Kreis Enderle’s Business Practice Group represents businesses and business owners through the entire life cycle of a business, including on issues such as:
- Business Formation and Dissolution
- Shareholder and Member Agreements
- Contracts and Contract Disputes
- Debtor and Creditor Issues
- Compliance with State and Federal Laws
- Intellectual Property
- Loan Agreements
- Tax Planning and IRS/Michigan Department of Treasury Issues
- Succession Planning
- Mergers and Acquisitions
- Sale of a Business or Ownership Interest, including Seller Financing
Our Business Practice Group has extensive experience advising businesses, in many different sectors, including:
- Banks, Credit Unions, and Private Lending
- Real Estate
- Software Development and Intellectual Property
Kreis Enderle’s Business Practice Group can advise and help guide you or your business through the complete spectrum of business related matters that may arise.
I want to start my own business. What type of business entity should I choose: a Corporation or Limited Liability Company (LLC)?
There are numerous tax and other matters to be considered when deciding on what type of entity is right for your business. For example, although most small businesses prefer using a pass-through entity (either a S Corporation or LLC), there are different tax implications between those two entities, particularly with the new federal tax law, passed in late 2017. In addition, S Corporations have restrictions on the type and number of shareholders. Deciding on which entity is best for your particular business should be made only after consulting with an attorney and your CPA.
Do I need an attorney to help form my business or can I just use an online service?
As you can see from the above question and answer, the formation of a business involves a number of decisions. The type of entity that is best for your business is just the first decision you need to make. As your business moves forward, you will need an attorney who understands you, your business, and its legal needs as it grows. An online service just can’t provide that level of service. We find ourselves assisting clients who have used these services and now need us to correct problems with their initial documentation (or lack thereof).
Why do I need a Shareholder/Member Agreement?
Just like individuals, businesses owners need an estate, or succession, plan. With a business, such a plan is called a Shareholder Agreement, a Member Agreement, or a Buy Sell Agreement. For the purposes of this answer, these plans will be referred to as a “Buy Sell Agreement.”
Just as an estate plan addresses events such as death or disability, a Buy Sell Agreement addresses what happens to an ownership interest in a company, upon the death or disability of a shareholder/member (hereafter sometimes referred to as the “owner”). Without such an agreement, there is no practical means for an owner or the estate of an owner to force the purchase of their shares upon the disability/death of the owner.
A Buy Sell Agreement often addresses more than just the death or disability of an owner, including what happens to an owner’s shares/membership interest upon voluntary or involuntary termination of employment, an involuntary transfer of an ownership interest ordered by a court (such as might occur pursuant to a divorce and bankruptcy proceeding), and retirement. Typically, such buy sell events require either the business or the other owner(s) to purchase the shares or membership interest of the owner impacted by the buy sell event, pursuant to specific purchase price and payment terms. Sometimes the company or the owners will purchase life insurance to help fund a purchase of an ownership interest upon death, and the Buy Sell Agreement will coordinate its terms with that life insurance. For unfunded buy sell events such as disability, it is important that payment terms for the purchase price are addressed in the Buy Sell Agreement and structured to be affordable to the purchaser.
The Buy Sell Agreement can and should address issues other than buy sell events. For example, the Buy Sell Agreement can impose supermajority voting requirements to approve significant company actions, such as the company taking on significant debt, the admission of new owners, or the sale of significant assets of the company. A supermajority voting provision can help protect the holders of less than a majority of the ownership interests, who could otherwise be outvoted on every issue. If there is a possibility of a deadlock in management decisions, the Buy Sell Agreement can and should also address how to break that deadlock.
Even if you have a Buy Sell Agreement, you should review it prior to the admission of a new member/stockholder, and at least every few years, to make sure that its provisions still accomplish your goals. Does the purchase price provision still determine a fair market value price for the shares or membership interest? Will the payment terms be affordable to the buyer? If the business or owners have life insurance to help fund a buyout upon a death, are the provisions of the Buy Sell Agreement which address a death buyout properly coordinated with the life insurance? Are the buy sell provisions set up in manner that places all the parties in the best tax position upon the occurrence of a buy sell event?
If your business has multiple owners and you don’t have a Buy Sell Agreement, you should have one prepared which adequately protects the interest of your business and its owners.
How do I improve the chances that my business will be able to collect from a customer?
There are a number of things you can do to improve your chances of collecting from a customer before you have to go to court. First, make sure that you research the credit history and reputation of any new customer who will be purchasing on credit. Second, make sure you obtain complete and accurate customer information from the start, and update it over time. Third, make sure your contract terms are well written and that you hold customers to those terms—do not stray from your written terms or you may ultimately not be able to enforce them. Your contract terms should make clear that any litigation to enforce your terms and conditions is filed in a local court, and that the prevailing party will be entitled to be reimbursed its attorney fees and costs. You should have a standard number of days past due that you contact the customer by phone. If you have a customer who you know is starting to struggle, then you may need to tighten your terms and conditions or even put the customer on COD. If you have a customer who asks for terms to pay a past due balance, review their credit worthiness and have that customer sign something acknowledging the current balance due and that they have no dispute with that balance. If you receive a bankruptcy notice concerning one of your customers, you should immediately call an attorney who understands how creditor claims are processed in a bankruptcy proceeding. There may be certain actions that can take to maximize your claim in bankruptcy court.
I have been approached by someone who wants to buy my business, and I am interested in exploring the possibility. What do I do?
The process of selling a business can be buyer or seller initiated.
Regardless of who starts the discussion, the seller will always be interested in protecting the proprietary information about its customers, suppliers, operations, etc. So the first step, before any meaningful sharing of information, is the execution of a Confidentiality Agreement. After a well drafted Confidentiality Agreement is in place, the seller typically shares additional information at a macro level, but still no detailed customer and supplier information. If the buyer is still interested at this stage in the process, typically a nonbinding Letter of Intent is drafted which describes the significant deal points of the transaction. Even though the Letter of Intent is nonbinding, its importance cannot be understated in that it will define the broader terms that are contained in the final transaction documents. Once the Letter of Intent is signed, then the final transaction documents will be drafted. At each point along the way, from Confidentiality Agreement, to the Letter of Intent, to the final transaction documents, it is important that you retain an attorney that is well versed in your particular transaction.
How do I terminate a Contract?
We are often asked whether a business can terminate a contract. The starting point, to answer such a question, not surprisingly, is the contract itself. The importance of making sure that proper termination provisions are included in a contract is one of the reasons you should have your contacts reviewed by an attorney. If you do not have termination provisions in a contract that favor you taking action to terminate the contract, you either need to consider whether the other side is in breach of the contact, which might provide you a basis for termination, or whether you might be able to negotiate terms of a termination.