Last week Congress passed the “Tax Increase Prevention Act of 2014,” which President Obama signed into law on Friday December 19, 2014. Referred to as the “extenders package,” it extends certain tax provisions that had expired on December 31, 2013. The extension of almost all provisions is through December 31, 2014, which is of course a very welcome development for those who will see benefits relating to their 2014 activity. However, for those who have been waiting to take action until the passage of extender legislation, it leaves very little time to get things done.
The more universally applicable provisions which have been extended are summarized below.
It takes years, sometimes a lifetime, to build a business. Along the way, every business owner makes huge investments of time, capital, energy and vision to grow and sustain the enterprise. For business owners with a substantial portion of their net worth tied up in the business, it is never too soon or too late to develop an exit strategy. That strategy should maximize the value you receive from the business and minimize the tax bite. An exit strategy involves developing a plan for passing on responsibility for running the business, transferring ownership, and extracting your investment. Because a stable business is worth more than an unstable one, creating a seamless transition is essential to maximizing value. This requires planning while the company is in good economic health and management is in place. We can explore with you alternative strategies used to provide exit for business owners and assist you in determining which is appropriate for your business now and as it may evolve.
Establishing a succession plan to ensure your business survives the transition to the next generation of leadership and management is a crucial step in the life of every business. The investment in a strong strategic plan demonstrates to your clients, employees, lenders, suppliers, and co-shareholders that the survival and continued growth of your business is a top priority. The benefits that a strong vision for the future inspires can’t be overstated, and shouldn’t get overlooked.
Our firm has been advising owners of family and privately held businesses for over 20 years. We pride ourselves on developing deep relationships with our clients by taking time to understand their businesses and goals so that we can provide personalized, practical and effective advice to address each company’s unique challenges, objectives and needs. Our transactional, finance, employment, tax and estate planning practice groups bring a depth of knowledge, insight and experience to the complex issues and concerns which are central to establishing a comprehensive and cost-effective succession plan to safeguard the future of the business you worked so hard to build.
Our attorneys work closely with owners, family members and key employees to identify intergenerational issues and conflicts which threaten successful transitions in leadership business continuity. Our business succession team is adept at assisting all relevant parties through the necessary steps of conflict resolution, consensus building and amicable compromise which are crucial in transition planning.
We have extensive experience with all variations of succession planning, including intrafamily transfers via straight gifts, intrafamily sales via the use of grantor retained annuity trusts, defective grantor trusts, and similar mechanisms. Similarly, we frequently implement plans that involve transfers to management via traditional management buyouts, issuance of ownership interests as compensation (e.g., stock bonus plans, nonqualified stock options, partnership/LLC profits interests), and employee buyouts via Employee Stock Ownership Plans.
In some succession planning cases, it is necessary to look outside the family and outside the business for ownership and management succession. In such a case, it is important to take appropriate steps maximize the value of the business at the time of the sale. Assistance of legal counsel is essential for purposes of (i) the corporate housekeeping often required prior to initiating third party sale efforts, (ii) the search and selection of the right strategic buyer, and (iii) the negotiation of favorable terms in the sale of assets or equity.
AMM’s Succession Planning Services Include:
• Evaluation of the business to assess its profitability, financial health, business objectives and
prospective successors;
• Assessment of alternative transition structures to maximize tax and cash flow objectives for
both existing and projected leadership/ownership;
• Assistance to owners in obtaining valuation information in order to draft equitable buy/sell
and similar valid succession agreements;
• Development of estate planning documents which provide for ownership transfers;
• Identification of possible conflicts and issues when not every family member is involved in the
business, and coordination of the discussion and resolution of issues that may arise during
transition;
• Facilitation of conflict resolution procedures in relation to future management of the
business.
Representative Business Succession Planning Experience:
Our attorneys have created succession plans for a wide range of business sectors including:
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By Thomas P. Donnelly, Esquire, Reprinted with permission from the November 24, 2014 issue of The Legal Intelligencer. (c) 2014 ALM Media Properties. Further duplication without permission is prohibited.
I do not generally characterize myself as a fan of arbitration. While proponents argue arbitration is a superior form of dispute resolution and more efficient than litigation, my personal experience in the representation of privately held businesses and individuals is otherwise. In many situations, the sheer cost to initiate an arbitration proceeding may be prohibitive. For a claimant, even if that initial cost is not an effective deterrent, the budget of ongoing hourly fees required of a qualified arbitrator in addition to the parties’ own anticipated legal fees, can quickly impair the potential recovery. For a Respondent, many times the cost of proceeding was not considered at the time of execution of an agreement which compels arbitration; thus the obligation to make payment for a service technically rendered by the courts without cost comes as a surprise. In either case, the parties must realize that at arbitration each is compensating not only its own lawyer, but, at least partially, another lawyer and a private dispute resolution industry as well. While arguably profitable for the legal profession, the realities of proceeding can result in difficult client discussions.
The above being said, there are situations where arbitration clauses can be of substantive, procedural and, consequently, financial benefit. In such cases, even a skeptic of arbitration must recognize the benefits of the bargained for exchange which is an arbitration agreement. Under the current state of the law, and given the trends in the enforcement of the right to contract, a carefully considered and artfully drafted arbitration agreement can be an essential aspect to certain business relationships and an important term of negotiation.
Employers should almost always include the broadest possible arbitration clause in any employment agreement and, generally, as a term of employment. In most cases, an action arising in an employment situation concerns a claim raised by an employee, or worse, a class of employees against the employer. The employer is generally a defendant. In such cases, arbitration clauses can serve several functions. First, an employee initiating the action must satisfy the initial fee if mandated by the prevailing agreement. As such fees are often determined by the amount at issue, the larger the claim, the higher the fee, and the greater deterrent toward commencement of the action. As of November 1, 2014, the filing fee for the commencement of an American Arbitration Association claim involving more than one million but less than ten million dollars was $7,000.00. Note there is no refund of the filing fee should the matter resolve. Certainly, the requisite fee is a deterrent to the filing of a border line claim, but could also be a deterrent to a claimant’s joinder of additional even less viable claims which include different damage components. Under any circumstances, the employee faces an early branch to the decision tree.
The flexibility of arbitration clauses within employment agreements may prove even more critical. With careful drafting, an employer can effectively insulate itself from certain employment related class actions. In Quillion v. Tenet HealthSystem Philadelphia, Inc. the United States Court of Appeals for the Third Circuit compelled arbitration of a Fair Labor Standards Act claim and, more importantly, declined to strike down a provision of an employment agreement requiring such claims be brought on an individual basis precluding proceedings as a class. The Quillion Court indicated that such a class action waiver was consistent with the Federal Arbitration Act and suggested in the strongest of terms that Pennsylvania’s preclusion of class action waiver in the employment context was preempted by Federal Law. Certainly, the equities of any such situation, including preservation of remedies and additional recovery of fees and costs are important to the court’s inquiry, but the current trend is to support the rights of the parties to contract, even to their own peril.
The flexibility of the arbitration agreement also allows for exclusions from the scope and reservation of certain matters for litigation. Matters of equity such as enforcement of restrictions against competition or solicitation can be reserved for the courts, thereby preserving immediate access to judicial process for enforcement of employer remedies. Interestingly, the reverse may not necessarily be true. The Montgomery County Court of Common Pleas recently dismissed a complaint for declaratory judgment seeking a judicial determination voiding certain restrictions against competition determining that such equity claim was within the scope of the arbitration agreement and, therefore, for the arbitrator to decide.
Arbitration also plays a vital role in the ever broadening world economy. In 2014, international business is the norm rather than the exception. The courts of the United States and the signatories to the New York Convention on Arbitration have routinely enforced arbitration clauses establishing the parameters of dispute resolution as consistent with the parties’ right to contract. Critically, the arbitration clause can protect a company operating in this country from the many pitfalls, incremental expenses and inconsistencies of litigating in a foreign country or even against a sovereign nation in its own judicial system by selecting a choice of law and a situs of the arbitration proceeding. Such forum selection also provides a certain substantive component not only as to applicable law, but also in the qualification of fact finders as the roles of qualified arbitrators available for commercial disputes continue to grow. Finally, arbitration may be preferable to litigation in the United States District Courts as the parties may be granted greater flexibility and input to the development of the schedule of proceedings rather than subject to the rule of the federal judge, who may or may not be familiar with often complex substantive issues. Finally, arbitration may also be preferable in any relationship where confidentiality is key. In some cases, the simple fact of a public filing is of concern. In many others, the factual allegations of a complaint, even if eventually proven unfounded, can be damaging. While an arbitration clause cannot prevent a claimant from filing an initial public complaint in court, an enforceable arbitration clause can bring an abrupt end to the public aspect of the dispute.
The courts remain the preferred forum for dispute resolution in many circumstances. However, with the growing trend of contract enforcement to the terms of arbitration agreements even a skeptic must admit that the inclusion of an arbitration clause in certain circumstances can provide a substantive advantage and dramatically impact the landscape of dispute resolution to your client’s benefit.
Whether you are an entrepreneur or a CEO of a multi-national corporation, business contracts are critical to the success of your enterprise. AMM can assist you in any stage of a contract-based issue - developing new contracts, reviewing existing contracts, or enforcing your rights. We have handled all types of contracts from simple leases to complex agreements involving property, employment, vendors and customers. Our attorneys have a comprehensive knowledge of contractual issues and can handle any documents necessary to help the management of your business relationships.
NON-PROFIT FORMATION
Forming a non-profit organization involves several steps. Those seeking to form the organization must first choose any appropriate structure. The choice of entity depends on many of the same factors used in choosing an entity in the for-profit context. Depending on the choice, formation requirements vary, but will generally require the development of governing documents such as Articles of Incorporation or Certificate of Formation and Bylaws. Formation also requires the recruitment and appointment of appropriate Board of Directors/Trustees and an Organization Meeting. In addition, the non-profit should obtain an Employer Identification Number (EIN).
Once the non-profit is formed and has an EIN, it will generally seek treatment as a tax-exempt entity. The application for tax-exempt status is done at both the federal and state levels. The application will include a determination on whether the organization should be classified as a public charity or a private foundation. The determination generally depends on where the organization intends to secure the majority of its funds. A public charity, as the name implies, is “publicly supported” or is supported by other public charities. Private Foundations, on the other hand, generally receive most of their funding from one or a few large, private donors.
Antheil Maslow & MacMinn has helped form numerous non-profit organizations and has obtained tax-exempt status for many of our clients. Our attorneys can assist you in identifying the best structure for your non-profit and guide you through the steps required to qualify for tax-exempt status and to implement the processes that will secure the continued enjoyment of that status.
ENTITY CHOICE
Choosing the right type of entity for you business is one of the most important decisions a business owner must make. There are many forms to choose from such as C Corporation, S Corporation, Limited Liability Company (LLC), General Partnership, Limited Partnership (LP), Limited Liability Partnership (LLPs), Professional Corporation, Business Trusts, and even tiered structures using several forms of entities. Business owners should consider a number of important factors when making a decision including the owners’ need for limited liability, who will manage the business, availability and flexibility of capital and financing, the transferability of ownership, and taxes. Antheil Maslow & MacMinn works with its clients to identifying the best entity for your unique situation.
JOINT VENTURES & STRATEGIC ALLIANCES
Individuals and entities may enter into joint ventures and strategic alliances for a variety of business reasons; for example, to pool resources for research and development of a prototype; to jointly manufacture an existing product; or to share distribution channels in the marketing or distribution of products. While usually intended to be limited and temporary in nature, sometimes these relationships are used as stepping stones to evaluate the advisability of a more
When there are two or more equity holders, a Buy-Sell Agreement is a powerful tool to help control a company’s future. Contractually determining what happens to the company stock after a triggering event (termination of employment, disability, death, third party offers) can avoid shareholder disputes and can also solve some of the owners’ estate planning problems. While no single, sure-fire method of determining the price exists, having a well thought out formula and contractual obligation to regularly update the valuation of the stock price is essential.
Addressing this most basic concern in the Buy-Sell Agreements it prepares for its clients, AMM also attempts to provide a broader frame-work for shareholder relations. Should majority rule always prevail or are there situations that may require a super-majority vote? How should irreconcilable differences be resolved without destruction of the company? All of these issues and more can be addressed by what is often referred to mistakenly as a simple “Buy-Sell Agreement”. Antheil Maslow & MacMinn will help craft a document that fits all of its client’s specific needs.
At Antheil Maslow & MacMinn our business is growing, so we are always looking for highly qualified attorneys to join our team. Attorneys who join our firm are assured the opportunity to work on challenging legal matters in a collegial, supportive environment.
Current Openings: Please send resume and cover letter to Terry Lang at tlang@ammlaw.com.
Corporate Attorney - Senior Level:
Antheil Maslow & MacMinn, LLP seeks an outstanding senior level corporate attorney for our Business & Finance Group. If you are ready to join a prominent suburban firm with a collegial culture and strong commitment to excellence, AMM Law may be for you! We are looking for a highly experienced corporate practitioner with the depth of knowledge and business acumen to create effective transactional strategies and manage their implementation from start to successful completion. Ability to run complex deals independently is a key asset for this position. The ideal candidate will have at least 5+ plus years of experience handling mergers and acquisitions, general corporate and transactional matters. Additional experience including any of the following is desired: private placements, entity operating/partnership agreements, succession planning, tax, financing transactions, real estate acquisitions and leasing, licensing, IP, and/or general contract drafting and negotiation. PA bar admission required; NJ also preferred. Flexible or part-time schedules and hybrid working arrangements are available for the right candidate.
Wealth Planning Attorney:
Antheil Maslow & MacMinn, LLP seeks a vibrant, collegial and collaborative Doylestown law firm seeks experienced attorney for wealth planning practice. Heavy focus on tax/trusts/estates work, and the position includes estate planning transactional work involving business and real estate interests. Requires experience in estate planning and wealth preservation techniques associated with Federal Estate/Gift/GST Tax planning, business succession planning (including business and transactional tax issues), and general estate planning and administration. Strong academic credentials required. Those with an LL.M. in Taxation (or pursuing an LL.M. in Taxation) are preferred. Admission to the PA bar is required, and admission to the NJ, NY and/or FL bars is a plus. The ideal candidate would have 3 - 6 years of experience. Portables are not necessary.
To apply for any of the above position at AMM, please send resume to Terry Lang tlang@ammlaw.com.
Staff at Antheil Maslow & MacMinn are skipping inter-office gift giving this holiday season and are choosing to donate instead to Buck Up Bucks County. We challenge all area firms to do the same. Its a great way to save time shopping for gifts that no one needs, and divert the money to those who are very much in need!
All funds raised by Buck Up Bucks County will go directly toward renovating the existing bathrooms at the Bucks County Emergency Homeless Shelter and purchasing a bus for Advocates for Homeless & Those in Need, an organization which provides transportation and shelter to that population in lower Bucks County. Antheil Maslow & MacMinn is a canister location for those who wish to donate to this important cause.
So The Business You Bought Is Not What You Thought… Now What?
Written by Thomas P. Donnelly
My wife doesn’t eat fish. Chicken is the staple of the diet in our house. Despite careful consideration, sometimes she gets tricked into consuming what looks like a tasty morsel only to be disappointed by the taste and texture of what comes from the sea. She promptly, but of course gracefully, extracts the fishy culprit from her mouth thereby rescinding the transaction and restoring her being to non-seafood status. Of course, a fishy business transaction cannot be so easily unwound.
Business transactions come in all shapes and sizes. From multi-million dollar mergers involving teams of lawyers and accountants to small asset purchases effectuated by only a bill of sale scribbled on a napkin. Most fall somewhere in between. Almost all involve disclosure of financial and business information in advance of closing in a “due diligence” period of evaluation and investigation. Due diligence is the means by which a buyer attempts to verify what the seller has to sell; the ongoing revenue stream and the customer pipeline. Sometimes the performance of the business after closing sharply contrasts the results of operations depicted in financial information exchanged in due diligence. The new owners are left without a roadmap to ascertain the disparities in performance. The investigation can be all consuming and require substantial attention and money at a time when the business is already in a period of transition. The new owners must balance examination of the transaction and results of operations against the focus required to conduct the daily activities of the business which, of course, remain pressing and are likely made more complex by the unexpected performance levels.
Hopefully, any agreements reached between the parties contain representations and warranties which could benefit the purchaser. The terms of the agreement are the best place to start the analysis of potential legal action. Generally, such agreements will represent and warrant the financial information exchanged in due diligence was accurate and adequately described the performance of the business. For example, often tax returns, profit and loss statements and balance sheets will be exchanged in due diligence and subject to specific representations and warranties. Examination of what documents were specifically referenced as included in the representations and warranties is critical. Where the prevailing agreements contain integration clauses, the representations and warranties are of paramount importance as integration clauses can prohibit reliance upon statements and information not specifically incorporated into the four corners of the documents and bar claims such as negligent misrepresentation and, potentially, fraud.
Determining whether the profit and loss statements and balance sheets contain material mis-statements of operations can be complicated. The investigation must begin with securing all documents subject to due diligence and the verification that those documents were the same documents that were prepared in the ordinary course of business. Ensure that any financial records or tax returns produced by the seller match financial records available from a different source such as a broker, accountant or internal revenue service. Of course, information becomes more available after the commencement of litigation by virtue of the discovery process.
The forensic analysis involves testing the information set forth in summary form in the financial statements against whatever other information is available. Quickbooks reports can reveal adjustments made to performance results. The reality however, is that most business owners, and for that matter attorneys, lack the requisite expertise to effectively conduct the necessary investigation. Accordingly, a forensic accountant skilled in fraud examination and detection is a valuable member of the analytical team. Certainly, there is a cost associated with that service, which cost must be incurred before the results are clear, but the expertise of the investigation will often control the outcome. The forensic accountant is trained to identify inconsistencies such as whether payroll was accurately stated, whether inventory and costs of goods sold were appropriately booked and whether income as stated on the financial records is impacted by other unspecified factors. A preliminary forensic investigation is essential to the decision to pursue costly litigation.
A buyer must also consider the potential parties, their financial positions, and the types of claims that can be raised. In seller financed transactions, as opposed to bank financed transactions, the buyer’s leverage is significantly enhanced. In the former, the buyer may apply pressure to a seller by discontinuing payments. In the latter the bank generally has no regard for any claims the buyer may possess against the seller and simply demands its’ payment each month. Generally, no court will interfere with the bank’s rights to security and payment as same are not dependent on the result of any claims possessed by the buyer as against the seller. The ability to recover in litigation must also be considered. The distribution of purchase price, whether distributed to creditors or held in joint accounts in a tenancy by the entireties state can impose additional obstacles to recovery and necessarily impacts litigation strategy. Identification of potential defendants and causes of action is also essential. Pennsylvania recognizes the torts of negligent misrepresentation in certain circumstances including preparation of financial information for the reliance of others, aiding and abetting breach of fiduciary duty and conspiracy. Accordingly, to the extent a seller was assisted in the preparation of false financial information, those who assisted may also be appropriately identified as defendants when the facts are supportive of liability. Potential claims against a seller include breach of warranty, fraud, misrepresentation, conversion, unjust enrichment and, under the right set of fact, claims for punitive damages. Breach of warranty claims are often the best chance of success as the issue of intent (or lack thereof) has no bearing on proof of a breach of warranty claim.
Finally, consider the measure of damages. Under the right circumstances, lost profits can be claimed. However, post-closing failure (or alternatively, success), management issues and other factors can complicate the damages analysis. In the absence of a lost profits claim, the difference between the valuation of the company in accordance with the financial information presented and the financial information eventually uncovered may result is a simpler damage calculation. Of course, any such analysis also requires the assistance of a business valuation expert in addition to the forensic accountant referenced above. A buyer must also be wary of any damage limitations internal to the agreements between the parties as well as any internal statutes of limitations which may be set by agreement.
In contrast to the ease by which my wife can expel inadvertently consumed sea food, rescission in a business transaction is unlikely. The very idea of rescission, placing the parties back in their respective conditions, may be impossible based on post-sale performance. Claims for money damages are far more often the claims that proceed to conclusion.
Certainly, pursuit of litigation concerning the purchase of a business can be expensive and complicated. Any such decision must weigh the likelihood of success and the cost of that success, against the distraction such litigation may cause and potential impact of that distraction on business operations. That being said, sometimes a buyer simply has no choice and sometimes what smells rotten really is just that; rotten.
Alan Wandalowski, a Partner of Antheil Maslow & MacMinn, LLP, a Doylestown law firm has begun his term as President of the Bucks County Estate Planning Council. The first meeting of the 2014 - 2015 program year was held in September. Officers of the BCEPC make a five year commitment to the council, serving terms as Secretary, Treasurer, 1st and 2nd Vice President, and then as President of the organization. The Bucks County Estate Planning Council’s mission is to advance the knowledge of local estate planning professionals and to develop collegiality among estate planning professionals.
Alan’s practice concentrates in Estate Planning, Business Succession Planning, Taxation, Asset Protection and Wealth Transfer Planning, planning for Retirement and Life Insurance benefits, Probate and Trust Administration, Estate and Trust Litigation, and Elder Law.
Alan works closely with high net worth individuals, business owners, and their families, helping them implement their estate plans. Beyond preparing core planning documents such as Wills, Revocable Trusts, Powers of Attorney and Living Wills, Alan has extensive experience in developing more advanced planning techniques, including Irrevocable Life Insurance Trusts, Generation Skipping Trusts, Family Limited Partnerships, Limited Liability Companies, Intentionally Defective Grantor Trusts, Grantor Retained Annuity Trusts, Qualified Domestic Trusts, Charitable Remainder/Lead Trusts, and Private Foundations.