by eclewis | Jun 3, 2015 | Business News
The next part of our series on Due Diligence will discuss Employee Due Diligence.
Now if the business you are looking to buy does not have any employees then this may be a simple process, but it may not be as simple as you would think. For example, the business that you are looking to buy may not have any employees per se, but they may instead utilize independent contractors, which may in fact be more properly classified as employees. This could bring up some significant liability and operational concerns going forward, so you will want to have these relationships carefully scrutinized by yourself and a knowledgeable attorney. This way you will know what you are getting into with this business purchase.
Some of the documents you should be looking for are:
- Employment contracts
- Independent contractor agreements
- Non-Disclosure, Confidentiality, Intellectual Property and Non-Compete agreements
- Any employment or Human Resources policies or handbooks
- Documents showing any employee benefit plans such as (health insurance, retirement, bonuses, etc.)
All of these documents can bring up a variety of issues. You need to think about whether or not you want to continue using the same contractors and employees going forward. It may be a good idea for business continuity and transition, but it may also be a good time to make a change as well, especially if you have significant changes in mind or want to bring in key new staff of your own. The enforceability and terms of these agreements can have a substantial impact on the value and continuation of the business, and you need to be sure that you are getting a fair deal with the purchase.
Beyond the documents themselves, it may be a good idea to gauge employee feelings regarding an acquisition and possible change in management. If employees are not happy about such a large change, it could be a disaster in the making to take buy the business. Think carefully and don’t let the excitement of being an entrepreneur cloud your judgment. Trust experienced professional advisors to help you with deals of this significance.
If you need assistance with legal help and/or document drafting for your business sale, please contact the Law Office of E.C. Lewis, P.C., home of your Denver Business Attorney, Elizabeth Lewis, at 720-258-6647 or email her at elizabeth.lewis@eclewis.com.
by eclewis | May 27, 2015 | Business News
Continuing as part of our series on Due Diligence, we have already outlined Financial Due Diligence, and this time we will take a look at due diligence regarding issues that are more legal in nature.
As part of the due diligence process, it is important that you have the legal documents of the business reviewed, just like you would the business’ financial statements. This can help identify irregularities or potential problems with the acquisition. In addition to documents to review, it may also be a good idea to interview the owners and employees of the company to see if what happens in practice with the business lines up with its legal documentation.
Some of the documents to review include:
- Articles of Incorporation/Organization, Bylaws/Operating Agreement, or any other equivalent document (like a Partnership Agreement)
- Minutes of meetings as well as any stock or other buy-sell agreements between owners regarding their ownership interests
- Documents showing capitalization of the company (meaning who are the stock or ownership interest holders)
- Major contracts the company has with its suppliers, distributors, etc.
- This can also include employment contracts
- Insurance policies benefiting the company
- Any intellectual property rights, licenses, trade secret information etc.
- Documents relating to any lawsuits against the company
These documents will indicate how the company has been formed, as well as who all of the owners are, what types of restrictions have been placed on the company or its owners, and other key legal issues. This can help determine if there will be any complications regarding the transaction, as well as if the business has been run properly and in accordance with the legal documents. Additionally, having this type of documentation reviewed can help understand the business better, which can also help in determining a good valuation of the company. Finally, having these legal documents reviewed can also provide insight into existing or potential liabilities the business is exposed to, so you can understand what you are getting yourself into by purchasing the business.
If you need assistance with legal help and/or document drafting for your business sale, please contact the Law Office of E.C. Lewis, P.C., home of your Denver Business Attorney, Elizabeth Lewis, at 720-258-6647 or email her at elizabeth.lewis@eclewis.com.
by eclewis | May 20, 2015 | Business News
Whenever you are thinking about buying a business (or selling a business) it is expected that you will perform your due diligence before the sale is final to help decide whether or not the purchase is a good idea by verifying the material facts related to the transaction. This post discussing financial due diligence will be the first in a series discussing the different aspects of due diligence that should be performed prior to finalizing a transaction.
The idea behind financial due diligence is to help determine the value of the company you are buying by reviewing their financial documents. These financial documents should be audited independently to determine their accuracy.
- Financial statements for the past few years
- Income statements for the past few years
- Tax returns for the past few years
- Balance Sheets for the past few years
- Description and valuation of significant assets (including real estate and accompanying title and tax information, as well as information of depreciation schedule)
- Any current budgets, revenue projections, or other similar documents
- Any loan or other promissory note documentation (as well as any security interests against the business or its assets)
You want to be sure that nothing in these documents is questionable or raises any concerns about the current and future value of the company or assets that you are purchasing. You want to be sure that you have all the right information so that you can negotiate in a fair and informed way. If the other party is unable to produce these documents, that may raise a red flag as well, and you will want to be sure that you raise these issues with your professional advisors (attorney, accountant, etc.) to determine what the next course of action should be.
Big purchases can be very emotional, whether it is buying a home or a car, it can be easy to get emotionally attached to the prospective purchase. However, you don’t want to let yourself get so caught up in the emotional excitement of taking over a business that you lose site that this is a business transaction. You need to independently verify that everything is what the current owners say it is with regard to the business you are thinking about buying.
If you need assistance with legal help and/or document drafting for your business sale, please contact the Law Office of E.C. Lewis, P.C., home of your Denver Business Attorney, Elizabeth Lewis, at 720-258-6647 or email her at elizabeth.lewis@eclewis.com.
by eclewis | May 6, 2015 | IP Law
Simply put, non-compete agreements are contractual agreements that generally provide for individuals not to compete with their employer while they are employed and for a period of time after leaving the company. Even the sandwich company, Jimmy John’s, has been under fire for its broad non-competes for its low-level employees including sandwich makers and delivery drivers not to compete with any restaurant that sells sandwiches for two years.
Generally speaking, all states require non-competes to be “reasonable” to be valid, but some states go even further. California considers almost all non-competes to be invalid by default, which some claim sparked the economic boom in Silicon Valley by fostering competition.
Here in Colorado under C.R.S. § 8-2-113, non-competes must fit within four particular exceptions to be upheld in court as valid and enforceable.
These specific exceptions include:
- Contracts for the purchase and sale of a business or its assets
- Contracts for the protection of trade secrets
- Contracts providing for the recovery of education and training expenses of an employee who has served an employer for less than two years
- Executive and management personnel and officers and employees who constitute professional staff to executive and management personnel
If the non-compete does not fit within one of these statutory exceptions, then it is not considered to be valid in the State of Colorado. However, even if it may appear to fit within an exception, there are still fact-specific considerations and other reasonableness concerns as to the specific applicability and terms of the agreement that need be considered. So before you have your employees sign a non-compete or think about starting your own business when you have already signed a non-compete, be sure to speak with a knowledgeable attorney first to find out more about its enforceability.
Even if it looks like it would be considered unenforceable by the courts, there is always some level of risk in taking it to court. Additionally, there is a lot of time, money, and stress involved in that process, so it may still be a good idea to wait out the agreement or even try negotiating a settlement between you and the company. With these other considerations in mind, the importance of discussing the options with an experienced attorney is even more vital.
If you would like help in drafting or reviewing a non-compete for you, reach out to the Law Office of E.C. Lewis, P.C., home of your Denver business attorney, Elizabeth Lewis at 720-258-6647 or by email at elizabeth.lewis@eclewis.com.
by eclewis | Apr 29, 2015 | IP Law
Balancing Trademark Protection and Public Relations
Business is business, and the law is the law. Sometimes the combination of these two are unavoidable, even necessary, such as when it comes to business entity formation, contracts, licensing, permits, and the list goes on. In today’s electronic and technology-driven economy, intangible or intellectual property is becoming even more valuable than ever. When it comes to businesses, a lot of this comes down to their brand, their name, their slogans, which often use trademark protection to solidify and help protect these intangibles.
Trademarks as a system, were fundamentally designed to help avoid consumer confusion. That is ultimately the purpose. Trademark rights and protections are designed to prevent other businesses from coming up with products that use other business’ names, phrases, and sometimes even look and feel, sound, or color, which can cause consumers to buy something they thought was made by someone else because they were confused. Imagine a world without trademark protection. You’d probably never know for sure if those shoes with the Swoosh on them were actually made by Nike or not!
In an interesting local trademark story, a while back, Longmont-based craft beermaker, Left Hand Brewing Company, tried to register the trademark for the word “Nitro” as it relates to beer, after it came out with its Milk Stout Nitro beer. This is not the first time we have talked about craft brewery trademark issues, and it likely won’t be the last. Craft brewery trademark disputes are becoming more and more common.
In this case, the company wanted to use the word Nitro to distinguish its nitrogenated beers. It may seem like a harmless thing to do, but boy did it bring the company a lot of trouble. Other companies took action when they saw Left Hand trying to trademark the word, maybe you’ve heard of some of them, they include the makers of Budweiser, Samuel Adams, and Guinness!
Left Hand claimed it was doing it to prevent a bigger beermaker from ultimately registering the trademark, but due to the legal action from other brewers and the upset from the craft beer community over Left Hand’s actions, the company ultimately withdrew its efforts. Craft beer drinkers were upset that Left Hand was trying to essentially “own” the word Nitro as it relates to beer. Other brewers use nitrogen in their products too, and being such a clear choice for a descriptive word, it only makes sense to use it to differentiate it from traditionally carbonated products.
Let this be a lesson. Whenever your business is thinking about asserting intellectual property rights or trademarks over something, it is important to think of it not only as a legal decision but a business decision as well. Businesses must think about how these actions will impact their competitors and how they might respond. Additionally, the way existing and potential consumers of your business’ products may respond to the news is critical to consider too.
Even if you may have a valid legal claim to something, it may not always be the best business decision to pursue it to the fullest. Cost-benefit analysis is key to situations like this, and it is clearly a good idea to consider both the business and legal ramifications of the different courses of action available to you. Branding is about more than logos, names, trademarks, etc. It is about the image your portray as a company, and a growing component of that is how litigious the company is, especially if it can be perceived as an “unfair” or “unnecessary” use of the legal system.
If your business needs help regarding a trademark, other intellectual property, or other business legal needs, do not hesitate to reach out to the Law Office of E.C. Lewis, P.C., home of your Denver Business Attorney, Elizabeth Lewis, at 720-258-6647 or email her at elizabeth.lewis@eclewis.com.
