts about the business are the best means of preventing business disputes.
Should a dispute arise, we need to be involved just as soon as possible. Our view is that business disputes should be handled in a way that will minimize the loss to the business and the individual partners. This can usually – but not always – best be accomplished through a measured approach designed to keep the dispute from spiraling out of control, as follows:
Step 1: Negotiate The parties and their attorneys should conduct informal talks to see if some compromise can be reached that is acceptable to both parties. If that is not possible, then an amicable parting of the ways should be explored. Mediation of the dispute using a professional mediator could help the parties agree upon a satisfactory course of action.
Step 2: Take Formal Action Formal company meetings would be held to resolve the dispute within the rules that govern the company’s actions. For example, if the issue is one party’s continued employment by the corporation, the company’s board of directors could resolve the issue by either firing or keeping the employee – perhaps with some conditions.
Step 3: Litigate If formal company meetings do not or cannot produce a definitive resolution, then the dispute is ripe for litigation.
Our firm is experienced in representing companies, owners and employees in cases involving business disputes during all phases of the conflict.