Business Entities and Transactions
A Palm Beach County business lawyer from Comiter, Singer, Baseman & Braun has the unique ability to create an integrated plan from the onset of a business, starting with the selection of the appropriate entity, which marries income, estate and gift tax planning with an efficient legal framework for operating a business in Florida.
Our clients range from closely-held, family-owned business entities to large corporations. Our attorneys routinely provide business succession planning to those family-owned businesses looking to create a succession plan to efficiently transfer ownership and management to the next generation. Our firm has substantial experience providing advice for business issues that arise during the operation of the company’s business in numerous industries, such as real estate, health care, insurance, technology, and telecommunication.
When starting a business, choosing the right entity requires careful analysis of both tax and non-tax issues. The most common business entity types are limited liability companies, corporations, and limited partnerships. Our firm routinely serves as tax counsel in transactions that require careful business structure tax planning in order to comply with the requirements set forth in the Internal Revenue Code.
At the outset of a business, the owners must decide how the business will be operated and should evidence their agreement in a written contract. If a business is owned in the form of a limited liability company, an Operating Agreement or LLC Agreement should be prepared to set forth detailed terms and conditions governing the operation and management of the business.
Our team can also assist drafting key documents including:
- Operating agreements
- Shareholders agreements
- Employment agreements
- Equity compensation agreements
- Corporate resolutions
- Redemption agreements
- Employment agreements
- Non-disclosure agreements
- Promissory notes
- Guaranty agreements
- Security and pledge agreements
As a business grows, the owner may have to decide whether to admit a new member, issue an economic interest (such as a profits interest) to a key employee, raise more money, enter into a joint venture with another business, or sell their business. Many Florida based companies choose to work with a Palm Beach County business lawyer to negotiate and structure complex transactions, including the drafting of asset purchase agreements and equity purchase agreements associated with mergers, acquisitions, loan transactions, opportunity zone transactions, buyouts, recapitalizations, reorganizations, and spinoffs.
There are three typical ways to structure the sale of a business:
- Asset Acquisition
- Equity Interest Acquisition
The buyer and the seller will have different preferences as to how the sale is structured due to commercial issues, process and consents, and tax issues. The purchase and sale transaction will be evidenced by an equity purchase agreement (if selling ownership interest, such as stock, membership interest or partnership interest), or asset purchase agreement (if an asset sale).
In an asset acquisition, the buyer acquires certain assets and liabilities of a target business as provided in an asset purchase agreement. Upon closing the transaction, the buyer and seller maintain their respective entity structures and the seller retains any assets and/or liabilities not purchased by the buyer.
Buyers tend to favor asset acquisitions because of their ability to select assets and liabilities, reduce exposure to the assumption of unknown or undisclosed liabilities, and more beneficial tax treatment as a result of the asset basis step-up. On the other hand, sellers do not like being stuck with unknown liabilities not assumed by the buyer and generally receive a more beneficial tax treatment in an equity sale.
Equity or Interest Acquisition
In an equity acquisition, the buyer acquires the target company’s equity interest directly from the selling owners. The buyer will acquire all of the target company’s assets and liabilities. Following the transaction, the target company maintains its existence as a wholly-owned entity of the buyer. The equity purchase agreement generally contains heavily negotiated provisions with respect to disclosures and risk allocation.
A merger is an equity acquisition whereby two companies combine into one legal entity. The surviving entity assumes all assets and liabilities of the terminated entity. The merger process is governed by the laws of the state of formation of the parties.
- Direct merger: two companies combine to one
- Indirect (triangular mergers): buyers try to shield themselves from the target company’s liabilities
- Forward merger: the target company merges with and into the buyer and the buyer assumes all assets and liabilities
- Reverse merger: the target company survives the merger and becomes the remaining entity
Reverse triangular mergers are common in that a buyer’s merger subsidiary is merged with and into the target company and the target company survives the merger and becomes the buyer’s subsidiary, which provides the buyer potential asset protection and assists in avoiding third party consents (unless there’s a change of control provision).
Work with a Florida and Palm Beach County Business Lawyer
For more information and legal guidance regarding business entities and transactions contact a Florida and Palm Beach County business lawyer at Comiter, Singer, Baseman & Braun, either online or by calling us at 561-626-2101 or toll free at 800-226-1484. We work with clients throughout the state of Florida, including those in Palm Beach Gardens and Boca Raton.