You’ve worked hard to establish and grow a business that has provided for you and your family. It would be tragic to have your business suffer a major setback or worse, its demise, in the event of your illness or death. To ensure your business can survive without you at the helm, you should consult with an attorney that can help you craft a succession plan that avoids a disorderly transition. The Massachusetts business succession planning attorneys at Hutchings Barsamian Mandelcorn, LLP are here to assist you with this process.
Typically, if there is no plan in place, the business owner’s stake in the business is transferred to his or her heirs or beneficiaries, who may not be ideal in terms of managing the business. Worse, this can lead to disputes between siblings or other beneficiaries, as some who have been involved in the business are all of a sudden faced with “new partners” who have no understanding of how the business operates.
Another issue is that if any existing shareholders want to purchase shares in the business from new owners who have become shareholders as a result of the passing of a prior owner, they may not have the necessary cash to do so.
Our experienced attorneys can help owners put together a plan that addresses these issues and facilitate a smooth transition. Typically, succession plans are crafted after all business stakeholders and family members are consulted regarding the future organizational structure and management of the business.
While every succession plan is customized to the situation at hand, owners have a number of common issues and concerns. Sometimes there are key employees that need to be incentivized with a slightly larger stake so they do not leave the business. Other parties may want to be granted the right of first refusal, or the ability to accept or reject the shares of the exiting or deceased owner before they are offered to others. To ensure such potential buyers have the necessary cash to purchase the shares, a life insurance policy may be obtained to fund them, usually referred to as a Buy/Sell Agreement. Valuation is another key issue; the price of the shares should be based on a mechanism set forth in the succession plan.
In addition to business issues, there are also concerns about gift and estate taxes associated with the transfer of ownership in the business. There are various measures that can be undertaken to reduce this burden during the planning process. For example, arrangements can be made to transfer the owner’s interest into a trust for the benefit of family members.
With so many complex business, estate and tax issues involved, it is critical to work with an experienced attorney who understands these matters to ensure your life’s work does not go to waste. If you are an owner or stakeholder in a business, the skilled estate planning and business succession attorneys at Hutchings Barsamian Mandelcorn, LLP can put your mind at ease.
Purchase/Sale of a Business
The purchase or sale of a business is a complicated process for which experienced legal counsel is essential. When representing clients in such transactions, our attorneys start the process by learning as much as possible about the buyers’ objectives in the transaction in order to advise him/her on a comprehensive set of issues ranging from business matters and financial risks to legal hurdles. Our goal is to identify possible challenges and put safeguards in place to prevent issues that may arise in the future, from negotiations and the due diligence phase to the final closing. There are two primary methods of transferring ownership of a business, either by sale of the businesses’ assets or by the transfer of ownership of the entity itself.
Asset Purchase Agreements (APA)
This is a form of a business sale where instead of purchasing the stock of the company, the buyer purchases specific assets of the company and assumes specific liabilities. There are a number of issues that can arise in such transactions such as inventory, accounts receivable and payable, condition of assets, and lease of premises that must be addressed in the agreement.
Share Sale Agreements
In a share sale of a business, the purchaser is buying the shares from the shareholders of the company. Purchasers generally prefer not to buy shares in order to minimize both tax and legal liability issues.
Purchasers will often require a provision in the Agreement which prohibits the sellers from competing with the business after the sale. The duration and geographic limitation of such provisions are negotiated by the parties. Courts will require such provisions to be reasonable so to not impinge on commerce and trade.
In addition to negotiating, drafting and reviewing business sale offer letters and agreements, we advise and assist business owners and investors with a wide range of issues including:
- Advising on practical business and financing issues related to the transaction;
- Assisting with the selection of the right business entity such as partnership, Limited Liability Company, S-Corporation or C-Corporation to secure the most desirable tax benefits and liability protection;
- Advising on employment matters attendant to business transactions including contingency on the continued employment of employees and relocation issues;
- Advising on discovering and managing liens and other corporate liability issues;
- Negotiating terms and structure of earn-outs as part of compensation for sellers; and
- Advising on the laws of local jurisdictions affecting the business as well as any applicable licenses and permits required for legal operation of the business.
Other important matters to consider include assignment of the business trade name, transfer of customer lists, training of new owners and staff, and introduction of new owners to important business contacts. Given the complexity and scale of the issues involved in the sale of a business, it is critical for both purchasers and sellers to retain an attorney with knowledge and expertise in such matters to guide them through the process and safeguard their interests.