Acquisitions and Mergers

ACQUISITIONS AND MERGERS

Multi-million dollar businesses are not built overnight.  Healthy, growing companies are the product of the dedication, perseverance, hard work, and vision of their owners.  While most businesses start out with a small team and minimal capital and resources, there are ways to expedite a company’s growth as the organization increases in size.  One common way to instantly grow is through mergers and acquisitions.

At Bellatrix PC, our experienced business lawyers are committed to helping companies of all structures and sizes maximize their potential through advantageous management decisions.  Our firm will provide your organization with respected and trusted legal counsel, and are prepared to handle matters ranging from basic negotiation of employment contracts to litigation defense.  To arrange for a private legal consultation, call the law offices of Bellatrix PC at (800) 449-8992 today.

businessman with growth chart

What is the Difference Between a Merger and an Acquisition?

In simple terms, an acquisition occurs when Company A purchases all of the assets belonging to Company B.  In some cases, acquisition is effectively an asset purchase.  In other instances, acquisition is a stock purchase, depending on the financial and legal health of the target company.  Legally speaking, the target company no longer exists after an acquisition is complete.

By comparison, a merger occurs when two or more companies agree to go forward as one company.  A famous example is the Daimler-Benz AG and Chrysler Corporation merger of 1998.  After the merger, DaimlerChrysler AG was born. From a legal perspective, both companies continue and form a new company, combining their assets, liabilities and stock into a single entity.  This is arguably the most important distinction between these two growth strategies.

A common term frequently used in M&A discussions is “synergy.”  In a commercial context, the concept of synergy holds that “the value and performance of two companies combined will be greater than the sum of the separate individual parts.”  In other words, the targeted companies both possess valuable attributes which will foster mutual improvements within both organizations.

For example, Mr. Baskin and Mr. Robbins might merge their small ice cream shops together to create one bigger company with less competition and more flavors.  To use another example, an airline might acquire a catering company in order to bring its food service in-house.  The airline is now able to generate additional profits by offering passengers meals where the option had previously been absent, while the catering company benefits by adding a new client to its portfolio.

Legal Factors for Employers to Consider

Employers must consider many important factors at the outset of any deal in which one company is going to merge with or acquire another, including but not limited to matters such as:

  • The logistics of a complete due diligence.
  • Positive and negative tax consequences.
  • Employment law consequences, such as workforce reduction.
  • Stockholder consequences and voting requirements.
  • Negotiation of terms, including purchase price and form of transaction.
  • Practical and logistical considerations regarding the merging of operations, facilities, and technology.
  • Structure of all pertinent legal agreements, including warranties, representations, and indemnification concerns.
  • Executing and filing all required legal documents with the appropriate government agencies.

The legal and financial structure of a merger, acquisition, or other change to company ownership is of critical importance to all invested parties.  Not only does this structure impact the form and liabilities of the ongoing business, it also affects the protections available to the new and former owners, the taxation of each entity and its owners, and even the employment and wage status of the workforce, including situations where no employees are terminated.

When these concerns are not clearly defined and communicated prior to the actual sale, the parties involved may have differing ideas about the extent — or existence — of their liability.  Failure to address each detail of the sale prior to conducting the transaction can create buyer’s remorse in the future, or even destroy the deal completely.  For the sake of avoiding unpleasant surprises and maximizing the efficiency of your transactions, it is prudent to work with an experienced legal team which can help your organization make advantageous business decisions.

Contact Our Business Attorneys

Each commercial transaction has a unique set of challenges and objectives.  The experienced mergers and acquisitions attorneys of Bellatrix PC will counsel you through all specific matters, questions, and concerns you may have.  We understand how important supportive guidance can be to your peace of mind, and will handle all essential elements of your transaction so that you can focus on what you do best: running your company.

If your organization is contemplating a merger, acquisition, sale, or change in ownership, it is essential to seek knowledgeable legal representation.  There are a number of factors which need to be addressed from both the buyer’s and seller’ side, and a qualified attorney can help to ensure that the entire transaction is properly documented and executed.  Remember, failure to address core concerns at the outset of a deal increases the likelihood that costly and time-consuming litigation will become necessary later.

To start exploring your goals and options in a confidential case evaluation, call Bellatrix PC at (800) 449-8992 today. We serve companies and entrepreneurs nationwide, with offices located in St. Louis, San Diego, and Riverside, CA.

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Alicia Dearn

Alicia I. Dearn is the founder of Bellatrix PC, a woman-owned law firm with offices in Missouri and California. Bellatrix PC handles lawsuits and business transactions. We advise in business, employment, real estate, intellectual property, civil litigation, and election law.


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The articles published by Bellatrix PC are for informational purposes only and do not constitute legal advice. If you have a legal issue, please get competent advice from a licensed attorney in your jurisdiction. Use of Bellatrix PC's site is subject to our Attorney Advertising Disclaimers.

Business Formation Attorneys

BUSINESS FORMATION

Starting your own business is an exciting time full of promise and opportunity.  But before your new start-up can hit the ground running, you must make some very important decisions with regard to business formation.  The structure you select will have a profound effect on issues ranging from the paperwork you must submit, to the degree of liability you will assume, to how many shareholders your company will be permitted.  Creating a solid and organized foundation now will allow your new company to prosper in the future, with the added benefit of reducing your risk of exposure to litigation.

At Bellatrix PC, our knowledgeable and experienced business formation attorneys are prepared to help you address all legal aspects of forming a new entity.  Our legal services range from helping employers ensure compliance with labor laws, to negotiating contracts and transactions on behalf of business owners, to defending companies against lawsuits brought by employees, independent contractors, and clients.  We are committed to empowering new businesses with the legal tools they need to foster growth, minimize costs, and maximize efficiency in daily operations.

To start discussing your goals in a private consultation, call Bellatrix PC at (800) 889-8376 today.  Let’s start talking about how we can help your new company succeed.

Launching a Business Name Tag Sticker New Company Start

Forming a Company: Types of Legal Structures

You have a few options to choose from when it comes to selecting a formal legal structure for your new entity.  No single structure is “superior” to the others: each comes with its own unique set of pros and cons, and a structure that would be completely inappropriate for one organization might be ideal for another.

Our employment attorneys will sit down with you to explain the rights, responsibilities, benefits, and drawbacks associated with each structure, so that you can make an informed decision which serves your best legal and financial interests.  For now, let’s begin by comparing the basic qualities of each structure.

Sole Proprietorships

Once a popular choice, the sole proprietorship has largely fallen out of favor as this structure offers neither separation of funds nor any legal protection against liability to the owner.  Realistically, only the smallest of entrepreneurial pursuits will comfortably operate under a sole proprietorship banner.  If you are planning on expanding your organization to include employees besides yourself, a sole proprietorship is probably not the right option for you.

Partnerships: General Partnerships, LPs, and LLPs

Partnerships can take many forms.  Despite the connotations of the word “partnership,” these structures can actually have more than two partners.

In a general partnership, two or more individuals join together to create a company.  General partnerships neither protect company assets nor shield the owners from liability, which renders them ineffective for many new businesses.

While the federal government and most jurisdictions do not require a formal operating agreement, failure to create a written agreement is akin to tacitly summoning disaster in the event of a partnership dispute.  Ideally, a partnership agreement delineates each partner’s role in the organization’s daily operations, as well as financial rights to company profits.  However, both parties are also bound to third-party agreements made by either party to suppliers, employees, etc. except under some limited and special circumstances.

In a general partnership, all partners share approximately equal involvement in liability and daily operations.  By comparison, a limited partnership, or LP, involves a general partner who has greater involvement at the cost of increased personal liability, and a silent partner who has reduced involvement and liability.  Therefore, unless the general partner is protected under some other formal structure, liability will accrue to the general partner, thereby placing the general partner’s personal assets at stake.

A limited liability partnership, or LLP, is the silent partner partnership.  In an LLP, there are no general partners. Instead, all partners share limited liability for debts incurred by the business.  If your business is being bankrolled by a partner with more collateral than you can personally access, he or she will likely want you to sign a limited liability partnership agreement, or LLP agreement.

Corporations: S-Corps, C-Corps, and LLCs

Corporate variants include S-Corporations, C-Corporations, and the limited liability company or LLC.  These structures enjoy great popularity among many entrepreneurs due to their considerable protections against liability.  Incorporating is only slightly more difficult than setting up a partnership, or applying for the business license and permits you would need to operate a sole proprietorship, but the benefits and the protections are orders of magnitude greater.

Under these types of structures, the business owner is generally not considered personally liable for the actions or debts of the business.  Under normal circumstances assuming the absence of fraud, if the LLC owes a supplier money, the supplier cannot pursue the owner’s personal funds and assets to satisfy the debt.

These structures prove effective and appropriate for many entrepreneurs.  Such a structure might be particularly beneficial if you are thinking about starting separate but related businesses in the future, as the failure of one organization will not “domino” into the others.

Business Formation Requirements

The business formation lawyers at Bellatrix PC will take care of every step of the process on your behalf, including any special requirements which may apply.  We will discuss your immediate needs and long-term goals, educate you on which entities limit personal liability and minimize tax obligations, and advise you regarding which entity type would be best suited for your objectives.

Once we have determined which structure would offer your new company the strongest legal and financial advantages, our legal team will handle all of the following steps:

  • Reserve the company’s name.
  • Obtain an EIN (Employer ID Number) for the company.
  • Draft and file articles of incorporation or organization.
  • Draft the operating agreement and bylaws.
  • Serve as the registered agent for the entity.
  • Draft and review contracts with potential vendors and clients.
  • Negotiate commercial leases and educate you on tenant’s rights and responsibilities.
  • Draft employment agreements, non-disclosure agreements, arbitration agreements, and/or employee handbooks, while ensuring your policies comply with state, federal, and industry regulations.

There are many more steps besides these that you must take to start up a business legally. We have a free guide for you: How to Start A Business… Legally: A Quick and Easy Checklist. Follow the link to get it or call the business law attorneys of Bellatrix PC at (800) 889-8376 to schedule a confidential consultation.

Why Do 80% of Businesses Fail In Their First Year?

Eric is really angry. Less than a year ago, he started a business with four guys he knew from friends of friends. They shared the dream of opening a sports bar dedicated to soccer that would serve international beer and bar food. They found the perfect spot and signed...

When your business dies: should you wind up, bankrupt or just walk away?

GraveyardIt is a well-documented fact: most small businesses fail.  All too often, I advise business owners and officers on what to do when it looks like the company just cannot make it another month.  What to do?  Should the business owners file for bankruptcy?  Should they file corporate dissolution papers?  Or should they just walk away from the whole mess and leave the shell corporation to die a slow, natural death?

This is actually a complex topic that requires good legal advice.  But the one teaser I will give you is that, in my experience, more often than not, just walking away is actually the right answer (with some caveats).  Dissolution and bankruptcy are sometimes both right, too.

But what you absolutely cannot do: ignore it and literally walk away while Rome burns behind you.  Once an officer or owner of a business becomes aware that the business is insolvent or virtually insolvent, he or she has a duty to the business’s creditors and shareholders to make decisions that protect the creditors and shareholders interests.  That is why you must consider whether bankruptcy, dissolution, or leaving an empty shell is the best solution.  Otherwise, you may end up being personally named in a lawsuit.  If you have assets — the reason for forming a corporation in the first place — you do not want to be embroiled in something that could drain you and your finances for several years after the business has already died.

So, very broadly speaking, what are your options?

1.  Bankruptcy.  Businesses can bankrupt, and a liquidation can be similar to a personal total bankruptcy (they are both Chapter 7).  Bankruptcy may not get rid of all the liabilities, however.  First, there is no such thing as a “discharge” for corporations — that means that the debts stopped being collected on against the company as it dissolves, but they do not disappear if the business wants to start up again.  More importantly, if there are any personal guaranties by owners or officers, the bankruptcy may simply accelerate those, because they would not be stopped by the bankruptcy.  So it is necessary to determine whether there is any protection or advantage to filing a bankruptcy.  If there are, owners and officers should seriously consider it.  Bankruptcies ultimately are neat and final and wind everything up permanently.

As an aside, there is such a thing as a debt reorganization bankruptcy for a business — i.e. Chapter 11s — and if the business is viable, that might be the best route.  You will need experienced bankruptcy counsel before going this route.  Reorganizations are expensive and frequently fail.  But they do offer the chance to save a company and have been used effectively by some of America’s biggest corporations.

2. Dissolution.  If the corporation is done and can be wound up, dissolution is the legal way to do this.  What this means is that the corporation winds its business, and the shareholders file a document terminating the business entity with the Secretary of State.  This has the advantage of finally ending the affairs of the corporation, but can trigger personal liabilities if not done properly.  If you are a Type-A personality, you may choose to go with this option because it just feels neater. It also allows you to be in front of liabilities and wind them up so you can move on with life.

3.  Empty Corporation and Suspension.  When I first began practicing business law, I was surprised to learn that this is a very common practice.  It is essentially the “you can’t get blood from a rock” strategy of corporate wind down.  The company winds up its affairs as best as possible and simply stops conducting business.  Any liabilities that remain exist in theory, but are noncollectable in practice.  Eventually the Secretary of State suspends the corporation for failing to adhere to certain requirements, like paying the franchise tax.  The corporate entity exists, but only in an empty-husk form.  In many cases, this is a real and surprisingly cunning strategy.

So, if you are ever faced with this unpleasant prospect, which should you choose?  That depends on what your books say, what your liabilities are, how much personal skin you have in the game (i.e. personal liability), and what you plan to do next.  The best thing to do is just call your lawyer, who can give you some savvy and realistic advice on how to maneuver through the depressing bone yard of the dead and dying business.  You may be surprised at what you can end up salvaging for your next (hopefully more successful) venture. Contact our business law and real estate law attorneys today for a consultation.

Corporate Records: A Silly, Tedious Task That You Must Not Ignore

lawyer up to his chin in filesFor closely held companies and small businesses, corporate record keeping seems like just another unimportant and tedious chore. As a result, it is typically ignored by the business owners.

Honestly, it does seem a bit silly. Do you really need to have a meeting with yourself, if you are the sole shareholder? Or with your few other partners who you see daily?

Yes. Even though you are not Exxon, you must still keep your corporate formalities up every year. It takes just a small amount of time and money if you have your lawyer do it, but it can pay off big in lawsuit defense and asset protection. Or, to put it the other way, if you do not, you are subjecting yourself to unnecessary risks because you can be personally sued, personally held responsible for taxes, or even sued by your partners or your corporation’s Board Members and shareholders.

What documents do you need to keep?

  • List of members, past and present
  • Articles of organization
  • Tax returns for the past three years
  • Current operating agreement or bylaws and shareholder agreements
  • Annual meeting minutes with notices
  • Resolutions

Most business owners and managers know that keeping these records is important but may not fully understand the applicable legal requirements and how to accurately document them in a timely manner. In the event of a lawsuit or audit, without the proper corporate documents in place, the business owner can be held personally liable for the actions of the business.

The easiest and most efficient thing is to have your regular business attorney keep up your formal corporate records every year.” A corporate minute book serves as a legal journal, documenting your business’ ongoing corporate activities, decisions, and significant business transactions. It acts as the business’ official repository of all major corporate documents and records. For instance, the minute book should state past and present officers and directors of the business and their dates in which they held these positions.

The minute book will also outline all the business’ stock information, including the types and numbers of stocks purchased and sold, the names of the stockholders, and their dates of ownership. Where applicable, the minute book will also note dividends and compensation to management personnel.

If you do not know what shape your business records are in, consider having a Business Risk Review or an audit by an outside CPA firm (not your normal CPA). Then catch them up before you get sued or audited for real.

Checklist After Starting A Business

Briefcase BoogieSo you have formed your business legally. You are now a corporation or an LLC. Congratulations!

Once you file the Articles of Incorporation with the Secretary of State (or Articles of Organization if you are an LLC), there are several additional things that you have to do. Here is a checklist of additional things you should do after starting a business:

  1. •Qualify to do business in any states where you are doing business but not incorporated. (For example, if you are incorporated in Delaware but have an office in California, then you will need to file papers with the California Secretary of State to qualify to do business in California.)
  2. •File for a Fictitious Business Name. You may still have to do this, even if you are a corporation, depending on your business names and branding.
  3. •File for local (city, county and perhaps state) business licenses or pay business taxes.
  4. File for a Federal EIN (tax number) in the name of the corporation. Make sure you have a state tax number, sales tax numbers, labor tax numbers, etc. as needed.
  5. Obtain a corporate binder and seal for minutes, bylaws and share certificates.
  6. Take the certified incorporation paperwork that you received back from the Secretary of State, along with your EIN, to your bank and open a corporate account. Make sure that the words “President” or “Authorized Signature” is over or under the signature line.
  7. Have the organizational meeting of the shareholders, appoint officers to the corporation, and authorize officers to conduct business. Keep minutes for this and enter them into your corporate book. Issue shares and adopt by-laws. Speak to your corporate lawyer about these documents, as a lawyer can draft them up for you pretty quickly and can advise you on how to comply with all corporate recordkeeping requirements. This is also required for LLCs. If you are issuing stock or have business partners, you need to be especially careful about how you go about this.
  8. If you were already in business, change all stationary, stamps, business cards, websites, email signatures, contracts, vendor accounts, etc. to state the name of the corporation as stated on the Articles of Incorporation. If you are just starting out, then purchase these items as needed, but always use the name of the corporation (not your personal name).
  9. Notify all of your customers (in writing) of the existence of the new corporate entity.
  10. Answer the telephone with the correct, full name of the corporation.
  11. Transfer business assets to the corporation.
  12. Open a new set of books for your accounting and discuss the transfer of assets with your accountant.
  13. Set a salary for each officer using industry standards. You may wish to do this at the organizational meeting of the board of directors.
  14. Contact your payroll company and employment lawyer for their assistance in conversion to a corporation. Your employees (even if they worked with you before) are new hires to the corporation, and new tax documents, hire forms, personal policies, and various wage issues need to be dealt with.
  15. File your officer disclosure and agent statements with the Secretary of State.
  16. Comply with securities filings (stock filings) and UCC filings requirements (if any).
  17. There are many scams out there that you may receive in the mail about complying with various corporate requirements. Despite the fact that these letters look official, they are solicitations by shady or fraudulent people and are not from the state. Keep on the lookout for these solicitations, and do not fall for them. They will charge you exorbitant fees for little to no benefit.

In addition to the things on this checklist, there are many other things to consider when starting a business.  If you want to set yourself up for success and save yourself from expensive messes later on, then take the time to do these things up front. Please contact our business law, employment law, and real estate law attorneys for a consultation today.