John M. McCormick

An Asset Purchase Agreement (APA) is a legal document that finalizes all the terms related to the purchase and sale of a company’s assets. So, what is an asset? An asset is an item that is owned by a Company that has some value. These items can be tangible, such as machinery or vehicles, or intangible, such as vendor lists, data, or bank accounts. An APA is a flexible legal mechanism as it allows the Buyer to choose which assets and which liabilities it would like to assume. For example, a Buyer can choose to purchase the rights to use trademarks, the website, or social media profiles and specifically exclude certain contracts or liabilities from becoming a part of the deal.

A Stock Purchase Agreement (SPA) is a legal document whereby stocks of a Corporation are transferred from the Corporation to a purchaser for value. When the deal is finalized, the seller will transfer the stock certificates to the buyer and the buyer pays the price according to the agreement as consideration for the stocks. A Stock Purchase Agreement can be a little riskier than an Asset Purchase Agreement as you may not be one hundred percent certain of what you are purchasing. This agreement lays out in detail the terms of the deal including representations and warranties, number, and price of shares, when the stocks will be transferred and so much more.

As a business owner, you spend a great deal of time and effort providing services, labor, materials, and/or equipment to complete a customer’s project. You expect to be paid for your services and it can be devastating to your business if you are not paid. Unfortunately, in today’s world, payment disputes are becoming very common in every industry. As a business owner, what can you do to obtain payment for the money that you are owed?

Forming a Nonprofit is an admirable thing to do and leads to much satisfaction in one’s life. Nonprofits help shelter the homeless, clothe the less fortunate, feed the hungry, and so much more. One of the many advantages of forming a Nonprofit is that your organization can potentially become tax-exempt. While often used interchangeably, simply being a Nonprofit, does not give your organization tax exempt status. It is not until your organization is approved by the Internal Revenue Service, as being a valid 501(c)(3), that your organization will be tax exempt. In obtaining 501(c)(3) status, there are many factors your organization should consider. One of the most important of those factors is your Board of Directors. Here are some helpful tips regarding how your nonprofit should structure their Board to comply with the IRS.

The Board of Directors is the nucleus of the company. The Board is responsible for directing, managing, protecting shareholder assets, and striving to give shareholders their biggest return on investment. Therefore, it is essential a company selects the most effective individuals to ensure success. So, how do you do this? Here are a few tips to ensure your Board of Directors is the best possible.

Piercing the corporate veil can expose you to personal liability, but it can be avoided by making a few wise decisions. Piercing the corporate veil occurs when a court decides that the owners, creditors, or directors of a corporation or LLC should be held personally liable for the debts of the corporation or LLC. Many people who have decided to incorporate or form an LLC do so specifically to avoid this personal liability, but it may do no good if the corporation or LLC is not operated appropriately.

The main reason that courts decide to pierce the corporate veil is that the corporation failed to be its own individual entity. Corporations and LLCs must exist separately from their owners because in the eyes of the law such business structures are individual (non-natural) persons. When a court determines to pierce the corporate veil, it is likely because the owners of the corporation, LLC or other structure involving limited liability, failed to adequately separate the business as its own entity. Here are 4 tips to ensure a corporation or LLC is its own entity rather than merely the instrumentality of its owners.

How will you decide?

You are on the right track to consider these various options, because each carry certain advantages that may be of benefit to your business. Corporations were originally formed to provide liability protection to investors; you could lose what you put in, but that was the extent of your exposure. Corporations were treated in law as “persons” and held to have an existence separate from their shareholders which justified this treatment. Corporations were the first tool to protect personal assets and shield the business owner from personal liability.

However, if corporations were persons, they could be taxed. This led to the issue of “double taxation”: as a shareholder of a corporation, you were not only taxed on the income (dividends, etc.) that you earned from the corporation, but the corporation itself was also taxed on such income.

Naturally, savvy businesspeople – and their accountants and tax lawyers – sought a way around this double tax treatment. They fastened on the partnership, which is a group of individuals bound by contract but not an entity separate in itself. Therefore, the partnership itself was not subject to tax; only the partners were taxed on the income.

The partnership idea seemed great! Less taxation, brilliant! From a legal standpoint, the partnership is not separate from the partners, and therefore, when something happens (as it always does)… each partner is liable for his or her share of the damages. A partnership offered potentially better tax treatment but sacrificed personal liability protection.

Then some clever lawyers had an idea: what about an entity that was taxed like a partnership… but treated like a corporation when it came to liability? The best of both worlds, right?

In response, the following hybrids were created in an ongoing effort to realize this dream:

• S-Corp. Wonderful idea: a full-on corporation taxed like a partnership. Mission accomplished, right? Well… not quite. The law imposes strict limits on how many investors you can have – and of what kind – and otherwise burdens this good idea with requirements that reduce its utility. A common misconception is that the S-Corp is a separate type of entity. S-Corp is a tax designation, not an entity type. In a separate blog, we will address this misconception in more detail.

• Limited Partnership (LP). This is the S-Corp, in reverse – an actual partnership, taxed like a partnership, but with corporate protections for all the limited partners, i.e., the folks who put in the money but don’t do the work. It also proved to be somewhat awkward to administer for most businesses – and nearly all small businesses – but it continues to be popular in certain industries, e.g., oil & gas, private equity, etc.

• Limited Liability Company (LLC). These hybrids are the result of continuous efforts to combine – or shall we say, refine – the benefits of both S-Corps and LP’s. The LLC is like a corporation in that it provides liability protection for investors (called “Members”); one is only liable up to the limit of her investment. However, it may elect to be taxed like a partnership – meaning that there is only one level of taxation. Furthermore, it is also a creature of contract, meaning that the members collectively decide on how the business and affairs of the company are to be managed and the collective rights and obligations of each member.

There are a number of considerations that go into the selection of one form of business entity versus another. The trend in the law and in the business community is toward the LLC because it provides liability protection, single-taxation, and maximal flexibility in administration. Next week, we will post a detailed blog and video on the Limited Liability Company to describe how the LLC structure can benefit you and your business.

As a result of the current pandemic gripping the United States and the world, companies everywhere have been overwhelmed by the loss of customers and the need to reduce operations, layoff staff, and transform their businesses in ways they could never foresee. The loss of business caused by the COVID-19 pandemic has put many businesses in jeopardy of defaulting on contracts, either because of an inability to pay, lack of demand, or both.

As a business owner, you must consider your options and potential remedies. One ancient doctrine of the law – that of force majeure – offers some guidance on how a business may achieve some relief from obligations that have now become exceedingly difficult due to circumstances not contemplated by the parties at the time of contracting.

“Force majeure” – from the French for “superior force” – is a legal doctrine that excuses a party’s nonperformance under a contract when extraordinary events prevent a party from fulfilling its contractual obligations.

Similar to force majeure, The doctrine of impossibility excuses both parties from their obligations under a contract if the performance has been rendered impossible by events occurring after the contract was formed.

In sum, force majeure and the doctrine of impossibility may provide a contracting party with a viable defense; however, these defenses present significant evidentiary challenges that require an experienced attorney. If your business is facing such difficulties, McCormick Law & Consulting is here to help. Please give us a call to discuss your contract, analyze potential solutions, and assist with the best path forward. We love working with business owners and entrepreneurs throughout Virginia and North Carolina.

Maybe not! Are you OK with walking away and saying: "I don't need the contract fulfilled, I'm fine, I'll move on to the next thing." If that's the case, then maybe you don't need an attorney. However, if there is liability risk and the result is going to be harmful to yourself, your family, or your business then you need to know what you are signing and where you will be if the contract falls apart. Can you live with the results? Are you protected? If you are entering into a new contract or evaluating options with an existing contract then let me know. I would be happy to assist!