Category: Buy/Sell/Merge Businesses

1. Why are you starting a business?
2. Is this a new business or a conversion of an existing business?
3. Will any of the owners be business entities rather than individuals?

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Purchase of a Business

When you purchase a business an important consideration is the ownership of Intellectual Property of the purchased business.  Make sure you complete an appropriate search for patents, trademarks and copyrights.  In addition, review the secretary of state for information on registrations of names under which the purchased business does business.  This may have an impact on the purchase price of the business.

Basic Searches

Intellectual Property can be registered at state and federal levels.  The federal compilation is quite easy to access and search online at www.uspto.gov.  Information is also available at the Arizona Corporation Commission and Secretary of State of Arizona as well as other states Secretaries of State.  It is important prior to starting a business to determine if some other business is using the name you select.  You must evaluate the scope of use of the trademark you want to use and assess the risk that some other person may have already been using the name.  Make sure you do the search prior to forming the company or labeling the product.

Employees and Contractors

Only a written agreement will protect the ownership of the Employer or a company using a consultant to generate Intellectual Property.  As an example, if you pay a consultant to write software for your company and do not have a written agreement, the consultant will own the copyright to the software and be able to sell it to anyone.  You must have a written agreement to specify which of the parties owns the Intellectual Property.  You can declare the consultant is hired with a clause stating the software is a “work for hire” and that your company owns the Intellectual Property rights.  You must have an agreement with employees, sales representatives and hired engineers to establish the actual ownership of the copyright to the software.

Arizona Corporation Commission and Tradenames

Just because the Arizona Corporation Commission clears a name, it does not mean that you have not violated some other persons previously registered tradename.  The standard the Arizona Corporation Commission uses is not the same as the analysis done federally for a tradename.  The standard is the likelihood of confusion in the mind of a consumer.  This is not a very precise definition or standard to use, causing litigation to be a real risk.  In addition to Arizona Corporation Commission clearance you should also review all tradenames with the Patent and Trademark Office to determine risks involving ownership of intellectual property.

Business succession planning is the establishment of a plan to provide for the orderly transfer of the management and ownership of a business to avoid taxes and litigation to ensure the family or control person’s objectives.  Many of the considerations are similar for family businesses and for non-family businesses.  The general purpose is to provide for continuity of the business and transfer an apportionment of assets to the next control group.

The liquidity needs of the owner must be considered and the timing and manner of the transfer determined.  The owner can do any of the following:  sell the assets, sell the stock, do a tax free merger, do a tax free division, sale to an ESOP, sale to employees, sale to family members, sale to grantor trusts, transfer equity interests to a grantor retained annuity trust (GRAT), leave the interest by will to family members or liquidate the business, including bankruptcy.  Each of these options has unique aspects and should be examined in the specific situation of each business.

Taxation is a large consideration in the structure and each of the above options has different tax treatments.  One provision is §6166 of the tax code provides that an estate tax attributable to closely held businesses may be paid in over two to ten equal installments.  Life insurance may also be used in business succession planning to provide liquidity.

This requires a definitive plan, not just a hope.  Information needs to be gathered, advisors selected and discussions with family members completed.  Valuation of the business is at the core of any plan.  Estate planning documents need to be reviewed.  The family needs to agree on the concepts of business succession planning and the difference between management and ownership with the goals of all parties considered.  Exit strategies of the family should be considered and a suggested plan discussed.  The owners will also have to consider the cash needs of the business during this process.  A list should be established of all documents needed to carry out the plan and an annual review should be put in place to analyze the plan and make any changes necessary.

Many contracts have an Arbitration Clause that require that disputes be settled by arbitration and not be taken to civil court.  The advantage to having an Arbitration Clause is that it can be less costly to arbitrate, the parties can control the issues and the resolution of the dispute and the case can generally be resolved quicker.  Read more

Employee Handbooks are important to employers, large and small.  The handbook can establish guidelines for employees so no confusion exists on the duties and expectations of the employer.  Read more