One of the most critical aspects of any business and an area of primary interest to most entrepreneurs is how to expand their business pursuant to their own desires. The key element is personal or collective goals. Each entrepreneur is different each business is different, and it is critical to the optimum performance of the company that the entrepreneur’s actual desires and values are consistent with the corporate organization and methods of expansion, whether by acquisitions of other companies, franchising, licensing, or customer growth. The most critical element for an entrepreneur’s lawyer is the ability to listen to the client and to mirror accurately the client’s views in an effort to develop the true reasons for why or she he is in business and the type of expansion that he or she desires. Many entrepreneurs are not fully aware of the deep emotions and values that are the basis for their actions. The critical step of the process is the lawyer being intuitive and aware to help the client align its actions with these true motivations.
Eventually most entrepreneurs reach a stage where they need to consider exit strategies. These should be considered early when there is no immediate need. Once again, it is critical to understand the underlined motivation for the type of exit strategy that a client may desire. Needs and motivations will vary depending upon; shareholder members, key employees, retained interest in the business, remaining in an advisory capacity or as a figure head, and many other underlying issues. Entrepreneurs are usually unaware of the underlined motivations as to what they are really attempting to reach, and it is imperative to reach an awareness so as to be able to focus on the true motivations so as to determine whether there should be a complete sale of the business and retirement, or stock ownership plans for the employees with retained interest or other buy-out programs which contain tax advantages.
Questions that should be considered in detail include at least the following:
Would I prefer an outright cash sale? (It is generally recommended that companies do not sell their business on credit.)
Do you have family members (including minor children), friends, other shareholders, key employees, or employees that you would consider purchasing the company either outright or through stock buyout plans?
Do you desire to retain a position in an advisory capacity or as perhaps chairman of the board?
Would you consider selling to a competitor?
Would it be advantageous to merge with a competitor or other businesses?
Would you enjoy retirement or like many other entrepreneurs become involved in a new enterprise?
What do you intend to do after selling the company?
The above are just a few of the questions that one should ask as one contemplates the idea of selling a business. Once a decision has been made to sell there are multiple methods of structuring the deal based upon the tax code. Many purchasers only want to buy assets and do not desire to buy the stock of another company due to the possibility of buying liabilities that are unknown. Sales or mergers with publicly traded companies may cause restrictions as to when and how much stock of your newly issued stock can be sold. Other typical agreements in the selling of a business include noncompete agreements restricting the seller from competing for a certain period of time as to certain areas in the business, no solicitation of former clients or employees, and confidentiality of trade secrets. In addition, a consulting agreement may be reached which would allow additional compensation and other benefits being extended to the seller. At minimum, the above issues should be considered in the early planning process.
Stephen Fuller is the managing partner of Fuller Sloan LLC and has practiced in business litigation and consulting for 37 years and has over 25 years representation of the founder of one of the largest sit-down casual restaurants in America. For more information, send Mr. Fuller an email.