Business Law

Creating a Business Plan for a Small Business

Posted by on Jan 15, 2019 in Business Law | 0 comments

You have a fantastic idea for a small business you believe could succeed. How do you bridge the space between idea and success? Writing a small-business startup plan will help you implement a workable, manageable approach to running your new adventure. Use this outline for a small-business plan you can harness for success. Health Care for Your Small Business Your health care options will depend on how many employees you have at your company. If you have fewer than 50 employees, you do not have to offer health benefits to your employees. However, you will need to figure out how to cover your own health insurance, and you may also want to provide some type of option for your employees. Remember that in order to get the best talent working for you, you will have to offer benefits such as health care. Attracting top-quality workers will help your business stay competitive. The government offers group health care options you can explore at Healthcare.gov. Following Government Regulations for Your Small Business The government imposes a number of conditions on small businesses to ensure they operate fairly and no one gets an undue advantage. While not every government regulation will apply to you, you should ensure your business provides for: Workplace safety and health in compliance with Occupational Safety and Health Administration guidelines Proper overtime pay and minimum wages Hiring practices in compliance with Equal Employment Opportunity Commission Legal permissions for work by non-U.S. citizens Proper family and medical leave in businesses with at least 50 employees Staying within environmental and advertising regulations for small businesses Paying Federal Income Taxes for Your Small Business All businesses registered in the United States must pay federal taxes. The type you will pay varies according to several things, including whether you own an S-corporation, sole proprietorship or something else. Research the tax requirements for your business structure so you know what to expect. Your company will file a federal return and will also pay employment taxes if you have anyone on your payroll. If you make purchases through your company, you may be responsible for excise taxes. Local and State Tax Compliance for Your Small Business In addition to federal taxes, Pennsylvania businesses must pay state and local taxes as well. In other states, this may not be the case. Taxes can be one of the most complex and confusing areas for small-business owners to deal with, so read up on changes to tax codes and ask other local proprietors for their insights into remaining in compliance with local codes. Economy Considerations for Your Small Business Does your business idea require any overhead? For instance, you may need to rent warehouse space or lease a retail location in a pricey downtown area. You must calculate manufacturing and transportation into your business plan. In addition, you should keep abreast of economic conditions and adjust your plan as needed. If economists are predicting a recession, for instance, it may not be the best time to expand your business or move to a new location. By keeping up with forecasts and tweaking your plan regularly, you may encounter fewer unpleasant surprises with your money. Get Assistance Writing a Small-Business Plan Coming up with a small-business startup plan may seem daunting with all these factors coming into play. Do you need assistance with this important undertaking? MPL Law can help you with your financial plan for your small business. Contact our office today to set up a...

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Buyer Beware of Working Capital Adjustments

Posted by on May 31, 2018 in Business Law | 0 comments

Buyer Beware of Working Capital Adjustments

Most stock transactions have a working capital adjustment.  Some buyers love them, some buyers hate them.  Without them a seller can often game the system to their benefit.  Many seem fair at the time, but unless well-planned they can result in unexpected purchase price adjustments post-closing when no one is in a mood to revisit the deal.  We have several tips for an effective working capital adjustment:   Know the balance sheet you will use. Reviewing the balance sheet and breaking down the components of the calculation will help your client understand the adjustment and how it will work.  Running some projected calculations will help identify flaws in the process.   Use a known balance sheet for the adjustment. Be specific that the balance sheet used in the calculation will be prepared consistent with past practice and custom.   When selecting the components of the working capital adjustment differentiate between operating and non-operating liabilities as well as the party benefitted by the liability. If the seller already received all the benefit of a liability, the seller should pay the liability from the purchase price proceeds and it should not be included in any working capital target calculation.   Write strong definitions based on the specific components of the adjustment again tying those components to past practice and custom. “Trade Payables” are obviously not the same as “Current Liabilities,” but often those details are lost on the drafter.   Provide a clear process for performing the working capital calculation and a clear process to resolve disputes. Make sure the timelines work and there is adequate time to lodge disputes.  Build in a small amount of time to negotiate a resolution so there is a chance to diffuse an escalating situation.   Consider an escrow based on a closing day estimate if the working capital of the target is prone to significant fluctuations which may require a big payment.   Make sure the working capital adjustment works within the limitations of any buyer financing or intercreditor agreements. Many times a post-closing payment of any kind to the seller before a payment to the lender will violate the terms of a loan agreement or intercreditor agreement.  The adjustment then has to be carved out of those covenants. Most deals have working capital adjustments.  A well-drafted and well-planned adjustment can protect a buyer’s working capital expectations in the deal.  However, to work effectively adequate time and attention must go into the provision. 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 *protected email*. Learn More About Andrew J. Miller, JD, CM&AA® > Learn More About Business Law:    Employee’s Management Status and the Creation of a Fiduciary Duty Amendments to UCC Article 9 Effective July 1, 2013 Member-Managed or Manager-Managed Limited Liability Company (LLC): What’s the Difference? Andrew Miller Completes Certification to Become a Certified Mergers & Acquisitions Advisor ® LLC or Corporation: Which is right for you?   Last Updated November 8,...

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Should I buy Assets or Stock?

Posted by on May 26, 2018 in Business Law | 0 comments

Should I buy Assets or Stock?

The most fundamental question for a buyer acquiring a business is whether to buy assets or stock. Most buyer-side accountants and many lawyers have the same gut response: Always asset. An asset acquisition can limit liabilities and provide tax benefits of asset basis step-up. But the devil is always in the details. Asset sales also carry much inherent operational risk. For most buyers it means setting up all new bank accounts, vendor accounts and re-hiring employees. For insurance brokers, it can mean having to re-apply for appointments which may be based on seniority that is now lost. For contracting firms it may mean obtaining new bonding and licensure. For healthcare providers it may mean applying for a new provider number which often requires a six-month holding period for approval during which time the practice cannot bill or collect. In some states, bulk sales tax also applies to some of the transferred assets. Sometimes these challenges are easily overcome, such as when the acquisition is purely for the assets, not the going concern business. But other times a stock acquisition with appropriate due diligence may be far more seamless and simple without exposing operational risks during the transition. Risk can be properly managed if the buyer does through due diligence, gets adequate representations and warranties from the seller and demands an adequate holdback or escrow to fund indemnities for breaches by the seller. The same tax benefits as an asset sale can also be achieved in a stock sale by using Section 338(h)(10) elections or similar tax treatments for partnerships and disregarded entities. 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® > Learn More About Business Law:  Pennsylvania Benefit Corporations  Buyer Beware of Working Capital Adjustments  The Tax Cuts and Jobs Act of 2017 Makes Bonus Depreciation Even More Useful  Using the Section 338(h)(10) Election  Legislative Update on Mechanic’s Lien Law of 1963     Page Updated November 8,...

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The Tax Cuts and Jobs Act of 2017 Makes Bonus Depreciation Even More Useful

Posted by on May 21, 2018 in Business Law | 0 comments

The Tax Cuts and Jobs Act of 2017 Makes Bonus Depreciation Even More Useful

Everyone knows about the Tax Cut and Jobs Act of 2017. The new tax law significantly reduced tax rates for many taxpayers. The new tax law also changed the depreciation rules in equally significant ways. On such way is the new availability of bonus depreciation both at a higher percentage and on a wider range of tangible assets. Under the new law, qualified property (defined as tangible personal property with a recovery period of 20 years or less) placed in service after September 27, 2017, will be eligible for 100% bonus depreciation through December 2022. The new law also eliminates the requirement that the original use of the qualified property begin with the taxpayer, as long as the taxpayer had not previously used the acquired property and the property was not acquired from a related party. The inclusion of used property is a significant, and favorable, change for buyers acquiring a business. This means bonus depreciation can be applied in Year 1 following the acquisition to offset tax liability. This will often free much-needed cash flow to service debt and fund other cash transition costs that often make the first year after an acquisition the most difficult year. Andrew J. Miller, JD, CM&AA® advises buyers and sellers 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® > Learn More About Business Law: Should I buy Assets or Stocks? Misrepresentations of Criminal Record on Job Applications American Bar Association Releases 2017 Deal Points Study Pennsylvania Mechanics Lien Law and Amendments under Act 142 Buyer Beware of Working Capital Adjustments   Last Updated November 8,...

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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® > Learn More About Business Law: Should I Buy Assets or Stocks? Pennsylvania Benefit Corporations Legislative Update on Mechanic’s Lien Law of 1963 Using the Section 338(h)(10) Election The Tax Cuts and Jobs Act of 2017 Makes Bonus Depreciation Even More Useful   Last Updated November 8,...

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American Bar Association Releases 2017 Deal Points Study

Posted by on May 11, 2018 in Business Law | 0 comments

American Bar Association Releases 2017 Deal Points Study

The American Bar Association Mergers & Acquisitions Committee has released its Private Target Mergers & Acquisitions Deal Points Study. The new study includes transactions through the first half of 2017. The study gives many benchmarks for commonly negotiated terms in private transactions. The study also shows some trends that indicate sellers recently have more negotiating leverage. This is more evidence we are in a middle market seller’s market (and may have crested). Legal opinions of the target counsel were only required in 7% of transactions in 2016-17, down from 30% in 2006. Indemnity caps in 2016-17 were down to a mean of 12.20% and median of 8.40%, down from a mean of 18.88% and median of 10.00% in 2010. Escrows/Holdbacks in 2016-17 were down to a mean of 6.66% and median of 7.00%, down from a mean of 9.14% and median of 7.50% in 2014. The Deal Points Study is a useful tool for counsel and clients to evaluate the market trends in the terms of private transactions. The study can be used to gain consensus on difficult issues and also to evaluate the allocation of risk between a buyer and seller that can be expected in a 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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