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I received an unexpected offer to purchase my business. What do I do now?

Many business owners have been caught off guard by the receipt of an unexpected offer from a third party to purchase their business. Here are six immediate steps that you should consider taking if this happens to you.

1) Request a letter of intent. If you haven’t received a signed letter of intent (LOI) from the prospective purchaser, you should request one. The LOI should indicate the purchase price and the other material terms of the transaction. The LOI should also indicate the structure of the transaction (i.e., stock sale or asset sale), the expected timing of the transaction and whether the prospective purchaser will need to raise funds from a third party to pay the purchase price. LOIs are also helpful in fleshing out whether there will be an “exclusivity period” during which you will be prohibited from shopping your business to third parties. LOIs are typically non-binding (except with respect to exclusivity as described above), but they are useful in establishing the parameters of the transaction and in identifying the key issues that will need to be resolved.

2) Request the execution of a confidentiality agreement. You should not discuss the possibility of selling your business to any party that has not executed a confidentiality agreement for your benefit. In addition to covering business and financial information about your company, the confidentiality agreement should restrict the prospective purchaser from disclosing the fact that discussions are taking place concerning the sale of the business or the status of any such discussions.

3) Commence seller due diligence. You should begin to identify, with the help of legal counsel, the “diligence issues” that may complicate the transaction. In broad terms, diligence issues are those transaction issues that can be identified by reviewing the seller’s business records and contracts. Examples include (i) the need to obtain the consent of third parties to consummate the transaction and (ii) the existence of actual or potential liabilities that may be significant in amount. The prospective purchaser will engage in extensive due diligence prior to signing a definitive agreement to purchase your company, and will seek to resolve any diligence issues that it may identify either through a reduction of the purchase price or through contractual mechanisms. It is advisable for a seller to identify and attempt to address any such diligence issues before they are identified by the prospective purchaser.

4) Discuss the offer with your tax advisor. It is impossible to determine whether an offer to purchase your business is attractive without an understanding of the tax liability that you will incur as a result of such transaction. Keep in mind that the structure of a sale transaction can be important in determining the tax consequences of the transaction. Accordingly, it may be desirable to make a counteroffer with a more tax-efficient structure after discussing the offer with your tax advisor.

5) Consider whether to conduct a formal auction for the business. Sellers often seek a “market check” to determine if the offer that is on the table is truly the best offer. As a seller, you may be able to conduct a formal auction process where additional prospective purchasers are identified and competing bids are solicited from such parties. You should be mindful that conducting a formal auction process is time-consuming, and the ensuing delay may cause the party that made the unexpected offer to withdraw such offer. If you plan to conduct a formal auction process, it may be desirable to engage an investment banker to assist you with that process.

6) Be mindful of fiduciary duties. If you don’t own 100% of the business, you will need to be mindful of fiduciary duties you may owe to the other owners of the business. In general terms, fiduciary duties require persons to act in good faith, exercise due care, and refrain from pursuing self-interest at the expense of other shareholders. If a sale of the business is imminent, your fiduciary duties may require you to obtain the highest possible price for the business. You should navigate any fiduciary duty issues with the assistance of legal counsel.

Industrial Development Agencies Located In The Central New York Regional Transportation District No Longer Exempt From The Additional Mortgage Recording Tax

In 1969, New York State enacted the New York State Industrial Development Agency Act which created industrial development agencies (“IDAs”). New York State created IDAs to promote the economic welfare, recreation opportunities and prosperity of the inhabitants of New York State. IDAs have traditionally provided financial assistance by offering exemptions from sales and use taxes, mortgage recording tax, and real property taxes. Mortgages executed by IDAs have been exempt from the payment of all mortgage recording taxes, including (1) the Basic Tax of 0.50% of the amount of the mortgage, (2) the Special Additional Tax of 0.25% of the amount of the mortgage, (3) the Additional Tax of 0.25% of the amount of the mortgage for mortgages recorded in counties located within the Central New York Regional Transportation District and certain other transportation districts and 0.30% of the amount of the mortgage for counties located within the downstate Metropolitan Commuter Transportation District, and (4) any local mortgage recording tax imposed by some cities and counties.

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Federal Court Blocks Implementation of New Overtime Rules

Late on Tuesday, November 22, 2016, the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction enjoining the U.S. Department of Labor (“USDOL”) from implementing and enforcing its new overtime rules. These overtime rules would have raised the minimum salary level for the white collar exemptions (executive, administrative, professional) to $47,476 per year. These rules would have gone into effect on December 1, 2016 had the court not issued the injunction.

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Tips & New Initiatives for Health Care Plans from the Federal Department of Labor

Mary Rosen, the Associate Regional Director of the United States Department of Labor for New England including Upstate New York gave a presentation Wednesday on common issues with health care plans. She also described six tips for common plan errors and three new initiatives the DOL is working on.

This seminar hosted by Anthony Stevens was a very good opportunity to hear what issues the Federal DOL is focused upon.

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Estate Planning – Much More Than Signing a Will

In the age of the internet, there is a growing trend amongst the American populace who decide they need a Will to avoid the cost of a lawyer and use a legal services website like Legal Zoom® or use some free Will form found on the internet. However, there are many dynamics that go into estate planning beyond executing a “simple” Will.   First, you may have family dynamics or complex assets such as a closely-held business that require something more than a “simple” Will.

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Summer in the City – SIDA Makes Waves with New Tax Exemption Policies

The City of Syracuse Industrial Development Agency (SIDA) made waves earlier this summer when board members unanimously voted to end the long-standing practice of giving the Syracuse Common Council the ability to vote on all payment in lieu of taxes (PILOT) agreements. As of June 21, 2016, the Council’s PILOT oversight is limited to instances in which an agreement deviates from the Agency’s uniform tax exemption policy (UTEP).

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Pokemon Stop: Gaming Sensation Raises Potential Legal Issues

Authored by Christopher Powers, Summer Law Clerk

As you may have heard, Pokemon Go is sweeping the nation, including Central New York.

Pokemon Go is a downloadable mobile app where players try to find different characters from the popular Japanese cartoon and video game on a virtual map based on a user’s actual surroundings. The app uses GPS and other geolocation features on a user’s smartphone to places the virtual characters at local landmarks. Then, the player then must go to the place and use traditional gaming techniques to “capture” the character. Pokemon Go was released on July 7, and has become a worldwide sensation. Within a week, the game already had been downloaded more than 10 million times, according to CNN.

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Even if You’re Eligible for a Ticketmaster Refund, That Doesn’t Mean You’ll Get It

Authored by Christopher Powers, Summer Law Clerk

This week, the new Lakeview Amphitheater in Syracuse, N.Y., hosted one of the biggest concerts of the summer in these parts. The sold-out Dave Matthews Band concert was the first show of the season, and first ever sellout, at the new venue, which opened in 2015.

The kickoff of concert season coincides perfectly with the settlement of a major legal dispute that has implications for concert-goers, here in Syracuse and across the country, for months and possibly years to come.

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Disclaimer: This blog is for educational purposes; to provide readers general information and a general understanding of the law, not to provide specific legal advice. By using this blog all readers understand that there is no attorney client relationship between the reader and Mackenzie Hughes LLP, the publisher of this blog.

Prior results do not guarantee future success.

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