Buy Sell Agreements

Why you Should Purchase the Assets of a Company Rather than the Stock

by Fred Abramson

One of the prob­lems that you may encounter when buy­ing a busi­ness in New York is under­stand­ing how to struc­ture the pur­chase.  Basi­cally, there are two ways that you can buy a company:

  1. Asset Pur­chase;
  2. Stock Pur­chase.

In most cases, you will be bet­ter off pur­chas­ing the assets. There are three big ben­e­fits to buy­ing the assets and not pur­chas­ing the stock:

  • Tax ben­e­fits. With an asset pur­chase, you can give dif­fer­ent pur­chase prices among the var­i­ous pieces of the com­pany.  For exam­ple, cer­tain equip­ment can be deducted imme­di­ately so you may want to assign a greater price for those assets.
  • You can choose not to acquire lia­bil­i­ties of the busi­ness you wish to buy. Per­haps the com­pany failed to pay a sup­plier for goods it ordered two years ago.  The statute of lim­i­ta­tions on a breach of con­tract law­suit is six years, so you could be hit with a law­suit four years after buy­ing the company.
  • You don’t have to buy every asset of the cor­po­ra­tion. It could be in you best inter­est to buy only the prof­itable por­tions of the company.

Some­times you are not given the choice of how a busi­ness sale could be struc­tured.  Many busi­ness that are for sale require pur­chase of stock only for a vari­ety of rea­sons. For exam­ple, the seller may believe that there are tax advan­tages for sell­ing all the stock.  If you have to buy cor­po­rate stock, it is imper­a­tive to con­duct a thor­ough inves­ti­ga­tion of the corporation’s books and oth­er­fi­nan­cial deal­ings.  You can insert war­ranties and indem­ni­fi­ca­tion clauses in the stock pur­chase agree­ment. You may also be able to pur­chase insurance.

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Why you Should Purchase the Assets of a Company Rather than the Stock

4 things you should think about when deciding how partners should be compensated

by Fred Abramson

4 things you should think about when deciding how partners should be compensatedDecid­ing part­ner com­pen­sa­tion when start­ing up a com­pany is crit­i­cal.  With­out a fair and just writ­ten com­pen­sa­tion  pro­vi­sion in a part­ner­ship agree­ment, the busi­ness can implode.  Here are 4 things you should think about when decid­ing how part­ners should be compensated:

  1. When will prof­its be divided? Will it be once a year, at the end of the year or will part­ners be able to draw their prof­its at some ear­lier point?
  2. Should a part­ner receive a addi­tional salary? In the case where one per­son may work more hours than the other part­ners, it is advis­able to either pay an addi­tional salary or pro­vide a larger por­tion of the profits.
  3. Should prof­its and losses be shared equally?
  4. Should a cer­tain per­cent­age of the prof­its be re-invested in the com­pany? For exam­ple, it may be impor­tant to retain some of the prof­its to pro­vide a bonus to keep a key employee.

It is vital that you and your part­ners how decide prof­its should be shared as early as pos­si­ble.  A lawyer can help you focus on what is impor­tant and select solu­tions. But ulti­mately, it is up to you to decide how prof­its are allocated.

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4 things you should think about when deciding how partners should be compensated

What To Do If An Owner of A Business wants to Transfer its Interests

by Fred Abramson

What To Do If An Owner of A Business wants to Transfer its InterestsNew Yorker\‘s are a mobile bunch. Espe­cially New York busi­ness own­ers. Busi­ness open and close every day.  It is risky to believe that your co-owners will still be with you five years down the line. It is likely that there will come a time when of your co-owners will want to sell his shares or inter­ests in the com­pany to some­one else.  One of the most com­mon ways that a small busi­ness can get dis­rupted is when an owner desires to sell or trans­fer his inter­ests in a com­pany. So, what should you do?  You should cre­ate in advance a method for the own­ers to review and block any that is not in the best inter­ests of the com­pany.  Here are some things you should think about:

  1. Right of First Refusal. This is the most com­mon pro­vi­sion in a buy-sell agree­ment. The owner who wishes to sell his inter­ests first offers it to his co-owners before any­one else.
  2. Decide the Price of the Own­er­ship Inter­ests in Advance. Often the price will be set at the price a pro­posed out­side buyer has bid.  I do not rec­om­mend this option because a fraud­u­lent offer is pos­si­ble. Another method is to set a pre-determined price at the time a buy-sell agree­ment is drafted.  Another option is to set a high down pay­ment price which would show good faith.
  3. Make clear the effect of any sale on Minor­ity Own­ers. Often a right of first refusal pro­vi­sion may freeze out a minor­ity owner from sell­ing his inter­ests.  As a result, it may be impor­tant to include a \“Right to a Forced Sale\” clause.
  4. Decide who can buy the inter­est. Should the com­pany have the right to pur­chase shares or the indi­vid­ual owners?
  5. Should an owner be able to give away his inter­est? Often own­ers wish to grant their inter­ests in a com­pany to a trust for estate plan­ning rea­sons. This could be prob­lem­atic because tech­ni­cally the trust would own the shares of the busi­ness. Often these issues are addressed when draft­ing a buy sell agreement.
  6. No Trans­fer Restric­tions. Refus­ing to trans­fer any own­er­ship inter­est is another pos­si­bil­ity. This can lim­ited in a few dif­fer­ent ways, such a no trans­fers to cer­tain per­sons and no trans­fers with­out writ­ten con­sent of the other owners.

You should decide in advance what to do if an owner of a busi­ness wants to trans­fer its inter­ests through a buy sell agree­ment to avoid unnec­es­sary prob­lems and poten­tial litigation.

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What To Do If An Owner of A Business wants to Transfer its Interests