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Choosing the Appropriate Standard of Review with Mergers Between a Controlling Stockholder and its Subsidiary: The Business Judgement Rule v. Entire Fairness Standard
Reliance Disclaimers in M&A Agreements
Buying or selling a closely held business (“M&A), including the purchase of a division or a subsidiary, can be structured as (i) a statutory combination such as a statutory merger or share exchange, (ii) a negotiated purchase of outstanding stock from existing shareholders or (iii) a purchase of assets from the business.1 An M&A transaction typically revolves around an agreement between the buyer and the selling entity, and sometimes its owners, setting forth the terms of the deal, which is herein referred to as the “Agreement” whether it takes the form of a merger agreement, stock purchase agreement or asset purchase agreement. An M&A Agreement typically includes contractual representations and warranties as to the assets and liabilities of the business to be acquired, conditions to the buyer’s obligations to close the transaction contemplated thereby, the obligations of the seller and its owners to indemnify the buyer for breaches of its representations and covenants therein (and any contractual limitations on the amount that buyer can recover for such breaches), and that the Agreement represents the entire agreement of the parties with respect to the transaction. After the transaction is closed, the buyer may determine that there were breaches of seller’s representations and covenants, and that buyer’s losses could exceed the amount that buyer could recover under the express indemnification provisions in the Agreement. Under these circumstances, the buyer might claim that is was defrauded by the seller, that its damages for its fraud claim were not capped by the Agreement, and that it is entitled to rescind the transactions and recover the amount that it paid for the business. Whether the buyer is entitled to recover the amount it seeks depends on the wording of the Agreement and the law governing its rights under the Agreement.
Diverse Mergers: How to Divide an Entity into Two or More Entities Under a Merger Authorized by the Texas Business Organizations Code
The common conception of a merger is the combination of two entities into one surviving entity. However, the Texas Business Organizations Code (the “TBOC”) provides that through the use of the merger provisions of the code, a Texas domestic entity (an organization formed under or the internal affairs of which are governed by the TBOC ) may be divided into two or more new domestic entities or other organizations or into a surviving domestic entity and one or more new domestic or foreign entities or noncode organizations. This division through use of the merger statutes is sometimes called a divisive merger or a divisional merger. These provisions remain unique to Texas, although Pennsylvania provides for a statutory division but does not deal with division in its merger statutes. Through an illustrative, fictitious case study, this paper will consider the possibilities presented by the Texas divisional merger provisions as a tool to accomplish client goals and will provide a checklist of steps required to accomplish a divisional merger of a Texas limited liability company or limited partnership (including presenting a form plan of merger). This paper will not examine the federal income tax implications of a divisional merger.
Fiduciary Duties of Directors in M&A Transactions
There are several landmark cases which define the duties of directors in DE and TX companies, including the duties of obedience, loyalty and care. Within the last five years, there have been a number of cases providing additional color.
M&A Transactions: How to Negotiate Key Provisions in a Private Company Acquisition Agreement
Theses are the presentation slides.
Acquisition Structure Decision Tree
Buying or selling a closely held business, including the purchase of a division or a subsidiary, can be structured as (i) a statutory combination such as a statutory merger or share exchange, (ii) a negotiated purchase of outstanding stock from existing shareholders or (iii) a purchase of assets from the business. The transaction typically revolves around an agreement between the buyer and the selling entity, and sometimes its owners, setting forth the terms of the deal.
Divisive Mergers: How to Divide an Entity into Two or More Entities Under a Merger Authorized by the Texas Business Organizations Code
The common conception of a merger is the combination of two entities into one surviving entity. However, the Texas Business Organizations Code (the “TBOC”) provides that through the use of the merger provisions of the code, a Texas domestic entity (an organization formed under or the internal affairs of which are governed by the TBOC) may be divided into two or more new domestic entities or other organizations or into a surviving domestic entity and one or more new domestic or foreign entities or noncode organizations. This division through use of the merger statutes is sometimes called a divisive merger or a divisional merger. These provisions remain unique to Texas, although Pennsylvania provides for a statutory division but does not deal with division in its merger statutes. Through an illustrative, fictitious case study, this paper will consider the possibilities presented by the Texas divisional merger provisions as a tool to accomplish client goals and will provide a checklist of steps required to accomplish a divisional merger of a Texas limited liability company or limited partnership (including presenting a form plan of merger). This paper will not examine the federal income tax implications of a divisional merger.
Federal and State Tax Considerations in M&A Transactions
This outline discusses certain relevant federal income and Texas state tax considerations relating to the selection of an entity for engaging in business or investment. The outline begins with a discussion of the classification of entities for federal tax purposes and, in particular, the check-the-box regulations. It then provides a summary of some of the principal tax considerations relating to sole proprietorships, C corporations, partnerships, limited liability companies and S corporations. This outline does not address the taxation of trusts and estates, regulated investment companies, real estate investment trusts, real estate mortgage investment conduits, cooperatives, exempt organizations or insurance companies.
Acquisition Structure Decision Tree
Buying or selling a closely held business, including the purchase of a division or a subsidiary, can be structured as (i) a statutory combination such as a statutory merger or share exchange, (ii) a negotiated purchase of outstanding stock from existing shareholders or (iii) a purchase of assets from the business. The transaction typically revolves around an agreement between the buyer and the selling entity, and sometimes its owners, setting forth the terms of the deal.
Best Practices for Performing and Supervising M&A Due Diligence
The title of this article seems a bit presumptuous given that “best practices” are always subjective and somewhat in the eye of the beholder. Nevertheless, the author, with nearly two decades of buy-side M&A experience, will attempt to impart some nuggets of wisdom and many practical tips for managing the M&A due diligence process. Managing such a process can encompass many steps and can be compressed into a few weeks or stretch out over several months. The process may involve many people from different departments within the acquirer company as well as outsourced expert advisors making contact with many people from different departments within the target company as well as the target company’s outsourced expert advisors. As such, the due diligence process can generate thousands of individual communications and loads of new data. Organization is the key to successfully navigating such a process. Lawyers are uniquely positioned to oversee and manage the process. With our ability to see across multiple domains, focus on the salient issues and manage competing deadlines, lawyers bring an important skillset to the M&A team. This article will attempt to provide lawyers with a roadmap and practical ideas for managing the M&A due diligence efforts of an integrated team.
What to Do When Someone Wants to Buy the Business
Imagine that your long-time client calls you and gives you a piece of exciting news – he has decided to sell his business, and has an interested buyer. You have watched the business grow, through the years assisting with capital raising, contract drafting, and litigation. Although the business’s cash flow has provided much over the years – it has put food on your client’s table, sent his children through college, and provided employment for a number of people – most of the earnings of the business have been plowed right back into it, fueling growth in the good times and keeping heads above water in the tough times. Now the time has come for your client to monetize the value of his life’s work. He, and perhaps you, have visions of drawing up a simple agreement, receiving a handsome check, and riding off into the sunset. The reality is that a long and potentially hazardous journey is just beginning. What do you do now?
Acquisitions of Professional Firms
Physicians, lawyers, accountants, architects, veterinarians, real estate agents and other professionals licensed to provide services within their profession often form entities to own and operate their professional practices. The Texas Business Organizations Code (the “TBOC”), Tex. Bus. Orgs. Code Ann. § 1.001 et seq. (West 2012), the Texas statute governs the formation and management of business entities in Texas, recognizes and specifically addresses several types of entities used for professional practices including general partnerships (TBOC Title 4), limited liability partnerships (TBOC Sections 152.801 - 152.805), professional associations (TBOC Title 7 generally and TBOC Chapter 302 specifically), professional corporations (TBOC Title 7 generally and TBOC Chapter 303 specifically) and professional limited liability companies (TBOC Title 7 generally and TBOC Chapter 304 specifically). When a professional or group of professionals desire to sell his, her or their practice, the sale may be structured as sale of the assets of the business or a sale of the stock or ownership interests in the business entity. In many respects the purchase and sale of a professional firm is the same as the purchase and sale of any business. The steps of the transaction will be similar and familiar for a lawyer experienced in handling acquisition transactions of other types of business: a) preparation and negotiation of a letter of intent or term sheet; b) preparation and negotiation of the purchase agreement; c) assistance with the due diligence review; and d) preparation and negotiation of closing documents. However, there are a few notable differences involved when the target business is professional firm that deserve special consideration. This paper will focus on some of those differences and considerations.
Acquisition of Accounting Firms
These are the presentation slides.
Sale of the Business: Winning Seller Strategies for the Sale of Privately Held Businesses
These are the presentation slides.
Positioning the Family Business to Remain in the Family or Ready to Sell to a Third Party
This is an outline of topics in the sale of businesses.
Acquisitions of Partnerships LLC's
This presentation covers issues relating to the purchase and sale of interests in partnerships and LLC's. Specifically information relating to the interest to be sold; review of the business elements of the interest to be acquired; terms to include in a purchase agreement and closing documents; and limitations on or encumbrances to transferability.
Misbehaving Directors, Including Directors' Duties to Maintain the Confidentiality of Information
The conduct of corporate directors and officers is subject to particular scrutiny in the context of business combinations (whether friendly or hostile), executive compensation and other affiliated party transactions, allegations of illegal or improper corporate conduct, and corporate insolvency. The individuals who serve in leadership roles for corporations are fiduciaries in relation to the corporation and its owners. Increasingly the courts are applying principals articulated in cases involving mergers and acquisitions (“M&A”) to cases involving executive compensation, perhaps because both areas often involve conflicts of interest and self-dealing or because in Delaware, where many of the cases are tried, the same judges are writing significant opinions in both areas. Director and officer fiduciary duties are generally owed to the corporation and its shareholders, but when the corporation is insolvent, the constituencies claiming to be beneficiaries of those duties expand to include the entity’s creditors.
Analyzing The Puchase and Sale Agreement
The purpose of this article is to address select components of Purchase and Sale Agreements and related issues in the negotiation of Purchase and Sale Agreements in the context of private acquisitions of the stock or assets of private companies. This article begins by describing potential pitfalls associated with entering into what the parties to a future Purchase and Sale Agreement believe is a nonbinding letter of intent. A typical Purchase and Sale Agreement would address the following general components: (1) deal points, (2) closing and closing deliverables, (3) representations and warranties of buyer and seller, (4) pre-closing covenants, (5) post-closing covenants, (6) conditions to closing, (7) termination provisions, (8) indemnities, and (9) miscellaneous provisions including venue, governing law, expenses, notices, damages and dispute resolution provisions. As time does not permit a discussion of each of these components, this article and the presentation for which it is written will focus on key provisions that are customarily the subject of significant negotiation between the parties. The article includes examples of these provisions setting forth alternate provisions favoring buyers and sellers, where appropriate. The reader is cautioned that the sample provisions provided are included to serve as examples of hypothetical provisions. Careful attention should be paid to the drafting of any provision to be included in a specific transaction contemplated by the reader.
Cross Purchase and Buy-Sell Agreements for Small Businesses
A Buy-Sell Agreement is an agreement entered into by the owners of a closely-held company that governs the transfer and disposition of the ownership interests (“Interests”) in the company. The goal of a Buy-Sell Agreement is to promote the stability of the company and its owners by providing an agreed-upon framework for the manner in which Interests in the company can be held, transferred, and purchased. Without such an agreement in place, the company and its owners are at risk of unwanted co-owners, disorderly ownership and management succession, and the inability to ever liquidate an investment. While Buy-Sell Agreements typically have common elements, in the world of Buy-Sell Agreements “onesize does not fit all”; the terms of each Buy-Sell Agreement will need to be customized to fit the unique needs and goals of the company and its owners. The Buy-Sell Agreement for a company with two 50/50 owners will likely look quite different from a Buy-Sell Agreement for a company with four owners at 70/10/10/10. Also, as time passes, it may be necessary to have the owners of the company re-evaluate the terms of their existing Buy-Sell Agreement. What made sense 5 or 10 years ago may not make sense anymore such that the Buy-Sell Agreement may need to be modified to fit new circumstances and objectives.
Acquisition Structure Decision Tree
Buying or selling a closely held business, including the purchase of a division or a subsidiary, can be structured as (i) a statutory combination such as a statutory merger or share exchange, (ii) a negotiated purchase of outstanding stock from existing shareholders or (iii) a purchase of assets from the business. The transaction typically revolves around an agreement between the buyer and the selling entity, and sometimes its owners, setting forth the terms of the deal.
Choice of Entity and Acquisition Structure Decision Tree
These are the presentation slides.
Acquisitions of Partnerships and LLCs
These are the presentation slides.
Issues in Buy-Sell, Push-Pull, Russian Roulette, or Texas Shootout Provisions
The buy-sell provision may be in a separate agreement, but it is typically part of a more comprehensive agreement governing the owners’ relationship, such as a shareholders’ agreement, a partnership agreement, or an LLC agreement. It most often is considered as much a deadlock-resolution provision as an exit provision and arises in the context of two owners or two groups or sets of owners. An example of a forced buy-sell provision is Exhibit A to this paper. This paper describes various issues to be considered regarding forced buy-sell provisions. In general, this paper assumes only two owners.
Analyzing the Puchase and Sales Agreement
The purpose of this article is to address select components of Purchase and Sale Agreements and related issues in the negotiation of Purchase and Sale Agreements in the context of private acquisitions of the stock or assets of private companies. This article begins by describing potential pitfalls associated with entering into what the parties to a future Purchase and Sale Agreement believe is a nonbinding letter of intent. A typical Purchase and Sale Agreement would address the following general components: (1) deal points, (2) closing and closing deliverables, (3) representations and warranties of buyer and seller, ( 4) pre-closing covenants, (5) post-closing covenants, (6) conditions to closing, (7) termination provisions, (8) indemnities, and (9) miscellaneous prov1s10ns including venue, governing law, expenses, notices, damages and dispute resolution provisions. As time does not permit a discussion of each of these components, this article and the presentation for which it is written will focus on key provisions that are customarily the subject of significant negotiation between the parties. The article includes examples of these provisions setting forth alternate provisions favoring buyers and sellers, where appropriate. The reader is cautioned that the sample provisions provided are included to serve as examples of hypothetical provisions. Careful attention should be paid to the drafting of any provision to be included in a specific transaction contemplated by the reader.
Drafting Real Estate Contracts to Address Environmental Concerns
Environmental laws sweep broadly, regulating a wide range of business activities. The obligations and liabilities they create affect not only ongoing businesses, but also business transactions, including real estate transactions, stock transactions, financings and leases. This paper generally focuses on understanding and addressing concerns in real estate transactions, though similar principles apply with regard to other types of business transactions. Set forth below are: an overview of environmental programs; considerations pertinent to the structuring of real estate transactions and to the drafting of specific contractual provisions to manage environmental risks; and a brief description of some extra-contractual tools to manage those risks.