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Tag Archives: business divorce

Corporate Transparency Act Compliance When Buying a Business

Author By Todd McMurtryPosted on

Purchasing a business triggers the duty to comply with the Corporate Transparency Act (CTA), a federal law mandating the disclosure of beneficial owners of certain U.S. entities to prevent illicit activities such as money laundering and fraud. Understanding the intricacies of the CTA and ensuring adherence is vital, not only to facilitate a smooth transaction but also to avoid significant legal repercussions.

The CTA requires entities such as corporations and limited liability companies to report detailed information about their beneficial owners, namely, those who own 25 percent or more of the entity or have significant control over it. Beneficial ownership information (“BOI”) must be filed with the Financial Crimes Enforcement Network (FinCEN). It includes the owners’ full legal names, birthdates, addresses and unique identifying numbers. BOI must be updated within 30 days of any change in ownership.

Non-compliance with the CTA can lead to severe penalties. If a business fails to provide accurate or updated information about its beneficial owners, it can face fines of up to $500 per day until the violation is corrected, reaching potentially substantial sums. Moreover, willful failure to report the required information or deliberately providing false or fraudulent information can result in criminal penalties. These include fines of up to $10,000 and/or imprisonment for up to two years. 

Importantly, these penalties can apply to violations that occurred before the acquisition. To mitigate those risks, prospective buyers should take several precautionary steps:

  • Due diligence — Conduct a review of the target company’s compliance history with the CTA. This includes verifying that all necessary filings are up to date and accurate. Engage with legal professionals who can scrutinize the documentation and history of compliance is advisable.
  • Integration plan — Develop a plan to integrate CTA compliance into the ongoing operations of the business post-acquisition. This should include procedures for regularly updating beneficial ownership information and monitoring compliance.
  • Training and awareness — Implement training programs for key personnel in the acquired company to ensure they understand the importance of CTA compliance and the procedures for maintaining it.
  • Establish compliance protocols — Set up internal controls and compliance protocols to regularly review and verify beneficial ownership information. This proactive approach can help in identifying and rectifying any potential discrepancies before they result in violations.

Consulting with a business law firm can provide you with assurance that all aspects of CTA compliance are addressed and can help you protect yourself from liabilities associated with any pre-existing violations.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

 

How to Plan Effectively for a Business Divorce

Author By Todd McMurtryPosted on

A “business divorce” refers to the change in ownership or dissolution of a closely held business, which can be as complex and contentious as a marital divorce. This term encompasses a range of scenarios, from one partner buying out another to the complete unwinding of a company’s operations. 

Before undertaking such a drastic action, owners must consider several critical factors to ensure the business divorce process is handled with minimal disruption to the company and its assets. Here is an overview:

  • Take stock of the reasons and goals — The reasons could range from personal conflicts between owners to divergent visions for the company’s future. It’s also important for all parties to articulate their goals for the divorce, whether it’s a desire for independent operation, financial settlement or strategic realignment of the business.
  • Assess legal and financial implications — Owners should review any existing partnership agreements, bylaws or shareholder agreements that dictate the process for resolving disputes and exiting the business. These documents often outline buy-sell agreements, valuation processes and other critical procedures. Absent such agreements, state laws will govern the dissolution process, which might not align with the owners’ personal or business interests.
  • Undertake a valuation of the business — Determining the value of the business is a contentious aspect of many business divorces. Accurate valuation is essential for fair asset distribution. Owners should consider hiring independent appraisers to provide a valuation that all parties can agree on. This avoids further disputes and assure partners they are receiving their rightful share.
  • Measure the impact on stakeholders — A business divorce can affect a wide range of stakeholders, including employees, customers, suppliers and creditors. Owners should consider how the divorce will impact these groups and plan accordingly. Maintaining transparency with stakeholders during the divorce can mitigate negative impacts and maintain business continuity.
  • Consider negotiation and conflict resolution — Ideally, a business divorce should be resolved through negotiation rather than litigation. This can save time, reduce costs and preserve relationships to the extent possible. However, it requires compromise and understanding from all parties involved. Where negotiation fails, mediation or arbitration might be viable alternatives, offering a non-adversarial approach to settlement of key issues.

Given the complexities involved, it is advisable for each party to seek counsel from a business divorce attorney who can offer comprehensive services, making sure that valuations are done fairly, that all assets and liabilities are accounted for and that all governmental rules are complied with.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

 

Do’s and Don’ts of Business Divorce Negotiations

Author By Todd McMurtryPosted on

In a business divorce, where owners of an enterprise part ways, structuring negotiations effectively can help prevent prolonged disputes, preserve relationships and ensure a fair division of assets and responsibilities. 

Here are some do’s and don’ts of conducting business divorce negotiations, along with insights on when mediation may be beneficial.

Do’s:

  • Prioritize respectful communication — Discuss reasons for the split between owners in a dispassionate, professional manner. Respectful communication fosters trust and can prevent misunderstandings that might escalate the conflict.
  • Establish Shared Goals — Identifying the parties’ intentions can serve as a foundation for the negotiation. Whether it’s the continued success of the business or fair compensation to a departing owner, keep the focus on constructive outcomes rather than on personal grievances.
  • Prepare a comprehensive agenda — Your agenda should cover and prioritize all relevant issues, including treatment of financial assets, intellectual property, customer lists, ongoing projects, liabilities and personnel. This helps guide the discussions and allows parties to gauge progress.
  • Involve legal and financial experts — Professionals can clarify complex issues, help prevent costly mistakes and provide unbiased perspectives that aid in reaching fair settlements.
  • Be open to compromise — Flexibility in negotiations can bring about a less acrimonious outcome, which is important if the parties must maintain any future business relationships.

Don’ts: 

  • Don’t let emotions speak for you — Remain calm and focused on the business aspects. Outbursts or even passive aggressiveness can throw the negotiations off course.
  • Don’t rush the process — While efficiency is important, rushing through negotiations often leads to missed details or unresolved issues. Take the necessary time to address every point thoroughly to avoid future conflicts or financial repercussions.
  • Steer clear of public disputes — Dragging the split into the public sphere can only hurt the business’s image and reputation. Try to project a message that all is well with the company.
  • Avoid taking intractable positions — Approaching negotiations with a combative mindset can derail progress. Refrain from issuing ultimatums or threats, which tend to create hostility and resistance.

If business divorce negotiations become contentious or reach an impasse, mediation provides a cooperative environment to work out solutions. The mediator, a neutral third party, can guide discussions, defuse emotions and divide the dispute into smaller elements, which can help move past gridlocks. Mediation is especially beneficial when there’s a power imbalance or if one party is less experienced in business negotiations. A mediator can level the playing field and ensure that both parties feel heard and respected. 

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

 

How a Solid Buy-Sell Agreement Can Avoid a Bad Business Breakup

Author By Todd McMurtryPosted on

Like a prenuptial agreement in a marriage, a buy-sell agreement is a crucial tool for preventing a messy and potentially disastrous business divorce. This goes beyond disputes over division of money and property. A solid agreement can safeguard the continued existence and success of the business you’ve worked hard to build. By stipulating how owners’ shares may be valued and reassigned if any owner leaves the business, the agreement fosters clarity, control and financial security, allowing you to avert unpleasant and interruptive litigation.

A buy-sell agreement offers these benefits in the case of a business divorce:

  • Orderly succession — A buy-sell agreement defines the process for transition, whether the breakup is due to a planned retirement, a sudden disability or unforeseen circumstances like death or bankruptcy. This pre-determined path promotes a smooth transition, minimizing disruption and maintaining business stability.
  • Avoiding costly battles for control — A buy-sell agreement establishes clear procedures for purchasing the departing owner’s interest in the case of a buyout, retirement or death. This saves everyone time, money and stress, allowing the business to focus on productivity.
  • Setting a price for ownership interests — Closely-held businesses are not valued based on market indicators, so ownership shares are difficult to measure in dollar amounts. A buy-sell agreement can set a fixed price or establish a valuation method, providing both the departing owner and the remaining partners with financial predictability. The agreement can also specify a third-party to serve as the valuation expert.
  • Keeping out intruders — Outsiders with incompatible values or interests may wish to take an ownership stake. A buy-sell agreement gives current owners the power to keep them out. It allows co-owners or the business itself the right or obligation to purchase a departing owner’s stake, effectively acting as a gatekeeper against undesirable takeovers.
  • Job stability — A well-crafted buy-sell agreement can provide job security for remaining owners and key non-owner employees. Knowing the business’s future is secure can boost morale and foster a sense of stability within the organization. It can also help in recruiting new talent.
  • Funding the transition — In an ownership dispute, one of the chief issues is how any buyout offer will be financed. The agreement can provide for insurance policies and other financing to be obtained to make sure purchasing owners or the company itself have the funds to pay for the departed owners’ shares.

No business founders want to think of the possibility of a breakup in the foreseeable future. Nevertheless, engaging in some effective planning at the onset can avert a painful and costly ordeal later on. An experienced business divorce attorney can help you put a well-structured buy-sell agreement in place, one that you can safely rely upon for years to come.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

Proven Ways to Ease the Pain of a Business Divorce

Author By Todd McMurtryPosted on

A business divorce occurs when one or more of the company’s owners or partners leave or is forced out by those with a controlling interest. It can happen for myriad reasons, such as personality conflicts, disagreements on business goals or operating procedures and external changes in economic conditions that hurt the company’s profits. In many ways, a business divorce is like ending a marriage. Assets must be divided and any future obligations among the parties must be decided. The process can be contentious, frustrating and expensive.

However, there are ways to make a business divorce more efficient and less painful. Here are some positive actions that small business owners can take in preparing for a breakup:

  • Proactive planning — The reality is that most startup businesses change ownership or dissolve within a few years. However, entrepreneurs often do not often contemplate restructuring or failing. It is critical to enter the venture with an understanding of those risks and to craft a plan of action in case a business divorce becomes necessary. This can be done through the company’s bylaws or operating agreement. These documents can govern how a business divorce will proceed and specify each owner’s rights and responsibilities both during and after the divorce.
  • Focus on the process — Some owners take business divorces very personally. They will use the divorce as a platform to blame and berate other owners and as a tool to seek retribution. This is shortsighted, as this type of conflict only makes business divorces take longer and cost more. Every owner should focus on making the divorce as clean and orderly as possible. By doing so, the parties can quickly move on to other business opportunities.
  • Hire a mediator — A mediator is an unbiased third party who can help facilitate the settlement of a business divorce. The mediator should be familiar with the company’s line of business and its relevant market. A good mediator will be able to explain the strengths and weaknesses of each party’s legal position, temper unrealistic expectations and increase the chances of the parties negotiating a settlement.  
  • Be flexible — Whether a business divorce is negotiated, mediated or litigated, no party is likely to get everything they want. Divorcing owners should concentrate on coming to an agreement that is fair and reasonable overall. All owners should be prepared to make some concessions. Every hour spent on the divorce is one less hour available for engaging in productive activity.   

An experienced business divorce attorney can advise you about the best options to accomplish the ownership change in your company, whether it involves a buyout of a departing owner, the sale of the owner’s interest or, as a last recourse, the company’s liquidation.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

What to Consider Before Starting a Business Divorce

Author By Todd McMurtryPosted on

Dissolving a business or ousting one or more of its owners can be catastrophic. In some ways, a business breakup is akin to a married couple divorcing. People who once shared financial interests and may even have liked each other are splitting up permanently. A “business divorce” may result from owners not getting along, death or incapacity of a key owner, improprieties by one of the owners or changes in outside conditions that make the business less profitable. Whatever the reason, owners planning on initiating a breakup should give the matter careful thought.

Before starting a business divorce, the owners should fully understand their rights and obligations to one another. Many written business agreements include policies and procedures for changing ownership or dissolving the firm. These might include buying out an owner’s share at market value or paying a predetermined level of compensation. Each owner should be prepared to abide by the applicable terms and conditions. If the agreement is incomplete or ambiguous, the owners should make a good faith effort to come to an agreement. They might jointly decide to submit the case to an experienced mediator to facilitate negotiations.

Another pre-dissolution issue is whether there are potential economic or legal limitations on divorce. If a substantial portion of the company’s assets are divided among the owners, the business can pay the departing owner(s) in cash or other liquid assets. However, in some cases a divorce entails the sale of non-liquid assets such as land, buildings, equipment and inventory. This may get further complicated if any assets are encumbered by mortgages or other security interests. Dividing assets can also be problematic if the business will struggle without the assets that are used to pay departing owners.

In addition, the owners must consider how the relevant markets will react to the business divorce. Customers, employees and competitors might view the business as failing or otherwise undependable. The owners may find it difficult to participate in their industry if personal or professional reputations are damaged. Those involved in the business divorce should do their best to minimize any potential disruptions and to avoid harming the reputations of the business or its owners.

Every owner should try to make the business divorce as clean, orderly and swift as possible. Letting emotions run high does not serve anyone’s interests. Excessive infighting costs everyone involved money, time and potential opportunities. By contrast, a speedy divorce allows everyone to move forward. The owners who are leaving can turn their attention to new business ventures and the remaining owners can focus on nurturing the existing business. An experienced business divorce attorney can help you protect your individual rights.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

 

How to Survive a Business Divorce

Author By Todd McMurtryPosted on

Nobody enters into a commercial venture anticipating that the enterprise will fail. Nevertheless, small and start-up businesses are particularly susceptible to dissolution or drastic changes in ownership. Relationships sour, peoples’ priorities change, someone gets sick or dies or the business suffers poor profitability or takes a different course than originally planned. There are innumerable factors that can lead to a dissolution or ownership change that is commonly known as a “business divorce.”

Like a dissolution of marriage, a business divorce can get messy and contentious. Company owners almost always have emotional attachments to a business that they manage hands on and may have founded. In addition, it’s common for small business owners to hold equal or nearly equal shares, making it difficult to agree on an exit strategy for any one of them. Every small business owner should be prepared to handle a potential breakup in a way that won’t disrupt or jeopardize the business.

Most importantly, you should have a breakup contingency plan in place. A comprehensive partnership or shareholder agreement should include a process for the orderly withdrawal or buyout of one or more of the owners. Written agreements can set out procedures to be followed and a method of determining suitable compensation. A competent business lawyer can help with negotiating and drafting an agreement appropriate for your organization.

Another element of an effective business divorce strategy is to be reasonable and level-headed. Just like marital divorces, business breakups can get very emotional, which can easily derail discussions and cause unnecessary harm to everyone involved and to the business itself. Infighting among owners can cause disputes to end up in court, which often leads to tremendous waste of valuable time and money.

Communication among the owners is also critical. A qualified business and commercial mediator can be of great assistance, getting the owners past the impulse to blame each other and to focus instead on the essential issues at stake — such as coming to a fair agreement concerning the firm’s assets and  liabilities. A mediator can be instrumental in keeping discussions on track toward a productive outcome.

Finally, the parties should decide what their priorities are moving forward. If the divorce is resolved fairly, there is a better chance that nobody will be unnecessarily harmed. For the departing business owners, it is advantageous to wind up the existing affairs so that he or she can concentrate on another venture. For those remaining, making sure the departing owner is well compensated, although expensive, is a way to avoid creating a disgruntled competitor. All involved should stay focused on achieving their long-term goals.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.