Tag: Retirement

Selling Your Business?

John Smith owned a small manufacturing business.  One day he received a call from one of his competitors who said he was interested in buying John’s business.  John was now 75 and this seemed like the perfect opportunity for him to retire and have that “nest egg” for him live comfortably in retirement.

John met with the buyer and they discussed, in general, John’s business.  After the meeting, the buyer presented a letter of intent to John, which proposed a purchase price of $10,000,000, subject to the buyer’s due diligence investigation of John’s business.  John felt pleased with the letter of intent and signed and returned it to the buyer.

During a long and protracted (and quite thorough) due diligence, the buyer and his accountants and lawyers examined the business and its books and records.  Based upon their examination, they advised the buyer of various legal and financial risks that John’s business was exposed to and which could become issues that the buyer would have to face.

John could not produce all of his current contracts with his customers.  The contracts which he had contained provisions which could cause the contracts to be terminated upon a sale of the business or a transfer of the ownership of the business.  Their key employees had no employment agreements and could compete with the business once they terminated employment.  The leases for the business’s facilities could not be assigned.

Despite the issues with the business, the buyer was still interested in purchasing the business.  The bad news was that the revised purchase price was to be $8,500,000 with a significant portion to be held in escrow pending resolution of various legal issues.

The above scenario is very common with small business owners.  Bigger companies who regularly acquire smaller companies are “professionals” in the acquisition business.  They know exactly what to look for and they know how to “string the seller along” until they present a reduced offer which most sellers feel they have to accept.

If you are thinking of selling your business, make sure that your business is ready to be sold and that you have copies of all contracts and leases and that you understand what they provide and how they will be affected upon a sale.  Have written employment agreements with all your “key employees.”  Pay attention to your inventory, your accounts receivable and other assets which “drive the sales price.”  Protect your intellectual property by obtaining patents, to the extent applicable, and trademarks.

If you are considering selling your business and would like a “legal check-up,” please do not hesitate to contact:

Morris Saunders at:

msaunders@lgattorneys.com or 312-368-0100.

Is Your Family Business or Closely Held Business Ready for Ownership Succession?

Every family owned and closely held business must eventually address the issue of ownership succession.  It should be a priority action item for all owners. Many owners see their business as their retirement plan. If they do not properly prepare the business and the next generation of leaders, then there may not be enough in the “retirement plan” for the owner to actually retire. Sometimes the owners are faced with clear cut choices as to who will take over their business and therefore feel that it is not necessary to focus on the process.  However, if the owner merely transfers ownership and/or management of the business to the next generation without getting the business and the future leaders ready for the transition, the business may fail regardless of the good intentions of all involved. With respect to the younger generation,

  • Is the successor qualified to run the business? Does he or she have the right “tools”, the right training and/or experience?
  • Is there more than one successor? If so, what will be the roles and responsibilities of each? Will ownership be equal? Will control be equal?

With respect to your business,

  • Are the company’s governance records (e.g., by-laws, minutes, stock records) complete and current?
  • Does your company have an employee handbook that is current?
  • Are there valid employment agreements for key employees with enforceable restrictive provisions?
  • Do the loan documents permit the transfer of ownership?
  • Are the agreements with vendors and suppliers in place?
  • Are there agreements with key employees that give them an incentive to stay employed with the business, such as deferred compensation plans?
  • Is the business in compliance with leases of real estate and equipment? Do those leases permit a transfer of ownership or do they require the Lessor‘s consent?
  • Is intellectual property protected? If some of the intellectual property is owned by the senior generation, is it properly documented? How will the business continue to use the intellectual property?

You might also wish to consider how the business will succeed with or without you. What will be your role in the transition? Will you retain an office, be on the board of directors? Determining who will be the next owner(s) and manager(s) may be easy or difficult but you must consider numerous factors, some of which are outlined above to give the new owner(s) and manager(s) and the business the best chance to continue to prosper.  We have helped many clients pass the ownership and management of their business to the next generation and have watched as the business has continued to thrive.

If you would like our assistance through this process, please contact:

Morris R. Saunders at:

msaunders@lgattorneys.com or 312-368-0100

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