Tag: Contract

  • 5 Things to Remember When Selling Your Business

    5 Things to Remember When Selling Your Business

    Today’s strong economy and recent tax overhaul may have you considering selling your business while prices are high. With a less restrictive tax code in place, the asking price for businesses could increase even more. Selling a business can be fraught with challenges, so it is important to have a plan to ensure that your sale goes smoothly and does not leave you with seller’s remorse.

    Here are five things to remember before you sell your business:

    1. Have Your Corporate Documents Ready. Before you will be able to close a deal, the parties will participate in the due diligence process. The due-diligence process is where the purchaser, the purchaser’s attorneys, and the purchaser’s accountants review the company’s assets, liabilities and overall financial health before completing the sale. For the most part, you will be able to anticipate what documents the purchaser will ask to review. If you have those documents organized and ready, it will make the due diligence process proceed faster and more smoothly. Standard due diligence documents to have ready are:
    • Corporate Formation Documents (Certificate of Incorporation, Articles of Organization, Bylaws, Operating Agreement, Certificate of Good Standing)
    • Financial Statements (Bank Statements, Payroll Records, Tax Returns)
    • Customer Records
    • Employee Contracts
    • Third-Party Contracts (Contracts with your Vendors and Customers, Equipment leases, Licensing Agreements)
    • Asset Contracts (Real Estate Purchase Contracts, Property Leases)
    1. Purchasers Want Real Value. Purchasers will not pay for what you believe the company is worth. You must be able to demonstrate to them not only the company’s sales, but also its profits. If that is difficult for you, maybe now is not the right time to sell. Biding your time may allow you to generate a better sales record and, thus, a higher purchase price. Having your corporate documents ready before you begin negotiations will give a better idea if you are financially ready to sell.
    2. Be Patient. Finding the right purchaser for your business may take time. Jumping at the first offer could mean leaving money on the table. For this reason, you may want to consider hiring a broker to help generate more interest and more offers.
    3. Consider Your Role Post-Sale. How will you generate an income after the sale closes? Will the sale proceeds be enough to sustain you? Can the business sustain itself without you? Depending on the nature of the business, you and the purchaser may decide that it is best to keep you involved after the ownership change. The business may be in an industry where the personal relationships you have developed will be critical to its future success. Perhaps you have unique skills and capabilities that the business will need in order to be successful. Often a purchaser will make a sale contingent on locking-up a key member of the organization for several years after the sale. Consider what arrangement works best for you.
    4. Have an Attorney Review the Contract. The final contract is the most important piece of the whole deal. Having the contract reviewed by an attorney is the best way to protect yourself from the dreaded fine print . Your attorney can help you identify any traps, provide you with valuable advice, and help you negotiate the best deal possible. Entrepreneurs tend to believe that they can do it all on their own, mostly because early on they had to. When it comes to selling the business, however, the drafting and review of the contract is best left to the professionals.

    For more information, or to speak with an attorney about how to sell your business, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • What are the Elements of a Contract?

    What are the Elements of a Contract?

    Many people enter into contracts on a daily basis without realizing that they are in a legally binding agreement. To help the average person understand when they have a valid contract, we have set forth the elements of a contract below.

    There are four elements of a contract, in order to have a valid contract, all four must be present:

    1. Offer

    This is the first step towards a contract. One party makes an offer to perform a service, sell a product, trade, or conduct some other business venture. An offer is valid so long as it is serious (i.e. not said in jest), and has not been revoked by the offeror (i.e. “I hereby withdraw my offer”).

    2.Acceptance

    The party to whom the offer was made must now agree to the terms of the original offer. Any conditional acceptance or inclusion of additional terms is called a counter-offer. A counter-offer is in effect a rejection of the original offer, and it starts the contract formation process all over again. Just like for an offer, an acceptance must also be serious.

    3.Consideration

    Contracts are not binding unless something of value is exchanged. Consideration can be in the form of money, a promise to perform an act or refrain from acting, or it can be for some other item of value. The element of consideration is the whole purpose for entering into a contract. For the element of consideration, both parties must have some obligation under the contract; for example, one party pays and the other party performs.

    4.Capacity

    Each party must reasonably assume that the other party has both the legal right and the ability to fulfill their end of a contract. They must also be able to fully comprehend at the time of agreement what their obligations will be. For example, an intoxicated person (with some exceptions) or a minor (with some exceptions) lack the capacity to enter into an agreement because they do not fully understand the obligations that they are undertaking.

    The elements of a contract set forth above are applicable for both oral and written contracts. However, certain types of contracts are required by law to be in written form.

    Despite the technical legal enforceability of certain oral contracts, for practical purposes, parties should memorialize their contracts in writing. This will help avoid confusion, misunderstanding, and will aid with enforcement in the event of a breach. To determine whether or not your contract needs to be in writing, or if you need to draft a contract, you should consult with a knowledgeable contract attorney.

    Having an experienced contract attorney help prepare your agreement is the best way to protect your interests. For more information, or to have your agreement drafted or reviewed, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • What is a Non Compete Agreement?

    What is a Non Compete Agreement?

    Non Compete or Non Competition Agreements are contracts that contain a restrictive covenant whereby an employee promises to refrain from competing against their employer for some period of time. Such agreements can be beneficial to both the employer and employee. Employers are likely to invest more in the training and development of the employee without fear of the employee leaving to work for a competitor. Employees are also likely to be paid more and receive greater professional skill development.

    However, employees should be very cautious before signing such agreements. Employers often draft the language of the restriction broadly for their own protection. Employers should also tread carefully as Courts will not enforce non compete covenants if they are unconscionable, offend public policy, or otherwise operate as a restraint of trade for the employee.

    A Non Compete Agreement is generally enforceable if it is:

    • Necessary to Protect a Legitimate Business Interest

      Will the employee have access to the employer’s trade secrets, customer lists, or some other form of proprietary information? Would that information be damaging to the employer if used by a rival? The employee must have the ability to harm the business of the employer with the information once the employment ends for it to be necessary.

      • Consider the uniqueness of the employee’s services. The more unique the services, the more likely it is that the covenant will be enforced. If the services are not unique, there is less need for a non compete covenant.
        • Are janitors, gardeners, or day laborers unique in their services? No. They are unlikely to possess company trade secrets through the normal scope of their employment.
        • Are executives, engineers, or software developers unique? Yes. They are likely to have access to company trade secrets and other proprietary information that would be damaging if used by a rival.

    • Reasonable in Scope

      The reasonableness inquiry is where the Court will evaluate the actual terms of the restrictions. They must be no greater than is justifiable to protect the employer. They also cannot impose an undue burden on the employee’s livelihood.

      • Reasonable in time: Does the agreement seek to prohibit the employee from competing forever? If so, the restriction is likely unreasonable absent unique circumstances, and thus unenforceable. So long as the length of time is reasonably related to the length of time that the secret remains valuable, it will likely be enforceable. In most cases, a restriction period of 6 months to 2 years will be upheld as reasonable.
      • Reasonable in distance: Does the employer seek to prohibit the employee from competing within 10, 20, or 30 miles of the employer’s business? Generally, the larger the geographic restriction, the less likely it is to be enforceable.
      • Reasonable in extent of restriction: Does the agreement prohibit the employee from working in his or her trade completely? If so, it is likely an unenforceable restraint of trade. Nonetheless, a temporary restriction from directly competing in a specialized area of the employer’s industry is more likely to be upheld.

    • Supported by Consideration.

      The employee must receive something of value at the time of execution. This is typically money, but may also be equity in the company. The employer should not seek to intimidate or attempt to put undue pressure on the employee to sign. This may lead to the subsequent invalidation of the restrictions, and nullification of the agreement. It is important to note that if the agreement is signed after the employee has been hired, simply continuing the employment does not constitute consideration and another item of value must be provided.

    Before signing a non compete agreement, you should have it reviewed by a knowledgeable contract attorney. For more information, or to have your non compete agreement drafted or reviewed, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.