Business Entities
The best laid plans of mice and men often go astray, so, when you set up a business with others, you need contracts memorializing the business "marriage" and any possible "divorce". Discussions should take place before committing in writing as to who is to get what and the procedures to follow if there is a break-up. That is why contracts such as Shareholder Agreements and Operating Agreements are important. They put in writing the owners’ expectations. In business, it is important to manage expectations which are why other contracts are so important such as employment agreements, licensing agreements, and work-for-hire agreements.
Whether you are buying or selling a business, there are major differences between an asset purchase agreement and a stock purchase agreement. The pivotal question is what do you want to buy? With a stock purchase, you are buying the entire history of the company – the good, bad, and ugly. With an asset purchase, you are able to hand pick what you want.
Sometimes the business vehicle out grows its usefulness. Luckily, States allow you to merge existing businesses into one another. For example, if a business owner wants to take on new owners but retain control, she might merge her "S" corporation into a newly formed limited liability company (LLC). The LLC provides much broader flexibility in management and Profit & Loss distribution.
When you own a successful business, you want to ensure its continued success now and after you are gone. One way is to offer key employees nonvoting interests. They may receive portions of the Profits & Losses on the earnings as well as on any sale. There are also staggered buy-in’s to ensure the work incentives remain.
Many business owners transfer companies from an older generation to the younger generation as well as to key employees. Timing and structuring of the transfer are critical as is funding the unexpected with insurance such as disability and life.