From Open Forum:
Over 500,000 businesses get started in the U.S. every year, and unfortunately not everyone is a success. (Many of them are bad ideas, and poorly executed.) If you’re thinking of starting up a business in 2013, heed our warning and watch out for these 13 bad business ideas. While you’re at it, check out the best business ideas that we think are winners for the coming year.
3 Ocak 2013 Perşembe
The 13 Worst Businesses to Start in 2013
To contact us Click HERE
Historic Patent Reform Implemented by U.S. Patent and Trademark Office
To contact us Click HERE
On September 17, 2012, the U.S. Patent and Trademark Office (USPTO) implemented seven provisions of the Leahy-Smith America Invents Act of 2011 (AIA).
The new rules are intended to spur innovation and economic growth by streamlining the patent application process and introducing new procedures to ensure patent quality. Other provisions of the AIA will go into effect on March 16, 2013, including the shift to a first-inventor-to-file system. Read the USPTO press release here.
Other provisions of the AIA will go into effect on March 16, 2013, including the shift to a first-inventor-to-file system. USPTO announced a new, user-friendly, web-based search tool to make its patent and trademark examining manuals more accessible to the public.
Also, this week, the USPTO and the European Patent Office (EPO) announced the formal launch of the Cooperative Patent Classification (CPC) system, a global classification system for patent documents.
Duty Tariffs - Computing Duties and Taxes
To contact us Click HERE
A look at computing duties and taxes for your product in the many country markets where you will be selling.
The Census Bureau serves as the leading source of quality data about the nation's people and economy. We honor privacy, protect confidentiality, share our expertise globally, and conduct our work openly. We are guided on this mission by our strong and capable workforce, our readiness to innovate, and our abiding commitment to our customers.
A look at computing duties and taxes for your product in the many country markets where you will be selling.
The Census Bureau serves as the leading source of quality data about the nation's people and economy. We honor privacy, protect confidentiality, share our expertise globally, and conduct our work openly. We are guided on this mission by our strong and capable workforce, our readiness to innovate, and our abiding commitment to our customers.
A Word to Small Business Owners: Don't Be Afraid to Negotiate Contracts
To contact us Click HERE
All too often small business owners readily accept the terms of a contract or are concerned about pushing back on both economic and legal terms because either they fear losing the deal or simply don't fully understand the terms. As a business owner, you need to recognize that in most circumstances there is an opportunity to negotiate terms of an agreement, and therefore you should not be afraid to seek the best deal possible even if the other party initially seems unwilling to consider your position on key aspects of the contract. So, here is the advice, Don't Be Afraid to Negotiate.
Negotiation skills are one of the most important tools a business owner should have in its toolbox. Therefore, if you receive a contract from a party, read it carefully, and then proactively respond in writing with your comments. One negotiating trick that vendors often try is to provide a form contract, creating the impression that the terms are non-negotiable -- indeed, if I am representing the vendor, I will often suggest creating a form agreement. Any contract, even a form, can be revised by an amendment, so do not automatically assume the agreement must be accepted "as is". The following are among the material terms that business owners should not only fully understand, but seek to negotiate.
1. Term. If you want a longer or shorter contact term, then ask for it. One alternative is to get an option to renew, which should be exercised within a certain number of days prior to expiration of the contract. The mechanics of the option and financial terms should be clearly spelled out as well.
2. Fees. There are many different ways to skin this cat, and you should consider what best works for your business over the term of the agreement. The financial terms can be based on (a) a set periodic payment, (b) an up front payment and then installments, (c) fees that scale up or even down over the life of the contract, (c) revenues, (d) milestones, or (e) a combination of several different fee structures. If the payments are based on revenues, then it is essential that the parties clearly define not just the percentage by the term "Revenue." For example, is it based on Gross or Net, and what is to be included in the Gross and what can be deducted as a legitimate expense when determining Net Revenues? A Net Revenue contract may refer to overhead expenses, like a businesses' borrowing costs, which can be a killer for a party who is being paid based on Net. Make sure you understand the definition, and if you don't ask for professional advice rather than assume the definitions are fair or standard.
3. Financial Reports/Audit. If the consideration under the contract is based on revenues or certain milestones, require periodic financial reports. In addition, you should have the opportunity to review and audit (i.e., challenge) such reports rather than simply accepting the information provided by the other contracting party. In addition, provide a dispute mechanism in the event of a challenge, such as CFO's meet and try to resolve, appointing independent third party, or even arbitration -- and if the audit reveals you were in the right, include a requirement that the other party pays your costs.
4. Termination of the Contract/Suspension. Of course the contract will expire at the end of its term, but include other events that will result in termination: (a) non-payment, (b) material breach, (c) bankruptcy, (d) failure to achieve defined milestones, including financial ones, (e) assignment/sale of the business (see below), (f) departure of personnel if the business relies on certain key employees, or (g) force majeure. Termination clauses will often allow the breaching party an opportunity to cure a default, provided it is one that can be cured. In the case of a force majeure event, the contract can be suspended pending passage of the event or terminated if the contract becomes impossible to continue due to the event.
5. Assignment/Sale of the Business. Do you want the contract to be assignable to a third party, including in the event of the sale of the business. This is an important issue for many types of agreements, such as licensing agreements or service contracts. You can require consent for the assignment, but if you want the contract to be assignable, as an alternative you can propose that it is assignable to an assignee with financial ability to meet the contractual obligations.
6. Warranties/Limitations on Liability. Suppliers/service providers will often provide a lengthy provisions denying all warranties and limiting their liability -- and if you are the vendor, you generally want to push for these provisions. If you are purchasing the the services of a large company, there may be no room to push back on any of the limitations, but whether the other contracting party is a small or large company, there is no harm in trying -- even if they send you the form or the "Master Service Agreement." For either party, it is all about the bargaining power, and how much the other party wants your business versus how much you need the agreement. Even if you cannot get the other party to budge, ask at least for an exception for gross negligence, and regardless a court may negate the limitation based on intentional misconduct or even gross negligence.
7. Dispute Resolution. Avoid an issues as to how disputes are to be resolved by negotiating the applicable (a) governing law, (b) venue for the dispute (meaning both the tribunal that will handle the matter, such as a court or arbitration/mediation, and the geographic location), (c) if there is to be mediation or arbitration, the procedures, and (d) will the parties impose legal fees and costs on the losing party.
8. Remedies. Among the remedies you can include are (a) specific performance, which is important if money cannot cure a default, (b) liquidated damages, if you prefer to define the damages to avoid disputes as to proof the proper compensation for a breach, and (c) equitable remedies (other than specific performance), like an injunction.
9. Non-Compete/Non-Solicitation. Simple vendor/supplier agreements generally won't include these terms, but many other contracts will, including licensing agreements, consulting/employment, certain service agreements, or more major transactions (like sale of a business) to name a few. Enforcement, especially as to non-competes, is a key legal issue, and it is highly advisable to have the provisions reviewed by counsel that understands the law in the applicable jurisdiction as it can vary greatly from state-to-state.
10. Other Terms/Conclusion. If there are other terms included or, for that matter, missing from the agreement, then make these part of the punch list of issues to be addressed with the other party. The reality is that the worse response you can receive is "no", and then you can decide how important the provision is from your perspective. A bad contract is NOT better than no contract. In a competitive economy, even larger/established businesses are often willing to negotiate and "the last and final", "take it or leave it" or "as is" response may be just a bargaining tactic.
The Lesson: Read the Contract, Understand Each Provisions and Don't Be Afraid to Negotiate the Terms.
Disclaimer: The discussions in this blog do not constitute legal advise nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters.
Negotiation skills are one of the most important tools a business owner should have in its toolbox. Therefore, if you receive a contract from a party, read it carefully, and then proactively respond in writing with your comments. One negotiating trick that vendors often try is to provide a form contract, creating the impression that the terms are non-negotiable -- indeed, if I am representing the vendor, I will often suggest creating a form agreement. Any contract, even a form, can be revised by an amendment, so do not automatically assume the agreement must be accepted "as is". The following are among the material terms that business owners should not only fully understand, but seek to negotiate.
1. Term. If you want a longer or shorter contact term, then ask for it. One alternative is to get an option to renew, which should be exercised within a certain number of days prior to expiration of the contract. The mechanics of the option and financial terms should be clearly spelled out as well.
2. Fees. There are many different ways to skin this cat, and you should consider what best works for your business over the term of the agreement. The financial terms can be based on (a) a set periodic payment, (b) an up front payment and then installments, (c) fees that scale up or even down over the life of the contract, (c) revenues, (d) milestones, or (e) a combination of several different fee structures. If the payments are based on revenues, then it is essential that the parties clearly define not just the percentage by the term "Revenue." For example, is it based on Gross or Net, and what is to be included in the Gross and what can be deducted as a legitimate expense when determining Net Revenues? A Net Revenue contract may refer to overhead expenses, like a businesses' borrowing costs, which can be a killer for a party who is being paid based on Net. Make sure you understand the definition, and if you don't ask for professional advice rather than assume the definitions are fair or standard.
3. Financial Reports/Audit. If the consideration under the contract is based on revenues or certain milestones, require periodic financial reports. In addition, you should have the opportunity to review and audit (i.e., challenge) such reports rather than simply accepting the information provided by the other contracting party. In addition, provide a dispute mechanism in the event of a challenge, such as CFO's meet and try to resolve, appointing independent third party, or even arbitration -- and if the audit reveals you were in the right, include a requirement that the other party pays your costs.
4. Termination of the Contract/Suspension. Of course the contract will expire at the end of its term, but include other events that will result in termination: (a) non-payment, (b) material breach, (c) bankruptcy, (d) failure to achieve defined milestones, including financial ones, (e) assignment/sale of the business (see below), (f) departure of personnel if the business relies on certain key employees, or (g) force majeure. Termination clauses will often allow the breaching party an opportunity to cure a default, provided it is one that can be cured. In the case of a force majeure event, the contract can be suspended pending passage of the event or terminated if the contract becomes impossible to continue due to the event.
5. Assignment/Sale of the Business. Do you want the contract to be assignable to a third party, including in the event of the sale of the business. This is an important issue for many types of agreements, such as licensing agreements or service contracts. You can require consent for the assignment, but if you want the contract to be assignable, as an alternative you can propose that it is assignable to an assignee with financial ability to meet the contractual obligations.
6. Warranties/Limitations on Liability. Suppliers/service providers will often provide a lengthy provisions denying all warranties and limiting their liability -- and if you are the vendor, you generally want to push for these provisions. If you are purchasing the the services of a large company, there may be no room to push back on any of the limitations, but whether the other contracting party is a small or large company, there is no harm in trying -- even if they send you the form or the "Master Service Agreement." For either party, it is all about the bargaining power, and how much the other party wants your business versus how much you need the agreement. Even if you cannot get the other party to budge, ask at least for an exception for gross negligence, and regardless a court may negate the limitation based on intentional misconduct or even gross negligence.
7. Dispute Resolution. Avoid an issues as to how disputes are to be resolved by negotiating the applicable (a) governing law, (b) venue for the dispute (meaning both the tribunal that will handle the matter, such as a court or arbitration/mediation, and the geographic location), (c) if there is to be mediation or arbitration, the procedures, and (d) will the parties impose legal fees and costs on the losing party.
8. Remedies. Among the remedies you can include are (a) specific performance, which is important if money cannot cure a default, (b) liquidated damages, if you prefer to define the damages to avoid disputes as to proof the proper compensation for a breach, and (c) equitable remedies (other than specific performance), like an injunction.
9. Non-Compete/Non-Solicitation. Simple vendor/supplier agreements generally won't include these terms, but many other contracts will, including licensing agreements, consulting/employment, certain service agreements, or more major transactions (like sale of a business) to name a few. Enforcement, especially as to non-competes, is a key legal issue, and it is highly advisable to have the provisions reviewed by counsel that understands the law in the applicable jurisdiction as it can vary greatly from state-to-state.
10. Other Terms/Conclusion. If there are other terms included or, for that matter, missing from the agreement, then make these part of the punch list of issues to be addressed with the other party. The reality is that the worse response you can receive is "no", and then you can decide how important the provision is from your perspective. A bad contract is NOT better than no contract. In a competitive economy, even larger/established businesses are often willing to negotiate and "the last and final", "take it or leave it" or "as is" response may be just a bargaining tactic.
The Lesson: Read the Contract, Understand Each Provisions and Don't Be Afraid to Negotiate the Terms.
Disclaimer: The discussions in this blog do not constitute legal advise nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters.
Legal Issues When Buying a Business: Don't Overlook These Provisions in the Purchase Agreement.
To contact us Click HERE
As discussed in prior installments of this series on buying a business, there are a number important legal issues you need to consider before signing the purchase agreement. The first installment discussed the role of the Exclusivity Agreement, the second installment examined the differences between structuring the transaction as stock purchase as opposed to a purchase of assets, the third examined the importance of escrowing a portion of the purchase price to cover any issues that may arise post closing, and the fourth discussed important aspects of due diligence and how to address legal or financial issues in the purchase agreement. This fifth installment examines several key provisions that should be incorporated in the purchase agreement but are otherwise often overlooked.
The Purchase Agreement is a very flexible instrument giving the parties substantial flexibility not only as to the structure the transaction but with respect to the representations, warranties, disclosures and covenants that the parties can negotiate to include (or for that matter exclude) from the Agreement. There are a number of standard provisions relating to such matters as legal ownership of/title to the assets, representations as to the corporate status and authority, disclosures as to litigation, financial and tax related representations, environmental issues and post closing obligations. First, while these provisions may be part of a standard purchase agreement they by no means should be viewed as boilerplate. Even a slight variation in language can alter the meaning and scope of these sections, and thus all representations, warranties and covenants, no matter how standard, need to be reviewed carefully. Second, below are a number of provisions which are often overlooked but you should consider incorporating in the Purchase Agreement.
1. Intellectual Property.
Of course it is standard to include representations regarding the seller's title and ownership of the intellectual property, but make sure the Agreement:
(a) Covers licensed rights as well as often the seller does not own but licenses key IP. In the same vein, confirm the licenses are assignable and if consent of the licensor is required that the Seller obtain the consent as a condition of closing.
(b) Addresses rights to the domain names and company websites and requires transfer of these rights to the buyer as a condition of closing. It is not unusual for the buyer to forgot about the transfer of the domain and then have to coax the seller into compliance after the sale.
(c) IP rights should include not only registered marks or issued patents, but pending applications, unregistered rights, royalties, licenses and, significantly, awards, damages or pending claims and litigation.
(d) Incorporates provisions relating to software, requires the turn over of source code, manuals, passwords, license keys and all other documentation.
2. Litigation
Representations relating to pending or threatened litigation are typical in a Purchase Agreement, but be sure:
(a) There are sufficient disclosures about pending and threatened litigation, including the status of such matters.
(b) Decide how litigation is to be handled post-closing. Will your lawyer take over the matter or will the Seller's lawyer continue to handle it; who will be responsible for the legal fees and costs; include a right to periodic updates as to the status of any legal matters; and set forth any rights as to damages, awards, insurance proceeds and to settle the matter and any indemnification in the event of an unfavorable outcome.
3. Financial/Tax Matters
In addition to the typical representations and warranties concerning financial and tax issues, include:
(a) Financial
(i) Require that the seller update the financial statements on or prior to Closing;
(ii) Include a formula for adjusting the purchase price if there are material changes to the financial statement;
(iii) Although often used, try to avoid using an earn-out (post-closing payment contingent on certain financial milestones) as they are difficult to negotiate, document and manage once the buyer assumes the reins of the business, and as a result they are a major source of post-closing disputes. If an earn-out cannot be avoided, make sure you have counsel who has experience negotiating and drafting earn-outs.
(b) Taxes
(i) The representations and warranties should not only cover federal and state taxes, but sales and any other applicable taxes for all relevant jurisdictions.
(ii) The seller should provide all filings and disclose any past, pending or threatened audits/assessments.
(iii) Require the seller provide post-closing assistance for any filings relating to periods of time the seller controlled the business.
(iv) Include appropriate indemnifications for tax liabilities.
4. Transition
Is there a switch in your house that you have no idea what it does, and since the seller is long gone you have no way of finding out? Well, think how that issue is magnified exponentially if you purchase a business and don't have the seller to assist with the transition. The assistance is important not only as to obvious issues, like computer systems, financial records, and where the keys to the third floor supply closet are located, but making a smooth transition as far as clients/customers, introduction to vendors/suppliers, establishing a good relationship with employees/consultants, ensuring an understanding of business processes and procedures that are essential for operation of the business. Therefore, the Purchase Agreement can require the meaningful assistance of the seller or even include compensation to the seller for post-closing assistance and continued employment with the company for a reasonable period of time.
5. Material Adverse Change
Undoubtedly the Purchase Agreement will include a Material Adverse Change clause essentially providing the buyer with certain rights and remedies (including possibly termination of the transaction) in the event of a material adverse change with respect to the business. The clause is one of those tricky provisions which, if not properly drafted, can result in substantial disputes. The key is to avoid ambiguity by incorporating specific criteria as to when the Material Adverse Change clause is implicated, such as decline in sales, the loss of certain amount of or even specifically named customers, a decrease in EBITDA or termination of a manufacturing or supplier relationship.
6. Employment/Labor Matters
Provisions relating to Employment and Labor matters are standard, but also make sure the representations and warranties include:
(a) Existence of confidentiality, invention assignment and non-competes, and get copies for each employee and consultant.
(b) Confirmation that consultants are truly consultants and not employees (which can give rise to substantial tax liabilities).
(c) Details and disclosures regarding any employee plans (stock, pension, etc.) and vesting status f each employee.
(d) Disclosures with respect to any collective bargaining any other labor matters.
7. Operations in Foreign Countries
Establishing the right of the company to operate in any foreign jurisdictions where it does business should be obvious, but compliance with the Foreign Corrupt Practices Act is far less familiar to most people. The FCPA prohibits various behavior relating to operating in foreign jurisdictions, including paying bribes to obtain contracts, business, etc. Violation of the FCPA carries substantial civil and criminal liability. As a buyer, you might not think much about the FCPA, but if you manufacture in China, for example, you better pay attention and therefore incorporate a representation that no unlawful payments have been made by seller or its agents.
8. Covenants
The Purchase Agreement should contain covenants relating to:
(a) Non-solicitation of employees, customers and clients and non-interference with existing vendor/supplier relationships.
(b) In certain circumstances, a Non-Compete that complies with the narrow limitations imposed by applicable state law.
(c) As discussed in prior posts, clear indemnification and escrow terms to address post-closing liabilities.
(d) Confidentiality.
(e) Obligation of the Seller to notify the buyer upon the occurrence of material events arising at any time prior to closing.
(f) Resignations of officers, directors, responsibility of the seller as to termination of some or all employees/consultants.
9. Termination
There will be grounds for either party to terminate the Agreement prior to closing. The termination provisions should not only provide specifics as to when the right can be invoked by a party, but also the liabilities, if any, resulting from termination and the effect of termination.
10. Survival
Give careful consideration to how long any of the representations, warranties and covenants will survive avter closing. The seller will push for no or a very short period while the buyer will want them to survive until the chance of any liability no longer exists. A compromise will almost always be necessary, and remember not all of the provisions need to survive for the same period of time
The above are by no means an exhaustive list of key provisions in a purchase agreement, and they will certainly vary depending on the nature of the business involved -- for example, if you are buying a gas station the environmental disclosures, reps and warranties will be substantial. What is obvious that you cannot accept a boilerplate purchase agreement and instead the provisions need to be tailored to the particular transaction.
Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters
The Purchase Agreement is a very flexible instrument giving the parties substantial flexibility not only as to the structure the transaction but with respect to the representations, warranties, disclosures and covenants that the parties can negotiate to include (or for that matter exclude) from the Agreement. There are a number of standard provisions relating to such matters as legal ownership of/title to the assets, representations as to the corporate status and authority, disclosures as to litigation, financial and tax related representations, environmental issues and post closing obligations. First, while these provisions may be part of a standard purchase agreement they by no means should be viewed as boilerplate. Even a slight variation in language can alter the meaning and scope of these sections, and thus all representations, warranties and covenants, no matter how standard, need to be reviewed carefully. Second, below are a number of provisions which are often overlooked but you should consider incorporating in the Purchase Agreement.
1. Intellectual Property.
Of course it is standard to include representations regarding the seller's title and ownership of the intellectual property, but make sure the Agreement:
(a) Covers licensed rights as well as often the seller does not own but licenses key IP. In the same vein, confirm the licenses are assignable and if consent of the licensor is required that the Seller obtain the consent as a condition of closing.
(b) Addresses rights to the domain names and company websites and requires transfer of these rights to the buyer as a condition of closing. It is not unusual for the buyer to forgot about the transfer of the domain and then have to coax the seller into compliance after the sale.
(c) IP rights should include not only registered marks or issued patents, but pending applications, unregistered rights, royalties, licenses and, significantly, awards, damages or pending claims and litigation.
(d) Incorporates provisions relating to software, requires the turn over of source code, manuals, passwords, license keys and all other documentation.
2. Litigation
Representations relating to pending or threatened litigation are typical in a Purchase Agreement, but be sure:
(a) There are sufficient disclosures about pending and threatened litigation, including the status of such matters.
(b) Decide how litigation is to be handled post-closing. Will your lawyer take over the matter or will the Seller's lawyer continue to handle it; who will be responsible for the legal fees and costs; include a right to periodic updates as to the status of any legal matters; and set forth any rights as to damages, awards, insurance proceeds and to settle the matter and any indemnification in the event of an unfavorable outcome.
3. Financial/Tax Matters
In addition to the typical representations and warranties concerning financial and tax issues, include:
(a) Financial
(i) Require that the seller update the financial statements on or prior to Closing;
(ii) Include a formula for adjusting the purchase price if there are material changes to the financial statement;
(iii) Although often used, try to avoid using an earn-out (post-closing payment contingent on certain financial milestones) as they are difficult to negotiate, document and manage once the buyer assumes the reins of the business, and as a result they are a major source of post-closing disputes. If an earn-out cannot be avoided, make sure you have counsel who has experience negotiating and drafting earn-outs.
(b) Taxes
(i) The representations and warranties should not only cover federal and state taxes, but sales and any other applicable taxes for all relevant jurisdictions.
(ii) The seller should provide all filings and disclose any past, pending or threatened audits/assessments.
(iii) Require the seller provide post-closing assistance for any filings relating to periods of time the seller controlled the business.
(iv) Include appropriate indemnifications for tax liabilities.
4. Transition
Is there a switch in your house that you have no idea what it does, and since the seller is long gone you have no way of finding out? Well, think how that issue is magnified exponentially if you purchase a business and don't have the seller to assist with the transition. The assistance is important not only as to obvious issues, like computer systems, financial records, and where the keys to the third floor supply closet are located, but making a smooth transition as far as clients/customers, introduction to vendors/suppliers, establishing a good relationship with employees/consultants, ensuring an understanding of business processes and procedures that are essential for operation of the business. Therefore, the Purchase Agreement can require the meaningful assistance of the seller or even include compensation to the seller for post-closing assistance and continued employment with the company for a reasonable period of time.
5. Material Adverse Change
Undoubtedly the Purchase Agreement will include a Material Adverse Change clause essentially providing the buyer with certain rights and remedies (including possibly termination of the transaction) in the event of a material adverse change with respect to the business. The clause is one of those tricky provisions which, if not properly drafted, can result in substantial disputes. The key is to avoid ambiguity by incorporating specific criteria as to when the Material Adverse Change clause is implicated, such as decline in sales, the loss of certain amount of or even specifically named customers, a decrease in EBITDA or termination of a manufacturing or supplier relationship.
6. Employment/Labor Matters
Provisions relating to Employment and Labor matters are standard, but also make sure the representations and warranties include:
(a) Existence of confidentiality, invention assignment and non-competes, and get copies for each employee and consultant.
(b) Confirmation that consultants are truly consultants and not employees (which can give rise to substantial tax liabilities).
(c) Details and disclosures regarding any employee plans (stock, pension, etc.) and vesting status f each employee.
(d) Disclosures with respect to any collective bargaining any other labor matters.
7. Operations in Foreign Countries
Establishing the right of the company to operate in any foreign jurisdictions where it does business should be obvious, but compliance with the Foreign Corrupt Practices Act is far less familiar to most people. The FCPA prohibits various behavior relating to operating in foreign jurisdictions, including paying bribes to obtain contracts, business, etc. Violation of the FCPA carries substantial civil and criminal liability. As a buyer, you might not think much about the FCPA, but if you manufacture in China, for example, you better pay attention and therefore incorporate a representation that no unlawful payments have been made by seller or its agents.
8. Covenants
The Purchase Agreement should contain covenants relating to:
(a) Non-solicitation of employees, customers and clients and non-interference with existing vendor/supplier relationships.
(b) In certain circumstances, a Non-Compete that complies with the narrow limitations imposed by applicable state law.
(c) As discussed in prior posts, clear indemnification and escrow terms to address post-closing liabilities.
(d) Confidentiality.
(e) Obligation of the Seller to notify the buyer upon the occurrence of material events arising at any time prior to closing.
(f) Resignations of officers, directors, responsibility of the seller as to termination of some or all employees/consultants.
9. Termination
There will be grounds for either party to terminate the Agreement prior to closing. The termination provisions should not only provide specifics as to when the right can be invoked by a party, but also the liabilities, if any, resulting from termination and the effect of termination.
10. Survival
Give careful consideration to how long any of the representations, warranties and covenants will survive avter closing. The seller will push for no or a very short period while the buyer will want them to survive until the chance of any liability no longer exists. A compromise will almost always be necessary, and remember not all of the provisions need to survive for the same period of time
The above are by no means an exhaustive list of key provisions in a purchase agreement, and they will certainly vary depending on the nature of the business involved -- for example, if you are buying a gas station the environmental disclosures, reps and warranties will be substantial. What is obvious that you cannot accept a boilerplate purchase agreement and instead the provisions need to be tailored to the particular transaction.
Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters
2 Ocak 2013 Çarşamba
Get Customers Ready for the Holidays with Social Media and Email Marketing
To contact us Click HERE
Can you believe the holidays are upon us already?
With the busiest shopping days (and therefore busiest days for marketers) quickly approaching, you’ll want to make sure you can maximize the impact of your efforts. In particular, you’ll want your email and social media content is share worthy. This way your current audience will help you spread the word about your business to their friends, who make great prospects for shopping with you this holiday season.
So, how do you create share-worthy content? Here are 3 ideas:
Pay attention to what your fans, followers, and readers really want
If you want your business to be part of your customers’ holiday plans this season, you’re going to need to deliver content they actually care about. This is especially important during the holidays when your customers are not only busy, but are also being bombarded by content from a number of other businesses fighting for their attention.
Use a survey to collect feedback, sending it to all of your email subscribers and posting it on your Facebook Page. Ask your fans what they are most interested in receiving from your business this holiday season and use that customer feedback to not only improve the content your sending out, but to also better target your messages by segmenting your email contact list.
Be a resource, not just a sales pitchWhile the holidays are—without a doubt—a time for celebration and giving thanks, they are also a time of great stress for a lot of your customers. Don’t add to that stress by overwhelming them with salesly content and aggressive promotion; instead provide them with something they can actually use this holiday season. It can be something as simple as advice for preparing their shopping list, tips for throwing a dinner party, or even a special coupon for subscribers only. Post tips on Facebook or share articles on Twitter. If your business uses Pinterest, consider creating boards to give your followers inspiration leading up to the holiday season.
Start your holiday promotion by helping your customers; they’ll remember it when it comes time to buy.
Remember what works during the other seasons
Not everything changes during the holiday season. The best practices and strategies you use in your email marketing and social media throughout the year will not only still be effective in November and December, but they will help you engage your customers in September and October and get them ready for the holiday push. Using rich media, like photos and videos for example, is a great way to start building that excitement. Think about the types of things we’ve already talked about: providing exclusive content, being a resource, not being too promotional—photos are a great way to accomplish all of these things. Post pictures from past holidays or give a sneak peak at new products, and then ask your fans to comment, like, or share.
Gina Watkins is a leading expert on e-marketing for small business – and has a real passion for helping businesses to succeed. Her ongoing series of dynamic lectures are filled with real-world examples, humor and results-driven wisdom garnered from more than two decades of sales, business development and marketing experience. In addition to owning her own business, she is an award-winning direct marketer, has been featured on WUSA Channel 9's Mind Over Money show, Dr. Gayle Carson’s Women In Business radio show, Morgan State’s Briefcase Radio program, and in numerous other media. In her role as Constant Contact Regional Development Director, she’s presented to more than ten thousand seminar attendees about the keys to success with easy, affordable, highly effective technology tools that grow trusted business relationships.
With the busiest shopping days (and therefore busiest days for marketers) quickly approaching, you’ll want to make sure you can maximize the impact of your efforts. In particular, you’ll want your email and social media content is share worthy. This way your current audience will help you spread the word about your business to their friends, who make great prospects for shopping with you this holiday season.
So, how do you create share-worthy content? Here are 3 ideas:
Pay attention to what your fans, followers, and readers really want
If you want your business to be part of your customers’ holiday plans this season, you’re going to need to deliver content they actually care about. This is especially important during the holidays when your customers are not only busy, but are also being bombarded by content from a number of other businesses fighting for their attention.
Use a survey to collect feedback, sending it to all of your email subscribers and posting it on your Facebook Page. Ask your fans what they are most interested in receiving from your business this holiday season and use that customer feedback to not only improve the content your sending out, but to also better target your messages by segmenting your email contact list.
Be a resource, not just a sales pitchWhile the holidays are—without a doubt—a time for celebration and giving thanks, they are also a time of great stress for a lot of your customers. Don’t add to that stress by overwhelming them with salesly content and aggressive promotion; instead provide them with something they can actually use this holiday season. It can be something as simple as advice for preparing their shopping list, tips for throwing a dinner party, or even a special coupon for subscribers only. Post tips on Facebook or share articles on Twitter. If your business uses Pinterest, consider creating boards to give your followers inspiration leading up to the holiday season.
Start your holiday promotion by helping your customers; they’ll remember it when it comes time to buy.
Remember what works during the other seasons
Not everything changes during the holiday season. The best practices and strategies you use in your email marketing and social media throughout the year will not only still be effective in November and December, but they will help you engage your customers in September and October and get them ready for the holiday push. Using rich media, like photos and videos for example, is a great way to start building that excitement. Think about the types of things we’ve already talked about: providing exclusive content, being a resource, not being too promotional—photos are a great way to accomplish all of these things. Post pictures from past holidays or give a sneak peak at new products, and then ask your fans to comment, like, or share.
Gina Watkins is a leading expert on e-marketing for small business – and has a real passion for helping businesses to succeed. Her ongoing series of dynamic lectures are filled with real-world examples, humor and results-driven wisdom garnered from more than two decades of sales, business development and marketing experience. In addition to owning her own business, she is an award-winning direct marketer, has been featured on WUSA Channel 9's Mind Over Money show, Dr. Gayle Carson’s Women In Business radio show, Morgan State’s Briefcase Radio program, and in numerous other media. In her role as Constant Contact Regional Development Director, she’s presented to more than ten thousand seminar attendees about the keys to success with easy, affordable, highly effective technology tools that grow trusted business relationships.
Exporting Tool Review: SBA’s Export Business Planner
To contact us Click HERE
by BizFilings Business Owner’s Toolkit
Here’s a riddle for the export-eager entrepreneur: What clocks in at 192 pages and is free? Unless you have a habit of absconding with condensed Gideon Bibles, the only answer we have is the SBA’s Export Business Planner.
This massive tool is designed for “business owners who are exploring exporting.” While we recommend other resources if you’re merely exploring the possibilities of exporting, such as export.gov’s “Export Questionnaire“ or “Basic Guide to Exporting,” the Planner remains the go-to tool when you’re past considering exporting and ready to commit resources to this aspect of your business.
Once you download the tool (a PDF), simply skim the first few chapters as they contain largely fluff or information you should already know if you’ve come this far in the exporting planning process. We’ll cover the chapters that matter most.
Creating an Export Business Plan
From this point forward, none of the Planner will be particularly easy, and the Export Business Plan section is no exception. You’ll have to work through exercises such as:
Many entrepreneurs think they can hire a native speaker to translate their ads, adapt their marketing plan to a new region and wait for the exporting earnings to come rolling in. Coincidentally, many entrepreneurs’ forays into exporting fail.
To help ensure your exporting marketing efforts are successful, the Planner provides a 45-page chapter on your marketing plan. Once you’ve identified top markets to explore, this chapter helps refine your marketing strategy and tactics through exercises such as a market factor assessment, distributorship/agent guide, customer identification and more. Like the Export Business Plan, these can be time-consuming and involve fairly extensive research.
Financing Your Exporting Venture
For you finance aficionados, you’re about to enter number-crunching heaven. For the rest of you, take a deep breath and relax. You can do this.
The chapter starts with one of the most essential series of worksheets you’ll need to complete: forecasting the first five years of sales. This portion alone will show you if, financially speaking, you can support an exporting program, or where adjustments must be made. Everything else—export costing, marketing expense costs, projected income, etc.—will require the same detail and tenacity you put forth in other exercises.
The Export Business Planner is so thick for a reason. Exporting shouldn’t be an impulse decision. It must be a calculated, deliberate endeavor. And there isn’t a much better preparation tool out there than this SBA offering.
About Business Owner’s Toolkit
With an emphasis on problem-solving dating back to 1995, Business Owner’s Toolkit™ (www.toolkit.com) offers more than 5,000 pages of free cost-cutting tips, step-by-step checklists, real-life case studies, startup advice, and business templates to small business owners and entrepreneurs. The site also offers a monthly newsletter, up-to-date news topics, and Ask Alice!, a column that closely follows industry trends and provides trusted advice to inquiring site visitors.
Here’s a riddle for the export-eager entrepreneur: What clocks in at 192 pages and is free? Unless you have a habit of absconding with condensed Gideon Bibles, the only answer we have is the SBA’s Export Business Planner.
This massive tool is designed for “business owners who are exploring exporting.” While we recommend other resources if you’re merely exploring the possibilities of exporting, such as export.gov’s “Export Questionnaire“ or “Basic Guide to Exporting,” the Planner remains the go-to tool when you’re past considering exporting and ready to commit resources to this aspect of your business.
Once you download the tool (a PDF), simply skim the first few chapters as they contain largely fluff or information you should already know if you’ve come this far in the exporting planning process. We’ll cover the chapters that matter most.
Creating an Export Business Plan
From this point forward, none of the Planner will be particularly easy, and the Export Business Plan section is no exception. You’ll have to work through exercises such as:
- a business analysis that forces you to examine the current state of your company and your position against competitor an industry analysis that provides resources to find where your
- an industry stands among exporting statistics with the Census Bureau and various trade associations.
- a products/trend analysis that helps you find which countries or areas are best suited for your product, and then limiting that list to markets with the greatest chance of success. These and other worksheets reference a number of outside sources (with links provided) as well as your internal data.
Many entrepreneurs think they can hire a native speaker to translate their ads, adapt their marketing plan to a new region and wait for the exporting earnings to come rolling in. Coincidentally, many entrepreneurs’ forays into exporting fail.
To help ensure your exporting marketing efforts are successful, the Planner provides a 45-page chapter on your marketing plan. Once you’ve identified top markets to explore, this chapter helps refine your marketing strategy and tactics through exercises such as a market factor assessment, distributorship/agent guide, customer identification and more. Like the Export Business Plan, these can be time-consuming and involve fairly extensive research.
Financing Your Exporting Venture
For you finance aficionados, you’re about to enter number-crunching heaven. For the rest of you, take a deep breath and relax. You can do this.
The chapter starts with one of the most essential series of worksheets you’ll need to complete: forecasting the first five years of sales. This portion alone will show you if, financially speaking, you can support an exporting program, or where adjustments must be made. Everything else—export costing, marketing expense costs, projected income, etc.—will require the same detail and tenacity you put forth in other exercises.
The Export Business Planner is so thick for a reason. Exporting shouldn’t be an impulse decision. It must be a calculated, deliberate endeavor. And there isn’t a much better preparation tool out there than this SBA offering.
About Business Owner’s Toolkit With an emphasis on problem-solving dating back to 1995, Business Owner’s Toolkit™ (www.toolkit.com) offers more than 5,000 pages of free cost-cutting tips, step-by-step checklists, real-life case studies, startup advice, and business templates to small business owners and entrepreneurs. The site also offers a monthly newsletter, up-to-date news topics, and Ask Alice!, a column that closely follows industry trends and provides trusted advice to inquiring site visitors.
Primary Functions of Your Website
To contact us Click HERE
Last month I covered the basics of building your social media marketing. The next step in building your foundation is to build a solid central focal point for the rest of your marketing activities to flow to, your website.
Website
Primary Functions of Your Website
Do you know YOUR target market?
If you don’t you should stop reading. If you do, then you need to focus on your target market and nobody else. Once you know them and understand them then you can get them to your web site by targeting them.
Search Engine Optimization or SEO is the art of making sure the search engines can find your website. The best ways to accomplish SEO are through the basic structure of your site or how you define your URL’s. The second aspect is using keywords the are relevant to your target market.
Take
Take the contact information of your visitors. Take it by giving! Sounds a little counter intuitive doesn’t it. When you give or offer something to your visitors for free they will usually accept in exchange for an email address if and only if they perceive that what you are offering “gives” them value. Meaning they can take it and do something with it that will make them money, give them happiness or relieve a pain point.
The more you give, the more the visitors are willing to let you take. You can’t just take their information but when you give them an incentive or a free gift or valuable information then you will be successful in obtaining an opt in.
People are very protective of their online information. Be respectful of that and make sure you are only asking for information when you give information first.
Train
Marketing is really just training. Teaching your visitors about your products and the benefits they get by using your products. You illustrate that thru success stories, testimonials and borrowed credibility. When you start to think about your visitors as trainees rather than leads your entire marketing campaign will change and become more successful.
People love stories that they can relate to. If the visitor has experienced a similar problem and you can convey that you understand that problem and more importantly how to solve it then you easily overcome any objections that visitor may have.
Testimonials are powerful because they show that other people have used your product or services and have benefited from the results.
Borrowed credibility is simply promoting the fact that other big names have supported you, used your products or services and had success. If you get 1 or 2 easily recognizable names on your list it can make a significant impact on your credibility and increase the trust factor that people have to do business with a start up company.
In the meantime, please check out the Blue Pen Success Program at www.bluepensuccess.com. Blue Pen Success is an Entrepreneur training program based on the tried and true My Own Business Inc. (MOBI) training. MOBI allows certified graduates to teach the course. I decided to "teach it by creating an online video series of the courses for FREE!! www.bluepensuccess.com
Website
Primary Functions of Your Website
- Target: Be found by search engines
- Take: Captures a lead, converts them into a sale
- Teach: Informs and educates
Do you know YOUR target market?
If you don’t you should stop reading. If you do, then you need to focus on your target market and nobody else. Once you know them and understand them then you can get them to your web site by targeting them.
Search Engine Optimization or SEO is the art of making sure the search engines can find your website. The best ways to accomplish SEO are through the basic structure of your site or how you define your URL’s. The second aspect is using keywords the are relevant to your target market.
Take
Take the contact information of your visitors. Take it by giving! Sounds a little counter intuitive doesn’t it. When you give or offer something to your visitors for free they will usually accept in exchange for an email address if and only if they perceive that what you are offering “gives” them value. Meaning they can take it and do something with it that will make them money, give them happiness or relieve a pain point.
The more you give, the more the visitors are willing to let you take. You can’t just take their information but when you give them an incentive or a free gift or valuable information then you will be successful in obtaining an opt in.
People are very protective of their online information. Be respectful of that and make sure you are only asking for information when you give information first.
Train
Marketing is really just training. Teaching your visitors about your products and the benefits they get by using your products. You illustrate that thru success stories, testimonials and borrowed credibility. When you start to think about your visitors as trainees rather than leads your entire marketing campaign will change and become more successful.
People love stories that they can relate to. If the visitor has experienced a similar problem and you can convey that you understand that problem and more importantly how to solve it then you easily overcome any objections that visitor may have.
Testimonials are powerful because they show that other people have used your product or services and have benefited from the results.
Borrowed credibility is simply promoting the fact that other big names have supported you, used your products or services and had success. If you get 1 or 2 easily recognizable names on your list it can make a significant impact on your credibility and increase the trust factor that people have to do business with a start up company.
In the meantime, please check out the Blue Pen Success Program at www.bluepensuccess.com. Blue Pen Success is an Entrepreneur training program based on the tried and true My Own Business Inc. (MOBI) training. MOBI allows certified graduates to teach the course. I decided to "teach it by creating an online video series of the courses for FREE!! www.bluepensuccess.com
A Word to Small Business Owners: Don't Be Afraid to Negotiate Contracts
To contact us Click HERE
All too often small business owners readily accept the terms of a contract or are concerned about pushing back on both economic and legal terms because either they fear losing the deal or simply don't fully understand the terms. As a business owner, you need to recognize that in most circumstances there is an opportunity to negotiate terms of an agreement, and therefore you should not be afraid to seek the best deal possible even if the other party initially seems unwilling to consider your position on key aspects of the contract. So, here is the advice, Don't Be Afraid to Negotiate.
Negotiation skills are one of the most important tools a business owner should have in its toolbox. Therefore, if you receive a contract from a party, read it carefully, and then proactively respond in writing with your comments. One negotiating trick that vendors often try is to provide a form contract, creating the impression that the terms are non-negotiable -- indeed, if I am representing the vendor, I will often suggest creating a form agreement. Any contract, even a form, can be revised by an amendment, so do not automatically assume the agreement must be accepted "as is". The following are among the material terms that business owners should not only fully understand, but seek to negotiate.
1. Term. If you want a longer or shorter contact term, then ask for it. One alternative is to get an option to renew, which should be exercised within a certain number of days prior to expiration of the contract. The mechanics of the option and financial terms should be clearly spelled out as well.
2. Fees. There are many different ways to skin this cat, and you should consider what best works for your business over the term of the agreement. The financial terms can be based on (a) a set periodic payment, (b) an up front payment and then installments, (c) fees that scale up or even down over the life of the contract, (c) revenues, (d) milestones, or (e) a combination of several different fee structures. If the payments are based on revenues, then it is essential that the parties clearly define not just the percentage by the term "Revenue." For example, is it based on Gross or Net, and what is to be included in the Gross and what can be deducted as a legitimate expense when determining Net Revenues? A Net Revenue contract may refer to overhead expenses, like a businesses' borrowing costs, which can be a killer for a party who is being paid based on Net. Make sure you understand the definition, and if you don't ask for professional advice rather than assume the definitions are fair or standard.
3. Financial Reports/Audit. If the consideration under the contract is based on revenues or certain milestones, require periodic financial reports. In addition, you should have the opportunity to review and audit (i.e., challenge) such reports rather than simply accepting the information provided by the other contracting party. In addition, provide a dispute mechanism in the event of a challenge, such as CFO's meet and try to resolve, appointing independent third party, or even arbitration -- and if the audit reveals you were in the right, include a requirement that the other party pays your costs.
4. Termination of the Contract/Suspension. Of course the contract will expire at the end of its term, but include other events that will result in termination: (a) non-payment, (b) material breach, (c) bankruptcy, (d) failure to achieve defined milestones, including financial ones, (e) assignment/sale of the business (see below), (f) departure of personnel if the business relies on certain key employees, or (g) force majeure. Termination clauses will often allow the breaching party an opportunity to cure a default, provided it is one that can be cured. In the case of a force majeure event, the contract can be suspended pending passage of the event or terminated if the contract becomes impossible to continue due to the event.
5. Assignment/Sale of the Business. Do you want the contract to be assignable to a third party, including in the event of the sale of the business. This is an important issue for many types of agreements, such as licensing agreements or service contracts. You can require consent for the assignment, but if you want the contract to be assignable, as an alternative you can propose that it is assignable to an assignee with financial ability to meet the contractual obligations.
6. Warranties/Limitations on Liability. Suppliers/service providers will often provide a lengthy provisions denying all warranties and limiting their liability -- and if you are the vendor, you generally want to push for these provisions. If you are purchasing the the services of a large company, there may be no room to push back on any of the limitations, but whether the other contracting party is a small or large company, there is no harm in trying -- even if they send you the form or the "Master Service Agreement." For either party, it is all about the bargaining power, and how much the other party wants your business versus how much you need the agreement. Even if you cannot get the other party to budge, ask at least for an exception for gross negligence, and regardless a court may negate the limitation based on intentional misconduct or even gross negligence.
7. Dispute Resolution. Avoid an issues as to how disputes are to be resolved by negotiating the applicable (a) governing law, (b) venue for the dispute (meaning both the tribunal that will handle the matter, such as a court or arbitration/mediation, and the geographic location), (c) if there is to be mediation or arbitration, the procedures, and (d) will the parties impose legal fees and costs on the losing party.
8. Remedies. Among the remedies you can include are (a) specific performance, which is important if money cannot cure a default, (b) liquidated damages, if you prefer to define the damages to avoid disputes as to proof the proper compensation for a breach, and (c) equitable remedies (other than specific performance), like an injunction.
9. Non-Compete/Non-Solicitation. Simple vendor/supplier agreements generally won't include these terms, but many other contracts will, including licensing agreements, consulting/employment, certain service agreements, or more major transactions (like sale of a business) to name a few. Enforcement, especially as to non-competes, is a key legal issue, and it is highly advisable to have the provisions reviewed by counsel that understands the law in the applicable jurisdiction as it can vary greatly from state-to-state.
10. Other Terms/Conclusion. If there are other terms included or, for that matter, missing from the agreement, then make these part of the punch list of issues to be addressed with the other party. The reality is that the worse response you can receive is "no", and then you can decide how important the provision is from your perspective. A bad contract is NOT better than no contract. In a competitive economy, even larger/established businesses are often willing to negotiate and "the last and final", "take it or leave it" or "as is" response may be just a bargaining tactic.
The Lesson: Read the Contract, Understand Each Provisions and Don't Be Afraid to Negotiate the Terms.
Disclaimer: The discussions in this blog do not constitute legal advise nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters.
Negotiation skills are one of the most important tools a business owner should have in its toolbox. Therefore, if you receive a contract from a party, read it carefully, and then proactively respond in writing with your comments. One negotiating trick that vendors often try is to provide a form contract, creating the impression that the terms are non-negotiable -- indeed, if I am representing the vendor, I will often suggest creating a form agreement. Any contract, even a form, can be revised by an amendment, so do not automatically assume the agreement must be accepted "as is". The following are among the material terms that business owners should not only fully understand, but seek to negotiate.
1. Term. If you want a longer or shorter contact term, then ask for it. One alternative is to get an option to renew, which should be exercised within a certain number of days prior to expiration of the contract. The mechanics of the option and financial terms should be clearly spelled out as well.
2. Fees. There are many different ways to skin this cat, and you should consider what best works for your business over the term of the agreement. The financial terms can be based on (a) a set periodic payment, (b) an up front payment and then installments, (c) fees that scale up or even down over the life of the contract, (c) revenues, (d) milestones, or (e) a combination of several different fee structures. If the payments are based on revenues, then it is essential that the parties clearly define not just the percentage by the term "Revenue." For example, is it based on Gross or Net, and what is to be included in the Gross and what can be deducted as a legitimate expense when determining Net Revenues? A Net Revenue contract may refer to overhead expenses, like a businesses' borrowing costs, which can be a killer for a party who is being paid based on Net. Make sure you understand the definition, and if you don't ask for professional advice rather than assume the definitions are fair or standard.
3. Financial Reports/Audit. If the consideration under the contract is based on revenues or certain milestones, require periodic financial reports. In addition, you should have the opportunity to review and audit (i.e., challenge) such reports rather than simply accepting the information provided by the other contracting party. In addition, provide a dispute mechanism in the event of a challenge, such as CFO's meet and try to resolve, appointing independent third party, or even arbitration -- and if the audit reveals you were in the right, include a requirement that the other party pays your costs.
4. Termination of the Contract/Suspension. Of course the contract will expire at the end of its term, but include other events that will result in termination: (a) non-payment, (b) material breach, (c) bankruptcy, (d) failure to achieve defined milestones, including financial ones, (e) assignment/sale of the business (see below), (f) departure of personnel if the business relies on certain key employees, or (g) force majeure. Termination clauses will often allow the breaching party an opportunity to cure a default, provided it is one that can be cured. In the case of a force majeure event, the contract can be suspended pending passage of the event or terminated if the contract becomes impossible to continue due to the event.
5. Assignment/Sale of the Business. Do you want the contract to be assignable to a third party, including in the event of the sale of the business. This is an important issue for many types of agreements, such as licensing agreements or service contracts. You can require consent for the assignment, but if you want the contract to be assignable, as an alternative you can propose that it is assignable to an assignee with financial ability to meet the contractual obligations.
6. Warranties/Limitations on Liability. Suppliers/service providers will often provide a lengthy provisions denying all warranties and limiting their liability -- and if you are the vendor, you generally want to push for these provisions. If you are purchasing the the services of a large company, there may be no room to push back on any of the limitations, but whether the other contracting party is a small or large company, there is no harm in trying -- even if they send you the form or the "Master Service Agreement." For either party, it is all about the bargaining power, and how much the other party wants your business versus how much you need the agreement. Even if you cannot get the other party to budge, ask at least for an exception for gross negligence, and regardless a court may negate the limitation based on intentional misconduct or even gross negligence.
7. Dispute Resolution. Avoid an issues as to how disputes are to be resolved by negotiating the applicable (a) governing law, (b) venue for the dispute (meaning both the tribunal that will handle the matter, such as a court or arbitration/mediation, and the geographic location), (c) if there is to be mediation or arbitration, the procedures, and (d) will the parties impose legal fees and costs on the losing party.
8. Remedies. Among the remedies you can include are (a) specific performance, which is important if money cannot cure a default, (b) liquidated damages, if you prefer to define the damages to avoid disputes as to proof the proper compensation for a breach, and (c) equitable remedies (other than specific performance), like an injunction.
9. Non-Compete/Non-Solicitation. Simple vendor/supplier agreements generally won't include these terms, but many other contracts will, including licensing agreements, consulting/employment, certain service agreements, or more major transactions (like sale of a business) to name a few. Enforcement, especially as to non-competes, is a key legal issue, and it is highly advisable to have the provisions reviewed by counsel that understands the law in the applicable jurisdiction as it can vary greatly from state-to-state.
10. Other Terms/Conclusion. If there are other terms included or, for that matter, missing from the agreement, then make these part of the punch list of issues to be addressed with the other party. The reality is that the worse response you can receive is "no", and then you can decide how important the provision is from your perspective. A bad contract is NOT better than no contract. In a competitive economy, even larger/established businesses are often willing to negotiate and "the last and final", "take it or leave it" or "as is" response may be just a bargaining tactic.
The Lesson: Read the Contract, Understand Each Provisions and Don't Be Afraid to Negotiate the Terms.
Disclaimer: The discussions in this blog do not constitute legal advise nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters.
Legal Issues When Buying a Business: Don't Overlook These Provisions in the Purchase Agreement.
To contact us Click HERE
As discussed in prior installments of this series on buying a business, there are a number important legal issues you need to consider before signing the purchase agreement. The first installment discussed the role of the Exclusivity Agreement, the second installment examined the differences between structuring the transaction as stock purchase as opposed to a purchase of assets, the third examined the importance of escrowing a portion of the purchase price to cover any issues that may arise post closing, and the fourth discussed important aspects of due diligence and how to address legal or financial issues in the purchase agreement. This fifth installment examines several key provisions that should be incorporated in the purchase agreement but are otherwise often overlooked.
The Purchase Agreement is a very flexible instrument giving the parties substantial flexibility not only as to the structure the transaction but with respect to the representations, warranties, disclosures and covenants that the parties can negotiate to include (or for that matter exclude) from the Agreement. There are a number of standard provisions relating to such matters as legal ownership of/title to the assets, representations as to the corporate status and authority, disclosures as to litigation, financial and tax related representations, environmental issues and post closing obligations. First, while these provisions may be part of a standard purchase agreement they by no means should be viewed as boilerplate. Even a slight variation in language can alter the meaning and scope of these sections, and thus all representations, warranties and covenants, no matter how standard, need to be reviewed carefully. Second, below are a number of provisions which are often overlooked but you should consider incorporating in the Purchase Agreement.
1. Intellectual Property.
Of course it is standard to include representations regarding the seller's title and ownership of the intellectual property, but make sure the Agreement:
(a) Covers licensed rights as well as often the seller does not own but licenses key IP. In the same vein, confirm the licenses are assignable and if consent of the licensor is required that the Seller obtain the consent as a condition of closing.
(b) Addresses rights to the domain names and company websites and requires transfer of these rights to the buyer as a condition of closing. It is not unusual for the buyer to forgot about the transfer of the domain and then have to coax the seller into compliance after the sale.
(c) IP rights should include not only registered marks or issued patents, but pending applications, unregistered rights, royalties, licenses and, significantly, awards, damages or pending claims and litigation.
(d) Incorporates provisions relating to software, requires the turn over of source code, manuals, passwords, license keys and all other documentation.
2. Litigation
Representations relating to pending or threatened litigation are typical in a Purchase Agreement, but be sure:
(a) There are sufficient disclosures about pending and threatened litigation, including the status of such matters.
(b) Decide how litigation is to be handled post-closing. Will your lawyer take over the matter or will the Seller's lawyer continue to handle it; who will be responsible for the legal fees and costs; include a right to periodic updates as to the status of any legal matters; and set forth any rights as to damages, awards, insurance proceeds and to settle the matter and any indemnification in the event of an unfavorable outcome.
3. Financial/Tax Matters
In addition to the typical representations and warranties concerning financial and tax issues, include:
(a) Financial
(i) Require that the seller update the financial statements on or prior to Closing;
(ii) Include a formula for adjusting the purchase price if there are material changes to the financial statement;
(iii) Although often used, try to avoid using an earn-out (post-closing payment contingent on certain financial milestones) as they are difficult to negotiate, document and manage once the buyer assumes the reins of the business, and as a result they are a major source of post-closing disputes. If an earn-out cannot be avoided, make sure you have counsel who has experience negotiating and drafting earn-outs.
(b) Taxes
(i) The representations and warranties should not only cover federal and state taxes, but sales and any other applicable taxes for all relevant jurisdictions.
(ii) The seller should provide all filings and disclose any past, pending or threatened audits/assessments.
(iii) Require the seller provide post-closing assistance for any filings relating to periods of time the seller controlled the business.
(iv) Include appropriate indemnifications for tax liabilities.
4. Transition
Is there a switch in your house that you have no idea what it does, and since the seller is long gone you have no way of finding out? Well, think how that issue is magnified exponentially if you purchase a business and don't have the seller to assist with the transition. The assistance is important not only as to obvious issues, like computer systems, financial records, and where the keys to the third floor supply closet are located, but making a smooth transition as far as clients/customers, introduction to vendors/suppliers, establishing a good relationship with employees/consultants, ensuring an understanding of business processes and procedures that are essential for operation of the business. Therefore, the Purchase Agreement can require the meaningful assistance of the seller or even include compensation to the seller for post-closing assistance and continued employment with the company for a reasonable period of time.
5. Material Adverse Change
Undoubtedly the Purchase Agreement will include a Material Adverse Change clause essentially providing the buyer with certain rights and remedies (including possibly termination of the transaction) in the event of a material adverse change with respect to the business. The clause is one of those tricky provisions which, if not properly drafted, can result in substantial disputes. The key is to avoid ambiguity by incorporating specific criteria as to when the Material Adverse Change clause is implicated, such as decline in sales, the loss of certain amount of or even specifically named customers, a decrease in EBITDA or termination of a manufacturing or supplier relationship.
6. Employment/Labor Matters
Provisions relating to Employment and Labor matters are standard, but also make sure the representations and warranties include:
(a) Existence of confidentiality, invention assignment and non-competes, and get copies for each employee and consultant.
(b) Confirmation that consultants are truly consultants and not employees (which can give rise to substantial tax liabilities).
(c) Details and disclosures regarding any employee plans (stock, pension, etc.) and vesting status f each employee.
(d) Disclosures with respect to any collective bargaining any other labor matters.
7. Operations in Foreign Countries
Establishing the right of the company to operate in any foreign jurisdictions where it does business should be obvious, but compliance with the Foreign Corrupt Practices Act is far less familiar to most people. The FCPA prohibits various behavior relating to operating in foreign jurisdictions, including paying bribes to obtain contracts, business, etc. Violation of the FCPA carries substantial civil and criminal liability. As a buyer, you might not think much about the FCPA, but if you manufacture in China, for example, you better pay attention and therefore incorporate a representation that no unlawful payments have been made by seller or its agents.
8. Covenants
The Purchase Agreement should contain covenants relating to:
(a) Non-solicitation of employees, customers and clients and non-interference with existing vendor/supplier relationships.
(b) In certain circumstances, a Non-Compete that complies with the narrow limitations imposed by applicable state law.
(c) As discussed in prior posts, clear indemnification and escrow terms to address post-closing liabilities.
(d) Confidentiality.
(e) Obligation of the Seller to notify the buyer upon the occurrence of material events arising at any time prior to closing.
(f) Resignations of officers, directors, responsibility of the seller as to termination of some or all employees/consultants.
9. Termination
There will be grounds for either party to terminate the Agreement prior to closing. The termination provisions should not only provide specifics as to when the right can be invoked by a party, but also the liabilities, if any, resulting from termination and the effect of termination.
10. Survival
Give careful consideration to how long any of the representations, warranties and covenants will survive avter closing. The seller will push for no or a very short period while the buyer will want them to survive until the chance of any liability no longer exists. A compromise will almost always be necessary, and remember not all of the provisions need to survive for the same period of time
The above are by no means an exhaustive list of key provisions in a purchase agreement, and they will certainly vary depending on the nature of the business involved -- for example, if you are buying a gas station the environmental disclosures, reps and warranties will be substantial. What is obvious that you cannot accept a boilerplate purchase agreement and instead the provisions need to be tailored to the particular transaction.
Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters
The Purchase Agreement is a very flexible instrument giving the parties substantial flexibility not only as to the structure the transaction but with respect to the representations, warranties, disclosures and covenants that the parties can negotiate to include (or for that matter exclude) from the Agreement. There are a number of standard provisions relating to such matters as legal ownership of/title to the assets, representations as to the corporate status and authority, disclosures as to litigation, financial and tax related representations, environmental issues and post closing obligations. First, while these provisions may be part of a standard purchase agreement they by no means should be viewed as boilerplate. Even a slight variation in language can alter the meaning and scope of these sections, and thus all representations, warranties and covenants, no matter how standard, need to be reviewed carefully. Second, below are a number of provisions which are often overlooked but you should consider incorporating in the Purchase Agreement.
1. Intellectual Property.
Of course it is standard to include representations regarding the seller's title and ownership of the intellectual property, but make sure the Agreement:
(a) Covers licensed rights as well as often the seller does not own but licenses key IP. In the same vein, confirm the licenses are assignable and if consent of the licensor is required that the Seller obtain the consent as a condition of closing.
(b) Addresses rights to the domain names and company websites and requires transfer of these rights to the buyer as a condition of closing. It is not unusual for the buyer to forgot about the transfer of the domain and then have to coax the seller into compliance after the sale.
(c) IP rights should include not only registered marks or issued patents, but pending applications, unregistered rights, royalties, licenses and, significantly, awards, damages or pending claims and litigation.
(d) Incorporates provisions relating to software, requires the turn over of source code, manuals, passwords, license keys and all other documentation.
2. Litigation
Representations relating to pending or threatened litigation are typical in a Purchase Agreement, but be sure:
(a) There are sufficient disclosures about pending and threatened litigation, including the status of such matters.
(b) Decide how litigation is to be handled post-closing. Will your lawyer take over the matter or will the Seller's lawyer continue to handle it; who will be responsible for the legal fees and costs; include a right to periodic updates as to the status of any legal matters; and set forth any rights as to damages, awards, insurance proceeds and to settle the matter and any indemnification in the event of an unfavorable outcome.
3. Financial/Tax Matters
In addition to the typical representations and warranties concerning financial and tax issues, include:
(a) Financial
(i) Require that the seller update the financial statements on or prior to Closing;
(ii) Include a formula for adjusting the purchase price if there are material changes to the financial statement;
(iii) Although often used, try to avoid using an earn-out (post-closing payment contingent on certain financial milestones) as they are difficult to negotiate, document and manage once the buyer assumes the reins of the business, and as a result they are a major source of post-closing disputes. If an earn-out cannot be avoided, make sure you have counsel who has experience negotiating and drafting earn-outs.
(b) Taxes
(i) The representations and warranties should not only cover federal and state taxes, but sales and any other applicable taxes for all relevant jurisdictions.
(ii) The seller should provide all filings and disclose any past, pending or threatened audits/assessments.
(iii) Require the seller provide post-closing assistance for any filings relating to periods of time the seller controlled the business.
(iv) Include appropriate indemnifications for tax liabilities.
4. Transition
Is there a switch in your house that you have no idea what it does, and since the seller is long gone you have no way of finding out? Well, think how that issue is magnified exponentially if you purchase a business and don't have the seller to assist with the transition. The assistance is important not only as to obvious issues, like computer systems, financial records, and where the keys to the third floor supply closet are located, but making a smooth transition as far as clients/customers, introduction to vendors/suppliers, establishing a good relationship with employees/consultants, ensuring an understanding of business processes and procedures that are essential for operation of the business. Therefore, the Purchase Agreement can require the meaningful assistance of the seller or even include compensation to the seller for post-closing assistance and continued employment with the company for a reasonable period of time.
5. Material Adverse Change
Undoubtedly the Purchase Agreement will include a Material Adverse Change clause essentially providing the buyer with certain rights and remedies (including possibly termination of the transaction) in the event of a material adverse change with respect to the business. The clause is one of those tricky provisions which, if not properly drafted, can result in substantial disputes. The key is to avoid ambiguity by incorporating specific criteria as to when the Material Adverse Change clause is implicated, such as decline in sales, the loss of certain amount of or even specifically named customers, a decrease in EBITDA or termination of a manufacturing or supplier relationship.
6. Employment/Labor Matters
Provisions relating to Employment and Labor matters are standard, but also make sure the representations and warranties include:
(a) Existence of confidentiality, invention assignment and non-competes, and get copies for each employee and consultant.
(b) Confirmation that consultants are truly consultants and not employees (which can give rise to substantial tax liabilities).
(c) Details and disclosures regarding any employee plans (stock, pension, etc.) and vesting status f each employee.
(d) Disclosures with respect to any collective bargaining any other labor matters.
7. Operations in Foreign Countries
Establishing the right of the company to operate in any foreign jurisdictions where it does business should be obvious, but compliance with the Foreign Corrupt Practices Act is far less familiar to most people. The FCPA prohibits various behavior relating to operating in foreign jurisdictions, including paying bribes to obtain contracts, business, etc. Violation of the FCPA carries substantial civil and criminal liability. As a buyer, you might not think much about the FCPA, but if you manufacture in China, for example, you better pay attention and therefore incorporate a representation that no unlawful payments have been made by seller or its agents.
8. Covenants
The Purchase Agreement should contain covenants relating to:
(a) Non-solicitation of employees, customers and clients and non-interference with existing vendor/supplier relationships.
(b) In certain circumstances, a Non-Compete that complies with the narrow limitations imposed by applicable state law.
(c) As discussed in prior posts, clear indemnification and escrow terms to address post-closing liabilities.
(d) Confidentiality.
(e) Obligation of the Seller to notify the buyer upon the occurrence of material events arising at any time prior to closing.
(f) Resignations of officers, directors, responsibility of the seller as to termination of some or all employees/consultants.
9. Termination
There will be grounds for either party to terminate the Agreement prior to closing. The termination provisions should not only provide specifics as to when the right can be invoked by a party, but also the liabilities, if any, resulting from termination and the effect of termination.
10. Survival
Give careful consideration to how long any of the representations, warranties and covenants will survive avter closing. The seller will push for no or a very short period while the buyer will want them to survive until the chance of any liability no longer exists. A compromise will almost always be necessary, and remember not all of the provisions need to survive for the same period of time
The above are by no means an exhaustive list of key provisions in a purchase agreement, and they will certainly vary depending on the nature of the business involved -- for example, if you are buying a gas station the environmental disclosures, reps and warranties will be substantial. What is obvious that you cannot accept a boilerplate purchase agreement and instead the provisions need to be tailored to the particular transaction.
Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters
1 Ocak 2013 Salı
The Commerce Control List and Self-Classification
To contact us Click HERE
Where do I find the Commerce Control list?; Do I need a license to export my good?; How to Reference the ECCN; Designation of EAR99; Source: Bureau of Industry and Security (BIS)
The Census Bureau serves as the leading source of quality data about the nation's people and economy. We honor privacy, protect confidentiality, share our expertise globally, and conduct our work openly. We are guided on this mission by our strong and capable workforce, our readiness to innovate, and our abiding commitment to our customers.
Where do I find the Commerce Control list?; Do I need a license to export my good?; How to Reference the ECCN; Designation of EAR99; Source: Bureau of Industry and Security (BIS)
The Census Bureau serves as the leading source of quality data about the nation's people and economy. We honor privacy, protect confidentiality, share our expertise globally, and conduct our work openly. We are guided on this mission by our strong and capable workforce, our readiness to innovate, and our abiding commitment to our customers.
What the Obama Relection Means For Small Businesses
To contact us Click HERE
This is what we would call a “status quo”re-election in that many of the tax and health care events that were scheduledto go into effect likely will with Obama’s victory. Of course, there will besome compromise with a split Congress, but small businesses can expect many ofthe tax and health care changes to go into effect in 2013.
Section 179 & BonusDepreciation
Higher taxes ahead
Health care reform
If there was any hope that the 2013 Obama-care provisions may be delayed,that’s pretty much gone with the Obama victory. This means that smallbusinesses that employ 50 full-time employees will be required by 2014 toprovide health insurance to those workers or face high fines of at least $2,000per employee.
More health care paperwork forsmall business
In addition, beginning in 2013, the same health care tracking requirement forlarge businesses will be applied to those businesses that employ less than 250employees. This means that more paperwork is headed your way. But, let’s beclear that this is a compliance requirement and no additional tax liabilitywill be assessed on W-2 Forms as some have thought.
This is just the beginning
We expect to gain further clarity in the next month and half as lawmakers areforced to meet and compromise on key issues impacting small businesses. Thebest piece of advice we can provide is to plan for what is scheduled to happen in2013, which is higher taxes and more health care reforms.
About BIDaWIZ
BIDaWIZ is an online marketplace where small businesses can obtain professional tax, accounting and financial advice and services from a network of over 750 online CPAs, EAs, CFPs & Tax JDs. BIDaWIZ suite of services include the ability to ask professionals finance and tax questions for free, find and work with a trusted professional online for a full service engagement, and to subscribe to the premium tax and financial newsletter and knowledge base.
………………………………………………
This is what we would call a “status quo”re-election in that many of the tax and health care events that were scheduledto go into effect likely will with Obama’s victory. Of course, there will besome compromise with a split Congress, but small businesses can expect many ofthe tax and health care changes to go into effect in 2013.
Section 179 & BonusDepreciation
Higher taxes ahead
Health care reform
If there was any hope that the 2013 Obama-care provisions may be delayed,that’s pretty much gone with the Obama victory. This means that smallbusinesses that employ 50 full-time employees will be required by 2014 toprovide health insurance to those workers or face high fines of at least $2,000per employee.
More health care paperwork forsmall business
In addition, beginning in 2013, the same health care tracking requirement forlarge businesses will be applied to those businesses that employ less than 250employees. This means that more paperwork is headed your way. But, let’s beclear that this is a compliance requirement and no additional tax liabilitywill be assessed on W-2 Forms as some have thought.
This is just the beginning
We expect to gain further clarity in the next month and half as lawmakers areforced to meet and compromise on key issues impacting small businesses. Thebest piece of advice we can provide is to plan for what is scheduled to happen in2013, which is higher taxes and more health care reforms.
About BIDaWIZ BIDaWIZ is an online marketplace where small businesses can obtain professional tax, accounting and financial advice and services from a network of over 750 online CPAs, EAs, CFPs & Tax JDs. BIDaWIZ suite of services include the ability to ask professionals finance and tax questions for free, find and work with a trusted professional online for a full service engagement, and to subscribe to the premium tax and financial newsletter and knowledge base.
………………………………………………
Think Before You Type
To contact us Click HERE
Anote of caution before you click send.
Admit it. You probably didn't thinktwice before you sent your last email. But the widespread nature and ease increating these communications poses tremendous risks. Many assume emails willnever be seen by third parties. Others count on a legal right to keep thesemessages confidential. Yet all too often, these messages are not privileged orthe privilege is lost and the emails become crippling evidence in litigation.
Digging up damage
There are plenty of legally damaging- and thoroughly embarrassing - business emails that have seen thelight of day and often have been used as evidence in court. In fact, emailswere reportedly instrumental in convicting both Martha Stewart in her insiderstock trading case and numerous employees in the Enron scandal.
The recent financialcrisis produced countless damaging emails. One employee of a company chargedwith the important task of rating financial products responded to anotheremployee's concern about a poorly created financial product by stating,"It could be structured by cows and we would rate it." Anotheremployee of the same company, remarking on the dangerous financial productsbeing sold, said, "Let's hope we are all wealthy and retired by the timethis house of cards falters." At another financial services company, oneemployee - worried about the poor quality debt securities owned by his company- asked of another employee, "OK, still have this vomit?"
In one case from the1990s, female employees favorably settled a sexual harassment lawsuit againstChevron on the strength of emails circulated by male employees. Notably, one ofthe emails was titled "25 Reasons Why Beer Is Better Than Women."Chevron paid $2.2 million in the settlement.
In the aftermath ofthe BP oil rig crisis, plaintiffs suing everyone in sight scoured email recordsfor damaging evidence. One email, from a BP geologist to a colleague,apparently remarking on concrete work performed by Haliburton at the rig site,stated, "Thanks for the sh*tty cement job." Haliburton was successfulin convincing the judge to exclude this email from evidence introduced in courtagainst Haliburton - but not because the email was confidential as aresult of the attorneyclient privilege.
Attorneyclient privilege
Jack Garson is the founder of Garson Claxton LLC and leads the firm’s business and real estate practice groups. Jack serves as a legal advisor for numerous local, regional and national companies, focusing on business transactions, commercial real estate, commercial leasing, and construction law. In addition to providing legal counsel, Jack serves as a strategic advisor and negotiator for many clients, providing guidance on issues such as the growth and sale of businesses, liability and risk reduction, the hiring and retention of key personnel, and protecting and enhancing profitability, as well as negotiating the resolution of complex commerce.
Anote of caution before you click send.
Admit it. You probably didn't thinktwice before you sent your last email. But the widespread nature and ease increating these communications poses tremendous risks. Many assume emails willnever be seen by third parties. Others count on a legal right to keep thesemessages confidential. Yet all too often, these messages are not privileged orthe privilege is lost and the emails become crippling evidence in litigation.
Digging up damage
There are plenty of legally damaging- and thoroughly embarrassing - business emails that have seen thelight of day and often have been used as evidence in court. In fact, emailswere reportedly instrumental in convicting both Martha Stewart in her insiderstock trading case and numerous employees in the Enron scandal.
The recent financialcrisis produced countless damaging emails. One employee of a company chargedwith the important task of rating financial products responded to anotheremployee's concern about a poorly created financial product by stating,"It could be structured by cows and we would rate it." Anotheremployee of the same company, remarking on the dangerous financial productsbeing sold, said, "Let's hope we are all wealthy and retired by the timethis house of cards falters." At another financial services company, oneemployee - worried about the poor quality debt securities owned by his company- asked of another employee, "OK, still have this vomit?"
In one case from the1990s, female employees favorably settled a sexual harassment lawsuit againstChevron on the strength of emails circulated by male employees. Notably, one ofthe emails was titled "25 Reasons Why Beer Is Better Than Women."Chevron paid $2.2 million in the settlement.
In the aftermath ofthe BP oil rig crisis, plaintiffs suing everyone in sight scoured email recordsfor damaging evidence. One email, from a BP geologist to a colleague,apparently remarking on concrete work performed by Haliburton at the rig site,stated, "Thanks for the sh*tty cement job." Haliburton was successfulin convincing the judge to exclude this email from evidence introduced in courtagainst Haliburton - but not because the email was confidential as aresult of the attorneyclient privilege.
Attorneyclient privilege
Jack Garson is the founder of Garson Claxton LLC and leads the firm’s business and real estate practice groups. Jack serves as a legal advisor for numerous local, regional and national companies, focusing on business transactions, commercial real estate, commercial leasing, and construction law. In addition to providing legal counsel, Jack serves as a strategic advisor and negotiator for many clients, providing guidance on issues such as the growth and sale of businesses, liability and risk reduction, the hiring and retention of key personnel, and protecting and enhancing profitability, as well as negotiating the resolution of complex commerce.A Word to Small Business Owners: Don't Be Afraid to Negotiate Contracts
To contact us Click HERE
All too often small business owners readily accept the terms of a contract or are concerned about pushing back on both economic and legal terms because either they fear losing the deal or simply don't fully understand the terms. As a business owner, you need to recognize that in most circumstances there is an opportunity to negotiate terms of an agreement, and therefore you should not be afraid to seek the best deal possible even if the other party initially seems unwilling to consider your position on key aspects of the contract. So, here is the advice, Don't Be Afraid to Negotiate.
Negotiation skills are one of the most important tools a business owner should have in its toolbox. Therefore, if you receive a contract from a party, read it carefully, and then proactively respond in writing with your comments. One negotiating trick that vendors often try is to provide a form contract, creating the impression that the terms are non-negotiable -- indeed, if I am representing the vendor, I will often suggest creating a form agreement. Any contract, even a form, can be revised by an amendment, so do not automatically assume the agreement must be accepted "as is". The following are among the material terms that business owners should not only fully understand, but seek to negotiate.
1. Term. If you want a longer or shorter contact term, then ask for it. One alternative is to get an option to renew, which should be exercised within a certain number of days prior to expiration of the contract. The mechanics of the option and financial terms should be clearly spelled out as well.
2. Fees. There are many different ways to skin this cat, and you should consider what best works for your business over the term of the agreement. The financial terms can be based on (a) a set periodic payment, (b) an up front payment and then installments, (c) fees that scale up or even down over the life of the contract, (c) revenues, (d) milestones, or (e) a combination of several different fee structures. If the payments are based on revenues, then it is essential that the parties clearly define not just the percentage by the term "Revenue." For example, is it based on Gross or Net, and what is to be included in the Gross and what can be deducted as a legitimate expense when determining Net Revenues? A Net Revenue contract may refer to overhead expenses, like a businesses' borrowing costs, which can be a killer for a party who is being paid based on Net. Make sure you understand the definition, and if you don't ask for professional advice rather than assume the definitions are fair or standard.
3. Financial Reports/Audit. If the consideration under the contract is based on revenues or certain milestones, require periodic financial reports. In addition, you should have the opportunity to review and audit (i.e., challenge) such reports rather than simply accepting the information provided by the other contracting party. In addition, provide a dispute mechanism in the event of a challenge, such as CFO's meet and try to resolve, appointing independent third party, or even arbitration -- and if the audit reveals you were in the right, include a requirement that the other party pays your costs.
4. Termination of the Contract/Suspension. Of course the contract will expire at the end of its term, but include other events that will result in termination: (a) non-payment, (b) material breach, (c) bankruptcy, (d) failure to achieve defined milestones, including financial ones, (e) assignment/sale of the business (see below), (f) departure of personnel if the business relies on certain key employees, or (g) force majeure. Termination clauses will often allow the breaching party an opportunity to cure a default, provided it is one that can be cured. In the case of a force majeure event, the contract can be suspended pending passage of the event or terminated if the contract becomes impossible to continue due to the event.
5. Assignment/Sale of the Business. Do you want the contract to be assignable to a third party, including in the event of the sale of the business. This is an important issue for many types of agreements, such as licensing agreements or service contracts. You can require consent for the assignment, but if you want the contract to be assignable, as an alternative you can propose that it is assignable to an assignee with financial ability to meet the contractual obligations.
6. Warranties/Limitations on Liability. Suppliers/service providers will often provide a lengthy provisions denying all warranties and limiting their liability -- and if you are the vendor, you generally want to push for these provisions. If you are purchasing the the services of a large company, there may be no room to push back on any of the limitations, but whether the other contracting party is a small or large company, there is no harm in trying -- even if they send you the form or the "Master Service Agreement." For either party, it is all about the bargaining power, and how much the other party wants your business versus how much you need the agreement. Even if you cannot get the other party to budge, ask at least for an exception for gross negligence, and regardless a court may negate the limitation based on intentional misconduct or even gross negligence.
7. Dispute Resolution. Avoid an issues as to how disputes are to be resolved by negotiating the applicable (a) governing law, (b) venue for the dispute (meaning both the tribunal that will handle the matter, such as a court or arbitration/mediation, and the geographic location), (c) if there is to be mediation or arbitration, the procedures, and (d) will the parties impose legal fees and costs on the losing party.
8. Remedies. Among the remedies you can include are (a) specific performance, which is important if money cannot cure a default, (b) liquidated damages, if you prefer to define the damages to avoid disputes as to proof the proper compensation for a breach, and (c) equitable remedies (other than specific performance), like an injunction.
9. Non-Compete/Non-Solicitation. Simple vendor/supplier agreements generally won't include these terms, but many other contracts will, including licensing agreements, consulting/employment, certain service agreements, or more major transactions (like sale of a business) to name a few. Enforcement, especially as to non-competes, is a key legal issue, and it is highly advisable to have the provisions reviewed by counsel that understands the law in the applicable jurisdiction as it can vary greatly from state-to-state.
10. Other Terms/Conclusion. If there are other terms included or, for that matter, missing from the agreement, then make these part of the punch list of issues to be addressed with the other party. The reality is that the worse response you can receive is "no", and then you can decide how important the provision is from your perspective. A bad contract is NOT better than no contract. In a competitive economy, even larger/established businesses are often willing to negotiate and "the last and final", "take it or leave it" or "as is" response may be just a bargaining tactic.
The Lesson: Read the Contract, Understand Each Provisions and Don't Be Afraid to Negotiate the Terms.
Disclaimer: The discussions in this blog do not constitute legal advise nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters.
Negotiation skills are one of the most important tools a business owner should have in its toolbox. Therefore, if you receive a contract from a party, read it carefully, and then proactively respond in writing with your comments. One negotiating trick that vendors often try is to provide a form contract, creating the impression that the terms are non-negotiable -- indeed, if I am representing the vendor, I will often suggest creating a form agreement. Any contract, even a form, can be revised by an amendment, so do not automatically assume the agreement must be accepted "as is". The following are among the material terms that business owners should not only fully understand, but seek to negotiate.
1. Term. If you want a longer or shorter contact term, then ask for it. One alternative is to get an option to renew, which should be exercised within a certain number of days prior to expiration of the contract. The mechanics of the option and financial terms should be clearly spelled out as well.
2. Fees. There are many different ways to skin this cat, and you should consider what best works for your business over the term of the agreement. The financial terms can be based on (a) a set periodic payment, (b) an up front payment and then installments, (c) fees that scale up or even down over the life of the contract, (c) revenues, (d) milestones, or (e) a combination of several different fee structures. If the payments are based on revenues, then it is essential that the parties clearly define not just the percentage by the term "Revenue." For example, is it based on Gross or Net, and what is to be included in the Gross and what can be deducted as a legitimate expense when determining Net Revenues? A Net Revenue contract may refer to overhead expenses, like a businesses' borrowing costs, which can be a killer for a party who is being paid based on Net. Make sure you understand the definition, and if you don't ask for professional advice rather than assume the definitions are fair or standard.
3. Financial Reports/Audit. If the consideration under the contract is based on revenues or certain milestones, require periodic financial reports. In addition, you should have the opportunity to review and audit (i.e., challenge) such reports rather than simply accepting the information provided by the other contracting party. In addition, provide a dispute mechanism in the event of a challenge, such as CFO's meet and try to resolve, appointing independent third party, or even arbitration -- and if the audit reveals you were in the right, include a requirement that the other party pays your costs.
4. Termination of the Contract/Suspension. Of course the contract will expire at the end of its term, but include other events that will result in termination: (a) non-payment, (b) material breach, (c) bankruptcy, (d) failure to achieve defined milestones, including financial ones, (e) assignment/sale of the business (see below), (f) departure of personnel if the business relies on certain key employees, or (g) force majeure. Termination clauses will often allow the breaching party an opportunity to cure a default, provided it is one that can be cured. In the case of a force majeure event, the contract can be suspended pending passage of the event or terminated if the contract becomes impossible to continue due to the event.
5. Assignment/Sale of the Business. Do you want the contract to be assignable to a third party, including in the event of the sale of the business. This is an important issue for many types of agreements, such as licensing agreements or service contracts. You can require consent for the assignment, but if you want the contract to be assignable, as an alternative you can propose that it is assignable to an assignee with financial ability to meet the contractual obligations.
6. Warranties/Limitations on Liability. Suppliers/service providers will often provide a lengthy provisions denying all warranties and limiting their liability -- and if you are the vendor, you generally want to push for these provisions. If you are purchasing the the services of a large company, there may be no room to push back on any of the limitations, but whether the other contracting party is a small or large company, there is no harm in trying -- even if they send you the form or the "Master Service Agreement." For either party, it is all about the bargaining power, and how much the other party wants your business versus how much you need the agreement. Even if you cannot get the other party to budge, ask at least for an exception for gross negligence, and regardless a court may negate the limitation based on intentional misconduct or even gross negligence.
7. Dispute Resolution. Avoid an issues as to how disputes are to be resolved by negotiating the applicable (a) governing law, (b) venue for the dispute (meaning both the tribunal that will handle the matter, such as a court or arbitration/mediation, and the geographic location), (c) if there is to be mediation or arbitration, the procedures, and (d) will the parties impose legal fees and costs on the losing party.
8. Remedies. Among the remedies you can include are (a) specific performance, which is important if money cannot cure a default, (b) liquidated damages, if you prefer to define the damages to avoid disputes as to proof the proper compensation for a breach, and (c) equitable remedies (other than specific performance), like an injunction.
9. Non-Compete/Non-Solicitation. Simple vendor/supplier agreements generally won't include these terms, but many other contracts will, including licensing agreements, consulting/employment, certain service agreements, or more major transactions (like sale of a business) to name a few. Enforcement, especially as to non-competes, is a key legal issue, and it is highly advisable to have the provisions reviewed by counsel that understands the law in the applicable jurisdiction as it can vary greatly from state-to-state.
10. Other Terms/Conclusion. If there are other terms included or, for that matter, missing from the agreement, then make these part of the punch list of issues to be addressed with the other party. The reality is that the worse response you can receive is "no", and then you can decide how important the provision is from your perspective. A bad contract is NOT better than no contract. In a competitive economy, even larger/established businesses are often willing to negotiate and "the last and final", "take it or leave it" or "as is" response may be just a bargaining tactic.
The Lesson: Read the Contract, Understand Each Provisions and Don't Be Afraid to Negotiate the Terms.
Disclaimer: The discussions in this blog do not constitute legal advise nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters.
Legal Issues When Buying a Business: Don't Overlook These Provisions in the Purchase Agreement.
To contact us Click HERE
As discussed in prior installments of this series on buying a business, there are a number important legal issues you need to consider before signing the purchase agreement. The first installment discussed the role of the Exclusivity Agreement, the second installment examined the differences between structuring the transaction as stock purchase as opposed to a purchase of assets, the third examined the importance of escrowing a portion of the purchase price to cover any issues that may arise post closing, and the fourth discussed important aspects of due diligence and how to address legal or financial issues in the purchase agreement. This fifth installment examines several key provisions that should be incorporated in the purchase agreement but are otherwise often overlooked.
The Purchase Agreement is a very flexible instrument giving the parties substantial flexibility not only as to the structure the transaction but with respect to the representations, warranties, disclosures and covenants that the parties can negotiate to include (or for that matter exclude) from the Agreement. There are a number of standard provisions relating to such matters as legal ownership of/title to the assets, representations as to the corporate status and authority, disclosures as to litigation, financial and tax related representations, environmental issues and post closing obligations. First, while these provisions may be part of a standard purchase agreement they by no means should be viewed as boilerplate. Even a slight variation in language can alter the meaning and scope of these sections, and thus all representations, warranties and covenants, no matter how standard, need to be reviewed carefully. Second, below are a number of provisions which are often overlooked but you should consider incorporating in the Purchase Agreement.
1. Intellectual Property.
Of course it is standard to include representations regarding the seller's title and ownership of the intellectual property, but make sure the Agreement:
(a) Covers licensed rights as well as often the seller does not own but licenses key IP. In the same vein, confirm the licenses are assignable and if consent of the licensor is required that the Seller obtain the consent as a condition of closing.
(b) Addresses rights to the domain names and company websites and requires transfer of these rights to the buyer as a condition of closing. It is not unusual for the buyer to forgot about the transfer of the domain and then have to coax the seller into compliance after the sale.
(c) IP rights should include not only registered marks or issued patents, but pending applications, unregistered rights, royalties, licenses and, significantly, awards, damages or pending claims and litigation.
(d) Incorporates provisions relating to software, requires the turn over of source code, manuals, passwords, license keys and all other documentation.
2. Litigation
Representations relating to pending or threatened litigation are typical in a Purchase Agreement, but be sure:
(a) There are sufficient disclosures about pending and threatened litigation, including the status of such matters.
(b) Decide how litigation is to be handled post-closing. Will your lawyer take over the matter or will the Seller's lawyer continue to handle it; who will be responsible for the legal fees and costs; include a right to periodic updates as to the status of any legal matters; and set forth any rights as to damages, awards, insurance proceeds and to settle the matter and any indemnification in the event of an unfavorable outcome.
3. Financial/Tax Matters
In addition to the typical representations and warranties concerning financial and tax issues, include:
(a) Financial
(i) Require that the seller update the financial statements on or prior to Closing;
(ii) Include a formula for adjusting the purchase price if there are material changes to the financial statement;
(iii) Although often used, try to avoid using an earn-out (post-closing payment contingent on certain financial milestones) as they are difficult to negotiate, document and manage once the buyer assumes the reins of the business, and as a result they are a major source of post-closing disputes. If an earn-out cannot be avoided, make sure you have counsel who has experience negotiating and drafting earn-outs.
(b) Taxes
(i) The representations and warranties should not only cover federal and state taxes, but sales and any other applicable taxes for all relevant jurisdictions.
(ii) The seller should provide all filings and disclose any past, pending or threatened audits/assessments.
(iii) Require the seller provide post-closing assistance for any filings relating to periods of time the seller controlled the business.
(iv) Include appropriate indemnifications for tax liabilities.
4. Transition
Is there a switch in your house that you have no idea what it does, and since the seller is long gone you have no way of finding out? Well, think how that issue is magnified exponentially if you purchase a business and don't have the seller to assist with the transition. The assistance is important not only as to obvious issues, like computer systems, financial records, and where the keys to the third floor supply closet are located, but making a smooth transition as far as clients/customers, introduction to vendors/suppliers, establishing a good relationship with employees/consultants, ensuring an understanding of business processes and procedures that are essential for operation of the business. Therefore, the Purchase Agreement can require the meaningful assistance of the seller or even include compensation to the seller for post-closing assistance and continued employment with the company for a reasonable period of time.
5. Material Adverse Change
Undoubtedly the Purchase Agreement will include a Material Adverse Change clause essentially providing the buyer with certain rights and remedies (including possibly termination of the transaction) in the event of a material adverse change with respect to the business. The clause is one of those tricky provisions which, if not properly drafted, can result in substantial disputes. The key is to avoid ambiguity by incorporating specific criteria as to when the Material Adverse Change clause is implicated, such as decline in sales, the loss of certain amount of or even specifically named customers, a decrease in EBITDA or termination of a manufacturing or supplier relationship.
6. Employment/Labor Matters
Provisions relating to Employment and Labor matters are standard, but also make sure the representations and warranties include:
(a) Existence of confidentiality, invention assignment and non-competes, and get copies for each employee and consultant.
(b) Confirmation that consultants are truly consultants and not employees (which can give rise to substantial tax liabilities).
(c) Details and disclosures regarding any employee plans (stock, pension, etc.) and vesting status f each employee.
(d) Disclosures with respect to any collective bargaining any other labor matters.
7. Operations in Foreign Countries
Establishing the right of the company to operate in any foreign jurisdictions where it does business should be obvious, but compliance with the Foreign Corrupt Practices Act is far less familiar to most people. The FCPA prohibits various behavior relating to operating in foreign jurisdictions, including paying bribes to obtain contracts, business, etc. Violation of the FCPA carries substantial civil and criminal liability. As a buyer, you might not think much about the FCPA, but if you manufacture in China, for example, you better pay attention and therefore incorporate a representation that no unlawful payments have been made by seller or its agents.
8. Covenants
The Purchase Agreement should contain covenants relating to:
(a) Non-solicitation of employees, customers and clients and non-interference with existing vendor/supplier relationships.
(b) In certain circumstances, a Non-Compete that complies with the narrow limitations imposed by applicable state law.
(c) As discussed in prior posts, clear indemnification and escrow terms to address post-closing liabilities.
(d) Confidentiality.
(e) Obligation of the Seller to notify the buyer upon the occurrence of material events arising at any time prior to closing.
(f) Resignations of officers, directors, responsibility of the seller as to termination of some or all employees/consultants.
9. Termination
There will be grounds for either party to terminate the Agreement prior to closing. The termination provisions should not only provide specifics as to when the right can be invoked by a party, but also the liabilities, if any, resulting from termination and the effect of termination.
10. Survival
Give careful consideration to how long any of the representations, warranties and covenants will survive avter closing. The seller will push for no or a very short period while the buyer will want them to survive until the chance of any liability no longer exists. A compromise will almost always be necessary, and remember not all of the provisions need to survive for the same period of time
The above are by no means an exhaustive list of key provisions in a purchase agreement, and they will certainly vary depending on the nature of the business involved -- for example, if you are buying a gas station the environmental disclosures, reps and warranties will be substantial. What is obvious that you cannot accept a boilerplate purchase agreement and instead the provisions need to be tailored to the particular transaction.
Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters
The Purchase Agreement is a very flexible instrument giving the parties substantial flexibility not only as to the structure the transaction but with respect to the representations, warranties, disclosures and covenants that the parties can negotiate to include (or for that matter exclude) from the Agreement. There are a number of standard provisions relating to such matters as legal ownership of/title to the assets, representations as to the corporate status and authority, disclosures as to litigation, financial and tax related representations, environmental issues and post closing obligations. First, while these provisions may be part of a standard purchase agreement they by no means should be viewed as boilerplate. Even a slight variation in language can alter the meaning and scope of these sections, and thus all representations, warranties and covenants, no matter how standard, need to be reviewed carefully. Second, below are a number of provisions which are often overlooked but you should consider incorporating in the Purchase Agreement.
1. Intellectual Property.
Of course it is standard to include representations regarding the seller's title and ownership of the intellectual property, but make sure the Agreement:
(a) Covers licensed rights as well as often the seller does not own but licenses key IP. In the same vein, confirm the licenses are assignable and if consent of the licensor is required that the Seller obtain the consent as a condition of closing.
(b) Addresses rights to the domain names and company websites and requires transfer of these rights to the buyer as a condition of closing. It is not unusual for the buyer to forgot about the transfer of the domain and then have to coax the seller into compliance after the sale.
(c) IP rights should include not only registered marks or issued patents, but pending applications, unregistered rights, royalties, licenses and, significantly, awards, damages or pending claims and litigation.
(d) Incorporates provisions relating to software, requires the turn over of source code, manuals, passwords, license keys and all other documentation.
2. Litigation
Representations relating to pending or threatened litigation are typical in a Purchase Agreement, but be sure:
(a) There are sufficient disclosures about pending and threatened litigation, including the status of such matters.
(b) Decide how litigation is to be handled post-closing. Will your lawyer take over the matter or will the Seller's lawyer continue to handle it; who will be responsible for the legal fees and costs; include a right to periodic updates as to the status of any legal matters; and set forth any rights as to damages, awards, insurance proceeds and to settle the matter and any indemnification in the event of an unfavorable outcome.
3. Financial/Tax Matters
In addition to the typical representations and warranties concerning financial and tax issues, include:
(a) Financial
(i) Require that the seller update the financial statements on or prior to Closing;
(ii) Include a formula for adjusting the purchase price if there are material changes to the financial statement;
(iii) Although often used, try to avoid using an earn-out (post-closing payment contingent on certain financial milestones) as they are difficult to negotiate, document and manage once the buyer assumes the reins of the business, and as a result they are a major source of post-closing disputes. If an earn-out cannot be avoided, make sure you have counsel who has experience negotiating and drafting earn-outs.
(b) Taxes
(i) The representations and warranties should not only cover federal and state taxes, but sales and any other applicable taxes for all relevant jurisdictions.
(ii) The seller should provide all filings and disclose any past, pending or threatened audits/assessments.
(iii) Require the seller provide post-closing assistance for any filings relating to periods of time the seller controlled the business.
(iv) Include appropriate indemnifications for tax liabilities.
4. Transition
Is there a switch in your house that you have no idea what it does, and since the seller is long gone you have no way of finding out? Well, think how that issue is magnified exponentially if you purchase a business and don't have the seller to assist with the transition. The assistance is important not only as to obvious issues, like computer systems, financial records, and where the keys to the third floor supply closet are located, but making a smooth transition as far as clients/customers, introduction to vendors/suppliers, establishing a good relationship with employees/consultants, ensuring an understanding of business processes and procedures that are essential for operation of the business. Therefore, the Purchase Agreement can require the meaningful assistance of the seller or even include compensation to the seller for post-closing assistance and continued employment with the company for a reasonable period of time.
5. Material Adverse Change
Undoubtedly the Purchase Agreement will include a Material Adverse Change clause essentially providing the buyer with certain rights and remedies (including possibly termination of the transaction) in the event of a material adverse change with respect to the business. The clause is one of those tricky provisions which, if not properly drafted, can result in substantial disputes. The key is to avoid ambiguity by incorporating specific criteria as to when the Material Adverse Change clause is implicated, such as decline in sales, the loss of certain amount of or even specifically named customers, a decrease in EBITDA or termination of a manufacturing or supplier relationship.
6. Employment/Labor Matters
Provisions relating to Employment and Labor matters are standard, but also make sure the representations and warranties include:
(a) Existence of confidentiality, invention assignment and non-competes, and get copies for each employee and consultant.
(b) Confirmation that consultants are truly consultants and not employees (which can give rise to substantial tax liabilities).
(c) Details and disclosures regarding any employee plans (stock, pension, etc.) and vesting status f each employee.
(d) Disclosures with respect to any collective bargaining any other labor matters.
7. Operations in Foreign Countries
Establishing the right of the company to operate in any foreign jurisdictions where it does business should be obvious, but compliance with the Foreign Corrupt Practices Act is far less familiar to most people. The FCPA prohibits various behavior relating to operating in foreign jurisdictions, including paying bribes to obtain contracts, business, etc. Violation of the FCPA carries substantial civil and criminal liability. As a buyer, you might not think much about the FCPA, but if you manufacture in China, for example, you better pay attention and therefore incorporate a representation that no unlawful payments have been made by seller or its agents.
8. Covenants
The Purchase Agreement should contain covenants relating to:
(a) Non-solicitation of employees, customers and clients and non-interference with existing vendor/supplier relationships.
(b) In certain circumstances, a Non-Compete that complies with the narrow limitations imposed by applicable state law.
(c) As discussed in prior posts, clear indemnification and escrow terms to address post-closing liabilities.
(d) Confidentiality.
(e) Obligation of the Seller to notify the buyer upon the occurrence of material events arising at any time prior to closing.
(f) Resignations of officers, directors, responsibility of the seller as to termination of some or all employees/consultants.
9. Termination
There will be grounds for either party to terminate the Agreement prior to closing. The termination provisions should not only provide specifics as to when the right can be invoked by a party, but also the liabilities, if any, resulting from termination and the effect of termination.
10. Survival
Give careful consideration to how long any of the representations, warranties and covenants will survive avter closing. The seller will push for no or a very short period while the buyer will want them to survive until the chance of any liability no longer exists. A compromise will almost always be necessary, and remember not all of the provisions need to survive for the same period of time
The above are by no means an exhaustive list of key provisions in a purchase agreement, and they will certainly vary depending on the nature of the business involved -- for example, if you are buying a gas station the environmental disclosures, reps and warranties will be substantial. What is obvious that you cannot accept a boilerplate purchase agreement and instead the provisions need to be tailored to the particular transaction.
Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters
Kaydol:
Yorumlar (Atom)