Business Law

Using the Section 338(h)(10) Election

Posted by on May 16, 2018 in Business Law | 0 comments

Using the Section 338(h)(10) Election

Most people have heard of “Section 338(h)(10),” but not as many know when and how to use it. Normally, in a stock transaction, the buyer buys stock that will have basis outside the corporation in the amount of the purchase price for the stock. The amount paid for the stock cannot be depreciated or amortized to offset future taxes. The assets inside the corporation carry-over the basis without any change. A Section 338(h)(10) election can be used in a stock sale involving S-corporations to give the transaction asset sale treatment. This means the buyer gets a stepped-up basis in the business assets inside the corporation following the sale. This is significant because the buyer gets to depreciate and amortize assets inside the corporation which helps the buyer, especially in a leveraged transaction, offset net income from debt service payments or capex that may not be deductible to the pass-through shareholders. The seller usually pays more in taxes with asset-sale treatment so many times a seller demands a true-up of the purchase price to offset the additional taxes. Planning Tip: A Section 338(h)(10) election works best in stock transactions with considerable goodwill value because the seller will be taxed on the goodwill at the same rate it is taxed on the sale of stock. The buyer on the other hand can amortize the goodwill over 15 years rather than have the goodwill value “stuck” in the outside basis of the stock. We have found this to be a very useful tool in transactions involving government contractors or services firms where the buyer is paying substantial money for access to contract arrangements or people resulting in high goodwill values for the transaction. Andrew J. Miller, JD, CM&AA® advises buyers and seller of main street and middle market companies in private mergers and acquisitions. He is recognized as a Certified Mergers & Acquisitions Advisor® by the Alliance of Mergers & Acquisitions Advisors, an organization focused on the private middle market. He can be reached at (717) 845-1524, or amiller@mpl-law.com. Learn More About Andrew J. Miller, JD, CM&AA®...

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Andrew Miller Completes Certification to Become a Certified Mergers & Acquisitions Advisor®

Posted by on May 7, 2018 in Business Law | 0 comments

Andrew Miller Completes Certification to Become a Certified Mergers & Acquisitions Advisor®

Over the past 15 years, Andrew Miller has counseled numerous clients in various business transactions. During that time, he has consistently been a thought leader to his clients engaged in buying or selling businesses. He has recently bolstered his experience by becoming a Certified Mergers and Acquisitions Advisor® through the Alliance of Mergers & Acquisitions Advisors. The CMA&A® program is focused on Main Street and Middle Market private transactions. The CMA&A® designation is reserved for those who complete the intensive training course and pass an exam in deal process, capital structure, valuation, tax and law. The influence of the Main Street and Middle Market business sector (businesses with up to $500 million in revenues) in America is staggering. Main Street companies (small company under $5 million in revenues) make up the vast majority of business in the private markets. The Middle Market (companies with $5 million to $500 million in revenues) is one of the most important value drivers of America’s economy. Yet both fly largely under the radar. These markets account for more than a third of private sector Gross Domestic Product (GDP) and jobs, and has been growing, even over the past four “recession” years. If the Middle Market alone were a country, its GDP would rank it as the fourth-largest economy in the world, just behind Japan’s. Clearly, there is a need to better understand these important market sectors and provide it with the level of support, attention, and advocacy it merits. Representing clients that are buying or selling Main Street or Middle Market businesses requires knowledge and expertise in a variety if disciplines. Understanding the transactional process in private transactions is critical to closing successful deals. Knowledge of valuation metrics, financial statements, debt and equity options and deal terms are essential skills for an M&A attorney. “M&A is a careful blend of art and science,” says AM&AA founder, Michael Nall. “On one hand it is multi-disciplinary, complex, and analytical. On the other, it is all about people, relationships, nuances, timing, and instinct. This dynamic produces opportunity coupled with conflict, ambiguity and challenges, all supporting an exhilarating business ripe for those seeking to create value.” Learn About Mergers & Acquisitions > Andrew J. Miller, JD, CM&AA® advises buyers and seller of main street and middle market companies in private mergers and acquisitions. He is recognized as a Certified Mergers & Acquisitions Advisor® by the Alliance of Mergers & Acquisitions Advisors, an organization focused on the private middle market. He can be reached at (717) 845-1524, or amiller@mpl-law.com Learn More About Andrew J. Miller, JD, CM&AA®...

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Pennsylvania Mechanics Lien Law and Amendments under Act 142

Posted by on Jun 9, 2017 in Business Law | 0 comments

Pennsylvania Mechanics Lien Law and Amendments under Act 142

Act 142 of 2014 was signed into law in October of 2014 (the “Act”) and made sweeping changes to the Pennsylvania Mechanics Lien Law (the “Lien Law”). The Act provided for a website directory, called the Pennsylvania State Construction Notices Directory found at www.scnd.pa.gov (the “Directory”), for the registration of projects costing over $1.5 million. The Act also created four new types of notices for owners and subcontractors working on any registered project which, unless complied with, would terminate a subcontractor’s lien rights. Although signed into law two years ago, the changes are just now effective because the Directory was recently established. Executive Summary The Act provides owners with additional protections against mechanics liens. The owner must file and subsequently post at the job site a Notice of Commencement with the Directory prior to commencement of any physical work. A subcontractor, to preserve lien rights, must file a Notice of Furnishing with the Directory within 45 days of starting work on the project. A subcontractors’ failure to timely file the Notice of Furnishing with the Directory will result in a forfeiture of the subcontractor’s lien rights. Application and Procedure The Act only applies to “searchable projects”. A “searchable project” under the Lien Law is any private project consisting of the erection and construction, or alteration or repair, of an improvement costing a minimum of $1.5 million. Any project owner may register a “searchable project” with the Directory, although registration is not mandatory. Failure to register a searchable project means the owner cannot use the protections provided by the Act. The Act protects owners by stripping subcontractors of lien rights if they do not comply with outlined filing procedures for work on the searchable project. Once a searchable project is registered with the Directory, the project owner must take the following steps to obtain the protections of the Act: Notice of Commencement: The project owner (or its agent) must file a Notice of Commencement with the Directory prior to commencement of any physical work on the searchable project. The Notice of Commencement is designed to apprise contractors, subcontractors, and labor and material suppliers of information relevant to any lien rights and generally must contain the following: the contractor’s name, address, and email address; the owner’s name, address, and email address; surety and bonding information, where applicable; adequately identify the project and county in which it is located; and provide the identifying number of the project assigned by the Directory. If timely filed, the Notice of Commencement acts to limit the pool of potential lien claimants. If a Notice of Commencement is not timely filed, then the project owner loses this potential claim-limiting tool, but can continue to defend claims under the pre-existing lien rules. Contract language: Any subcontract for work on a searchable project must contain a written notice that failure to file a Notice of Furnishing will result in the loss of lien rights. The Lien Law provides the following express notice language to be included:“A subcontractor that fails to file a Notice of Furnishing on the Department of General Services publicly accessible Internet website as required by the act of August 24, 1963 (P.L. 1175, No. 497), known as the Mechanics’ Lien Law of 1963, may forfeit the right to file a mechanics lien. It is unlawful for a searchable project owner, searchable project owner’s agent, contractor or subcontractor to request, suggest, encourage or require that a subcontractor not file the required notice as required by the Mechanics’ Lien Law of 1963.” Posting: The Notice of Commencement must be conspicuously posted at the searchable project site prior to...

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Misrepresentations of Criminal Record on Job Applications

Posted by on Nov 25, 2014 in Business Law | 0 comments

Misrepresentations of Criminal Record on Job Applications

In McCorkle v. Schenker Logistics, Inc., 2014 WL 5020598 (M.D.Pa. Oct. 8, 2014) a federal district court ruled that an employer, Schenker, did not violate the Pennsylvania Criminal History Record Information Act (the “Act”) when it revoked a contingent offer of employment due to the job applicant’s failure to disclose misdemeanor and summary convictions in violation of employer’s policy. Schenker’s employment policy included a provision that misrepresentations on job applications may disqualify applicants from employment.  McCorkle disclosed on his application a conviction for stalking and harassment, and also acknowledged that providing false information was grounds for disqualification from employment.  He did not disclose convictions or guilty pleas to numerous misdemeanor and summary offenses, including possession of drug paraphernalia, DUI, and possession of controlled substances.  Schenker, after extending a contingent offer of employment, conducted a criminal history check on McCorkle which revealed the additional convictions and guilty pleas.  Upon discovery, Schenker asked McCorkle to review his application and identify any errors or omissions.  McCorkle failed to identify any, and Schenker notified him his application was disqualified due to misrepresentations regarding his criminal history.     McCorkle instituted an action alleging Schenker violated the Act by revoking his contingent offer of employment due to misdemeanor and summary offenses unrelated to his suitability for employment and failing to notify him in writing that employment was revoked due to his criminal history.  The Act generally prohibits employers from considering past convictions as a bar to employment unless they relate to the applicant’s suitability for the position.  The court found that Schenker did not disqualify McCorkle’s application because of the convictions and guilty pleas, rather it found that his application was disqualified for intentional misrepresentations made on his job application related to his criminal history.  The court expressly held Schenker “had a reasonable basis to revoke his offer of employment pursuant to the terms of the conditional offer and its hiring policies and was under no obligation to consider whether [McCorkle’s] convictions were related to his suitability for the position.”   If you have any questions regarding this article, or any other employment matters, please contact Andrew Miller, *protected email*, or Christian Miller, *protected email*, by email or phone at (717) 845-1524....

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Legislative Update on Mechanic’s Lien Law of 1963

Posted by on Jul 14, 2014 in Business Law | 0 comments

Legislative Update on Mechanic’s Lien Law of 1963

On July 9, 2014, Governor Corbett signed into law Senate Bill 145 (the “Bill”) providing amendments to the current Pennsylvania Mechanic’s Lien Law of 1963.  Notably, the Bill provides relief for residential owners from mechanic’s liens on their residential property filed by subcontractors and/or material suppliers where the contractor was paid in full.  The Bill does not change the ability to lien improvements to non-residential property (including investment properties) or the ability for a contractor to lien a residential property for lack of payment.  The Bill specifically states that a subcontractor, which definition includes any material provider or supplier, does not have the right to put a lien on a residential property where an improvement has been completed and the owner has paid the contract price to the contractor.  In the event a subcontractor liens a residential property for lack of payment, the Bill permits the owner to discharge such lien by filing a petition or motion with the court and providing  adequate proof the contract price was paid in full to the contractor.  Where only a portion of the contract price was paid, the owner may still petition the court to have the subcontractor’s lien reduced to the unpaid portion of the total contract price.  The Bill does not provide any penalties for subcontractors that file mechanic’s liens on residential properties where the owner has paid the contractor in full, likely because the subcontractor has no way to know if payment has been made. Check back for updates on SB 145 and for other legislative updates concerning business and construction law. Questions or comments on this article or general construction law can be directed to Christian Miller at *protected email* or (717) 845-1524 ext....

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Employees’ Management Status and the Creation of a Fiduciary Duty

Posted by on Jul 5, 2013 in Business Law | 0 comments

Employees’ Management Status and the Creation of a Fiduciary Duty

Employers are routinely concerned with a departing employee’s competitive rights the employer’s business, especially when the ex-employee held a management position with employer.  In PTSI, Inc. v. Haley, PICS, Case No. 13-1178 (Pa.Super. May 24, 2013), the Pennsylvania Superior Court helped to define these rights where the ex-employee was considered at-will.  Generally speaking, no fiduciary duty exists between an employer and management level employee simply by virtue of the employment relationship, and such ex-employee is free to compete against the former employer. In PTSI, Inc., two management level employees of a sports training business decided to open their own sports training business which directly competed with their former employer’s business.  Both of the former employees were considered at-will and were not subject to non-compete, non-disclosure or non-solicitation agreements.  Prior to their resignations, the two employees incorporated a new business entity, leased a facility, and informed their current clients that they were starting their own sports training business.  In an effort to stop the two employees’ competition, the original employer filed suit for conversion, breach of the duty of loyalty, and breach of the fiduciary duty of loyalty.  The case was dismissed in favor of the former employees holding that no cause of action existed. The Pennsylvania Superior Court upheld the dismissal. Pennsylvania law generally imposes a fiduciary duty on officers and directors which stand in a fiduciary relation to the corporation or similar business entity.  Contrary to the fiduciary relationship that exists with officers and directors, the Court in PTSI, Inc. found that no fiduciary duty is owed by an employee to an employer simply by virtue of their employment relationship as a manager, absent a showing that the employee committed some fraudulent, unfair or wrongful act in the course of employment.  The generally recognized rule is that an employer cannot restrict the post employment activities of an at-will employee, or prevent them, while employed, from looking for other employment, including with a competing business.  However, this rule only applies to at-will employees and not to employees subject to employment contracts. In Pennsylvania, the rule is clear that the solicitation of customers and use of customer lists is permissible unless there is a breach of an express contract or violation of some confidence.  Even before the termination of employment, an employee is entitled to make arrangements to compete, with the one caveat that he/she may not use confidential information peculiar to the employer’s business and acquired during employment.  As such, before the end of employment, an employee can properly purchase/create a rival business and, upon termination of employment, immediately compete with the former employer. The acquisition of the former employer’s clients is not invalid or illegal so long as the act does not violate any express agreement or involve any fraud or misrepresentation inducing the clients to leave the former employer. In order to protect against immediate competition, employers are permitted to enter preventive contracts with employees that restrict competition.  As a caution, employment agreements utilizing restrictive covenants must be carefully drafted in order to avoid various pitfalls that the courts routinely use to strike them down. As with most employment law cases, the facts and individual circumstances will affect the outcome of each case.  An attorney should always be consulted prior to relying on any of the information provided above. If you have a question regarding the actions of a former employee or former employer, or a different employment law question, please contact Christian Miller at *protected email* or (717) 845-1524 ext....

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