In the overregulated and hyperlitigated society in which businesses now exist, businesses of all sizes are now struggling with new statutes and regulations, sometimes hastily written and poorly thought-out, and coming from different legislative bodies. As a result, well-meaning businesspeople cannot always abide by the law--despite their best efforts--because they're no longer sure what the law even is anymore.
In the first instance this week, a client of mine hired me to help him legally set up a franchise he was trying to create. He had a brilliant idea, he had a business plan, and he even had his first interested franchisee. All he needed to know was what laws to follow, for which reason he needed my advice.
Unfortunately for my client, however, the answer was not so simple. Starting at the state level, he learned he was subject to the North Carolina business opportunity laws, made to protect (legislators believe) potential franchisees who need to be protected from themselves. The business opportunity statutes outlined about four pages of information that needed to be contained in a franchise offering circular, which had to be provided to the potential franchise purchaser at least 48 hours prior to the person signing a contract.
The state laws, however, were the easy ones. We then researched the applicable federal rules, promulgated by not legislators but the Federal Trade Commission. Those regulations outlined more than 40 pages of information that needed to be contained in the franchise offering circular, which had to be provided to a potential buyer at least 14 days ahead of time.
Which rules apply? Well, all of them, and my job is to come up with something that assimilates all of the rules together. My client is a professional and a businessman, as are his potential purchasers, and all intelligent enough to make their own business decisions about whether to enter into a franchise agreement. Both our state and federal governments, however, have driven up transaction costs by dozens of pages of requirements for a franchisor before he even enters into a contract. He has to provide, in essence, potential purchasers a background history of himself, his criminal past, his civil litigation past, company financials and even personal bankruptcies. The state, in addition, requires the franchisor to register and, in certain cases, to be bonded.
In a second instance this week, an institutional client needed help in determining what rules needed to be followed in response to new state and federal regulations that had been hastily promulgated to resolve a perceived crisis. Sitting around the table were various board members of this client company, the vice president and president of the company, and the company's compliance officer. The federal regulations contained certain requirements, the state statutes required others. Some at our table argued that the state statutes ruled; some that the federal regulations preempted state law. Finally, after much research and talking to both state and federal regulators, we finally received the satisfactory answer we needed, but not without the employment of numerous man-hours and the stress of all involved who, despite their differing interpretations, were all working their hardest to have their company simply abide by the law.
It's a truism that we, as citizens, are presumed to know the law and that "ignorance of the law" is not a defense to a violation thereof. In this time of heightened government regulation, however, businesses (small ones especially, I fear) run the risk of violating laws because those laws have become so (1) conflicting; (2) multitudinous and (3) poorly written and hard to understand.
What can a business do to keep itself safe in these hyperregulatory times? Here are a few ideas:
1. Stay informed. If your business is part of an industry or trade association, stay abreast of all current developments. Read your industry association periodicals, attend "recent development" seminars sponsored by your industry, and, if necessary, call your industry association's attorney (every association should have one) to be updated on new laws and regulations that may affect your business.
2. If in doubt about the law, take the more conservative interpretation. Many businesses have, in the past, ventured into gray areas of law, especially when dealing with taxation issues. In the present environment, however, with a federal government full of anti-capitalist goons who are already suspicious of business, you have to be on the defensive. If you're not sure about the interpretation of a law, take the more conservative interpretation. At their worst, politicians are looking for scapegoats to punish, and "corporate America" is a current target. At their more innocent, politicians are looking for more sources of revenue. When it comes to taxes, you'd better believe they're going to take the more government-friendly interpretation of rules. When looking at violations, expect the government to be less friendly and to assault alleged violators with heavier fines, penalties and punishments--regardless of whether the violators even knew they were violating a law.
3. Have your attorneys more closely involved with regulatory review. It sounds self serving, but believe it or not, it gives me no pleasure to say that. I hate the idea that small businesses should keep a lawyer on retainer simply as part of their daily business in order to weave through an increasingly complicated morass of regulation. But in the current climate, stakes are too high not to understand laws affecting your industry. Have an attorney readily at hand who understands your business, one whom you can call if you have any questions. It's not cheap, but it's less expensive than hiring a lawyer to defend you when the government comes after your business for violating its laws.
Times are not easy. The economy is still struggling, and legislators are doing their misguided best to regulate the economy into health. In these times, businesses need to be at their most vigilant in following and understanding laws that affect them.
Minggu, 14 Juni 2009
Minggu, 31 Mei 2009
Five Things I Wished I'd Done Differently as a New Lawyer
I wanted to take a brief detour in this blog and write to new law graduates. Congratulations, you're a lawyer! Or not, because right now, though you've just earned your degree, you've not yet passed the all-important Bar--so near, yet so far! Though most of you are likely now preparing for the Bar exam, I thought I would share with you some of what I've learned in the past 11 years of practice.
Of course, you all know that in law school, and as new lawyers, there have been and will be scores of individuals imparting unsolicited advice, and now I join them. However, rather than specifically giving advice, I'll just share a little about my experiences as a new lawyer. Specifically, I'd like to share five things I wish I'd done a
little differently after passing the Bar. Of course, everyone's experience is different, and my perspective is colored by my own. I left school to work for what was initially a small, family-owned law firm in a small town in North Carolina, initially doing a general legal practice. I didn't go to work at a big city law corporation, or as an in-house counsel, or even as an assistant district attorney. All of those attorneys would have their own starting-out experiences that might differ from mine. Nevertheless, below are five things that I wished I'd done differently as a new lawyer.
1. I WOULD HAVE TAKEN TIME OFF BEFORE STARTING WORK.
When I took the North Carolina Bar in 1998, there was a period of approximately three to four weeks between taking the exam and finding out if I'd passed. I walked out of my examination room, got in my car, and went to the beach. But then, mere days later, I started my job and legal career for what likely would be the next four decades. To be fair, my employer didn't push me to start so soon--in fact, he frankly told me that he'd rather that I wait until I'd passed before starting, warning me that it would be very embarrassing if I started work and then had to quit because I'd failed the Bar. But I didn't listen to him, and started immediately. Part of it was that I was sick of being broke--I'd spent all summer as a 25-year-old man, living off my parents and their money, and I was ready for a paycheck. Plus, I'd worked for three years, and I was ready--chomping at the bit almost--to be an attorney. So, after a brief vacation at the beach, I began working during August 1998 as an "almost-lawyer"--going through training and learning my way, praying to God I passed the Bar, and working, always working.
What I should have done was what my boss suggested I do--simply take time off and enjoy myself until I'd passed the Bar in late August. Sure, I didn't have any money, but I was living at home for free--what did I need? I'd gone through four years of college, long preparatory courses to take the LSAT, three long years in law school, and a very difficult summer studying for the Bar. What was three weeks, after all of that?
More importantly, that time will likely have been the last time in my life--until retirement--that I would be able to take off three consecutive weeks from work. I could've spent a week at the beach, a week at home, and perhaps a week driving around the country (with a little money borrowed from my parents, of course). In any event, I could've lived and savored that time a little more.
Granted, in some states (such as Georgia, where my most of my classmates ended up), new graduates don't learn of the Bar results until around Thanksgiving, so practically, they can't simply vacate until the results come in. But they can take off some time. And for those of you who only have to wait a few weeks until passing the Bar, I would highly recommend that, if possible, you just enjoy yourself. Sure, you'll be nervous, as you await the results. But you can soak in all that you've recently accomplished and been through. And if you look at the odds, odds are, you're going to pass. Why not enjoy what may well be the last long vacation you take for decades?
2. I WOULD HAVE NOT TAKEN MYSELF SO SERIOUSLY.
In 1998, I'd just graduated from a high-tier law school. I'd studied the Bar--and I'd passed it. I was ready to set the world on fire! I suspect that most of my peers felt the same way. Coming into my new firm, I was ready to be ..... A LAWYER (trumpets sounding, please). At least, that was the music playing in my head.
I felt like I was a walking encyclopedia of the law, and was ready to take on any case or cause that came my way. I had my degree after all. I came in ready to show people how law should be practiced. Ok, maybe I didn't so clearly enunciate this 11 years ago, but at least that's how I acted. The truth of the matter--as most lawyers who've practiced a while will tell you--is that as a new lawyer I knew almost nothing. I'd learned a lot of cases, I'd learned how to research, but as a practical matter, law school didn't teach me or my classmates how to actually practice law on a daily basis. I had so much more to learn: about law, about how to treat people, and about how to be a good attorney.
Had I learned earlier on not to take myself so seriously (and I'm still learning this), I could've saved myself some grief. It doesn't matter that you're suddenly boss over a paralegal twice your age with half your education, and it doesn't matter that coming straight out of school you may be making more than her: truth is, she probably knows a heck of a lot more about day-to-day law than you do. Had I understood that more quickly instead of trying to show them what I knew, I'd have gotten along better with staff, and frankly learned a lot more in a shorter amount of time.
There is a biblical passage that, paraphrased, states the fear of the Lord is the beginning of wisdom. New lawyers, in your new career, the beginning of wisdom is to know how truly little you know, and how unimportant you are in the grand scheme of life. Paralegals, court officials, clerks--even bankers--will often know way more about the law than you do at the beginning. If you can keep this in mind, it will help you not take yourself so seriously. I learned this--but unfortunately not as quickly as I should have.
3. I WOULD HAVE NOT SPREAD MYSELF SO THIN IN MY PERSONAL LIFE.
When I first got out of school, I was so excited to regain some of the free time I'd lost in law school. I immediately tried to put that time to use. I picked up teaching a Sunday School class, volunteered at church events, and helped out some with my church's youth group. Of course, I did all of this after my 7 a.m. to 7 p.m. days at the office, often coming in on Saturdays as well to keep caught up. Still, it felt great to have all this extra time freed up from studying to, well, be productive. Eventually, however, it wore me down. I was a single guy, so I would get up, work out at 6:00 a.m., and, after working a long day, come home, fix whatever was easiest to put in a microwave, eat, watch a couple of hours of television, then go to bed to do it all over again. On some Fridays I'd help out with church functions. On Saturdays, I spent all day doing housework and yardwork--mowing my yard, ironing my dress shirts (!), and trying to manage my newly acquired home. On Sundays, I got up and taught Sunday School, always frustrated at the poor job I felt like I was doing. And then, on Sunday afternoon--sweet Sunday afternoons--for about three hours, I had a blissful period of rest, to nap, watch tv, or do nothing, before going back to church at night. Three sweet hours, out of the entire week, to simply do nothing. Of course, lots of times I couldn't enjoy that time because I was too worried about all the things I had to do on Monday.
New lawyers, it is very likely that your first few years of practice will be stressful, difficult, and involve long hours of work. That's just the unfortunate nature of the beast, the path you've chosen--at least for a while, as you hope to earn your stripes. Don't take on too much in the beginning with other obligations that you don't have to take on. In retrospect, perhaps I should've waited a while to be more active at church, so that I could've given it better attention. And I should've realized that, with home ownership, comes a lot of additional responsibility and work. Had I realized how much work a home entailed, I might have picked a house that had a smaller yard, or was newer and required less upkeep.
Speaking of my house.....
4. I WOULD HAVE NOT SPREAD MYSELF SO THIN FINANCIALLY.
That first paycheck I received as a lawyer was the biggest I'd ever held in my hand, but very quickly, I learned that it didn't go very far. I was actually pretty thrifty at first, and didn't waste my money. However, I subscribed to the prevailing wisdom of the time, which was to "buy as much house as you can afford." The thinking, at that time, was that if you bought more than just a beginner house, you could live in it for more years before wanting to upgrade. That part is true: ten years later, my wife and I are still living in my original bachelor house. On the other hand, though, by buying as much home as I could afford, I really spread myself thin financially.
I constantly worried about money, and lived on a very regimented budget. I worried about unforeseen expenses arising, and what I would do if a surprise house expense or medical expense came up. I had absolutely no discretionary spending money--I had $20 to spend for eating out in a week, and couldn't even budget for a movie! I couldn't even afford to take my dress shirts to the cleaners, which meant I spent every Saturday afternoon slowly ironing and starching French cuff dress shirts, eating up what precious free time I had.
If I'd simply bought a smaller, less expensive house, I wouldn't have been so financially bound. I could have saved up "rainy day" money for emergencies (thank God none came up during that first year). I could have gone on vacations with friends. I could have lived a little bit more.
5. I WOULD HAVE REEVALUATED MY LIFE AND PRACTICE EARLIER.
Most of us who enter the law practice have definite ideas of where we want our future to lead. In fact, we probably have had those ideas for some time. In college, we wanted to get into a good law school. In law school, we wanted to get a good job. Once we got that job, we then wanted to make partner, become the District Attorney, General Counsel, whatever. I'd had that focus going into my job.
But what I didn't do early on--that I wished I'd done--was to on a regular basis evaluate where I was in my practice, and where I really wanted to be. See the distinction? Instead of constantly asking myself, "How can I get more clients, a bigger salary, an equal partnership," I should have also been asking myself more soul-searching questions; questions like:
--Do I like the people for whom I'm working? (I did, and I still do);
--Do I like my particular area of law practice? (I did not, and didn't realize this until about six years into my practice);
--Is this what I'd hoped I'd be doing, when I was in law school?
--Do I want to be doing what I'm doing now twenty years from now?
--Are there better and different ways for me to do what I'm doing?
In my relentless search for all those things we lawyers want (success, however it is defined), I didn't, early on, ask myself these really important questions. Granted, as a new lawyer, your life is not likely to be a bed of roses. You don't get to name your hours, your practice area, or your salary. Hey, that's the game you and I have chosen to play, and you have to understand that in your first few years of law practice, life isn't going to always be easy. But what you shouldn't forget is that--for whatever reason you decided to practice law, not one of us said, "I want to go to law school so I can get out, be a lawyer, work a job and a practice I hate, and be miserable the rest of my life."
For five or six years, I walked around constantly stressed, harried, tired and worried--as a result of the practice I was in. It started innocuously enough, because I knew as a beginning lawyer that things would be tough. But as days turned into months, months then turned into years. I didn't stop to evaluate myself or where I was heading. I didn't ask myself why my stomach was tied in knots, why I lost my temper so much more quickly than before, or why I'd become a much different person than the one who'd entered law school.
Had I simply evaluated my life and my practice early on, I probably could have steered my path more quickly from a practice area that frankly was not for me, in the process, saving myself a few years of stress. Don't misunderstand me: your life as a new lawyer is NOT going to be easy. But don't let yourself fall into the trap of many lawyers, and let your career become one long period of stress and unhappiness. Evaluate yourself and your practice, at least on a yearly basis. Ask yourself some of the above questions!
New law grads, once again, I offer congratulations. Already, by getting this far, you really have accomplished something. You now stand before potentially fulfilling and lucrative legal careers, and I hope you can learn, more quickly than I, some of the lessons above.
Of course, you all know that in law school, and as new lawyers, there have been and will be scores of individuals imparting unsolicited advice, and now I join them. However, rather than specifically giving advice, I'll just share a little about my experiences as a new lawyer. Specifically, I'd like to share five things I wish I'd done a
little differently after passing the Bar. Of course, everyone's experience is different, and my perspective is colored by my own. I left school to work for what was initially a small, family-owned law firm in a small town in North Carolina, initially doing a general legal practice. I didn't go to work at a big city law corporation, or as an in-house counsel, or even as an assistant district attorney. All of those attorneys would have their own starting-out experiences that might differ from mine. Nevertheless, below are five things that I wished I'd done differently as a new lawyer.
1. I WOULD HAVE TAKEN TIME OFF BEFORE STARTING WORK.
When I took the North Carolina Bar in 1998, there was a period of approximately three to four weeks between taking the exam and finding out if I'd passed. I walked out of my examination room, got in my car, and went to the beach. But then, mere days later, I started my job and legal career for what likely would be the next four decades. To be fair, my employer didn't push me to start so soon--in fact, he frankly told me that he'd rather that I wait until I'd passed before starting, warning me that it would be very embarrassing if I started work and then had to quit because I'd failed the Bar. But I didn't listen to him, and started immediately. Part of it was that I was sick of being broke--I'd spent all summer as a 25-year-old man, living off my parents and their money, and I was ready for a paycheck. Plus, I'd worked for three years, and I was ready--chomping at the bit almost--to be an attorney. So, after a brief vacation at the beach, I began working during August 1998 as an "almost-lawyer"--going through training and learning my way, praying to God I passed the Bar, and working, always working.
What I should have done was what my boss suggested I do--simply take time off and enjoy myself until I'd passed the Bar in late August. Sure, I didn't have any money, but I was living at home for free--what did I need? I'd gone through four years of college, long preparatory courses to take the LSAT, three long years in law school, and a very difficult summer studying for the Bar. What was three weeks, after all of that?
More importantly, that time will likely have been the last time in my life--until retirement--that I would be able to take off three consecutive weeks from work. I could've spent a week at the beach, a week at home, and perhaps a week driving around the country (with a little money borrowed from my parents, of course). In any event, I could've lived and savored that time a little more.
Granted, in some states (such as Georgia, where my most of my classmates ended up), new graduates don't learn of the Bar results until around Thanksgiving, so practically, they can't simply vacate until the results come in. But they can take off some time. And for those of you who only have to wait a few weeks until passing the Bar, I would highly recommend that, if possible, you just enjoy yourself. Sure, you'll be nervous, as you await the results. But you can soak in all that you've recently accomplished and been through. And if you look at the odds, odds are, you're going to pass. Why not enjoy what may well be the last long vacation you take for decades?
2. I WOULD HAVE NOT TAKEN MYSELF SO SERIOUSLY.
In 1998, I'd just graduated from a high-tier law school. I'd studied the Bar--and I'd passed it. I was ready to set the world on fire! I suspect that most of my peers felt the same way. Coming into my new firm, I was ready to be ..... A LAWYER (trumpets sounding, please). At least, that was the music playing in my head.
I felt like I was a walking encyclopedia of the law, and was ready to take on any case or cause that came my way. I had my degree after all. I came in ready to show people how law should be practiced. Ok, maybe I didn't so clearly enunciate this 11 years ago, but at least that's how I acted. The truth of the matter--as most lawyers who've practiced a while will tell you--is that as a new lawyer I knew almost nothing. I'd learned a lot of cases, I'd learned how to research, but as a practical matter, law school didn't teach me or my classmates how to actually practice law on a daily basis. I had so much more to learn: about law, about how to treat people, and about how to be a good attorney.
Had I learned earlier on not to take myself so seriously (and I'm still learning this), I could've saved myself some grief. It doesn't matter that you're suddenly boss over a paralegal twice your age with half your education, and it doesn't matter that coming straight out of school you may be making more than her: truth is, she probably knows a heck of a lot more about day-to-day law than you do. Had I understood that more quickly instead of trying to show them what I knew, I'd have gotten along better with staff, and frankly learned a lot more in a shorter amount of time.
There is a biblical passage that, paraphrased, states the fear of the Lord is the beginning of wisdom. New lawyers, in your new career, the beginning of wisdom is to know how truly little you know, and how unimportant you are in the grand scheme of life. Paralegals, court officials, clerks--even bankers--will often know way more about the law than you do at the beginning. If you can keep this in mind, it will help you not take yourself so seriously. I learned this--but unfortunately not as quickly as I should have.
3. I WOULD HAVE NOT SPREAD MYSELF SO THIN IN MY PERSONAL LIFE.
When I first got out of school, I was so excited to regain some of the free time I'd lost in law school. I immediately tried to put that time to use. I picked up teaching a Sunday School class, volunteered at church events, and helped out some with my church's youth group. Of course, I did all of this after my 7 a.m. to 7 p.m. days at the office, often coming in on Saturdays as well to keep caught up. Still, it felt great to have all this extra time freed up from studying to, well, be productive. Eventually, however, it wore me down. I was a single guy, so I would get up, work out at 6:00 a.m., and, after working a long day, come home, fix whatever was easiest to put in a microwave, eat, watch a couple of hours of television, then go to bed to do it all over again. On some Fridays I'd help out with church functions. On Saturdays, I spent all day doing housework and yardwork--mowing my yard, ironing my dress shirts (!), and trying to manage my newly acquired home. On Sundays, I got up and taught Sunday School, always frustrated at the poor job I felt like I was doing. And then, on Sunday afternoon--sweet Sunday afternoons--for about three hours, I had a blissful period of rest, to nap, watch tv, or do nothing, before going back to church at night. Three sweet hours, out of the entire week, to simply do nothing. Of course, lots of times I couldn't enjoy that time because I was too worried about all the things I had to do on Monday.
New lawyers, it is very likely that your first few years of practice will be stressful, difficult, and involve long hours of work. That's just the unfortunate nature of the beast, the path you've chosen--at least for a while, as you hope to earn your stripes. Don't take on too much in the beginning with other obligations that you don't have to take on. In retrospect, perhaps I should've waited a while to be more active at church, so that I could've given it better attention. And I should've realized that, with home ownership, comes a lot of additional responsibility and work. Had I realized how much work a home entailed, I might have picked a house that had a smaller yard, or was newer and required less upkeep.
Speaking of my house.....
4. I WOULD HAVE NOT SPREAD MYSELF SO THIN FINANCIALLY.
That first paycheck I received as a lawyer was the biggest I'd ever held in my hand, but very quickly, I learned that it didn't go very far. I was actually pretty thrifty at first, and didn't waste my money. However, I subscribed to the prevailing wisdom of the time, which was to "buy as much house as you can afford." The thinking, at that time, was that if you bought more than just a beginner house, you could live in it for more years before wanting to upgrade. That part is true: ten years later, my wife and I are still living in my original bachelor house. On the other hand, though, by buying as much home as I could afford, I really spread myself thin financially.
I constantly worried about money, and lived on a very regimented budget. I worried about unforeseen expenses arising, and what I would do if a surprise house expense or medical expense came up. I had absolutely no discretionary spending money--I had $20 to spend for eating out in a week, and couldn't even budget for a movie! I couldn't even afford to take my dress shirts to the cleaners, which meant I spent every Saturday afternoon slowly ironing and starching French cuff dress shirts, eating up what precious free time I had.
If I'd simply bought a smaller, less expensive house, I wouldn't have been so financially bound. I could have saved up "rainy day" money for emergencies (thank God none came up during that first year). I could have gone on vacations with friends. I could have lived a little bit more.
5. I WOULD HAVE REEVALUATED MY LIFE AND PRACTICE EARLIER.
Most of us who enter the law practice have definite ideas of where we want our future to lead. In fact, we probably have had those ideas for some time. In college, we wanted to get into a good law school. In law school, we wanted to get a good job. Once we got that job, we then wanted to make partner, become the District Attorney, General Counsel, whatever. I'd had that focus going into my job.
But what I didn't do early on--that I wished I'd done--was to on a regular basis evaluate where I was in my practice, and where I really wanted to be. See the distinction? Instead of constantly asking myself, "How can I get more clients, a bigger salary, an equal partnership," I should have also been asking myself more soul-searching questions; questions like:
--Do I like the people for whom I'm working? (I did, and I still do);
--Do I like my particular area of law practice? (I did not, and didn't realize this until about six years into my practice);
--Is this what I'd hoped I'd be doing, when I was in law school?
--Do I want to be doing what I'm doing now twenty years from now?
--Are there better and different ways for me to do what I'm doing?
In my relentless search for all those things we lawyers want (success, however it is defined), I didn't, early on, ask myself these really important questions. Granted, as a new lawyer, your life is not likely to be a bed of roses. You don't get to name your hours, your practice area, or your salary. Hey, that's the game you and I have chosen to play, and you have to understand that in your first few years of law practice, life isn't going to always be easy. But what you shouldn't forget is that--for whatever reason you decided to practice law, not one of us said, "I want to go to law school so I can get out, be a lawyer, work a job and a practice I hate, and be miserable the rest of my life."
For five or six years, I walked around constantly stressed, harried, tired and worried--as a result of the practice I was in. It started innocuously enough, because I knew as a beginning lawyer that things would be tough. But as days turned into months, months then turned into years. I didn't stop to evaluate myself or where I was heading. I didn't ask myself why my stomach was tied in knots, why I lost my temper so much more quickly than before, or why I'd become a much different person than the one who'd entered law school.
Had I simply evaluated my life and my practice early on, I probably could have steered my path more quickly from a practice area that frankly was not for me, in the process, saving myself a few years of stress. Don't misunderstand me: your life as a new lawyer is NOT going to be easy. But don't let yourself fall into the trap of many lawyers, and let your career become one long period of stress and unhappiness. Evaluate yourself and your practice, at least on a yearly basis. Ask yourself some of the above questions!
New law grads, once again, I offer congratulations. Already, by getting this far, you really have accomplished something. You now stand before potentially fulfilling and lucrative legal careers, and I hope you can learn, more quickly than I, some of the lessons above.
Minggu, 26 April 2009
Small business break ups
Based on the comments I get from readers, one of the hottest topics on my blog are posts dealing with small business break-ups--be they partnerships, corporations or LLCs. As I've written before, within those disputes, one of the biggest struggles involves the inequality among partners or business co-owners, i.e., what happens when there are equal owners making unequal contributions.
What often happens in such cases is that the business breaks up. In worse cases, the disputes end in massive lawsuits, ugly recriminations, and financial ruin.
Where I've found this potential to be at its greatest is with the formation of those businesses where the co-owners are bringing different things to the table. For example, maybe one person is bringing money, another one is going to do the work, and perhaps a third is contributing an invention or patent that's going to make a million dollars. Each person is bringing something to the business, such that the whole is greater than the sum of its parts. Ironically, however, over time, these very differences can breed resentment among the partners and eventually cause business break-ups.
For example, at the beginning of the above hypothetical venture, the "worker" is getting the best of the deal: the money man risks losing capital, as, to a certain extent, does the inventor. The worker just risks losing his time, but nothing more.
Five successful years later, however, the dynamics may have changed. The capitalist and inventor are enjoying a nice return on their investment. The worker, however, is resentful: the business would stop without him. Whereas the capitalist and contributor have received back their investment (and then some), the worker continues to have to invest his time, effort and labor into the business.
I have also watched similar situations play out in a different manner. I've watched an "idea man", perhaps willing to do the work, who gathers up willing monetary investors. He's promised the investors great potential, and wonderful returns some time in the future. When things get successful, it turns out that he's issued himself so much stock, he effectively controls the company. The investors get little in the way of dividends, because by the time the idea man has paid himself a nice salary and benefits, there's little left. Theoretically, their stock is creating equity, but because their company isn't publicly listed (or, in an alternate scenario I have seen, they learn the shareholders' agreement has a provision requiring them to offer their stock back to the company at preferential rates prior to selling to a public buyer), the investors now have little hope of ever seeing a meaningful return. In other words, the passive investors' investments are held hostage.
Although attorneys do a good job of foreseeing the "worst case" scenario--i.e., what happens when things go awry--we also need to prepare for best case scenarios--i.e., what happens when things are going very well, and the equities have changed.
Here are just a few ideas to allow the continuation of a small business, even when the business contains different types of investors:
1. Provide benchmark dates at which the investments are vested, and any future contributions are paid for at arm's-length. This is a hard idea to pin down, except by way of example. Go back to my initial example of three different investors, each with a very different type of investment. Each investor, theoretically, could be benefited more than the rest, or less than the rest, depending upon how the company was structured. But they could all be treated fairly, if they come up with success benchmarks that allow them to treat their investment as having been fully paid in.
In the example of the worker, the company's organizational agreement could state, for example, that after the company reaches $X sales per year, the worker will be paid a salary--or perhaps, can hire staff and no longer have to contribute his own services. He is no longer captive: he's either now an investor and a paid-employee (in the first example), or else a passive investor like the rest (in the latter example).
For the inventor, perhaps the same agreement should state that after some benchmark (perhaps Y years), the inventor's patent will simply be licensed to the company, on a yearly basis, for a certain sum of money.
In other words, to avoid disparities later in the company's existence, you create a system so that the investors' later contributions of time, effort, or whatever, are compensated on an arm's-length basis.
2. Create, at the outset, scheduled pay-outs or buy-backs. In the other example, of the passive monetary investors, they contribute all the risk, but the idea man, as the business becomes successful, effectively shuts them out and sews up their contribution. Investors should recognize this as a risk, and ask for organizational documents that create some type of guaranteed payout--be it through a guaranteed buy-back, guaranteed dividends, or the like.
3. Create, in the organizational documents, forced buy-out or buy-back provisions. At the very least, you could place in the organizational documents provisions by which you can force a buy-out or buy-back, at an agreed upon price (or agreed upon pricing mechanism) during a certain time period or after a certain triggering event.
Interestingly, of the small business disputes I've seen, at least as many of them stem from business success as do from business failure. When setting up or starting a small business with numerous investors, don't just think about the worst-case scenario: ask yourself, what problems arise if the best case scenario occurs?
What often happens in such cases is that the business breaks up. In worse cases, the disputes end in massive lawsuits, ugly recriminations, and financial ruin.
Where I've found this potential to be at its greatest is with the formation of those businesses where the co-owners are bringing different things to the table. For example, maybe one person is bringing money, another one is going to do the work, and perhaps a third is contributing an invention or patent that's going to make a million dollars. Each person is bringing something to the business, such that the whole is greater than the sum of its parts. Ironically, however, over time, these very differences can breed resentment among the partners and eventually cause business break-ups.
For example, at the beginning of the above hypothetical venture, the "worker" is getting the best of the deal: the money man risks losing capital, as, to a certain extent, does the inventor. The worker just risks losing his time, but nothing more.
Five successful years later, however, the dynamics may have changed. The capitalist and inventor are enjoying a nice return on their investment. The worker, however, is resentful: the business would stop without him. Whereas the capitalist and contributor have received back their investment (and then some), the worker continues to have to invest his time, effort and labor into the business.
I have also watched similar situations play out in a different manner. I've watched an "idea man", perhaps willing to do the work, who gathers up willing monetary investors. He's promised the investors great potential, and wonderful returns some time in the future. When things get successful, it turns out that he's issued himself so much stock, he effectively controls the company. The investors get little in the way of dividends, because by the time the idea man has paid himself a nice salary and benefits, there's little left. Theoretically, their stock is creating equity, but because their company isn't publicly listed (or, in an alternate scenario I have seen, they learn the shareholders' agreement has a provision requiring them to offer their stock back to the company at preferential rates prior to selling to a public buyer), the investors now have little hope of ever seeing a meaningful return. In other words, the passive investors' investments are held hostage.
Although attorneys do a good job of foreseeing the "worst case" scenario--i.e., what happens when things go awry--we also need to prepare for best case scenarios--i.e., what happens when things are going very well, and the equities have changed.
Here are just a few ideas to allow the continuation of a small business, even when the business contains different types of investors:
1. Provide benchmark dates at which the investments are vested, and any future contributions are paid for at arm's-length. This is a hard idea to pin down, except by way of example. Go back to my initial example of three different investors, each with a very different type of investment. Each investor, theoretically, could be benefited more than the rest, or less than the rest, depending upon how the company was structured. But they could all be treated fairly, if they come up with success benchmarks that allow them to treat their investment as having been fully paid in.
In the example of the worker, the company's organizational agreement could state, for example, that after the company reaches $X sales per year, the worker will be paid a salary--or perhaps, can hire staff and no longer have to contribute his own services. He is no longer captive: he's either now an investor and a paid-employee (in the first example), or else a passive investor like the rest (in the latter example).
For the inventor, perhaps the same agreement should state that after some benchmark (perhaps Y years), the inventor's patent will simply be licensed to the company, on a yearly basis, for a certain sum of money.
In other words, to avoid disparities later in the company's existence, you create a system so that the investors' later contributions of time, effort, or whatever, are compensated on an arm's-length basis.
2. Create, at the outset, scheduled pay-outs or buy-backs. In the other example, of the passive monetary investors, they contribute all the risk, but the idea man, as the business becomes successful, effectively shuts them out and sews up their contribution. Investors should recognize this as a risk, and ask for organizational documents that create some type of guaranteed payout--be it through a guaranteed buy-back, guaranteed dividends, or the like.
3. Create, in the organizational documents, forced buy-out or buy-back provisions. At the very least, you could place in the organizational documents provisions by which you can force a buy-out or buy-back, at an agreed upon price (or agreed upon pricing mechanism) during a certain time period or after a certain triggering event.
Interestingly, of the small business disputes I've seen, at least as many of them stem from business success as do from business failure. When setting up or starting a small business with numerous investors, don't just think about the worst-case scenario: ask yourself, what problems arise if the best case scenario occurs?
Sabtu, 28 Maret 2009
(Somewhat) Off-topic: The Economy and Temperament
I've been speaking to my law partner lately, and we've together come to the conclusion that the populace, in the past year, has just gotten a little ... meaner.
My business practice consists of both transactional work (e.g., the buying and selling of businesses) and business-related litigation. While I'm not surprised by the fact that transactional business is currently down, I've been surprised at how much business-related litigation has picked up (and this is not counting collections and debt-related litigation). Sure, some of the cases I've picked up involve the fact that someone is now financially unable to perform the terms of the contract, but many of the cases involve malice, opportunism, fraudulent behavior.
The tide of meanness doesn't just stop with clients, however. I've spoken to some of my fellow attorneys, many of whom are extremely frustrated. Some are just wanting to get out. In tough times, when an attorney is involved in a transaction, if something goes wrong, everyone looks to the attorney as a sort of insurance policy or bank, expecting him to pay for everyone's mistakes--and this is what a couple of my colleagues are feeling right now. Others have started to fight among themselves, even to the point of spreading rumors about some of their fellow attorneys' impending shutting down of offices.
Beyond the legal profession, I've seen more bitterness in the local newspapers (who seem more than usual, to engage in rumor mongering and yellow, opinion-based journalism), in consumers, and in the population at large.
When pointing this out to my partner, he agreed, and we discussed what we thought about this ugly mood that we're seeing. Here, I believe, are some of the causes:
1. Economic Difficulties. This, of course, should be no surprise. My insurance clients tell me that more questionable claims have arisen, and claimants are quicker to threaten suit if they don't receive a settlement they believe is fair. Folks, desperate to hold on, want someone--anyone--to bail them out, and so they appear to be quicker to point the finger of blame and expect compensation. Anyone who is married knows that when money is tight, you tend to argue more, and with an American populace collectively feeling the pinch, there are a whole bunch of ornery people out there right now looking to fight.
2. Political Difficulties and Change. In the last year, the country has seen a sea change of politics. The political minority is scared about the direction being taken by a decidedly leftist administration. Some realists within the political majority are coming to see that a smooth-talking man with a cult of personality is not the panacea they hoped. It's all different now. And the politics have gone from an understanding that government is no solution, to one in which a desperate population is willing to give up its collective freedom for financial security.
3. Changing of the Rules. With all of the political and economic change described above, many of the rules we've all gone by suddenly have been thrown out the window. Real estate, the way to sure riches, suddenly has become a burden and a source of loss. Whereas two years ago we were all reading books and dreaming of how to leave the boring office cubicles to live an exciting life of entrepenurialism and self-employment, most of us now are just thankful for (or even worse, still wishing they had) those same boring jobs.
While I expect the effects of all this change to eventually settle in (for better or worse), the current instability has created an ugly mood in our area. The only lesson, perhaps, to be drawn from this is that in this world, when depending on the temporal, it can all be taken away, and if that is the base of a person's life, it, like a foundation created on sand, can wash away in a great storm.
My business practice consists of both transactional work (e.g., the buying and selling of businesses) and business-related litigation. While I'm not surprised by the fact that transactional business is currently down, I've been surprised at how much business-related litigation has picked up (and this is not counting collections and debt-related litigation). Sure, some of the cases I've picked up involve the fact that someone is now financially unable to perform the terms of the contract, but many of the cases involve malice, opportunism, fraudulent behavior.
The tide of meanness doesn't just stop with clients, however. I've spoken to some of my fellow attorneys, many of whom are extremely frustrated. Some are just wanting to get out. In tough times, when an attorney is involved in a transaction, if something goes wrong, everyone looks to the attorney as a sort of insurance policy or bank, expecting him to pay for everyone's mistakes--and this is what a couple of my colleagues are feeling right now. Others have started to fight among themselves, even to the point of spreading rumors about some of their fellow attorneys' impending shutting down of offices.
Beyond the legal profession, I've seen more bitterness in the local newspapers (who seem more than usual, to engage in rumor mongering and yellow, opinion-based journalism), in consumers, and in the population at large.
When pointing this out to my partner, he agreed, and we discussed what we thought about this ugly mood that we're seeing. Here, I believe, are some of the causes:
1. Economic Difficulties. This, of course, should be no surprise. My insurance clients tell me that more questionable claims have arisen, and claimants are quicker to threaten suit if they don't receive a settlement they believe is fair. Folks, desperate to hold on, want someone--anyone--to bail them out, and so they appear to be quicker to point the finger of blame and expect compensation. Anyone who is married knows that when money is tight, you tend to argue more, and with an American populace collectively feeling the pinch, there are a whole bunch of ornery people out there right now looking to fight.
2. Political Difficulties and Change. In the last year, the country has seen a sea change of politics. The political minority is scared about the direction being taken by a decidedly leftist administration. Some realists within the political majority are coming to see that a smooth-talking man with a cult of personality is not the panacea they hoped. It's all different now. And the politics have gone from an understanding that government is no solution, to one in which a desperate population is willing to give up its collective freedom for financial security.
3. Changing of the Rules. With all of the political and economic change described above, many of the rules we've all gone by suddenly have been thrown out the window. Real estate, the way to sure riches, suddenly has become a burden and a source of loss. Whereas two years ago we were all reading books and dreaming of how to leave the boring office cubicles to live an exciting life of entrepenurialism and self-employment, most of us now are just thankful for (or even worse, still wishing they had) those same boring jobs.
While I expect the effects of all this change to eventually settle in (for better or worse), the current instability has created an ugly mood in our area. The only lesson, perhaps, to be drawn from this is that in this world, when depending on the temporal, it can all be taken away, and if that is the base of a person's life, it, like a foundation created on sand, can wash away in a great storm.
Sabtu, 31 Januari 2009
All you could ever want to know about North Carolina Foreclosures
Are you interested in learning how to find deals on foreclosures? Want to know more about how the foreclosure process works so that you can try to buy deals from the banks? Look no further. I've just published "A Guide to Buying North Carolina Foreclosures," a book that is, the best I can tell, the first book ever written specifically about North Carolina foreclosures. My book will:
--expose some of the biggest myths about buying foreclosures;
--show you how to learn about foreclosures more quickly than others;
--explain how to ensure that you have a good and clean title;
--give you forms that will help you when you start buying foreclosures.
Interested? Go to http://stores.lulu.com/ncbusinesslaw . Paperback copies are $26.95, or you can download an e-book version for $19.95.
--expose some of the biggest myths about buying foreclosures;
--show you how to learn about foreclosures more quickly than others;
--explain how to ensure that you have a good and clean title;
--give you forms that will help you when you start buying foreclosures.
Interested? Go to http://stores.lulu.com/ncbusinesslaw . Paperback copies are $26.95, or you can download an e-book version for $19.95.
Minggu, 07 Desember 2008
Tough times and exciting innovations
One of the silver linings of a tough economy is that, absent heavy-handed government intervention or regulation, a business will adopt, adapt and improve if it wants to survive. Currently, my real estate developer clients are trying to innovate in an effort to stay alive in a credit freeze.
One of my clients, a commercial developer, tells me that even up to a year ago, when he began a project, he'd have five or six banks competing for his business. Now, however, he has to aggressively search out his own lenders and is lucky to find even one willing to make the loan.
Given this credit drought, I see innovative developers looking for new ways to get the funding necessary to complete their projects. In fact, I'm working with one client to come up with new methods of funding in these difficult times. What are some areas to consider?
1. Private financing. This has been around for a long time. There have always been private individuals or small companies willing to loan money. With large development transactions, I see a few practical issues with this. First, are you going to find any one person or private organization willing to loan you the amount of capital needed--not, say, $100,000 for a house, but perhaps two, three, four, or five million dollars? If not, are you going to have to procure multiple lenders? How will they each be equally secured? Even in boom times, private lenders typically charged a premium interest rate to cover what typically was a higher risk (i.e., if the venture was less risky, the thinking goes, it could've gone to a bank and paid bank rates). I recently saw a loan with a 50 percent interest rate! Most states have interest rate ceilings that mandate maximum interest rates chargeable on loans, but at least in North Carolina, that does not apply to non-consumer development loans.
2. Venture capitalism. I've written in other blog posts about venture capitalism, and v.c. has had a role, and will likely now have an even greater role, in real estate development. The main difficulty for developers is to price the increased cost of this money into its budget plan.
For example, perhaps a developer was creating a build-to-suit lease with an option to purchase for an 80,000 square foot commercial building, with a tenant lined up. The sales price, if the option is exercised, is $4,000,000. Previously, the developer would've created a pro forma (a projection of costs and income), and perhaps the developer worked out that the initial building costs would run at $3,000,000. The developer would also add into this the "carry costs"--i.e., what the loan payments would be. This figure would be pretty easy to figure out, based on standard loan rates or--even better--a promised loan rate from a particular lender.
But what about now? Just to make up numbers, the venture capitalist, approached to enter the deal, may have the money to loan, but may loan the money at a premium rate--i.e., instead of, say, six percent interest, the capitalist is charging 15 percent interest--which means that the carry costs will be higher. In addition, perhaps the venture capitalist wants 25 percent ownership. In such a tough time, these aren't necessarily costs that can be passed on to the tenant through increased rent or purchase price. In the previous example, the developer could count on $1,000,000 profit for taking on a $3,000,000 risk. Now, however, the profit will be less because of the increased carry cost (let's say, hypothetically, $100,000 more costs), and the net profit will then be shared with the v.c., leaving the developer, instead of $1,000,000, $675,000. This is still worth doing, hopefully, but the margins have decreased by one-third, in this example.
3. Stock offerings. Developers will also turn to stock offering in these days to raise capital. Instead of one venture capitalist providing funds, it will be numerous investors. One benefit of such an offering is that the developer's risk is reduced because the money is not a loan but is equity. On the down side, to raise the money necessary for a good sized development, the developer will have to part with a large share of the ownership. Going back to the previous example, if a developer only offered to sell 25 percent of its venture for the $3,000,000 it needs, those stock holders would be entitled, as a whole, to 25 percent of the final profit. Assuming again that the profit was $1,000,000, the stockholders' share would only be $250,000. Are stockholders collectively going to pony up $3,000,000, for a chance at $250,000 (or about eight percent) profit? Probably not. Instead, the developer will have to strike a balance by providing enough of his venture to make stock purchasers want to buy, but leave for himself enough to make it personally worthwhile.
Where will it end? Who knows. If you need advice about investment vehicles for your real estate development, and how to legally structure these vehicles, please contact me at 704-735-0483.
One of my clients, a commercial developer, tells me that even up to a year ago, when he began a project, he'd have five or six banks competing for his business. Now, however, he has to aggressively search out his own lenders and is lucky to find even one willing to make the loan.
Given this credit drought, I see innovative developers looking for new ways to get the funding necessary to complete their projects. In fact, I'm working with one client to come up with new methods of funding in these difficult times. What are some areas to consider?
1. Private financing. This has been around for a long time. There have always been private individuals or small companies willing to loan money. With large development transactions, I see a few practical issues with this. First, are you going to find any one person or private organization willing to loan you the amount of capital needed--not, say, $100,000 for a house, but perhaps two, three, four, or five million dollars? If not, are you going to have to procure multiple lenders? How will they each be equally secured? Even in boom times, private lenders typically charged a premium interest rate to cover what typically was a higher risk (i.e., if the venture was less risky, the thinking goes, it could've gone to a bank and paid bank rates). I recently saw a loan with a 50 percent interest rate! Most states have interest rate ceilings that mandate maximum interest rates chargeable on loans, but at least in North Carolina, that does not apply to non-consumer development loans.
2. Venture capitalism. I've written in other blog posts about venture capitalism, and v.c. has had a role, and will likely now have an even greater role, in real estate development. The main difficulty for developers is to price the increased cost of this money into its budget plan.
For example, perhaps a developer was creating a build-to-suit lease with an option to purchase for an 80,000 square foot commercial building, with a tenant lined up. The sales price, if the option is exercised, is $4,000,000. Previously, the developer would've created a pro forma (a projection of costs and income), and perhaps the developer worked out that the initial building costs would run at $3,000,000. The developer would also add into this the "carry costs"--i.e., what the loan payments would be. This figure would be pretty easy to figure out, based on standard loan rates or--even better--a promised loan rate from a particular lender.
But what about now? Just to make up numbers, the venture capitalist, approached to enter the deal, may have the money to loan, but may loan the money at a premium rate--i.e., instead of, say, six percent interest, the capitalist is charging 15 percent interest--which means that the carry costs will be higher. In addition, perhaps the venture capitalist wants 25 percent ownership. In such a tough time, these aren't necessarily costs that can be passed on to the tenant through increased rent or purchase price. In the previous example, the developer could count on $1,000,000 profit for taking on a $3,000,000 risk. Now, however, the profit will be less because of the increased carry cost (let's say, hypothetically, $100,000 more costs), and the net profit will then be shared with the v.c., leaving the developer, instead of $1,000,000, $675,000. This is still worth doing, hopefully, but the margins have decreased by one-third, in this example.
3. Stock offerings. Developers will also turn to stock offering in these days to raise capital. Instead of one venture capitalist providing funds, it will be numerous investors. One benefit of such an offering is that the developer's risk is reduced because the money is not a loan but is equity. On the down side, to raise the money necessary for a good sized development, the developer will have to part with a large share of the ownership. Going back to the previous example, if a developer only offered to sell 25 percent of its venture for the $3,000,000 it needs, those stock holders would be entitled, as a whole, to 25 percent of the final profit. Assuming again that the profit was $1,000,000, the stockholders' share would only be $250,000. Are stockholders collectively going to pony up $3,000,000, for a chance at $250,000 (or about eight percent) profit? Probably not. Instead, the developer will have to strike a balance by providing enough of his venture to make stock purchasers want to buy, but leave for himself enough to make it personally worthwhile.
Where will it end? Who knows. If you need advice about investment vehicles for your real estate development, and how to legally structure these vehicles, please contact me at 704-735-0483.
Minggu, 30 November 2008
Business sales and having your own attorney
I'm gearing up to help the purchasers of a business that has gone bad, and I'm mad.
My clients came in, and informed me that they'd purchase ABC Business. Once they bought the business, they quickly found out that--contrary to the seller's representations--the business was loaded with debts which the seller intentionally failed to disclose to my clients. Bad, but seems straightforward enough, doesn't it? Surely that would constitute a breach of the sales agreement, wouldn't it? Well, not so fast--here's where things get interesting.
Seller talked my clients into using his attorney to draw all the documents. The documents, at first blush, looked like a standard set of business sale documents, except for the part where the seller's attorney cut out all warranties of title, and basically provided that the buyers were taking the business "as is."
The lawyer, hired by Seller, had his fee paid equally between the buyers and the seller--all the while knowing that the seller was hiding from them tens of thousands of dollars of liabilities. That's a breach of his ethical responsibility, one that may cost him.
It's too early in the game to discuss details of what I intend to do on my clients' behalf, but let me use this opportunity to offer some advice to other potential business buyers.
1. NEVER use the seller's lawyer to represent you in a business purchase. The case I mentioned above is extreme--most lawyers wouldn't purport to represent both sides yet withhold information from one party that the other is lying. But often, this joint representation is "de facto"--i.e., the lawyer represents that he represents the seller only, but the seller is telling the buyer that he really represents both sides. Don't fall for this trap. You need someone to specifically protect your own interests as a business buyer--especially if (as here) you're a first-time buyer.
2. Make sure your purchase agreement contains all the representations IN WRITING that the seller has been making to you verbally. Sounds easy, right? But often, a seller will make lots of verbal statements that for some reason don't find their way into the written document. And the standard sales agreement also contains a clause providing that the only representations being made are in writing, and that no other representations have been made. If you, as a buyer, sign this, you may not later be able to rely on oral representations made to you earlier. In the instant case, the seller, of course, made all sorts of representations about the business being free of any liabilities. But, in the document cooked up by the seller's attorney, absolutely no representations were made--as to amount of property, as to title to the property, or anything else. Think about it: if a seller expects you to give him money for his business, shouldn't he--AT THE ABSOLUTE VERY LEAST--be willing to say "I am the owner of this business, and have good title to the business?" Of course. But with my clients, the owner wasn't willing to do that. They should've smelled a rat right then.
3. Do your due diligence! Many business buyers are investing their life savings to follow a dream of running their own business, but get so excited with the dream, that they blind themselves to the realities. Take the time to look under the hood. Investigate the business finances, do a background search of the seller, do everything a smart person should do to make sure you don't get yourself into a quagmire!
If you're involved in a bad business purchase in North Carolina and need help, call me at 704-735-0483, and set up an appointment.
My clients came in, and informed me that they'd purchase ABC Business. Once they bought the business, they quickly found out that--contrary to the seller's representations--the business was loaded with debts which the seller intentionally failed to disclose to my clients. Bad, but seems straightforward enough, doesn't it? Surely that would constitute a breach of the sales agreement, wouldn't it? Well, not so fast--here's where things get interesting.
Seller talked my clients into using his attorney to draw all the documents. The documents, at first blush, looked like a standard set of business sale documents, except for the part where the seller's attorney cut out all warranties of title, and basically provided that the buyers were taking the business "as is."
The lawyer, hired by Seller, had his fee paid equally between the buyers and the seller--all the while knowing that the seller was hiding from them tens of thousands of dollars of liabilities. That's a breach of his ethical responsibility, one that may cost him.
It's too early in the game to discuss details of what I intend to do on my clients' behalf, but let me use this opportunity to offer some advice to other potential business buyers.
1. NEVER use the seller's lawyer to represent you in a business purchase. The case I mentioned above is extreme--most lawyers wouldn't purport to represent both sides yet withhold information from one party that the other is lying. But often, this joint representation is "de facto"--i.e., the lawyer represents that he represents the seller only, but the seller is telling the buyer that he really represents both sides. Don't fall for this trap. You need someone to specifically protect your own interests as a business buyer--especially if (as here) you're a first-time buyer.
2. Make sure your purchase agreement contains all the representations IN WRITING that the seller has been making to you verbally. Sounds easy, right? But often, a seller will make lots of verbal statements that for some reason don't find their way into the written document. And the standard sales agreement also contains a clause providing that the only representations being made are in writing, and that no other representations have been made. If you, as a buyer, sign this, you may not later be able to rely on oral representations made to you earlier. In the instant case, the seller, of course, made all sorts of representations about the business being free of any liabilities. But, in the document cooked up by the seller's attorney, absolutely no representations were made--as to amount of property, as to title to the property, or anything else. Think about it: if a seller expects you to give him money for his business, shouldn't he--AT THE ABSOLUTE VERY LEAST--be willing to say "I am the owner of this business, and have good title to the business?" Of course. But with my clients, the owner wasn't willing to do that. They should've smelled a rat right then.
3. Do your due diligence! Many business buyers are investing their life savings to follow a dream of running their own business, but get so excited with the dream, that they blind themselves to the realities. Take the time to look under the hood. Investigate the business finances, do a background search of the seller, do everything a smart person should do to make sure you don't get yourself into a quagmire!
If you're involved in a bad business purchase in North Carolina and need help, call me at 704-735-0483, and set up an appointment.
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