Private Mergers & Acquisitions
Whether a purchaser of a company seeking to achieve economies of scale, or a seller of a business ready to cash in on years of productive growth, acquisitions are a key component of any corporate strategy. Most structures fall into three types: asset purchase, stock purchase or membership interest purchase, and mergers. Which method is used turns on commercial precedent, legal and tax considerations, third party and corporate consents, and the general timeline for getting the deal done. Your fund, portfolio, or family-owned business can benefit from sound counsel at any stage of the transaction, beginning with due diligence, continuing with the drafting and negotiation of key acquisition agreements, and ending with signing.
SBA Lending
504
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The 504 Loan Program is economic development financing specifically designed to stimulate private sector investment in long-term fixed assets. These loans cover the purchase of land, including existing buildings, the purchase of improvements like grading, utilities, parking lots and landscaping, the construction of new facilities or modernizing existing facilities, and the purchase of long-term machinery and equipment. In some instances, the loans can also be used to refinance pre-existing debt. The entire 504 project usually consists of the following:
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a loan secured from a private sector lender with a senior lien covering up to 50% of the cost of the Project;
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a loan secured from a Certified Development Company (CDC), which are the entities established under the 504 code as non-profit corporations to support economic growth in their local areas. This loan is backed by a 100 percent SBA-guaranteed debenture, with a junior lien covering up to 40% of the cost of the Project; and
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an equity contribution from the borrower of at least 10 percent of the cost of the Project.
This requires navigating the terms and conditions under which the SBA will guarantee its financing, and managing the closing process to ensure compliance and receive funding. Whether a third-party lender, CDC, or borrower, counsel is essential to reach the finish.
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7(a)
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The 7(a) loan program provides loan guarantees to lenders that allow them to provide financial help for small businesses with special requirements. These loans can be used for acquiring, refinancing, or improving real estate and buildings, short and long-term working capital, refinancing current business debt, purchasing and installation of machinery and equipment, including AI-related expenses, purchasing furniture, fixtures, and supplies, changes of ownership (complete or partial), and a combination of any of the above.Within the 7(a) program are subsets of initiatives that are devoted to different business purposes. For the internal component, the Export Working Capital Program (EWCP) and International Trade programs support existing exporters or those developing new export markets, while CAPLines aid small businesses in their seasonal working-capital needs. All require strict compliance with the SBA Standard Operating Procedure (SOP), as well as a host of policy and procedural guidance that shifts quickly.
Formational Governance
The choice of entity is a crucial decision in maximizing the revenue of one’s business, as is the way in which it is governed. There are various differences in structure, tax, liability, and management among the most common forms: C-corporations S-corporations, limited liability companies, and partnerships. Capital raising, allocation of profits and losses, and distribution rules each have substantial consequences within the internal revenue regulations, no matter the corporate form. These provisions must be drafted carefully, in addition to those related to managing the organization, so that the individuals that compose it are not preempted in their decision-making and disputes are resolved amicably.
Employment Agreements and Compensation
Coming on the end of personal achievements, offer letters can be signed without critical review. Terms of employment, rate and frequency of pay, hours, benefit eligibility and restrictive covenants should all be memorialized in conjunction with your state’s statutory requirements to adequately protect your rights. For more senior executives and management personnel, garden leave, severance, and vesting schedules must be addressed to incentivize employees while protecting the marketability of the company for potential investors. Like care must be taken in structuring equity.
In contrast to more established companies that can manage to offer employees high salaries or fixed benefits, new businesses do not often possess substantial cash flow. Their methods of incentive compensation and other deferred benefits become all the more important to galvanize employees and contend for top talent. Equity-based awards can include restricted stock, restricted stock units, stock options, and stock appreciation rights, be they phantom stock or performance share units, while incentive bonus plans can be short or long term, or subject to management discretion. No matter the form, compensation should align with each individual’s fair amount of contribution and sacrifice.
Commercial Leasing
Whether a veteran landlord or a tenant negotiating its first lease, counsel is crucial to saving your hard-earned money. A commitment to reimburse a landlord for certain expenses that should be attributable to it can be the difference between making rent and not. From ensuring that one is asking the right questions in their due diligence, to negotiating the underlying agreements, to administering the lease during its term for ongoing compliance, Charles has experience, having begun with his family in their own restaurant and wine bar. You require counsel that can deliver you service commensurate with the seriousness of your business, and the standard of your name. Foresight of issues that may arise ensures that both parties maintain the premises in good condition, deal with issues in a timely fashion, and devote cash flow beyond the lease obligation.
Purchases and Sales
From engaging a broker through the negotiation of key contracts, buying real property can be a complex undertaking. After identifying the property and all land, buildings, equipment, and personal property thereto, the seller will review its existing loan documents and local municipality requirements to ensure it can enter into the transaction. Then, through the letter of intent and due diligence phase, both buyer and seller will review the condition of the property and title, together with restrictions that might prevent the transaction from going through. Arranging for the removal of these restrictions and satisfying any necessary third-party approvals in zoning, subdivision, and other governmental authorities are what separate successful transactions from failed ones. Experienced counsel is needed to steer this process and properly allocate risks in the drafting and negotiation of the purchase and sale agreement, so that both parties can be confident in the quality of the asset and exit going forward.
Title Insurance and Surveys
Without title insurance and surveys, buyers will not buy property and lenders will not fund loans for purchase. The former allows parties to protect themselves in instances of loss or damage sustained by reason of flawed ownership or liens on the property. After obtaining and negotiating the title insurance commitment, counsel carefully reviews the conditions set out in the title policy and endorsements, the exclusions from coverage identified in the title policy, and the exceptions from coverage listed in Schedule B of the American Land Title Association (ALTA) title policy. This process will reveal any defects and determine the extent to which additional coverage is needed. ​
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Similarly, the survey allows the purchaser or lender to verify that the property described in the deed or security instrument is the correct property. In fact, the title company giving the policy will list as a title exception in Schedule B a general survey exception, which excludes coverage for any matters that a current and accurate survey would show. Lender's and purchaser's counsel review the preliminary survey from the surveyor to ensure that it meets the ALTA/NSPS requirements and the same contained in the lender's loan commitment letter. After the title company updates its exceptions, Counsel again plays a key role by assessing the risks associated with each exception, exploring whether any issues can be resolved by entering into any boundary or encroachment agreements with adjoining landowners, obtaining necessary easements, or zoning variances for any violation of zoning laws. With time, successful work culminates in the deletion of the survey exception.
Licensing and Permitting
Obtaining commercial licenses and permits are a key prerequisite for any business before it can actually begin to operate. This can be true even prior to building or entering into an existing space, and includes licenses such as the occupancy permit, building license, building and construction permit, together with those required for signage and related variances. Many licenses are business-specific, including those related to the sale of food or alcohol. Avoid delays in bringing your dream to fruition by engaging counsel to calendar each requirement, aggressively pursue their completion, and manage the deadlines, so that you can focus on what you love.
Last Wills and Testaments
Mortality is never an easy conversation, but fear of it can lead us to postpone key decisions, often until they are too late. Last Wills and Testaments can serve as the cornerstone of your legacy by ensuring your assets are distributed seamlessly to loved ones and causes that you care about. It can also appoint a guardian for minor children, establish trusts, forgive debts, and appoint a steady individual to administer the process. Preparing such document now, though uncomfortable, is preferable to passing without a will, leaving the distribution of your property to the state’s default intestacy laws that may not replicate your needs.
Trusts
Trusts are entities that have a host of benefits depending on the settlor’s aims. They can avoid probate on the settlor’s death, ensuring privacy for the settlor over the distribution and nature of their assets, and they can reduce the time and expense that may result from a probate that can leave beneficiaries uncertain. They can also provide for continued, uninterrupted management of an actively operated business in the event of an owner’s incapacity. Still, trusts are most commonly used for tax planning and asset protection. Irrevocable trusts can be used wisely to reduce income, gift, and estate tax in your jurisdiction, with the appointment of a trust protector preserving a large degree of control as to trust administration. These same irrevocable trusts may be used to shield certain assets from the claims of third-party creditors, which can additionally be helpful in situations where a loved one is struggling with life’s issues.
Durable Powers of Attorney
A power of attorney allows an individual to give another the ability to act on their behalf, managing financial or other property issues, or decisions related to healthcare and treatment, when the individual is incapacitated or unavailable. A customary, yet essential arrangement, they operate in conjunction with a pre-existing regime at financial institutions, each with their own set of procedures. Navigating these systems requires patience, and diligence, with powers drafted carefully to adequately enable your agents.
Charitable Giving
Donor-Advised Funds
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Many vehicles exist to facilitate charitable giving. When evaluating how to reach their philanthropic goals, donors must weigh tax benefits against the level of control they wish to have over the distribution and use of their funds. Donor Advised Funds usually achieve both: they attain maximum tax benefits while permitting donors to be involved in the direction of their contributions. In addition to being managed by a team of professionals in a public charity, they also permit a variety of asset types. While administration is minimal when compared with other vehicles, there are a number of operational and regulatory items to consider. Act now to achieve your philanthropic legacy.
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Private Foundations
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Private Foundations are organizations formed exclusively for religious, charitable, scientific, literary, or educational purposes. Chief among the tax benefits associated with them is exemption from federal income tax, and the right to receive tax-deductible contributions. However, private foundations are subject to a more substantial regulatory regime for their donors than are their public charity counterparts. Be it a family, individual or corporation operating a museum or extending grants, governing must be responsible and active, beginning with organization.
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Special Needs Planning
Individuals with special needs should not be excluded from public aid because of their resources. Planning techniques are available to maximize eligibility for means-tested government benefits, pay for essential supplemental services to enhance the quality of life, and protect assets from loss or exploitation. If the beneficiary will likely be gifted assets or will inherit assets, the giver might consider a third-party special needs trust, or, if the beneficiary possesses assets themselves, it may opt for a first-party special needs trust instead. Pooled trusts are administered by non-profit organizations and are appropriate for those with a modest amount of assets that would be prohibitive to administer as a single trust. Achieving a Better Life Experience (ABLE) accounts likewise are ideal for limited funds that can be held in a tax-incentivized investment account for use on qualified disability expenses. Whether for yourself or a family member, the right tool will be crafted and turn on the specific circumstance.