Buying, Owning and Selling a Business

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One item often overlooked by parties while negotiating or deciding to enter into an Operating Agreement for a limited liability company or (“LLC”) with more than one member is what is often times referred to as a “capital call.” Buried deep in what can be voluminous pages of “legalese” contained in many LLC operating agreements, may lurk a requirement that members of the LLC contribute additional capital to the LLC – that is, more than their original investment . This can be triggered by majority vote, or, if so provided in the Agreement, by demand of a single Managing Member if he or she is given such power. 

Many investors in an LLC assume that once they make their initial capital contribution, they will not be required to contribute more, even if the underlying business is performing badly, unless they specifically agree to do so, or if “everyone” agrees to do so. Many times quite the opposite is true, and the unsuspecting investor could be facing some rather negative consequences. Continue Reading Beware of “Capital Calls” in LLC Operating Agreements

A recent Wisconsin Supreme Court opinion filed June 25, 2010, Ehlinger v. Hauser and Evald Moulding, Inc., 2010 WI 54, is a candid reminder that co-owners of a business should not only take the important step of entering into a written Buy/Sell Agreement to determine how important issues such as death, disability, divorce, bankruptcy…

What duties do officers and directors of a closely held business owe the company’s creditors when the company is failing?  Unfortunately, this has become a common question during these troubling economic times.  The answer in Wisconsin appears to be bit different than other states at this point if the failing business is still a “going…

As a business “deal” is coming together, the parties often wrestle over whether to start the documentation with a “letter of intent” (LOI) or simply proceed to the actual contracts. While different situations demand different answers to that question, here are some important considerations with respect to what may work best for you.
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Continue Reading Using Letters of Intent in Business Transactions

A recent Court of Appeals case, Town of Cross Plains v. Kitt’s Korner, Inc. 2008AP546 illustrates the risk involved in opening a new business on the assumption that a possible change in zoning will not effect its operation if the business is already up and running.

In that case, an adult entertainment business was…

A common, but important, mistake that business owners make when selling their business is failing to adequately investigate what their and their spouse’s health coverage will be after the sale of the business.  Obviously, many prior owners will sell their business before they are eligible for Medicare leaving them facing the high costs of obtaining private individual insurance if their spouse is not covered under another group plan.

Commonly, as a potential solution, the prior owners will negotiate to stay on with the new owners as consultants under a consulting agreement or as employees under an employment agreement with the proviso that they be added to the new owner’s group health plan until the prior owners are eligible for Medicare or some other pre-negotiated timeframe. 

Continue Reading Contemplating Group Health Coverage Post Sale of Business

1. How do I deal with problems?

Business is a chain of decisions. A good business person has to be able to make decisions. You don’t always have to be perfect: the teams that make the World Series can win two and lose two, but they then win the critial next game to be at 60% for the season. The same is true in business: mistakes will be made, but you have to be right more than wrong, and on critical issues, you have to be right most of the time. So if you don’t have the ability to deal with problems and make decisions, either pick a partner who does, or work for someone else who has that ability.

2. Am I a good  judge of people?

A good business person starts by selecting the right people. As Jim Collins says in Good to Great, you pick the right people to put on the bus, and then they will tell you what direction the bus should go. If I’m not willing or unable to be very focused on getting others who will work well in my business, then maybe I should see who has a business that I could help if I were on their team.

This goes beyond selecting good employees. It goes to selecting good customers and good vendors. If you have something to sell and only need to sell it to someone once, then maybe customer relations isn’t important. But, most businesses grow based on  long term relationships and referrals. Seek customers who need you as much as you need them.

Seek vendors who want long term relationships, as well, so that as you start out or if things get tough, they will extend accommodations to you to assure your business remains strong and healthy.

3. Am I passionate about what I want to do?

There are hot dog vendors and cupcake makers that are awesomely successful. They are passionate about their products and have developed a "core concept" to make their customers just as passionate. For example, "the best deal on two dogs and a drink in America, for just $4."Continue Reading 10 Questions to Ask Yourself Before Going into Business

Once coupled to a development idea, every entrepreneur faces the challenge of deciding which business entity would best suit his or her needs.  While one would think that there is one right answer to this dilemma, in fact, the answer depends on a number of factors that are unique to each business, resulting in many different entities being the "right" choice, depending on the circumstances.

Factors affecting entity choice include:

  • Liability Protection
  • Owner Relations
  • Income Tax Consequnces
  • Other Tax Consequences
  • What Others are Doing
  • Cost

Considering these factors, the owner has the following choices:

  • Corporation (S-corp or C-corp)
  • Partnership
  • Sole Proprietorship
  • Limited Liability Company (LLC)
  • Limited Partnership (LP)
  • Limited Liability Partnership (LLP)
  • Others, such as Joint Venture, etc.

Perhaps the best way to compare all these choices is through a table which sets forth some of the most common advantages and disadvantages of each type of entity in comparison to the above factors:Continue Reading Selecting the Right Entity to do Business