Business
Contract Disputes
The majority of contract litigation involves the interpretation of oral and written agreements. As would be expected, oral agreements are extremely difficult to interpret and enforce.
A well drafted invoice, credit agreement, employment agreement, buy-sell agreement, etc. will usually contain language related to venue for disputes, interest on funds owed, mediation clauses and attorneys fee provisions. It is obvious that the first step any individual or entity should take is to have properly drafted documents that anticipate disputes. Chances are that a “standard document” will have many issues if litigation occurs.
The Andersohn Law Office has handled litigation related to commercial claims and individuals who have needed to enforce a contract.
Incorporation of a New Business
Establishing a business entity for a new or existing enterprise is a major step in establishing a foundation for the future.
Why Incorporate?
One of the greatest benefits of incorporation is it limits liability for the owners. The debt or liabilities of a corporation should not expose the business owner’s personal assets to liability.
When starting a business always consider the following:
Incorporate or form a limited liability company to protect your personal assets.
If you have a business partner, always have a buy-sell agreement to resolve up-front what happens if a business partner becomes disabled, retires, dies, or wants to sell his or her interest.
Always watch the money. Sign your own checks and review quarterly and annual financial statements.
Hire an independent CPA to complete income tax returns and prepare annual financial statements.
Sale or Purchase of a Business - Part I
An experienced lawyer can assist you in structuring a sales agreement that maximizes your return and protects you from liability after the sale. Never sign a letter of intent prior to consulting an attorney.
Many business owners are approached by a prospective buyer who offers a “simple” letter of intent setting forward some “basic” terms. The buyer will suggest that the details will be worked out later and set forth in a formal purchase agreement. The danger is that, depending on the language in the letter of intent, the seller may have unknowingly signed a binding contract. Never sign a letter of intent without consulting an attorney.
If either or both the buyer and seller utilize the services of a business broker both parties still need the services of separate attorneys. The issues that are of primary importance to a seller of a business are usually:
Non-Disclosure agreement to be signed by the buyer
Receiving the purchase price at closing
No future liability for the business
Release from existing lease
Compensation for future services
Whether or not the buyer is financially qualified to purchase the business
Sale or Purchase of a Business - Part II
Issues of Importance for buyers:
Disclosures of financial information and tax returns
Non-Compete agreement to be signed by the seller
Purchase/leasing of business location
Retention of employees
No liability for debts incurred by the business prior to the purchase
Obtaining the business name, phone numbers, websites, and customer lists
Training by the seller
Issues that are of mutual concern:
Allocation of the purchase price to various assets
Preservation of jobs for valued employees
Transitioning of customer base
Payment of employment, personal property and income taxes
Assignment of leases
Franchise Agreement / Restrictions / First Rights of Refusal
The controlling document of a sale or purchase of a business is a detailed contract that must be carefully drafted. A lawyer cannot represent both the buyer and seller. A client should never rush into a deal before consulting legal counsel. Most transactions will be Asset Purchase Agreements for small to medium sized businesses. Some will involve the purchase of stock of an existing entity. The parties need to seek the counsel of CPAs and attorneys to determine the most advantageous way to transfer a business.
A business sale that involves financing real property or franchise agreements will require additional drafting to address issues related to the assets being transferred and contingencies of the purchase.
Any business transfer has dozens of issues including retention of employees, tax basis of assets, assignment of leases and the disclosure to employees and the public.
The general rule is that a seller who carries a portion of a purchase price will receive a higher sale price, but will also run a much higher chance of seller default and litigation.
Money spent negotiating a contract that is well thought out and covers every issue is always beneficial.