Attorney Interviews

Rohrbachers Cron: The sale of a business can be a stressful time both for the seller and the buyer. It is something probably only engaged in by most business owners either once or twice during their business career. Besides legal advice, an attorney can provide a business owner or buyer with perspective as to reasonable and unreasonable terms, the requirements and expectations that can be expected from the other side, insights and guidance relating to the transaction from similar, prior transactions, and problem solving options for situations which may arise during negations and closing . This is especially important when either the seller or buyer is a large or sophisticated company that has experienced the purchase and sale of businesses on a regular basis . Therefore, it is my opinion that what an attorney adds to a business transaction other than strict legal advice is perspective as to what are...

Blen: Valuation and taxation are probably the two most important initial issues. Valuation is very subjective. I frequently see a broad range of values for similar businesses. Very often a business will be valued quite low for tax purposes. A similar business may be valued quite high in the event of a litigation. There are “rules of thumb” for various industries. This can give the prospective seller a ballpark idea of the value of his company. However, a more sophisticated valuation is essential in setting the market price. The seller should carefully examine the tax aspects of the sale of his business and, to the extent possible, take steps to minimize tax consequences. Generally, the sale of the business will receive capital gains treatment, which is favorable. However, depreciation recapture may result in ordinary income tax treatment for a portion of the sales proceeds. A difficult tax issue is the...

Andrew: This is a classic fact pattern for Shareholder Oppression: a business problem that often affects minority shareholders of closely held businesses. Essentially, Shareholder Oppression occurs when the majority shareholder excludes a minority shareholder from the business. In this case, the marjority shareholder is attempting to leverage out the minority shareholder to obtain total control of the company. It is possible, depending on the jurisdiction and type of entity involved, that the majority shareholder has also breached contractual obligations and fiduciary duties that are owed to the minority shareholder, as well. In many jurisdictions, the minority shareholder must negotiate the sale of her interest in the business (“Sell-Out”) or sue the majority shareholder for judicial dissolution or receivership. Other judicial remedies, such as stock repurchase or money damages may also be available. A good valuation is a powerful negotiation tool that will assist the minority shareholder in getting a fair...

Harry: An attorney experienced in mergers and acquisitions is a tremendous resource for business owners considering selling their business. Attorneys will provide business owners with an overview of the process and educate the owners on what to expect at the various stages of their business sale. A seasoned attorney will also provide valuable information on how to prepare the business for sale and will provide insight on what buyers will focus on in a sale. An attorney with M&A experience will also have connections to the better business brokers and advisors and can help make appropriate recommendations.

Julie: If you are looking to sell a franchised business, you will not only need to find a buyer but you will likely need consent from the franchisor . It is important to have legal advice and counsel prior to taking steps to finalize the terms with the buyer as the franchisor may have requirements for consent. Otherwise, you may spend time and money working on a sale only to find that the franchisor will not permit you to proceed.

Hanwei: Buyers and sellers are able to use the internet to perform extensive research on businesses and their respective markets. The internet also gives access to information on specific businesses, including, but not limited to, a business’ legal history, corporate management, business valuation, net worth and any competitors. Since lawsuits are matters of public record, a business’ legal history can be easily researched. Buyers and sellers, including their respective attorneys, are much more educated regarding the business transactions that they involve themselves in. As such, it is much more difficult to hide negative information in business transactions.

Peter: I work exclusively with closely held and employee owned companies. The most common mistake that these business owners make is in assuming that there is a magic black box that can be used to value their business. The fact is that instead of one process, there are several processes for determining a value. The process chosen by the appraiser depends upon the purpose of the valuation, the date of the valuation, the size of the business, the type of equity being valued and countless other factors. For example, a business owner that needs a valuation for gift tax purposes should not rely upon a valuation conducted when his partner got divorced two years ago. Each individual engagement needs to comply with the processes appropriate for the purpose of the appraisal. Another mistake, common to small business owners, is that they rely too often on anecdotal information when deciding how...

Chris: If an offer has been accepted, thereby creating a valid contract, the only way a buyer can cancel is if a contingency provision in the contract allows a buyer to terminate. There will often be contingencies to allow the buyer to perform due diligence on the company and its records, inventories and other aspects of the business. Sometimes there is a contingency for the buyer to secure financing to complete the transaction. The contingency language will indicate under what circumstances a buyer (or seller for that matter), may cancel the contract.

Richard: You should hire an attorney prior to executing an agreement to sell the business, for sure. This does not always happen. As the seller’s attorney, I would want to ensure the seller is getting an adequate price for his/her business and ensure the purchase is structured properly (i.e. asset purchase versus purchase of shares/membership interests). The attorney acts as a facilitator, obtaining information the seller needs from various sources and providing information to the seller’s other professional servicers (CPAs especially), as well as the point person to deal with the buyer and their team. At a minimum, the attorney needs to prepare purchase and sale documents and assist the seller in making representations and warranties . If the client wishes, the attorney will be intimately involved in all phases of the sale and will be at the closing table when the paperwork is finalized and the money is dispersed.

Robert: While I am always willing to litigate any dispute, it is in the best interest of all parties to work together to reach an amicable resolution. Alternative dispute resolution, especially mediation, is highly recommended. Such a forum is an excellent opportunity for the parties to present and discuss all issues of concern before an impartial third party, specifically a third party who has experience with the particular issues that are involved. When all parties come to the table with a desire to engage in active listening and to resolve the issues, either method (but preferably mediation) quite frequently resolves all pending issues. The best method to ensure alternative dispute resolution is used is to incorporate such a requirement into the discussions leading up to the execution of the contract, as well as included in the final contract document.