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Thursday, 28 June 2018 19:25

Preparing Your Business For Transition

Written by Thomas P. Donnelly

There are many reasons why businesses sell.  Certainly, the lifecycle of a successful business is often longer than the founder or controlling shareholder’s desire to continue working.  In such circumstances, a business owner may wish to extract the reward for years of sweat equity by transitioning to a new ownership group.   In other situations, a strategic combination is necessary to fuel continued growth in scope of services or customer reach.  Sometimes, an entrepreneur must simply choose between a number of different projects such that divestiture of one opportunity becomes necessary. 

Whatever the reason, preparing the business for the sale process can both enhance the value of the transaction and make for a smooth transition.  A sophisticated buyer is loath to take on uncertainties, non-ordinary course liabilities or business practices which may give rise to same.  A potential seller is wise to get their “house” in order before going to market or even considering discussions with a potential buyer. 

Financial Reporting

Financial information is a primary focus of due diligence.  Many businesses do not commission audited financial statements on an annual basis.  For many more, the annual tax return stands alone as an indication of the value of the business.  However, tax returns prepared without an eye on sale often reflect information designed to reflect a reduced tax liability as opposed to demonstrating the value of a going concern.  A business owner is wise to consider the assistance of a qualified accounting firm to prepare corporate financial information in a light more suitable for transactional purposes.  The actual filing of all applicable returns is a must.

Human Relations & Employment Practices and Policies

Human relations matters are a potential land mine.  An employee handbook summarizing policies and procedures is essential.  If benefits plans are in place, compliance with all applicable laws will be required if a deal is to be consummated.  A current employee census and proof of citizenship or immigration status will be required.  Key employees should be subject to employment agreements with assignable restrictive covenants.  An acquiror will desire protection against an exodus of management.  

Customers and Business Partnerships

Customer relationships and key business agreements should be locked down.  An analysis of such agreements in advance with special attention to assignability or change in control provisions is necessary due diligence in any sale.  Disclosure to a client or customer may make for a difficult discussion, however, a buyer will want to ensure the continuation of the business relationships prior to commitment. Indemnification obligations and intellectual property rights are certain to be addressed to the extent integral to any customer relationships.

A well-constructed house sells more readily and for greater value than a leaky one on an unstable foundation.   Further, a buyer will often require representations and warranties as to the material issues summarized above such that, even after closing, a deficiency can be costly to a seller who thought the transaction was over and the profits safely secured. monetarily impactful. A seller is wise to identify and address deficiencies in advance of sale discussions both to maximize value and make for a smooth, efficient and cost effective transaction.       

Denise Bowman, commercial litigator and Partner at Antheil Maslow & MacMinn, LLP, will participate as a panelist in Main Street Advocacy's insightful and empowering event, Women 2 Women: Count Me In.  Ms. Bowman will be speaking about the importance of community involvement and mentoring.  The panel will feature four professional women in an in-depth discussion of policy issues of concern to the women of Bucks County and the greater Philadelphia area.  The program will take place at the Newtown Athletic Club on Thursday, June 28th and is free and open to the public. RSVP to mainstreetadvocacy.con/buckscounty/

 I recently had the opportunity to speak at the Central Bucks Chamber of Commerce’s health and wellness event, “Well Employees = Well Business: Best practices and Legal Considerations” along with Megan Duelks, CoE Employee Health Innovations at Johnson & Johnson.  Ms. Duelks’ discussion of wellness programs at Johnson & Johnson along with the excellent questions from the attendees highlighted that a workplace with good risk management is also a positive, professional and productive workplace.  Good risk management should include three important features, no matter the size of the employer:  professionalism, fairness, and a focus on employee performance. 

 Professionalism means that an employer has in place the important features that protect both employees and employers:  a handbook, policies that prohibit discrimination, harassment and retaliation, and a good complaint procedure.  Professionalism also requires that complaints are taken seriously, investigated properly and redressed in a meaningful way. 

Fairness requires that those policies are followed consistently for each employee, and that exceptions are made for good business reasons.

  A focus on employee performance helps to meet these goals.  At the seminar, employers were concerned about how to communicate with an employee in crisis.  The goal is to help the employee, but protect the employer from unnecessary liability.  Having clear policies in place will help to meet these goals. Where the crisis is impacting the employee’s performance, this is where the discussion must start.  A focus on performance, which includes anything from attendance to the quality of work, creates a platform for a professional conversation about how to address the issue.  An employer is always free to end such a discussion by identifying the resources the employer offers for employees facing personal, family, or health issues. 

  In my practice at Antheil Maslow & MacMinn, I have assisted many employers to put a program in place that improves culture, manages risk, and creates a framework to address employee crises. 

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Practice Groups:

  • Estate Planning
  • Estate Administration
  • Taxation

Education:

  • Villanova University School of Law Graduate Tax Program, LL.M (Taxation) and Estate Planning Certificate: 2015 Drexel University Thomas R. Kline School of Law, Juris Doctor, 2011 University of Delaware, Bachelor of Arts, cum laude (Political Science and History), 2008

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  • Pennsylvania
  • New Jersey

 

Under the Americans with Disabilities Act (ADA), an employer must provide reasonable accommodations to an employee who is disabled (as defined under the ADA) and who is otherwise qualified for the position.

An issue frequently faced by employers and addressed by the courts is what constitutes a “reasonable accommodation”?

A federal appeals court recently addressed this matter, where an employee confined to bed because of complications from her pregnancy, requested that she be permitted to work from home or a hospital (telecommuting) for a ten week period. Mosby-Meachem v. Memphis Light, Gas & Water Div. 2018 WL  988895 (6th Cir. February 21, 2018). The employee served as an in-house counsel for a corporation. Her request to telecommute for ten weeks was denied.  The company did not at the time of the request have a formal written telecommuting policy-although it did permit telecommuting and permitted the employee on a prior occasion to telecommute. The employee filed suit under the ADA, and a jury awarded her $92,000 in compensatory damages. In affirming the jury’s award, the court held that a “rational jury [under the specific facts of the case,] could find that the employee was a qualified employee, [covered by the ADA] and that working remotely for ten weeks was a reasonable accommodation.” In reaching its conclusion, the court found that sufficient evidence had been presented to the jury to support the employee’s claim that she “could perform the essential functions of her job remotely for ten weeks…” The court rejected the employer’s claim that the written job description for this employee dictated the opposite result because the job description was outdated and did not reflect the employee’s actual work requirements. The court, in affirming the jury verdict, also relied on the fact that the employer did not engage in an “interactive process” with the employee to understand the limitations the employee faced, and what accommodations might be put in place to allow the employee to continue at her job. Instead the employer pre-determined what it intended to do without conversing with the employee. Several lessons can be drawn from this case: First, even if an employer has no telecommuting policy or a policy which does not permit telecommuting, the employer, under a particular set of facts, may be in violation of the ADA if telecommuting would be found to be a reasonable accommodation. Secondly, an employer must engage in an interactive process with an employee to determine what, if any, accommodation might be reasonable under the particular circumstances. This means direct communication between the employer and the employee. An inflexible policy of the employer may end up causing the employer to be in violation of the ADA. Finally, written job descriptions must be reviewed and updated as needed. An outdated or inaccurate job description cannot help an employer and in many instances will be detrimental to an employer seeking to defend against a claim of job discrimination.  

AMM Partners Denise Bowman and Jessica Pritchard at Bristol Riverside Theater Gala

Patricia Collins, Employment Partner at Antheil Maslow & MacMinn, LLP, will be a presenter at the Well Employees = Well Business: Best Practices and Legal Considerations Event of CBCC’s Health and Wellness Committee on June 14th – 8:30 – 10:00 a.m. at CB Chamber Headquarters. Also speaking will be Megan Duelks, CoE Employee Health Innovation of Johnson & Johnson Global Health Services.  Pamela J. Ginsberg, Ph.D., staff psychologist at Doylestown Health will facilitate the presentation.  The program, for employers, is focused on creating a culture of caring to improve productivity, wellness and joy in the workplace.  It is free to attend and open to the community and Chamber members alike.  Registration for this informative event is at centralbuckschamber.com.

On July 4, 2018, recent changes to the Pennsylvania custody law will go into effect. These laws take into account changes in the family structure and the expansion of classes of individuals who may qualify to file for physical or legal custody of minor children. 

The new class of individuals (third parties) who will have standing to file for custody must meet all of the following criteria as set forth in 23 Pa. C.S. 5324: 1.  The individual has assumed or is willing to assume responsibility for the child; 2.  The individual has a sustained, substantial and sincere interest in the welfare of the child; and,  3.  Neither parent has any form of care and control of the child.

In order to have standing, the individual must prove all three criteria by clear and convincing evidence, which is a high burden of proof.  Presumably, the burden is high to ensure that the child is protected and does not end up in the custody of someone unsuitable.  This opens up the possibility for neighbors, family friends, aunts and uncles or even sports coaches being awarded custody of children. The law also has a further limitation in that,  if there is a dependency proceeding, meaning that  there is a pending dependency petition alleging that the child(ren) is without proper parental care and should be supervised by the court, then the above criteria will not apply.

It should be noted that grandparents could have standing under two sections of the Custody  Code.  While grandparents and great-grandparents may have standing under 23 Pa. C.S. Section  5324, above,  they may also have standing to seek partial physical custody or supervised physical custody of their grandchildren or great-grandchildren under 23 Pa. C.S. 5329.  There have been changes to this section that will be effective July 4, 2018 as well.  Case law previously struck the sections that allowed for grandparents’ standing if the parents of the child(ren) were separated for at least six months or were getting divorced.  This is because it is unconstitutional  for intact families and families that are not intact to be treated differently.  The new revisions reflect that case law, and also strike those sections, but also added an additional section to  allow for grandparent standing: 1.  Where the relationship with the child began either with the consent of a parent of the child or under a court order and where the parents of the child:      A.  Have commenced a proceeding for custody; and,      B.  Do not agree as to whether the grandparents or great-grandparents should have custody  under this section.

Essentially this change allows a grandparent or great-grandparent who has an existing relationship with the grandchildren or great-grandchildren to be added as a party to a custody proceeding when the parents of the child cannot agree if the grandparent or great-grandparent should have any custody.

The final change to 23 Pa. C.S. 5329 changes the word parent to party in the section for consideration of criminal conviction.  The court must consider criminal convictions and make sure that there is no threat to the child(ren) before entering a custody order. This consideration relates to entering an order of custody to a party (not just a parent) who does have certain criminal convictions.

The timing of these changes to the custody law coincides with the rise of the opioid epidemic both nationwide and in the local area specifically.  Sadly, there has been a rise in the past few years of parents battling drug addiction and unable to care for their children, to the extent that  Pennsylvania legislators have felt compelled to address the impact of this crisis on minor children. These changes to the custody law increase the potential third parties who could seek to assume custody of the children in these situations.  The changes in the law reflect the reality that some of these third parties may already be caring for the child, but did not have standing to file for physical and/or legal custody previously.  As of July 4, 2018, they will be able to do so. 

Retailers, Importers, and brands need to immediately be sure there is no cotton from Turkmenistan in their supply chains.  The U.S. Customs and Border Protection (CBP) has finally announced it will turn away or seize and withhold any shipments of cotton originating in the Central Asian nation of Turkmenistan.  Affected importers will clearly experience a significant, and probably costly, disruption of production- related procurement.   The International Labor Rights Forum (ILRF) urged the U.S. to ban Turkmen cotton two years ago but was rejected until findings of state-enforced slave labor was documented after extensive investigation.

CBP was given the authority to ban tainted products like cotton from Turkmenistan when The Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) removed the “consumptive demand” exception to the United States Tariff Act of 1930, a commonly exploited loophole to the prohibition against importing products of forced labor. Prior to the new provision, CBP used the law only 39 times since 1930 to apprehend goods tainted at some point from creation to delivery by forced labor. Since the passage of TFTEA, CBP has issued four new Withhold Release Orders (each a WRO) on specific goods from China (soda ash, calcium chloride, and caustic soda from Tangshan Sanyou Group and its subsidiaries on March 29, 2016; potassium, potassium hydroxide, and potassium nitrate from Tangshan Sunfar Silicon Industries also on March 29, 2016; Stevia and its derivatives from Inner Mongolia Hengzheng Group Baoanzhao Agricultural and Trade LLC on May 20, 2016; and peeled garlic from Hangchange Fruits & Vegetable Products Co., Ltd. on September 16, 2016). 

A March 31, 2017 Executive Order establishing enhanced collection and enforcement of antidumping and countervailing duties and violations of trade and customs laws authorized the Secretary of Homeland Security, through the commissioner of CBP, to develop implementation plans and a strategy for interdiction and disposal of inadmissible goods and to develop prosecution practices to treat significant trade law violations as a high priority.

Although 2017 saw more antidumping and countervailing duty orders and intellectual property rights protection activity under TFTEA, there have been no published detentions prior to the ban of any shipments of Turkmen cotton, although CBP pledged to the U.S. Congress that more import bans under section 307 would be forthcoming.  Perhaps this is just the beginning of a long awaited CBP crack-down on forced labor imports to combat human rights abuses in global supply chains.

AMM congratulates our 2018 Super Lawyer and Rising Star attorneys named in the 2018 Super Lawyer listing by Thomson Reuters.

Jessica Pritchard, chair of the firm’s Family Law practice group, was named one of the “Top 50 Women” again this year,  and one of Philadelphia’s Top 100 attorneys by the publisher of Pennsylvania Super Lawyers magazine. Ms. Pritchard has been included in the Super Lawyer listing for the past four years. 

Elizabeth Fineman, an associate in our Family Law department, was named a 2017 Rising Star by the same publication for the sixth year. 

Both Pritchard and Fineman concentrate their practices exclusively in Family Law.   Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. This selection process includes independent research, peer nominations and peer evaluations. To learn more, please visit www.superlawyers.com.