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Sale of a Business Has To Meet Stringent Legal Conditions

Ambro

Geoff Baxter

A business is set up only after a lot of thought, hard work and financial outlay. Equally, selling the business is a decision that also requires a lot of consideration, planning and thought. You have to be mentally prepared and financially ready to conclude the sale. The sale process and the deal that is struck with the buyer can be legally complex so it is essential that you have expert legal advice from a North Shore lawyer for selling a business.

A business that is to be sold has to be ready for sale, and must have value in it that buyers will see as worthy of any investment. You also have to make sure that you are in a position to address all the legal issues that will arise from this sale. It can also help to have an investment banker by your side, as well as other accounts professionals as well as your lawyers. Ensure that the appointment of an investment banker must also be vetted by your legal counsel, so that any terms for their services are properly laid down and documented, so that obligations on both sides are clearly defined. It can always help if any legal advice that you get comes from lawyers who are familiar with mergers and acquisitions and the legal requirements of concluding the required documentation of the sale. It will also be useful if you also pin down the lawyers you appoint on any fees that you will have to pay them for their services.

When you want to sell your business, it is almost certain that any buyers will require reviewing all the corporate records of the company, financial information, existing contracts, details of staff and any other matters that affect business operations. In most cases, buyers will also have legal representation and they will insist on the correctness of any documents presented to them, and their having been maintained as per rules and regulations in force for the conducting of a business.

Before you present any documents or get into discussions with any buyer, it is essential that you enter into non-disclosure agreement so that all information concerning the sale, the company, and relevant matters are kept confidential, even in cases where such negotiations do not reach an acceptable solution. This also prevents the prospective buyer from taking advantage of any information that they gain, regarding contracts, rates, staff salaries or any other matters, to further their own business.

Once negotiations are nearing success, it may be necessary for the buyer to give a letter of intent that need not be binding. This letter of intent outlines the broad terms of any agreement giving price, closing date and other vital considerations of the sale. This letter of intent can serve as a guide for lawyers from both sides to prepare the final sale document. In many cases, it also narrows down the areas of disagreement, which the principals can then tackle and come to a proper conclusion that allows the final sale document to be prepared.

At such a stage, buyers will insist on a clause that will insist that the seller keep all matters regarding their negotiations confidential, while the final sale documents are being prepared. As this can take some time, due to the legal requirement and terminology that have to be part of any final contract document, it has to give sufficient time for the lawyers handling the sale of your North Shore business, during which this confidentiality has to be maintained.

Quite often at this stage, a portion of the agreed price has to be paid, and in most cases, the balance is paid within agreed times or adjusted against share values, both of which must be completely documented and agreed to in the negotiation.

If you have a business on Auckland’s North Shore, lawyer for selling a business you might want to talk to is McVeagh Fleming and Co. They have an extensive commercial department who have worked with many of Albany’s businesses. Call them and they will be pleased to help.

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Why Small Businesses Should Have A Buy/Sell Agreement

Steve Graham

Steve Graham

If you own a company with a business partner, you will have likely formed it in a legal fashion. You have growth, you file your taxes on a regular basis and you feel good about it. Suddenly, your business partner is bankrupt or divorced. What is going to happen to his portion of your business? Will it go to his soon to be ex-wife in the settlement? What about his children? Will they have a say in it? Or, do you suddenly own the entire business? How exactly do you go about protecting yourself and the business from such an unforeseen event?

You may wish to consider a buy/sell agreement clause for your business. Think of it as a will or a pre-nuptial agreement type issue. It will lay out how such events will work out if there are such unforeseen circumstances like a death, a retirement, a bankruptcy, a divorce or even a disability of one of the partners or owners. It lays forth what is going to happen to the business when such unforeseen circumstances occur. IT states how such things will be dealt with and if someone must sell their portion of the company and for what price it must be sold for.

Every Business Needs One

While things may be going smoothly for now, it is wise to try and think ahead to any potential circumstance. Create a Buy/Sell agreement that is designed for your specific business and to meet your exact needs. Make provisions as to the portion of the business that can be sold and to whom for what price. Select language that allows for the insurance policy to pay out to a potential sale.

More importantly, this agreement can also prevent the co-owner from transferring their portion of the company to any party that you do not want involved in your company. If the partner in the company should suddenly become divorced the ex cannot take control of their portion of the company unless it is already in the agreement.

Even if no such events occur, this Buy/Sell Agreement is important. If the co-owner is burned out and needs to leave the business, the agreement can detail which share can be sold and to whom. It can include provisional owners and provides shareholder protection in case of any unwanted circumstance.

This agreement is vital to your company. It’s vital to you. It’s vital to your business partner. It should be done as soon as the company is created.

For companies on the North Shore of Auckland, McVeagh Fleming and Co is one of the leading commercial and business law firms. They can help you draft a Buy/Sell Agreement at the time that you form you company.

For more information, go to their website www.mcveaghfleming.co.nz/.

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Why It Is A Good Idea To Establish A Shareholder Agreement Before Starting A Business

 

North Shore commercial lawyerIf you are starting a business with others as partners and you wish to incorporate your business, it is vital that you establish a shareholder agreement prior to opening your doors for business. The time to get everything ironed out and agreed upon is the time before any actual business is transacted. This simply sets the stage for agreement among the shareholders of the business, as each one will sign off on it, signifying agreement to the terms.

Shareholder agreements are necessary in order to protect the shareholders because if anything goes wrong and a disagreement ensues, the agreement is the document that everyone can stand on, and one which will hold up in a court of law, if drawn up properly. Having a well thought out agreement in place will help to solve any disagreements as far ownership percentages, as well as rights and privileges of the shareholders.

The terms of the shareholder agreement will outline who the owners of a company are, and the nature of their roles in the company. Roles and duties can change as time goes forward, but if they do and when they do this can be noted as amendments to the agreement itself. Since the agreement and the duties will be agreed to in writing in front of witnesses and notarised, there will be no disagreement outside of the shareholder agreement that will be recognised in court. Disagreements can escalate very rapidly to being out of control and unless there is something in writing to verify the original intent, a company can be destroyed by infighting.

Meeting between Start-up directorsIf there are disagreements that occur later in the company’s lifespan, then there should be a mechanism to have one shareholder be able to buy or sell shares to help in mitigating the dispute. Also as far as duties, there can only be concessions made if all the shareholders agree. The idea is that since all the shareholders started the company in a cooperative manner, there should be mechanisms in place to keep it that way.

Also in the agreement should be a plan of succession in case one or more of the shareholders should die, retire or becomes incapacitated. If a plan is already in place when and if these events occur, then there is no question as to how it will proceed to realign the ownership and duties of the shareholders. A plan for buying and selling shares should be in place to transfer ownership to the remaining shareholders if such an even should occur.

If a shareholder dies, then his shares would normally go to his heirs when his estate is probated, and this could spell disaster for the company as you would have an inexperienced relative involved with the company. If a buy and sell arrangement is in place, then the estate of the deceased would be obligated by the terms of the agreement to sell the shares back to the company in return for a prior agreed to amount. The money to pay for the purchase back can be funded with a life insurance policy paid to the corporation, and then redeemed to the surviving relative, usually a spouse, for the exchange of the shares of stock.

Never rely upon oral agreements, as they are as fickle as the wind, as it is very difficult to get an oral agreement to stand up in court, unless there are iron clad witnesses, and then it can be quite a challenge. Always have written agreements that are witnessed and notarised by a licensed notary. In this way you will always have an iron clad shareholder agreement that will be the basis of how the corporation will be operational moving forward.

The key to a successful shareholder agreement is the legal clarity of the document. You do not want any areas open for “interpretation”. It is in the everyone’s best interests to have an explicit explanation which is legally clear and not ambiguous. To do this, it is best to contact an experienced North Shore commercial lawyer who can draw up the shareholder agreements. North Shore companies will derive great benefit over the long haul by undertaking this simple task. One of the biggest law firms in the area is McVeagh Fleming and Co who have a team of business, contract and corporate lawyers who can help.

Of course shareholder agreements can be changed and altered as the case may be, but only with the agreement of all parties in order to keep the original integrity in place as first intended.

http://www.mcveaghfleming.co.nz

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Shareholder Agreements in Place before Starting a Business Gives Clear Guidelines in Its Operations

Most businesses start out in a very congenial atmosphere with the founders having a shared interest in combining their talents for mutual benefit and profit from their company. They all bring their own different talents, expertise, qualifications and quite often their finances on to a common platform, and hope to profit from their efforts. This honeymoon takes them over the start-

Shareholder agreement lawyer

When someone says No

up phase, but once the business is set up, differences do crop up and disputes can lead to problems. This can be avoided by having clear shareholder agreements in place, before you put your business plans into action.

When no such agreements are in place, any disputes or course of action will have to be decided by the legal provisions that govern the firm whether it is partnership, a limited liability company or some other entity. In such a case, the law will prevail and none of the stockholders can have any say in the matter. The matter also comes into the public domain and negates any privacy. Clearly this will not be a good impression to customers or investors. But when shareholders agreements are in place, the course of action in the case of changing conditions within a business can be guided by the provisions made in the agreements. In such case, there is complete privacy, while the agreement ensures that there are no disputes.

There are number of situations that can arise during the operations of a company that involve shareholder interests, which can be guided by the provisions in a well-drafted and agreed shareholder agreement. These can be:

  • The death or bankruptcy of one of the shareholders
  • A shareholder wanting to terminate his or her interests in the business
  • The exit of a minority stakeholder
  • A demand by a shareholder to vote on a business decision in spite of not being on the board of directors
  • A deadlock that is affecting the business

Definite actions can be drafted in to shareholder agreements that deal with action to be taken in such cases, and as these agreements will have been agreed to by each of them, the clauses in it are legally enforceable.

Mechanisms can be laid down in these agreements that allow a shareholder to exit, and the terms of valuation in such cases and the desirability or viability of accepting third parties. Provisions can be laid down that allow the other shareholders to take up the stake at an agreed price. In case third parties are acceptable, they may ask for positions on the board and the agreements will have to clearly state the conditions under which this is acceptable. There must also be complete clarity on how board members are appointed, and the powers that will be vested in them. It is also possible to impose restrictions on key shareholders through non-compete provisions, by entering into such agreements before starting a business. A clear mandate needs to be in place that decides on what happens to the shares of a person who dies, or is incapacitated. Some businesses favor trustees or heirs to take over the shares, while others may require them to be sold.

Shareholder agreements ensure that a business is never brought to a standstill in the case of disputes. It provides all shareholders a peace of mind, knowing well that all eventualities have been taken into consideration and the provisions of the agreement or Articles of Association can be used to regulate shareholders, while running the business or deciding on any bones of contention. There is no definite legal requirement in the drafting of such shareholder agreements, except that they must include provisions that follow the principles of natural justice. The clauses in the agreements must suit the shareholders in question and must be agreed to by all of them before they come into existence. When you have such agreements in place, before the business is started, potential disruptions are avoided and the business can run smoothly.

For people starting a business around Albany or a company lawyer on the North Shore is McVeagh Fleming lawyers. They have a number of partners and experienced solicitors who specialise in providing advice on commercial law and company ownership issues. You can get some background on their website here.

http://www.mcveaghfleming.co.nz

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How a commercial lawyer can help people buying a business on Auckland’s North Shore

Buying a business is a complex matter and one which can take a number of months to complete.

There are a lot of different activities that need to be borne in mind before you become the legal owner. This article will be a short review of some of those; it is not legal advice so please consult a commercial lawyer on the North Shore before you commit to anything.Woman in suit

Firstly, there are two finance aspects to address – the funding of the purchase and more importantly, the due diligence to make sure you are buying a business at a fair price.

Funding the purchase

Clearly any buyer of a business must have suitable funds available for settlement date of the transaction. Without sufficient finance the deal will not go through.

This will often cost the potential purchase the loss of any deposit, significant legal and financing fees for work done to that date. It will also cause significant damage to your reputation.

That said, there are many ways to fund a business purchase. Using your own cash is one but that is often not a good use of your assets. You can raise finance using other assets as collateral. This is very common with a family home typically used as the collateral. This obviously has some risks for your family in case anything goes wrong with the business.

Another method is to use vendor-financing where the seller agrees stepped payments which you can fund from cash-flow in the business.

Whatever, arraignment you agree with the vendor, you must have it clearly recorded as part of the legal sale transfer. Your commercial lawyer will put this in place for you.

Due diligence

Your accountant will conduct the financial due diligence which verifies that the accounts are correct, that taxes are up-to-date and a range of other financial measures are correct.

A commercial lawyer will check that the vendor is legally able to sell the business, that they are the true owner.

Contracts for buying a business

For the sale of most small businesses in New Zealand, the standard real estate Sale and Purchase agreement is used. This means there are no nasty clauses in the main body of the contract plus it saves you money on having the contract drawn up.

However, you or the vendor will be at liberty to add other clauses which your commercial lawyer deems appropriate. A good North Shore commercial lawyer on the will advise adding these clauses dependent upon the type of business you are buying.

This can include a verified stock valuation, a list of goods and chattels plus details of any machinery you are buying.

Other tasks a commercial lawyer will perform

For many businesses leases may be involved. These can be for premises, vehicles and large pieces of plant or machinery. All of those leases will need to be formally transferred to you as the new owner of the business. Your lawyer will verify that the leases are correct and that you understand your commitments b agreeing to them.

Sometimes they may be able to renegotiate parts of your leases. This is quite common for leases for business premises.

Conclusion

This is a brief overview of a few of the major issues if you are considering buying a business on the North Shore. Commercial lawyers will be able to help you understand these issues as they affect you directly. And they will also be able to carry-out those transactions for you. So be sure to contact a commercial lawyer as soon as possible and definitely before you sign any documents.