March 12, 2023

12 Things We Learned About the Legal Side of Business and M&A by Interviewing Attorney Aaron Budd

12 Things We Learned About the Legal Side of Business and M&A by Interviewing Attorney Aaron Budd

12 Things We Learned About the Legal Side of Business and M&A by Interviewing Attorney Aaron Budd E4: Watch here

 

 

Here is what my team and I learned from this interview: (These are notes from team members, writers, sometimes AI, and even listeners who submitted what i learned loosely edited and shared here) - If it seems a bit crude, you're reading our notes, so. yeah. -Ron

Concept 1: Have Legal Documents Ready

When it comes to buying or selling a business, having the right legal documents in place is essential. Without the appropriate legal documents, the process of acquiring or merging with another business can be difficult, time-consuming, and costly.

Business owners should begin by ensuring that all of their legal documents are up-to-date and in order. This includes making sure that the business is properly registered and that all of the necessary paperwork is in place. This includes obtaining the appropriate licenses, permits, and registrations for the business and any employees. Additionally, a business should have an operating agreement that outlines the roles and responsibilities of each party involved.

Buyers and acquisitions and mergers professionals should also be aware of the legal documents that the seller has in place. This includes examining the company’s financials, contracts, and other documents that will help them to determine the value of the business. Additionally, they should review any existing agreements that the seller has with third parties, such as suppliers, customers, and investors.

All parties should be aware of any legal obligations that they may have in the event of a sale or merger. This includes any liabilities or obligations that may exist between the buyer and seller, as well as any obligations to third parties. It is essential that all parties understand these obligations and ensure that they are adequately addressed in the legal documents.

In conclusion, having the right legal documents in place is essential for any business acquisition or merger. Business owners should ensure that all of their documents are up-to-date and in order, while buyers and acquisitions and mergers professionals should review all of the documents that the seller has in place. Additionally, all parties should be aware of any legal obligations that they may have in the event of a sale or merger. By taking the time to ensure that all of the legal documents are in order, the process of buying or selling a business can go much more smoothly.

Concept 2: Plan For Sale From The Start

When it comes to starting a business, one should always keep in mind that it is important to plan for sale from the start. Having the right documents in place, such as an operating agreement, P&Ls, meeting minutes, and resolutions, can make the process of selling the business much smoother and easier. In addition, having an up-to-date set of books and financials can help potential buyers to quickly assess the value of the business and make an offer.

Furthermore, it is important to keep in mind that the sale of a business can take time, and having the right documents in place can help to ensure that the process goes as quickly and smoothly as possible. Additionally, having a plan in place can help to ensure that the business is in the best position possible when it comes time to sell. This includes ensuring that all of the financials are in order and that the business is running as efficiently as possible.

Finally, it is important to remember that having a plan for sale from the start can help to ensure that the sale of the business will be successful. By taking the time to plan for sale from the start, business owners can ensure that the process of selling the business is as smooth and successful as possible. This can help to ensure that the business is in the best position possible when it comes time to sell, and that the business is able to fetch the highest possible price.

Concept 3: Document and insure Ownership

One of the most important elements of planning for sale is to document and insure ownership. This means that the business should have a clear and legally binding document that outlines the ownership structure of the business. This document should include the names of all owners, the percentage of ownership each owner holds, and any other relevant information. Additionally, it is important to make sure that all owners are legally bound to the document and that any changes to ownership are documented and agreed upon by all parties.

In addition to documenting ownership, it is also important to insure ownership. This means that the business should have an insurance policy in place to cover the cost of any legal or financial disputes that arise in the event of a sale. This insurance policy can help to protect the business from any unexpected costs that may arise, and can also provide some peace of mind for the owners.

Finally, it is important to remember that having a plan for sale from the start can help to ensure that the sale of the business will be successful. By taking the time to document and insure ownership, business owners can ensure that the process of selling the business is as smooth and successful as possible. This can help to ensure that the business is in the best position possible when it comes time to sell, and that the business is able to fetch the highest possible price.

Concept 4: Document Everything for Clarity


Documenting everything from the start is key to clarity when it comes to the sale of a business. In the podcast, the speaker talks about the importance of having language inside of the operating agreement that outlines the valuation model for when the business is sold. Without this language, business owners can find themselves in a position where they are arguing about the sale of the business, which can be time-consuming and costly. It is also important to have an attorney review the corporate bylaws and make any necessary amendments. This can help to ensure that the business is legally protected and that any potential issues that arise with family members or other parties can be avoided.

Having the right documents in place can also help to ensure that the business is in the best position possible when it comes to selling. This includes having documents that outline the ownership of the business, as well as documents that outline the process of selling the business. Having these documents in place can help to ensure that the sale of the business is as smooth as possible and that the business is able to fetch the highest possible price.

When it comes to business, it is important to remember that the documents and insurance policies are only as good as the people behind them. This means that it is important to have a clear understanding of the business and the contracts that are in place. It is also important to make sure that all parties involved in the sale of the business are aware of the documents and insurance policies that are in place. This can help to ensure that everyone is on the same page and that the sale of the business is as successful as possible.

It is also important to remember that insurance policies can provide an extra layer of protection for the business and its owners. Having the right insurance policies in place can help to protect the business from potential lawsuits and other legal issues. This can help to ensure that the business is in the best position possible when it comes time to sell, and that the business is able to fetch the highest possible price.

Finally, it is important to remember that having the right documents and insurance policies in place can help to protect the business and its owners. This can help to ensure that the sale of the business is as successful as possible and that the business is able to fetch the highest possible price. By taking the time to document and insure ownership, business owners can ensure that the process of selling the business is as smooth and successful as possible.

Concept 5: Keep Personal and Business Separate

When it comes to personal and business finances, it is important to keep them separate. This is especially true for business owners who are the sole owners of their companies. Paying personal expenses out of business accounts or using business funds for personal purchases can blur the lines between the two, making it difficult to distinguish between the two. This can make it easier for a court or jury to declare the business a sham entity and make the owner liable for any debts or other legal claims against the business.

To avoid this, business owners should make sure to distribute money from their business accounts to their personal accounts to pay for any personal expenses. If the business does pay for a personal expense, the owner should write a check back to the company as a reimbursement. This will help to create a paper trail that will protect the business and its owners.

Additionally, business owners should make sure to have enough insurance to cover any potential claims against the business. This will help to protect the business and its owners from any potential legal claims, as well as provide financial protection in case of an accident or other unforeseen event.

By taking the time to keep personal and business finances separate, business owners can ensure that their businesses are protected and that they are able to get the most out of their business sales. By having the right documents and insurance policies in place, business owners can ensure that the sale of their business is as successful and profitable as possible.

Concept 6:  Keep LLCs Eell-Documented

When it comes to LLCs, proper documentation is key. An LLC is a legal entity that is separate from its owners and can be used to protect personal assets from business liabilities. However, if LLCs are not properly documented, it can be much easier for creditors to pierce the corporate veil and access the personal assets of the LLC owners. This is why it is important to make sure that all documents related to the LLC are up-to-date and accurate.

When setting up an LLC, business owners should make sure that they have an operating agreement, which outlines the responsibilities of each member of the LLC and how decisions will be made. They should also make sure that the LLC is registered with the state in which it is located and that all tax forms are filed on time. It is also important to keep bank statements and financial records for the past three years so that potential buyers can see the financial health of the business.

It is also important to make sure that all personal expenses are kept separate from business expenses. This means that any personal expenses such as car leases, cell phone bills, and ABC Mouse subscriptions should be kept out of the LLC's corporate account. If the IRS finds that personal expenses have been categorized as business expenses, the LLC owners could be liable for additional taxes.

Overall, proper documentation is essential for LLCs. By taking the time to make sure that all documents are up-to-date and accurate, LLC owners can ensure that their businesses are protected and that they are able to get the most out of their business sales. Furthermore, by keeping personal expenses separate from business expenses, LLC owners can avoid potential tax problems with the IRS. By following these simple steps, LLC owners can ensure that their businesses remain successful and profitable.

Concept 7: Cannabis business is risky.

However, when it comes to cannabis businesses, the risks are much higher than other businesses. Cannabis businesses are subject to many unique regulations and restrictions, making them more vulnerable to potential legal issues. Furthermore, due to the illegal nature of cannabis in many states, it can be difficult to obtain insurance which could potentially cover legal costs. Without insurance, cannabis businesses are at risk of having to pay out of pocket for any legal costs that may arise.

Additionally, the cannabis industry is full of people who have unrealistic expectations of how much money they can make and are willing to promise the world. This can lead to shady business practices, such as bringing in cannabis from other states, which is a federal offense. This can create legal issues for the business and its owners, as well as put their personal assets at risk.

Overall, it is clear that cannabis businesses are risky. With the unique regulations, restrictions, and lack of insurance, it can be difficult for cannabis businesses to remain successful and profitable. It is important for business owners to be aware of the risks associated with cannabis businesses and take the necessary steps to protect themselves and their businesses.

 

Concept 8: Transfer Business Interests to Trust

One way to protect oneself and their business is to transfer business interests to a trust. A trust is a legal entity that can hold assets and manage them for the benefit of one or more beneficiaries. Trusts can provide a layer of protection from creditors, lawsuits, and taxes. By transferring business interests to a trust, business owners can protect their personal assets from being seized in the event of a lawsuit or bankruptcy. In addition, trusts can also provide tax benefits, such as reducing the amount of capital gains taxes that would otherwise be due.

 Transferring business interests to a trust can be a complicated process, and it is important to work with a qualified attorney who is familiar with the laws and regulations related to cannabis businesses. It is also important to review any operating agreements to ensure that the transfer of interests to a trust is allowed. Additionally, it is important to be aware of any changes in the law that could impact the taxation of trusts. 

 In conclusion, transferring business interests to a trust can provide a layer of protection and tax benefits for cannabis business owners. It is important to be aware of the risks associated with cannabis businesses and take the necessary steps to protect oneself and one's business. Working with a qualified attorney is essential to ensure that the transfer of interests to a trust is done correctly and in accordance with the law.

 

Concept 9: Plan Ahead for Succession

Planning ahead for succession is an important part of any business, especially for those in the cannabis industry. Without a plan, the business could be left in limbo if the owner passes away. With a trust, the owner can designate who will take over the business upon their death, and the transfer of assets can be done without going through the probate process. This can save time and money, and ensure that the business continues to operate smoothly. 

It is important to remember that probate laws vary from state to state and it is important to be aware of the laws in the state in which the business is located. In Oklahoma, for example, if an asset is owned in one person's name, it will go through probate when they pass away and the spouse does not automatically get it. It is also important to have a plan in place that specifies who will take over the business in the event of the owner's death. This could be a spouse, a child, or another trusted individual. 

Having a second person with full signing authority on the bank account and the operating agreement is also important. This way, if something happens to the owner, the business can continue to run until the probate process is settled. It is also important to have language in the corporate bylaws and meeting minutes that outlines who will run the business in the event of the owner's death. 

Overall, planning ahead for succession is essential for any business, but especially for those in the cannabis industry. It is important to have a plan in place that outlines who will take over the business, and to make sure that the necessary documents and agreements are in place. Working with a qualified attorney is essential to ensure that the transfer of interests to a trust is done correctly and in accordance with the law.

Concept 10: Prepare for Sale to Thrive

Having a plan in place for the future of your business can help you to thrive, even when you are not there. It is important to track the things that matter for the business, such as net profit, revenue, seller's discretionary earnings, and financial analysis of the well-being of the company. This will help to ensure that your business is in the best possible condition when it comes time to sell. Additionally, running your business as if it were for sale will make it easier for potential buyers to see the value in your business and be willing to invest in it.

Having a plan in place also helps to protect your family in the event of an unexpected event, such as the death of an owner. If the business is run in a way that allows it to be sold, it will help to prevent the company from shutting down due to a lack of funds. Additionally, it will make it more likely that an employee or group of employees will be interested in taking over the business.

In summary, planning ahead for succession is an important step for any business. It is essential to have the necessary documents and agreements in place and to track the things that matter for the business. Running the business as if it were for sale will help to increase the value of the business and make it easier for potential buyers to invest in it. Doing this will also help to protect your family in the event of an unexpected event. Working with a qualified attorney is essential to ensure that the transfer of interests to a trust is done correctly and in accordance with the law.

Concept 11: Keep Business Divisions Separate

One of the key points to consider when it comes to succession planning is to keep business divisions separate. This is especially important when it comes to larger businesses that have multiple divisions and lines of business. It is important to keep these divisions separate so that if something happens to one division, the other divisions are not affected. This is especially important if the business is looking to be sold, as it will make it easier for potential buyers to evaluate the different divisions and make an informed decision.

Having separate divisions also makes it easier to protect the interests of the family in the event of an unexpected event. Keeping the business divisions separate allows for each division to have its own set of books, as well as its own insurance policies. This makes it easier to protect the interests of the family in the event of a claim or lawsuit.

Another important reason to keep business divisions separate is that it makes it easier to carve out pieces of the business and sell them off. This can be beneficial if the business owner wants to sell off parts of the business while still keeping the core business intact. This is also beneficial when it comes to mergers and acquisitions. Having the business divisions separate makes it easier for buyers to evaluate the different parts of the business and decide which parts they want to acquire.

In conclusion, keeping business divisions separate is an important part of succession planning. Doing this will help to protect the interests of the family in the event of an unexpected event, make it easier for potential buyers to evaluate the different divisions, and make it easier to carve out pieces of the business and sell them off.

Concept 12: Form a Team of Advisors

Forming a team of advisors is an important step in protecting a business and its assets. A team of advisors should include an attorney, a CPA, and an insurance agent. These advisors can work together to discuss the most effective ways to protect the business and its assets, as well as to brainstorm and identify potential risks.

Having a team of advisors in place can also help to ensure that all legal and financial documents are properly drafted and up to date. This can make it easier to obtain loans and other financing, as well as to protect the business in the event of a lawsuit. Additionally, having a team of advisors can help to identify potential risks and create strategies to mitigate them.

Finally, having a team of advisors can help to identify potential opportunities for growth and expansion. This can help to ensure that the business is well-positioned for future success and can help to identify potential areas of improvement.

Overall, forming a team of advisors is an important step for any business owner. Not only can it help to protect the business and its assets, but it can also help to identify potential opportunities for growth and expansion. Taking the time to form a team of advisors can help to ensure that the business is well-positioned for future success.

 

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