Small businesses comprise a significant portion of our economy. Unfortunately, most small businesses do not survive into the next generation of owners. The hard work and legacy of the current and prior generations can be wasted without proper planning.
Small business owners often feel they have sufficient time to begin making the transition and will delay the necessary steps until some fateful event forces them into acting. This leaves little or no time to prepare the business and the family for the burdens, both financial and managerial, that can be caused by a sudden and unplanned transfer. Continue reading “Family Business Succession Planning”
Persons holding equity interests in a business can use a buy-sell agreement to ensure the continuity of the business and to solidify their expectations regarding the taxes, rights, and obligations of each party. The buy-sell agreement can dictate the method by which a person’s equity interest will be purchased. Buy-sell agreements can be used by nearly any type of entity, regardless of whether the entity is a corporation, LLC, or partnership.
Continue reading “Buy-Sell Agreements”
When forming a new LLC, many wonder whether it’s better to form it in their home state or form it in another, such as Delaware, Wyoming, or Nevada. For most, the best choice is to form it in their home state.
Some believe their business will receive special tax benefits by forming their LLC in an alternative state. But the reality is that many people are getting these ideas from friends, internet gurus, or tax plan promotors, many of whom are either unqualified or provide so many caveats they cannot be held responsible if they get you into trouble. Most state that the reasons for forming your entity outside your home state are for liability or tax purposes. While some businesses can benefit from the differing tax laws of other states, most small business owners receive no benefit and their forming the LLC in another state only creates financial and administrative burdens. Continue reading “Where Should You Form Your Entity?”
The seventh article in a series on the purchase and sale of a Maryland business. In this article I address obtaining the necessary financing to fund a business purchase.
Many business buyers’ greatest challenge is obtaining financing. While a business purchase requires substantial funding, the buyer’s financing options are numerous. Factors determining the best financing choice include: the seller’s needs, the buyer’s ability to pay, the company’s cash flow and assets, and the general economic climate. Continue reading “Buying or Selling a Maryland Business – Financing The Purchase”
The sixth article in a series on the purchase and sale of a Maryland business. In this article I address business sale issues relating to employment agreements and related documents, including confidentiality and non-compete clauses.
A business transfer’s success or failure often depends upon retaining the company’s employees and their knowledge of the business. Many times, a company’s most valuable employee is its soon-to-be former owner. Further, the buyer must consider the company’s obligations to the employees and consider whether employee departures could harm the company. Of course, the seller showing confidential company information to prospective buyers has concerns as well. Continue reading “Buying or Selling a Maryland Business – Employment Agreements”
The fifth article in a series on the purchase and sale of a Maryland business. In this article I address issues relating to transferring assets during a business sale.
When purchasing a business, the buyer must be sure the assets are properly transferred no matter whether the sale is done as an asset sale or as a sale of the entity. As discussed in earlier articles, attorneys will consider many issues when deciding to structure a sale as either an asset sale or a stock sale, including tax and liability issues. When utilizing an asset sale, the transferring documents must reference, whether directly or generally, the assets being purchased. Even if the attorney structures the transaction as a stock sale, the buyer should confirm the purchased company actually owns the desired assets.
Continue reading “Buying or Selling a Maryland Business – Transferring Assets”
The fourth article in a series on the purchase and sale of a Maryland business. In this article I address the importance of ensuring necessary commercial leases are preserved following a business sale.
For many businesses, the business location is its most valuable asset. This remains true even if the company only leases the location. Therefore, maintaining the right to use the property following the transfer is of utmost importance. If the lease is valuable to the buyer, it should not be assumed the seller has the right to sublease or assign the lease to the buyer.
Continue reading “Buying or Selling a Maryland Business – Commercial Leases”
The third article in a series on the purchase and sale of a Maryland business. In this article I address basic tax concepts and issues relating to a business sale.
A major consideration when purchasing an existing Maryland business should be minimizing the tax burden. Certain transactions provide tax benefits to either the purchaser or the seller while providing a tax burden to the other. Therefore, tax consequences should be considered when determining the appropriate purchase price. The general rule is that the sale of a business is a taxable event; however, the parties may be able to structure the transaction using a tax-free reorganization. The IRS provides several forms of tax-free reorganizations, but to qualify the parties must meet numerous requirements. Since the IRS only allows tax-free reorganizations under limited circumstances, I will first discuss taxable transactions.
Continue reading “Buying or Selling a Maryland Business – Taxes”
The second article in a series on the purchase and sale of a Maryland business. In this article I address the possible liabilities that may be passed to buyers and sellers.
Parties seeking to buy or sell a Maryland business must consider both known and unknown liabilities. Certain business lines obviously raise more concern for liabilities than others, but you need not purchase a former asbestos company to inherit exposure. If a buyer purchases a company without considering potential liabilities, the buyer may purchase the seller’s potential lawsuits and contractual liabilities with no recourse against the seller. In addition, many regulatory and tax liabilities may pass to subsequent purchasers and put company assets at risk.
Continue reading “Buying or Selling a Maryland Business – Past & Future Liabilities”
The first article in a series on the purchase and sale of a Maryland business. In this article I address the basic concerns of buyers and sellers and the general transaction forms available to structure a business transfer.
Buying or selling a business can be a very exciting time but can turn into a nightmare if not planned correctly. There are many things to consider, including what structure the transaction will take. A list of typical structures include:
Continue reading “Buying or Selling a Maryland Business – The Basics”