Do you Have an Up-To-Date Buy-Sell Agreement?

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Judy and John started ABC Manufacturing Co. in 1980.  At the time, they outsourced all their manufacturing needs.  They had no employees and leased a small warehouse.  They prepared a “buy-sell” agreement restricting the transfer of their shares to anyone else and agreed that a “fair purchase” price would be the “book value” of the business.  At that time, the company was not profitable and Judy and John each borrowed the necessary capital to acquire the furniture, furnishings, and equipment of the business.  They also contributed whatever funds were required for the expenses of the business.

The business took off quickly.  Within five years, the sales were $5,000,000 annually.  They hired a sales force and other employees.  Then the business really exploded.  They bought a warehouse and began to manufacture their own products.  The business expanded into several locations and employed 150 employees.  Revenues reached $100,000,000 per year.

Then the unexpected happened.  John suffered a stroke and was unable to return to the business.  According to the buy-sell agreement, he was entitled to receive one-half the “book value of the business” within one year.  According to the buy-sell agreement, John’s share of the company was to be determined by taking the book value of all the assets, and deducting any debt of the business.

Unfortunately for John, ABC Manufacturing Co. was worth substantially more than “book value.”  The main assets of the business were greatly depreciated for book purposes.  The equipment had very little book value and the real estate had also depreciated for book purposes.  The “fair market value” of the real estate was considerably higher.  Based upon “book value,” John was entitled to receive approximately $5,000,000.  In fact, the business had recently received an unsolicited offer for $25,000,000.

This resulted in a “good deal” for Judy.  But she was lucky.  What if she had suffered the stroke?

A buy-sell agreement and its valuation process should be periodically reviewed to ensure that it continues to meet the owners’ needs and expectations.  Suppose the value was based on “fair market value,” which at the time was minimal and was required to be paid within one year?  Now, perhaps fair market value is $25,000,000.  Could the remaining owner’s business pay $12,500,000 in one year?

Events which might cause owners to review their existing buy-sell agreement include:

  • Admission of other shareholders
  • Use of life insurance or disability insurance to fund a purchase
  • Change in tax status, such as from a C-corporation to an S-corporation or a partnership
  • Changes in the business such as having new lines of business, or changing the fundamental business (for example, going from manufacturing to distribution, or to brokered sales)
  • If the shareholders acquire assets for use in the business (for example, they acquire real estate and lease it to the business)

If you have any questions regarding your existing buy-sell agreement or the preparation of a new buy-sell agreement, please call Levin Ginsburg at (312) 368-0100 and ask to speak with Morris Saunders or any of our attorneys in our business transactions department.


The Plaintiff’s End Game – Collecting the Judgment

It was a hard fought battle. You successfully sued a party in a commercial dispute who wronged you and a judge or jury awarded you seven-figure sum. Because the Defendant didn’t immediately take out its checkbook, however, you now face the task of collecting the judgment. Oftentimes, litigation doesn’t end when the judge bangs the gavel and you walk out of the courtroom with a judgment – a piece of paper saying that you’re entitled to money. You can’t bring the judgment to a car dealership and buy a car with it and the judgment itself won’t pay your mortgage. So what do you do to turn the judgment into actual dollars?

The Illinois Legislature and Illinois Supreme Court have carefully crafted laws and rules that allow you, as the successful plaintiff, to discover the judgment debtor’s assets in an attempt to collect your judgment. The process usually begins by serving the defendant with Citation to Discover Assets. The Citation to Discover Assets is first served on the defendant, usually either a person or a business, and, much like a summons or a subpoena, commands the defendant to appear at a specified time and place, usually a courtroom, to answer, under oath, questions about its assets. Typically, a Document Rider is attached to the Citation to Discover Assets requiring the judgment debtor to produce documents, such as bank records, titles to property, and the like, that will enable your attorney to locate assets. Importantly, service of the Citation to Discover Assets also acts as a form of lien or injunction on the defendant’s assets, generally preventing the defendant from disposing of assets while the post-judgment proceedings are pending.

As the victor, you are not only permitted to serve a Citation to Discover Assets on the defendant, you are also entitled to serve one on anyone who holds the defendants assets or who owes the defendant money, such as a customer, employer, bank, relative, investment company or anyone holding assets belonging to the defendant. These Third Party Citations require the third-party to provide sworn written answers to your questions within a certain period of time and, if it fails to do so, the judgment can also be entered against that third-party.

After you’ve been able to discover the existence of assets, you then ask the court to enter an order requiring the party holding the assets to turn them over to you. It takes a court order to get a bank to turnover a defendant’s cash. If you’re asking the court to order the turnover of tangible things, as opposed to cash, typically the order will require the assets to be turned over to the sheriff so the sheriff can sell them and turn them into cash.

There are many effective ways to satisfy a judgment, many are complex and require the assistance of an attorney familiar with the procedures. While most litigators know how to obtain a judgment, far fewer know how to effectively collect the judgment, leaving you holding little more than a very expensive piece of paper.

For more information on post-judgment proceedings, please contact:
Howard Teplinsky at or 312-368-0100


Have You Looked at Your Estate Plan Documents Lately?

Does this sound familiar?

“John and Mary kept delaying any discussions about preparing estate planning. After they had their first child, Jack, they finally decided it was time to discuss their estate plan with a lawyer. They set up a trust for Jack if anything happened to John and Mary and designated John’s parents, who were then 65, as Jack’s guardian and the trustee of the trust. Since they had meager assets, they left everything outright to him at age 25. John and Mary ignored these documents and made none of the transfers recommended by their lawyer to avoid probate.

Ten years passed by. They now have three children, Jack, (10) Jackie (7) and Maureen (4). Jack’s parents have moved away to enjoy warmer climates.

John and Mary should revisit their estate planning desires. Are his parents still capable of raising their children? When Maureen is 16, Jack’s parents will be 87. Have Jack and Mary considered planning possibilities for their digital assets? What about their business? Can it operate after they are no longer able to manage it? Are their children able to handle their inheritance as originally planned? Are John and Mary’s health care powers and living will directions up-to-date? Have they considered the effect that taxes and probate might have on their plan? Are there any other special circumstances they need to plan for?

We recommend you review your estate plan every 2-3 years or more often based upon your changes in family and your finances. Isn’t it time you reviewed your estate plan??

To discuss any questions you have regarding your estate plan or for a complimentary estate plan review, please contact:

Morris Saunders at: or (312) 368-0100.


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: or 312-368-0100.