Thinking Of Selling A Business? What You Need To Do Now.

by Barbara I. Berschler

A serious business owner needs to be nimble so as to be ready to take advantage of unexpected opportunities.  One important opportunity to anticipate is the sale of your business.  It may not always be a “planned for” development, because an offer could be made at any time.  In such a circumstance, you will be faced with a variety of decisions and actions requiring a quick turn-around.   Will you be ready to exploit such an opportunity advantageously?

This article poses a series of questions and identifies concrete steps that every business owner should incorporate into her business operations.   If followed, then, like the proverbial Boy Scout, you will “be prepared.”

1.    Are You Ready for the Due Diligence Inquiries That the Buyer Will Make?

It goes without saying that a seller will be confronted by a close examination of its organizational and operational documents by the potential buyer.  Therefore, at least yearly, you should:

·         Review and update your entity’s documents (enabling and owner related agreements) and keep them current.
·         Maintain your business entity’s legal good standing in all jurisdictions in which you function.
·         Verify licensure and other regulatory requirements.
·         Review management and operational procedures.

Unfortunately, business owners frequently fail to conduct this type of annual self-examination.   Perhaps surprisingly, a common oversight is the failure of a business to maintain its good standing in all the jurisdictions where it is organized and doing business.   This lapse, along with the failure to have documents signed or to keep licenses current, can quickly derail what otherwise seems to be a marriage made in heaven.

2.    If Some or All of Your Business’ Assets Are Tied to the Good Will Associated With an Individual, What Steps Are You Taking Now to Allow for a Smooth Changing of the Guard?

From a seller’s point of view, it may not be what the founder wants to hear, but if others are not being groomed for a change in control, then the business’ value is likely to be diminished in the eyes of a potential suitor.    Especially in a business where the key asset is “its people,” if this asset is not going to be preserved in a change of control, the buyer is going to move on.  The necessary preparatory actions for a potential seller are to have the hard discussions, be willing to anticipate changes, have contractual obligations in place and be comfortable with those changes well before a potential buyer comes to call.

3.    If Your Business Relies Heavily on Intellectual Property Assets, Do You Control What You Need?

Conduct an inventory of all of the intellectual property (IP) assets that your company uses.  Types of IP to make a careful study of are:  copyright protected works, trademarks, patents, trade secrets.  Not surprisingly, business owners understand the need to inventory and value their hard assets if, solely to have such listed and depreciated on tax returns.  Conducting a full inventory of a business’ IP assets can be harder because it is not always clear who actually owns the assets.  But it is of equal importance because those assets can add great value to your business’ bottom line.

The inventory should cover an assessment of what you have and close review of your documents to be sure they comport with your expectations of ownership and control.   Once you have the inventory, periodically re-evaluate it to be sure all permissions are current and available for your continued use and exploitation.    Can you answer the following questions in the affirmative?  If not, then you could be leaving money on the table.

·         Are procedures in place to identify the ownership of the IP that your business uses? 
·         Are you living within the limits of any licenses to which you are a party?
·         In the case of copyrighted works, trademarks, and patented or potentially patentable works, have you registered them? 
·         Are all IP registrations current? 
·         What steps are you taking to police your IP to prevent others from infringing upon it? 
·         Do your contracts with third parties include the IP protections you need?
·         Are you complying with the IP related laws of other countries where you conduct business?
 
4.    Do You Have a Good Team of Consultants in Place Who Can Watch Your Back?

By engaging a good team of advisors, you will have the necessary documents in place and you may be able to delegate some of the preparatory work outlined in this article. The obvious players are your corporate lawyer and CPA.   But your insurance agent and marketing specialist can be equally important advisors who can help you ask the hard questions and position your business in the most favorable light either to acquire or be acquired.

5.    Do You Know What Your Business Is Really Worth?

Offers to be purchased can come from a variety of unexpected places.  An insider may want to make a play for control or a larger company may have identified your company as a strategic acquisition.   Similarly, you may conclude that it is important to expand.  Knowing what your business is worth will be helpful in evaluating an offer to buy you or in obtaining financing for an internal expansion.  

Therefore, regularly analyze the value of your assets.  Your CPA’s reports and even feedback from your banker should give you a good idea of the “fair market value” of your business as a whole and its various assets.

6.    Are the Business’ Assets Transferable?

For valuable assets such as commercial leases, intellectual property and licenses, it is important to know whether they are transferable or assignable.  A periodic review should answer questions such as:  whether restrictions exist on the transferability of licenses; whether a new owner can use the software or data on which you rely; whether your commercial lease can be assigned in connection with a third-party acquisition.  Going forward, a word of advice:  when negotiating new deals, try to avoid restrictions on your ability to transfer assets.

Answering these questions should go a long way in helping you be ready should “the call” come from a potential buyer.  As with anything worthwhile, you need to take the time and make the investment in advance to have your business ready to respond with agility to whatever opportunities come along, including being bought.

In Animals We Trust

By Kimberly Jones
Intern, Press, Potter & Dozier, LLC

The recent broadcast of the Westminster Dog Show calls to mind my own lovable canine companion, Lady. She is a miniature dachshund that is spoiled rotten by everyone that meets her; she just has that effect.

Without a doubt, Lady is family. She has a special diet, enjoys shopping for toys, loves to socialize; goes to the doctor; has her teeth cleaned regularly; goes to the salon and spa for beauty maintenance; has graduated from school; and has birth records as well as other documentation. Caring for Lady is like caring for a toddler that never grows up; she has all of the personality, but little ability to care of herself. Plus, her care is expensive.

Lady is not the only pampered pet in the country. According to the American Pet Products Association, which regularly tracks trends in American pet ownership, pet owners across the country annually spend billions of dollars on the care of their beloved animal friends. See the statistics here, http://www.americanpetproducts.org/press_industrytrends.asp.

Given that many make such financial commitments to our non-human companions, many wish to also provide for their care after they have passed away. Many feel that it is prudent to know that their Lady will be cared for. But, how will a caretaker be able to afford Lady’s needs? How much money will Lady need to live the rest of her life in the manner to which she is accustomed?

Maryland law for estates and trusts does not permit animals, i.e. property, to inherit money or assets. Therefore, prior to 2009 the only way to provide for your beloved animal after death was to bequest him or her to a (human) beneficiary in a will. The problem with this is that if the beneficiary does not have the means to care for your animal, then you may be imposing an expensive burden on your beneficiary.

In 2009, Maryland enacted § 14-112 of the Maryland Estates & Trusts Code to allow for the financial care of animals through a trust. As in a trust for a person, a trustee can be designated to manage the finances and care of an animal.

Section 14-112 does not limit the use of such a trust to “pets”; “animals” in general may also be covered. Animal lovers may leave money in trust to any animal that may be cared for financially by any person or organization; such as a zoo animals, or wildlife sanctuary.  As long as the animal was alive during your lifetime and is identifiable for the purposes of providing care to the correct animal, then Maryland Estates and Trusts § 14-112 permits the creation of an animal welfare trust

For many, a trust to provide for the cost of caring for our pets and animal friends after we are gone is comforting. Section 14-112 of the Maryland Estates & Trusts Code provides a means to do so.

Why Do I Need A Will?

A will is an important legal document which every person needs to have. Without one, there’s no guaranty that, upon your death, your money will go to the people you want, or that your children will be cared for by a guardian of your choosing.

Leave Your Money To The People You Want

If you die without a will, you are deemed to have died “intestate,” and state laws require that your money be divided by a set formula and be left to certain people and organizations. Maryland’s intestate laws, for example, require that if you die and leave behind a spouse and minor children, your spouse will receive one-half of your probate assets, and your minor children will receive the other one-half. If all of your surviving children are over the age of 18, then your spouse is entitled to the first $15,000 of your estate plus half of the remainder. Your adult children receive the other half of the remainder in equal shares.

If you’re married without children, then your spouse receives your estate unless your parents are still alive. If either of your parents is alive, then your spouse receives the first $15,000 of the estate plus one-half of the remainder. Your parents receive the other half of the estate.

If you’re not married but have surviving children, then your estate is divided equally between your children. If you have no children, then your estate passes to your parents if they’re still alive at the time of your death; if not, then the estate is divided equally between your siblings. If you have no siblings, then your estate is divided among your surviving relatives, like aunts and uncles.

If no surviving relatives can be found, and you had received long-term care benefits from the Maryland Medical Assistance Program, then your estate is left to the Department of Health and Mental Hygiene. If you had not received any such benefits, then your estate passes to the Board of Education.

Most people have specific ideas about who they wish to leave with their worldly possessions. If you want to leave your estate to a particular person, you’ll need a will. Otherwise, your estate will pass under the rules identified above. A will also can appoint the person who will oversee the administration of your estate and its distribution.

Got Kids?

For parents with minor children, a will is the best way to make sure that your children are cared for by the person of your choice. In your will, you can also name a person who can manage your assets for your children until they reach an appropriate age. If you (and your partner or spouse) die without a will, the state will appoint someone to raise your children. Make sure you have a will, so that your affairs will be handled the way you want in the event of your death.

Special Baseball Edition—A-Rod’s Contract

For all of our DC/Baltimore readers who are mourning the elimination of the Orioles and the Nationals from the post-season fun, we are pleased to feature a special guest-blogger, Zack Potter, who writes for Extra Point Sports Magazine at Syracuse University.  Read here about theNew York Yankees’ super-sized contract failure.