Articles Posted in Business Transactions

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For many businesses, promissory notes are a significant asset in the company’s financial portfolio. Securing such a promissory note with a personal guarantee can be an guarantee-300x200important step in protecting the company’s financial interests. Unfortunately, many business owners learn the hard way that a simple promissory note template is not always sufficient to enforce the personal guarantee, thus wasting this valuable asset. Learn more about how a Los Angeles business attorney can help you secure all your assets to protect the financial health of your business.

The Benefits of a Personal Guarantee

When a personal guarantee is accompanied with a promissory note, a personal guarantee acts like collateral. The asset (promissory note) is protected by the collateral (the guarantor’s promise to pay, and the ability to sue the guarantor personally for noncompliance with the terms of the promissory note). As with any collateral, a personal guarantee gives the asset more security. Businesses can therefore protect their financial interests by protecting promissory notes with personal guarantees.

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Contractors, subcontractors, and suppliers deserve to be paid for the work they complete and the supplies they provide. All too often, however, they are not adequately or promptly paid and find themselves in a payment dispute. Fortunately, the law gives those in the construction industry a legal tool called a “mechanic’s lien” to use to secure their right to proper payment.

Can You File a Lien? Mechanics-Liens-300x199

The first step is to determine whether you are eligible to file a lien in California. Our state only recognizes liens filed by individuals who are in a contract directly with a property owner, a contractor, a subcontractor, or anyone who is a legal agent of those parties.

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Mergers and acquisitions (M&A) are complex business transactions with much on the line.  If a merger or acquisition is not successful, a business can lose substantial assets.  Of course, no one would intentionally enter into an acquisition transaction knowing it would fail; however, reports have indicated that more than half of acquisitions do fail at some point.

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It is important to understand how acquisitions fail, steps to take to prevent failure, and how your business can recover from a failed merger and acquisition.  An experienced California merger and acquisition lawyer from Structure Law Group, LLP can help you understand all aspects of a merger and acquisition and help you prepare for any outcome.

Common Reasons For Failed Acquisitions

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Limited liability companies, or LLCs, are one of the various types of business entities from which you can choose when forming a company.  Generally speaking, limited liability companies combine the tax advantages and flexibility of a partnership with the liability protections of a corporation, without subjecting small business owners to the onerous reporting requirements and governance rules associated with corporations.  When forming a limited liability company there are many factors to consider and questions to ask.  The Silicon Valley business attorneys at Structure Law Group, LLP have the knowledge and experience to advise entrepreneurs to weigh all options and make the best decisions for the limited liability company now and in the future.

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How Does an LLC Limit Liability?

Like a corporation, a limited liability company is a separate legal and tax entity, meaning that the LLC is separate from the members who manage and operate the business.  And also like a corporation, the LLC, and not the LLC’s owners, will be liable for the LLC’s debts.  For example, if one sues the LLC to recover on an outstanding debt, only the LLC’s assets can be reached.  In other words, an LLC’s members are not personally liable for the LLC’s debts (just like how a corporation’s shareholders are not personally liable for the corporation’s debts).  This is significantly different than a general partnership or sole proprietorship, where the partners or the individual owner, respectively, are personally liable for the debts and obligations of the business.

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Venture capital (VC) is a form of financing that is provided to early-stage companies that have been deemed to have high-growth potential by venture capital firms or funds.  Typically, venture capital financing is attractive to smaller, newer companies that do not have access to traditional forms of funding such as issuing stock or applying for a loan through a bank.

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Venture capital firms generally provide capital to companies in return for equity shares, which they then sell back to the company for a profit after a specific event, such as an initial public offering (IPO).

While obtaining venture capital financing has many benefits, it has drawbacks as well.  As a result, entrepreneurs should fully explore their options and discuss them with a Silicon Valley venture capital lawyer before entering into any binding agreements.  Some of the common pros and cons of venture capital financing are discussed below.

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Selling a business can be an extremely lucrative prospect, but like any business transaction, the deal can go wrong and can be unnecessarily costly.  The sale of a business usually is not the sale of one asset; instead, all the assets of the business are sold or transferred.  One way to ensure that the sale of your business ends up in your favor is to skillfully negotiate the definitive agreement that sets out the final terms of the sale.  The experienced corporate attorneys at Structure Law Group, LLP have helped many entrepreneurs sell their businesses to achieve cost effective and positive results.

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The following are only a few questions to ask when drafting a definitive agreement to sell your business:

  • What does the sale include – what is the business, what are the business assets and liabilities?
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There are many California requirements for an investor to be a holder in due course.  A holder of an instrument is entitled to enforce the instrument.  However, a “holder in due course” has greater rights under the Uniform Commercial Code (UCC) and the California Commercial Code (COM) than a holder who is not a holder in due course.  Specifically, a holder in due course takes an instrument free from many of the defenses to repayment that might have been asserted against the original obligee or against another assignee or holder not in due course.  An experienced San Jose business law firm can help business owners and investors understand their rights and requirements in order to be a holder in due course.

There are specific requirements that must be met for an investor to qualify as a holder in due course, including that:

  • The investor takes the instrument for value;
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Often, selection and formation of a startup can be stressful and confusing.  But it is not the end of the process.  In order to protect your startup and its status, many steps must be followed to continue to ensure the startup remains in good standing with local and state laws.  The experienced California corporate lawyers at Structure Law Group, LLP can help entrepreneurs and businesses, at any stage of the process, protect and maintain their corporate form.

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Why It Matters

Formation of a limited liability company (LLC) or incorporation of a startup takes time and money to gain the protections offered by the corporate form.  If a business owner fails to maintain the ongoing requirements, the startup’s status may be put in jeopardy, and as a result, can lose the protection offered by the corporate form.  Maintenance of a corporation or an LLC is a continual process, requiring completion of steps to be in compliance with all applicable California state and local laws.

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An earnout is a type of pricing structure used in mergers and acquisitions that makes some of the purchase price contingent on the performance of the business after the acquisition has taken place. In this sense, the sellers must “earn” this part of the sale price. At its most basic, these provisions serve to reallocate post-sale risk to both the buyer and the seller.  When considering a merger or acquisition, it is often best to get counsel from an experienced Silicon Valley merger & acquisition attorney to fully understand the terms and conditions of the agreement.

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When Are Earnouts Employed?

Earnouts can be employed in a variety of situations to resolve points of contention in the negotiations of a merger or an acquisition. Commonly, they are used when the seller is more optimistic about the future value of the company than the buyer. The earnout clause will allow both parties to reach an agreement that they believe to be fair. They can also be used as a financing mechanism and for the sale of startups with little operational and financial history.

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Government contracts can be lucrative for many companies, large or small. Often, one company wants to bid on a government contract but needs assistance from another company to fully perform the contracted work. In such cases, the two companies would combine their resources to share the bid and the contract, if awarded.  When this situation arises, it is critical to ensure that the companies have an agreement, a “teaming agreement”, stating how the work set forth in the government contract is to be divided to protect the interests of each business.

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Many teaming agreements involve a large corporation acting as the primary contractor and one or more smaller businesses acting as subcontractors. Smaller businesses naturally want to protect their interests against larger corporate entities with more resources. Preparing bids can be costly and time consuming and can take focus away from other day to day operations of the business.

Unfortunately, the problem is that many teaming agreements have been deemed unenforceable by California state courts. Because a teaming agreement is signed before a contract is awarded and whether it takes effect is dependent upon winning the contract, many courts have stated that teaming agreements are “an agreement to agree” in the future instead of a binding contract. This means that a subcontractor could take the time to prepare a bid and enter into an agreement with a primary contractor, and once the government contract is won by the primary contractor, it could decide to use a different subcontractor, leaving little legal recourse for the subcontractor.

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