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How legal advisers aid in your business sale.

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“I’d like to leave/sell my business. Can you help me?”

This thought is on the minds of many baby boomers aged business owners these days. Your legal advisor can; Inform and educate you about their role in the Sell-side process, facilitate the collaborating with other advisors and provide services necessary to ensure you successful transition in selling your business.

In addition to offering counsel and insight into your overall planning, a legal advisor's role includes designing and drafting documents necessary to affect potentially the following:

  • A transfer of ownership among family members.
  • A merger or acquisition.
  • A transfer to management or a co-owner.
  • Estate planning.
  • Stock-ownership planning for key employees.
  • Key-employee incentive planning.
  • Minimizing business risk.
  • Deferred compensation planning for the owner.
  • Buy-Sell and retention Bonus planning.

1 Establishing Objectives

  • Understanding your goals and objectives.
  • Review existing legal documents related to your current ownership.
  • Help you with referrals to other Advisors that will form your” Team.”

2 Determining the Business Value/Price

  • Support the process of getting a professional determination of business cash flow and value, as well as your personal financial planning.
  • Discuss methods of reducing business value with your other advisors making up your “team.”

3 Protecting and Growing your Sweat Equity

Conduct a fiscal year–end planning meeting with all other advisory team members present to review, discuss, determine, create and Implement value drivers, as appropriate, including the following types of:

3.1 Protection

  • Entity status
  • The applicability of a trust.
  • The applicability of an ESOP.
  • The use of lowest defensible value for ownership transfers to insiders.
  • Fiscal year–end legal audit.
  • Entity protection and review existing entity.
  • Create as necessary, asset-protection tools.
  • Covenants not to compete and non-solicitation agreements with key employees.
  • Removal of personal guarantees (and of personal assets as collateral for business debt).
  • Use lowest defensible value in all business-planning instruments.
  • Multiple entities for liability protection.

3.2 Growth

  • Documents and plans:
  • Incentive-based plan to motivate and keep key employees.
  • Non-qualified deferred compensation plan.
  • Equity-based plan.
  • Stock-purchase plan.
  • Stock-bonus plan.
  • Stock-option plan.
  • Buyback agreements.

4 Converting Business Value

4.1 Sale to Outside Third Party

4.1.1 Tax analysis necessary for your sale of company.

4.1.2 Due diligence required for your sale of company.

4.1.3 Negotiation of sale of business.

4.1.4 Preparation and review of all transaction documents.

4.2 Transferring the Business to Insiders: Children, Key Employees, or Co-Owners

4.2.1 Participate in creating a written plan to transfer company to insiders.

4.2.2 Draft documents affecting the transfer (purchase agreement, notes, security instruments, employment, and buyback agreements).

4.2.3 Draft documents providing incentives to key employees not receiving ownership.

4.2.4 Design and draft buy-sell agreement among (new) owners.

5 Contingency Planning for the Business

5.1 Prepare Buy-Sell agreement.

5.2 Prepare key-employee retention agreements.

6 Wealth Preservation Planning

6.1 Review and revise your estate plan to reflect Exit Goals.

6.2 Discuss and incorporate family business–transfer considerations and wishes into your planning.

6.3 Consider the use of holding companies, partnerships, trust etc.

6.4 Create related entities to be partly owned by family members if appropriate.

6.5 Discuss and design charitable income and estate tax–planning techniques and tools.

This article outlined areas of involvement and work with owner-clients you could expect from your lawyers. It is far from exhaustive, but it does include the more commonly implemented tools and techniques used by lawyers. Contact us to determine your business value or be introduced to lawyers we have worked with on past transactions that can aid you with some or all the above.

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