Business Formation, Operation, and Sales

Sometimes great business opportunities and relationships can spring out of difficult situations. One day we got a frantic call from one of our service oriented business clients. One of their employees had sent out an important document that was full of possible copyright infringing material taken directly from a competitor’s document. Our client was now getting concerned calls from her most important clients pointing out this possible infringement and saying that the competitor and the competitor’s vendor who owned the copyrighted material were very upset and considering legal action.

Our client was absolutely mortified by this oversight and wanted desperately to rectify it as soon as possible. We first took the time to calm our client down. Of course, we remained mindful that litigation was always possible. We then provided a few different options as to how to proceed. While some attorneys may have focused only on the technical legal issues, we offered our client a more pragmatic approach. We proposed that our client simply reach out to the vendor whose copyrighted material was possibly infringed upon, apologize and explain that mimicry is the highest form of flattery. Furthermore, that their firm was not equipped to produce content as good as the vendor, and that in the future they would like to work with the vendor to create content.

What had been a terrible day for our client ended with a new business relationship and the opportunity to create even better marketing products in the future. It also avoided threats and the march toward expensive litigation.

Buying or selling a business can be an exciting time for both the buyer and the seller. However, it is important to nail down the exact terms of any sale and limit traps for the unwary.

We worked with a client that was looking to buy a business from a family friend. Our client and the seller had come to terms on the business sale through a contract drafted by the seller’s attorney months before they ever came to us. They came to us believing that they were ready to close the deal and start operating the business in the next week. Little did they know that the contract they had signed was woefully inadequate as it failed to effectively transfer the business assets or provide many of the protections a buyer typically seeks in a business transaction.

Having legal representation for the purchase of the business opened our client’s eyes to the multitude of issues that had gone unaddressed in the previous contract. Among other things, we restructured the acquisition so that our client was purchasing assets and not stock of the corporation that owned the business and real estate. We also separated the single contract into 2 contracts, one for the business was being purchased and a separate contract for the real estate in which the business was being operated. We then recommended that our client form an LLC to take title to the real estate and a corporation (electing for Income Tax purposes to be taxed as an S Corporation). Additionally we placed in the contract protections from various liabilities of the seller. Through this restructuring, our client was able to limit their risks and obtain optimal Income Tax results. These protections proved to be very important.

In Illinois, buyers of a business are generally obligated for the unpaid sales and payroll taxes of the seller unless certain precautions are taken at the time of the sale. These precautions were missing from the original contract that our client signed before hiring us. We re-negotiated the original contract on our client’s behalf to make sure those missing protections were included in the new contract. This became an important precaution because it came out in the weeks before the closing that the seller had tens of thousands of dollars in unpaid sales tax.

Our client successfully closed on the purchase of the real estate and business with the proper structure in place and with the legal protections that made sense for them to have.

Even when business deals seem simple or are among friends or family members there are always legal issues to consider, risks to allocate, and potential pitfalls to avoid. For this reason we always recommend that businesses and individuals seek legal assistance in drafting, reviewing, and negotiating any important legal contract.