BUYING OR SELLING A BUSINESS? WHAT YOU NEED TO KNOW.

wfb_legal_consulting_inc_largeThere are numerous issues important to Business Buyers or Business Sellers or both. Generally, Sellers are interested in:

● Sellers want to be that they will be paid, especially if payment of the purchase price is deferred.
● Sellers want to avoid the possibility that a Buyer will later make a claim because the business fails to meet a Buyer’s expectation.
● Sellers are often concerned about continuing liability to former customers, employees and vendors, and in the case of the sub-leasing the business location they often remain liable to the landlord until the expiration of the lease term.
● Sellers are often required to respond to Buyers’ due diligence requests that can be very burdensome with serious legal significance.

Generally, Buyers are interested in:

● Buyer’s usually want to avoid the Seller’s prior vendor, customer, employee and tax liabilities.
● Buyer’s want to be sure that they get what they are paying for.
● Buyers want to be sure that the Seller does not start competing for the same customers or use technologies and information that were part of the transaction
● When the location is important Buyers want to be sure that the commercial lease provides them the duration they require.
● Buyers want to be sure that key employees intend to stay with the business and/or if they leave, it is not a situation where they are capable of taking important customers with them. (Note that key employees who are not owners may in California compete against their former employer.
● Buyers may require assistance with respect to financing.

Other Considerations:

● if you are buying into an existing business or merging your business with another you will want to have investigated what the other party understands your role to be and how someone will share control over a business that they formerly ran themselves.
● If you are buying a Franchise you will likely be required to be approved by the Franchiser and sign an agreement with the Franchisor.· A Bulk Sale escrow is the purchase of the business assets but not the business.
● Sometimes when you sell your business an equally if not more important part of the transaction is your continuing relationship with the new owner as an employee or consultant.
● When there is a business broker involved in the transaction, especially when the broker is giving advice to both the Buyer and the Seller you may find yourself under pressure to finalize the transaction too quickly

When you are buying a Business there are usually related legal needs as well:

● Forming an Entity
● Commercial Lease
● Employees and Independent Contractors
● Standard Terms and Conditions
● Contracts and Agreement
● Trademarks and other intellectual property

Once you’ve agreed to purchase a business, you’ll need to formalize that agreement. This is typically done using a purchase agreement, which is a legal contract that outlines the details of the sale. (This may also be known as a business purchase agreement, asset purchase agreement, stock purchase agreement or something similar depending on the exact nature of the sale.) Attorneys for both the buyer and seller should work together to draw up the purchase agreement to ensure that it is fair to both parties.
The purchase agreement typically includes:

• Purchase price and method of payment
• Terms and conditions of the sale
• Representations and warranties of the seller
• Representations and warranties of the buyer
• Actions the seller has agreed to take prior to the sale (such as paying off existing loans or securing the resignation of employees who will not be employed by the new owner)
• Details of the business to be purchased, including a list of all assets, inventory, contracts and equipment
• A list of all existing creditors who are to be paid off with the proceeds of the purchase
• How much commission is owed to a business broker (if one was used) and who is responsible for paying that broker’s commission
• An agreement to resolve any disputes arising from the sale in a specific court of law or with a specific arbitration company
• Additional relevant documents known as exhibits and amendments

The exhibits may include items such as:

• Bill of sale
• A set of corporate documents including leases, financial statements, tax returns, accounts receivable and payable, articles of incorporation, bylaws and minutes
• An agreement that the seller will act as a consultant to the business, remain as an employee or agree not to compete with the business or operate in a particular territory for a certain period of time
• An escrow agreement, detailing the responsibilities of the escrow agent, if the purchase money is being held in escrow for a certain period of time
• Property deeds if the business owns real estate
• A promissory note if the buyer is paying the purchase price in more than one installment or paying the entire purchase price at a later date
• Assignment of leases and the landlord’s consent to the lease assignment

Questions for Your Attorney

An attorney who has experience working with business sellers and purchasers can help guide the process of creating a purchase agreement, and should give you peace of mind in knowing that no detail has been overlooked.
Among the questions to consider asking your attorney:

• Have you previously written purchase agreements?
• What red flags should I be aware of?
• How much do you charge for your services?

CAN I BE FIRED BECAUSE I USE MEDICAL MARIJUANA FOR A DISABILITY?

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So far, courts that have considered this question have ruled against employees. Your legal right to use medical marijuana protects you from criminal prosecution, but not from employer drug testing programs. If you were taking a different legally prescribed drug for your condition, you would most likely be protected by the Americans with Disabilities Act (ADA). However, this protection hasn’t been extended to medical marijuana.

The ADA prohibits discrimination against employees with disabilities. A disability is a physical or mental impairment that substantially limits a person’s major life activities, including major bodily functions. There may be people with glaucoma who do not have a disability under the ADA, based on this definition. However, if your glaucoma substantially limits your ability to see (a major life activity), you are protected.

Employees with disabilities have a right to reasonable accommodation to allow them to do their jobs. This extends to the measures an employee uses to control and function with a disability. For example, an employer might have to lower a desktop to accommodate an employee’s wheelchair. The same rule applies to drugs that are legally prescribed for a disability. The employer may have a legal duty to accommodate the employee’s drug use, including the side effects that the drugs have on the employee, under the ADA. If, for example, an employee takes medication for depression that makes him or her drowsy in the morning, the employer may have to alter the employee’s start time to accommodate that side effect.

But medical marijuana hasn’t been treated this way, at least so far. Courts have held that a person’s right to use marijuana for certain medical conditions doesn’t extend to a right to have that use accommodated by an employer. Marijuana use remains illegal under federal law, and the ADA explicitly does not protect employees who use illegal drugs. This lack of consistency between federal and state laws has led to the unfortunate result that an employee can be fired just for following doctor’s orders.

WHAT EXACTLY ARE IRA BENEFICIARY “SEE-THROUGH” TRUST PROVISIONS?

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IRA BENIFICIARY “SEE-THROUGH” TRUST PROVISIONS

A valuable tool for protecting IRA assets as a component of estate planning is the use of a trust as an IRA beneficiary. These “see-through” trusts can provide valuable flexibility in a comprehensive estate plan, but also carry both income tax consequences and very strict IRS requirements for qualification. Estate planning counsel must know the detailed IRS rules in drafting these “see-through” trusts to meet requirements for Required Minimum Distributions (RMDs) and income accumulation.

IRA beneficiary trusts generally come in two types: “conduit trusts,” and “accumulation trusts.” Conduit trusts are marked by specific requirements as to how to calculate required minimum distributions over the lifetime of specified beneficiaries. It is important to note that IRA beneficiary trusts are drafted as trusts (whether QTIP trusts or any other) valid under state law, but contain specific language and provisions that qualify the trust for see-through treatment.
Whether estate counsel is drafting a trust to function as a conduit trust or an accumulation trust, estate planning counsel must know the rules and required language in drafting an IRA beneficiary trust in order to avoid serious tax consequences.

Be sure to visit: http://wfblegalconsulting.com/blog-2/articles/ to review other important topics in the business-related areas of Employment Law; Asset Protection; and Estate Planning.

THE OPERATING AGREEMENT AND THE LLC: WHY THEY MUST “GO STEADY.”

Contribution by: Jarom Bergeson

Perhaps no other innovation is as indicative of America’s particular devotion to (and knack for) creative capitalism as the limited liability company (“LLC”). Born in America’s smallest state (Wyoming) in 1977, the LLC combines the pass-through taxation of a partnership or sole proprietorship with the limited liability protections of a corporation.

This unique combination of liability protection and pass-through taxation explains why the LLC was quickly adopted in all 50 states, and why it is easily America’s most popular corporate form today. In 2012, more than 2.2 million LLCs filed partnership tax returns, and current estimates are that 55% of LLCs are single-member entities that file no tax returns at all, which means that there are probably somewhere in the neighborhood of 5 million LLCs in existence in America today. Approximately 3,000 new LLCs are created each month … in Utah alone (our home-office state and one of the best LLC laws in the country!).

The big mistake!! Another reason why LLCs are so popular is that they are easy to form, however, this can also be their downfall. Unfortunately, there are thousands of entrepreneurs who believe hitting “submit” and receiving back stamped Articles of Organization from the state completes the formation of the LLC.

In most states an LLC can be established by clicking through a government website and paying a filing fee. Technically, that puts the LLC on the ‘radar’ of the State. However, smart business owners and investors know this is really where the formation process begins.

Every LLC, whether it has one member, five members, or 100 members, should have an Operating Agreement and there are several important reasons why.

First, the Operating Agreement establishes the asset protection veil and the ‘formality’ of signing the Operating Agreement and the initial minutes is critical to show a court and a plaintiff that you took the LLC formation seriously.

Second, is the fact that your LLC Operating Agreement is your chance to write the “law” for your LLC. This is why the LLC is such a great choice for partnerships. The Operating Agreement gives partners the ability to delineate roles, rights, and responsibilities for the LLC owners, and to make specific plans for what happens if a partner dies, becomes incapacitated, or gets divorced.

What happens if you don’t have an Operating Agreement? Well, in their wisdom, the various state legislatures have planned for this, and each state LLC statute provides a set of “default rules” for how LLCs are to be governed if and when the LLC owners don’t take the time or effort to make those decisions for themselves.

However, as with most statutory language, these default rules can be difficult to decipher. In addition, the rules can and do change when the LLC statutes are amended, and all 50 states have different rules within the same framework. To boot, sometimes a state’s particular default rules just don’t make sense.

To illustrate, Utah adopted a new LLC statute in 2013. This statute becomes fully operational, applying to all existing and newly-formed LLCs, on January 1, 2016. While I’m sure the legislature and the governor had good intentions in passing the law, it certainly contains some provisions that create surprising outcomes.

For example, the new statute says: “A manager may be removed at any time by the consent of a majority of the members without notice or cause” (U.C.A. §48-3a-407(3)(d)). It does not say “a majority of the ownership” or “a majority of the profits interests.” This means that in an LLC with three owners, where one owner is the manager and owns 90% of the company, and the other two owners each own 5% of the company, the two 5% owners can get together and vote out the 90% owner as manager … as long as the LLC has no Operating Agreement and the statutory default rules apply. If the LLC does have an Operating Agreement, then the provisions of the Operating Agreement trump the default rules from the statute.

The moral of the story is that if you don’t want your LLC to be subject to potentially odd default rules that can be adopted and changed at the whim of state legislators who have never owned or run their own business, then your LLC needs an Operating Agreement and you need to know what that Operating Agreement says.

Do not create an LLC that does not have an Operating Agreement, and if you have already made that mistake, fix it by having one drafted and adopting it retroactively to the date your LLC was established.

 

DO I NEED AN ATTORNEY TO FORM AN LLC?

YES, in my opinion. While an attorney is not a legal requirement, online formation services and document providers will typically only provide you with fill-in-the-blank forms (form Operating Agreement, form Organization Minutes, and form Membership Interest documents), which unfortunately eliminates the main benefit of the LLC – the ability to customize the relationship of the members. These online services also often leave the members to operate the LLC with little or no instruction, which in a majority of cases causes the LLC members to lose their personal limited liability protection, thus exposing each of the members to potential personal liability for the LLC’s debts and obligations. “Would you go to a nurse, instead of a doctor, for cardiac surgery?” But the reality is most people will not see a lawyer until they are forced to hire a litigation attorney, or bankruptcy attorney, who informs them that they could have protected their personal assets, but didn’t.

Most attorneys, especially civil litigators, have a lot to gain from owners of companies (especially LLCs and Corporations) who fail to form and operate their business with the required formalities because instead of spending a few hundred dollars a year with a business attorney or corporate attorney to dot the i’s and cross the t’s, now the individual is going to spend $10,000 to $50,000 to defend a lawsuit, and still face the real probability of not only having to file a company bankruptcy, but a personal bankruptcy as well.

The reason for the custom documents is to provide, amongst a multitude of other things, (1) detailed instructions on how to run and operate the LLC; (2) qualifications as to who can be a manager of the LLC; (3) restrictions on which members/managers can bind the limited liability company; (4) provisions to reduce the likelihood of disputes among the members; and (5) a mechanism to resolve disputes or a deadlock among the members without costly litigation (at least where possible).

WHAT IS THE FOCUS OF A FRANCHISE DISCLOSURE DOCUMENT?

 The Franchise Disclosure Document (FDD) is a legal document that franchisors must furnish to prospective franchisees, by law. The Federal Trade Commission (FTC) is the regulatory body that enforces it. That makes it kind of a big deal. The FDD contains information…facts and figures on the franchise business opportunity, and is provided to help you analyze the offering. You, as a prospective owner of a franchise, must receive the FDD at least 14 days before you are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor. You have the right to ask for and get a copy of the disclosure document once the franchisor has received your application and agreed to consider it.

Look for more on this subject in next month’s July 2015 issue of the Bottled Business Sense Newsletter.

by: BEST ASSET PROTECTION LAWYER FOR BUSINESS: http://www.wfblegalconsulting.com

5 HOT TAX DEDUCTIONS TO CONSIDER BEFORE YOU FILE

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As all small business owners know, this is a critical time of year to try and dig up all the expenses we can from last year in order to drive down our tax bill as low as possible.

1. Travel related expenses.  In my opinion, this is one of the most underutilized tax deductions by small business owners today.  Unlike meals and entertainment that are limited by 50%, travel expenses are 100% deductible.  These include airfare, hotel, rental cars, valet, taxi, trains, tolls, etc…  You would be shocked to know how many tax returns come across my desk every year of new clients with literally zero travel deductions.  Consider all of your travels last year that may have involved a meeting with a client, a vendor,  or a training meeting, a tour of a competitor’s facility or store, your annual board of directors, shareholder, manager or member meeting, a conference with retreat with a partner, the list goes on and on.  It just doesn’t make sense for any business owner to not have some travel expenses.

2. Auto Deductions.  Remember this isn’t travel, but expenses for your car or truck used in your business.  There are two main options:  mileage or actual expenses, and statistics show that 90% of small business owners actually utilize the mileage method.  For 2014 this was 56 cents per mile.  Surprisingly, again I see many taxpayers shy away from claiming their true mileage because they are afraid of an audit.  True, you should do your best to keep a written record, but if you haven’t been extremely detailed, still utilize an estimate and take the deduction.  I would rather see my client defend the deduction than not take it at all.  As for ‘actual’ expenses, this is for those typically with large trucks or SUVs.  IF you were following my Newsletter in December you may have seen the special Bill and Extension passed by Congress that extended the 179 Depreciation deduction for trucks with a 6ft bed or greater, vans, delivery trucks and RVs.  Don’t forget this opportunity as well if you purchased a vehicle weighing more than 6,000lbs in 2014. If this was you, do your best to track down your fuel, repairs and maintenance for last year if you used the ‘actual’ method.

3. Dining and Entertainment. Again, a highly underutilized expense by small business owners and should be a healthy line item on your tax return.  Please make sure you consider all of your meals last year where you discussed business with a partner, or a potential client, vendor or strategic alliance. If you didn’t keep a receipt, still take the expense. Technically, you don’t need a receipt if it was less than $75, but you still should be able to substantiate it if necessary with a credit card or bank statement and the purpose of the meeting.  Another overlooked fact is that you can write-off dining by yourself when you are traveling.  This has been defined as outside of a normal commute of your home office or place of business and business owners should be diligent in tracking these expenses.  However remember, although you are traveling, all dining and entertainment is still limited to 50% of the full amount. The biggest deduction for food that is for 100% of the cost is that of event food (or otherwise stated, food purchased for your attendees at a presentation you make).  This also includes food purchased for your employees at the office.

4. Office Supplies and Technology.  Every small business owner is regularly buying supplies and upgrading their phone, computers and digital reading devices.  Don’t forget that when you have a small business, the majority of these items can be fully expensed.  Make sure you track them and discuss with your tax advisor which expenses for items should be reduced by some percentage for personal use if necessary.

5. Technology and Telephone.  This is obviously an ever increasing expense as small business owners utilize technology to do business nationwide, if not worldwide.  Many also don’t know that recent case law and IRS rulings allow business owners to write-off 100% of their cell phone expenses, so long as they have at least one dedicated home phone line.  Moreover, make sure to include the cell phones of your family members that work in the business alongside you and need a cell phone for their legitimate roll in the business.

Now with all of these expenses, you need to take into account your overall income, profit and the size of your operations.  Your deductions need to look realistic and common for the type of business you have.  However, if they’re legitimate and you have support, don’t be afraid to take them.  Go for it and just have your records as back up if you need them in the future to justify your expenses.

 

BEST ASSET PROTECTION SERVICES: LAWYER FOR BUSINESS: SETTING UP AN LLC

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SETTING UP AN LLC: Take a look at what it takes to set your business up as a Limited Liability Company.

1. Choose a Name

Your name will be the first thing people see or hear as it relates to your new business, so make it a good one. Next, make sure you are only one using the selected company name. You can do that with a free corporate name search in your state. 

2. Register the LLC and File Your Paperwork

Call WFBLC, Inc. and I’ll file your state’s Articles of Organization paperwork for only $600.00. 

3. Get Your LLC’s Tax ID

Before you can start operating as an LLC, you need an Employer Identification Number. This is like a social security number for your business, and one you’ll need before opening a business bank account. This is included in my price above. 

4. Create Your Operating Agreement

This document outlines the rights and obligations of the members of your LLC, as well as lists the distribution of income of the Limited Liability Company to its members. Your Operating Agreement doesn’t need to be filed with your state, however you do need to keep one on premises, signed, if you have other shareholders. This is separate and apart from the filing fees, and is particularized depending upon the particular needs of your company. 

5. File Business Licenses and Permits

Additionally, you should apply for any business licenses or permits you’ll need to operate your business. It’s best to do this before you start operating your business to avoid potential fees or issues down the road. This is usually accomplished through your local city or county offices. 

6. Keep Your LLC Compliant

Once you’re operating as an LLC, your work isn’t done for good. Each year, or every other year depending upon your state of residence, you will need to file your Statement of Information. The due date for this report depends on where you filed your LLC. For example, if you filed it in Michigan, Delaware, North Carolina, Georgia, Florida, or Texas, there’s a specific date that your annual report is due. In other states, it’s due on the anniversary of when you filed your LLC. 

7. Finally, Take Care of Loose Ends

Depending on where you’re based, you may need to publish your intent to form an LLC in a local newspaper. If you form an LLC in New York, for example, you are required to run that intent in an approved newspaper for 6 consecutive weeks. This is not so in California.

BEST ASSET PROTECTION LAWYER for BUSINESS: PRACTICAL BUSINESS ENTITY TIPS—DO YOU KEEP YOURSELF SAFE?

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PRACTICAL BUSINESS ENTITY TIPS—DO YOU KEEP YOURSELF SAFE? 

What do the terms “articles,” “meeting” “bylaws” and “minutes” mean?

Articles of Incorporation
The Articles of Incorporation is the primary legal document of a corporation; it serves as a corporation’s constitution. The articles are filed with the proper state government to begin corporate existence. The articles contain basic information on the corporation as required by state law.

Organization Meeting
The organizational meeting completes the formation of the corporation. At the organizational meeting, a number of initial tasks are completed such as: the Articles of Incorporation are ratified; the initial shares are issued; officers are elected; bylaws are approved; and a resolution authorizing the opening of bank account is passed. If the initial directors are named in the Articles of Incorporation, they can hold the organizational meeting. If they are not named, then the organizational meeting is held by the incorporator.

Bylaws
Bylaws are rules and regulations adopted by a corporation for its internal governance. They usually contain provisions relating to shareholders, directors, officers and general corporate business. At the corporation’s initial meeting, the bylaws are adopted. Bylaws are a private document not filed with any state authority.

Minutes
The Board of Directors and shareholders transact business at meetings, with decisions being typically made by majority vote. Certain formalities must be followed in holding Board of Directors and shareholder meetings. The meetings must be held pursuant to notice. Notice may be waived if the waiver is done in writing. The secretary or other person mailing the notice should complete an affidavit of mailing notice, and the minutes of the meeting should be recorded. The notice document, affidavit or waiver should all be attached to the minutes of the meeting.

Are directors’ and officers’ names a matter of public record?

Yes. Names and addresses are filed with the state and are therefore available to anyone. Nevada requires this filing annually. They do not require notification of intervening changes.

What is the responsibility of the president, treasurer and secretary?

What is the responsibility of the president, treasurer and secretary? The president is typically responsible for entering into contracts on behalf of the corporation; the treasurer is responsible for maintaining and accounting for corporate funds; and the secretary is responsible for observing corporate formalities and maintaining corporate records. In addition to these required officer positions, a corporation may also have vice presidents and/or assistant secretaries or assistant treasurers. Typically, the authority and responsibilities of each officer is described in the corporate bylaws and may be further defined by an employment contract or job description. The President: The president has the overall executive responsibility for the management of the corporation and is directly responsible for carrying out the orders of the Board of Directors. The Board of Directors usually elects him or her. The Treasurer: The treasurer is the chief financial officer of the corporation and is responsible for controlling and recording its finances and maintaining corporate bank accounts. Actual fiscal policy of the corporation may rest with the Board of Directors and be largely controlled by the president on a day-to-day basis. The Secretary: The secretary is typically responsible for maintaining the corporate records.

What are the directors’ and officers’ corporate liability?

Under normal circumstances, officers, directors, managers, etc. do not have personal liability for lawful acts of the corporation. In addition, in Nevada statutes, the owners are not the “appropriate” party to a lawsuit. The company may also indemnify any officer, director, manager, etc. from personal liability.

What is a Board of Directors?

The Board of Directors is essentially the management body for the corporation. Responsibilities of the Board of Directors include establishing all business policies and approving major contracts and undertakings. In addition, the board may also elect the president. The officers and employees under the directives and supervision of these directors carry out ordinary business practices of the corporation. The directors must act collectively for their votes and decisions to be valid. That’s why directors may only act at a Board of Directors meeting. This, however, requires certain formalities. One such formality is that the directors all must be notified of a forthcoming meeting in a prescribed manner, although this can be waived or provided for in the corporation’s Articles of Incorporation or bylaws. For a directors’ meeting to be valid, there must also be a quorum of directors present. A quorum is usually a majority of the directors then serving on the board; however, the bylaws may specify another minimum number or percentage. The Board of Directors must meet on a regular basis (monthly or quarterly), but in no case less than annually. These are the regular board meetings. The board may also call special meetings for matters that may arise between regular meetings. In addition, boards may call a special shareholders’ meeting by adopting a resolution stating where and when the meeting is to be held and what business is to be transacted. The first meeting of the Board of Directors is important because the bylaws, the corporate seal, stock certificates and record books are adopted. Board members, like officers, have a fiduciary duty to act in the best interests of the corporation and cannot put their own interests ahead of the corporation’s. The board must also act prudently and not negligently manage the affairs of the corporation. Finally, the board must make certain that it properly exercises its authority in managing the corporation and does not abrogate its responsibilities to others. This means that the board must be very careful to document that each board action was reasonable, lawful and in the best interests of the corporation. This is particularly true with matters involving compensation, dividends and dealings involving officers, directors and stockholders. The record or corporate minutes of the meeting must include the arguments or statements to support the board’s action and they must detail why the action was proper.

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BOTTLED PROTECTION POINTS for your business: What is a “CRUMMEY” Power?

Bottled Protection Points provide tips for the business owner to contemplate and, if applicable, implement into his or her everyday operation. The Protection Points span the three interwoven areas of Business Law–Asset Protection; Estate Planning Protection; and Employment Law–all important considerations for the knowledgeable entrepreneur.

Bottled Protection Points are driven by Bottled Business Sense Newsletter; The Bottled Business Sense Show; and

WFB Legal Consulting, Inc.

BOTTLED POTECTION POINTS--3

A “Crummey” power is a provision contained in certain irrevocable trusts that permits specified trust beneficiaries to withdraw gifts you make to the trust for a limited period of time. Whether or not the beneficiaries exercise their right, the gift still qualifies for the annual gift tax exclusion.

 

Make sure you have a LAWYER FOR BUSINESS who provides you with the BEST ASSET PROTECTION available.

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