Our Denver small business attorneys assist small to medium sized partnerships and corporations from formation and entity structure, to the sale of the business or business interests and all transactions while the entity is operating. Our business attorneys understand the nuances of small businesses and thus help the business owners regarding specific tax and business law issues and transactions as well providing insight on practical considerations. This allows the small business owner to make more educated business decisions.

Types of Buy Sell Agreements by Denver Business Attorney

In a prior article, buy sell agreements were discussed in general, regarding the potential benefit to small business owners.  The article below has been drafted by a business attorney to provide general information regarding certain types or forms of buy sell agreements that small business owners may be able to use for their buy sell agreement.

A cross purchase agreement is a form of buy sell agreement whereby the owners of the business will enter into an agreement holding that is one of the business owners withdraws from the business, the remaining business owners will acquire the withdrawing owner’s business interests.  The acquisition of the interest can be directly from the business owner, or from the owner’s estate.  The purchase price for the business interest will be determined and dictated by the cross purchase buy sell agreement, and the funding for the purchase price is the remaining (or contracting) owners of the business.  Thus, the business does not pay for the interest that is being acquired.  A cross purchase buy sell agreement can be contrasted to a redemption type buy sell agreement.  Under the redemption agreement the business entity agrees to redeem the contracting owner’s interest when a specific event (triggering event) occurs.  The specific triggering events could be the withdrawal of an owner, the death of an owner or other circumstances that will trigger the entities requirement to redeem or purchase the interest.

Business owners can also create a hybrid type buy sell agreement that is a combination of the cross purchase agreement and redemption agreement.  Under the hybrid version of a buy sell agreement, the business entity has the primary right to purchase or redeem the business owners interest and the remaining business owner can be allowed (or perhaps required) to purchase the withdrawing owners interest to the extent the entity does not redeem or purchase the interest.  The order of priority can also be reversed whereby the remaining owners have priority to purchase the withdrawing interest.  However, it is important to note that if the entity is a C corporation, if the remaining shareholders have the primary obligation to purchase the withdrawing shareholder’s shares, but the corporation actually purchases the shares, the remaining shareholders are treated as if they received a dividend from the corporation to the extent of the corporation’s earnings and profits.

Business owners can also structure a buy sell agreement whereby the sale would be to a designated successor.  The successor could be a complete outsider with no synergy with the business or an individual intertwined with the business.

A buy sell agreement can also be established as a sale to an ESOP.  The ESOP would be designed to invest in the securities of the corporation that created the ESOP, and could provide a tax exempt means by which employees could participate in the business.

Thus, there are multiple options when drafting a buy sell agreement for your business.  You can discuss these matters with a Denver business attorney if you have questions regarding a buy sell agreement or other business matters.  The McGuire Law Firm provides a free consultation with a business attorney in Denver or Golden Colorado.

Denver Business Attorney Free Consultation

The McGuire Law Firm provides a free consultation with a business attorney.  John McGuire, the founding partner of The McGuire Law Firm believes it is important to provide a free consultation to small business owners for many reasons.  First and foremost, as a business attorney, Mr. McGuire views his relationships with clients as a long term relationship and therefore, he feels it is very important to get to know a client and for a client to get to know and feel comfortable with their attorney.  When being charged by the hour or a for a limited consultation, a potential client will often rush or hurry through their issues.  Therefore, a potential client should be entitled to a free consultation whereby they can discuss their business issues, questions and matters, as well as their overall business goals such that the attorney can fully understand what assistance a client is looking for. Furthermore, Mr. McGuire has paid for an initial consultation with an attorney, and did not feel a benefit was received from such consultation and therefore, no fee should have been required.

In terms of business services provided, a business attorney at The McGuire Law Firm can assist your business with the formation of the business, business contracts, drafting & negotiations, business tax matters and the purchase or sale of business assets or interests.  Mr. McGuire has enjoyed long term relationships with his clients and always welcomes the opportunity to meet with potential new clients to discuss their businesses and business endeavors and goals.  You can schedule a free consultation with a Denver business attorney by contacting The McGuire Law Firm.

The video below further discusses the free consultation provided by The McGuire Law Firm, and can also act as a short introduction to the law firm.  Please feel free to contact The McGuire Law Firm at anytime.

Contact The McGuire Law Firm to speak with a business attorney in Denver, Colorado or Golden, Colorado.

Buy Sell Agreements Discussed by Denver Business Attorney

Many individuals who own closely held business interests, such as an interest within a limited liability company or closely held corporation will enter into a buy sell agreement.  These individuals (and perhaps their estate) may accomplish a number of planning objectives and goals with a buy sell agreement, and potentially optimize income, gift and estate tax outcomes and implications depending upon the overall situation.

When an individual owns a closely held business, which can be considered an interest in a business where no readily available public market exists, they may have a number of problems and related concerns regarding the closely held entity.  The individuals within the business have likely invested significant capital, and their family’s economic security and growth may depend upon the success of this business.  Moreover, if an owner of the business left due to disability, death, retirement or otherwise, the remaining owners may not want to work with a different or “new” individual, or with a member of the departed owner’s family.  Therefore, a goal and objective of a buy sell agreement is wealth preservation (and liquidity of the ownership interest under certain circumstances)  and the remaining business owners control, continuity and overall maintenance of the  business without the need to bring in “outside” third parties who may not be wanted.  There are multiple issues to discuss regarding a buy sell agreement such as the funding and pricing of the agreement and of course the overall income, gift and estate tax consequences from the agreement, which cannot be discussed all within one agreement.  Thus, the remainder of this article will outline the general types of buy sell agreements, which are discussed below.

Generally, when an owner departs from a business there are two common purchasers of the business interest.  The remaining owners may purchase the interest through a cross purchase agreement and the business entity may purchase the interest through a redemption agreement.  These cross purchase agreement and redemption agreement may be able to be combined into one hybrid buy sell agreement.  You may also have the possibility to have an agreement whereby the business interest is sold to an individual or business that previously, was not interested in the venture, or even to employee via an employee stock ownership plan.  The common types or forms of a buy sell agreement may be called or referred to as: cross purchase agreements, sale to a successor, redemption agreements, a hybrid buy-sell agreement (this would be a combination between a cross purchase and redemption agreement) and sale to ESOP (employee stock option plan).  These types of agreements will be discussed in more detail in later articles.

If you think a buy sell agreement could benefit you, contact The McGuire Law Firm to speak with a Denver business attorney.  A Denver business attorney can assist you with your options and the drafting of necessary contracts and agreements.

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What is a Letter of Intent?

What is a letter of intent?  This is a common question a client may ask their business attorney.  A letter of intent may be used in a handful of circumstances and can be useful tool when parties are attempting to spell out the major terms and conditions of an agreement prior to moving forward with further drafting and negotiations.  By ensuring the parties are in agreement with a letter of intent, significant time and money can often be saved.  The video below has been prepared by a Denver business attorney at The McGuire Law to provide information regarding a letter of intent when parties are discussing the purchase and sale of a a business or business assets.  It is always recommend you discuss your specific circumstances with your business attorney and/or business advisors.  You can contact The McGuire Law Firm to speak with a business attorney in Denver, Colorado.  The McGuire Law Firm has offices in Denver, Colorado and Golden, Colorado for your convenience.

What is a Non Disclosure Agreement?

A Non Disclosure Agreement can be used in many circumstances.  The video below has been prepared by a business attorney at The McGuire Law Firm to discuss the use of a Non Disclosure Agreement in the context of a potential purchase or sale of a business.  Generally, it is recommended that you enter into a non disclosure agreement prior to discussing or disclosing any documents or information that would relate to a potential transaction.

The non disclosure agreement can protect you against the disclosure of confidential information that is disclosed to third parties as you move forward with a business purchase or sale.  For example, if you were looking to sell your business, you may not want your competitors or certain other third parties to have knowledge that you are contemplating such a sale.  Thus, the non disclosure agreement helps protect you from this type of information being disclosed.

Please feel free to contact The McGuire Law Firm to speak with a Denver business attorney regarding your business needs.  From the formation of your business, to the drafting and negotiating of contracts and the sale of your business, a Denver business attorney at The McGuire Law Firm can assist you.

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How is the Sale of a Business Taxed?

How is the sale of a business taxed?  How is the sale or transfer of my business (stock or partnership interest) taxed?  How is the sale of a business asset or group of business assets taxed?  These are common questions that a business owner or the holder of a business ownership interest such as stock or a partnership interest may ask.  The article below has been drafted to provide general information regarding the above questions or issues and is not specific legal advice for your specific issues and circumstances.  If you are considering selling your business or a business interest, you should consult directly with your tax attorney, business attorney and/or your other tax professional and related advisors.

Typically, a business will have many assets and thus the sale of the business is not the sale of only one single asset.  Generally, the sale of multiple assets of a business is treated as the sale of each individual asset to determine the gain or loss.  Thus when sold, the business assets need to be classified as capital assets, depreciable assets used in business, real property used in the business or inventory or stock in trade that is held so that the items can be sold to customers.  Again, the gain or loss on each item is calculated separately.  The sale of capital assets will result in capital gain or loss.  The sale of depreciable assets may result in ordinary income and the sale of inventory may result in ordinary income as well.

How will my partnership interest be taxed?  A partnership interest is a capital interest and will likely be treated as a capital gain or loss, but you recognize ordinary income or loss for inventory and unrealized receivables.

How will my corporate interest or corporate stock sale be taxed?  Your corporate interest is measured by your stock certificates or number of corporate shares.  Corporate stock is generally considered a capital assets and thus capital gain or loss is typically recognize, but exceptions due apply depending upon the overall circumstances of the shareholder and the corporation.

What is the tax treatment upon the liquidation of my corporation?  Corporate liquidations are generally treated as the sale or exchange of property and thus capital.  Generally, gain or loss will be recognized by a corporation on the liquidating sale of corporate assets.  Furthermore, typically gain or loss will be recognized on the liquidating distribution of corporate assets as if the corporation had sold the asset to the distibutee for fair market value.

If you have questions related to the tax treatment of the sale of your business or business interest, you may speak with a Denver tax attorney or business attorney by contacting The McGuire Law Firm.  The McGuire Law Firm provides you with a free consultation to discuss your matters with a tax attorney and business attorney.  You can call 720-833-7705 to schedule your consultation.

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Liability Relief and Liquidating Distributions From a Partnership

In previous articles liability relief from a partnership has been discussed.  Generally, liability relief from a partnership is deemed a distribution to the partner who has been relieved of the liability.  But, what happens when a partner is relieved of liability at the liquidation of the partnership?  Can liability relief be deemed a liquidating distribution to a partner in a partnership?  The article below has been prepared by a tax attorney in Denver, Colorado from The McGuire Law Firm to provide additional information regarding this issue.  Please remember to consult your tax attorney or business attorney directly regarding any related issues.

In regards to the question asked above, the answer is yes.  Just as with normal partnership distributions, liquidating distributions include not only money, but any relief from partnership liabilities.  Under Internal Revenue Code Section 752, a deemed distribution of cash or money is attributable to recourse liability relief when the deemed distributee (partner being relieved of liability) would no longer bear the economic risk of loss for the recourse liability of the partnership as a tax partner.  Often the question arises, when is a withdrawing partner relieved of a liability?  The general rule may be that a partner has immediate liability relief for any of the partnership liabilities that the continuing partnership maintains.  Under Private Letter Ruling 9622014, a selling partner will include guaranteed partnership liability in their amount realized when the purchasing partner indemnified the partners, even though the lender actually refused to release the withdrawing partner from the liability.  Thus, there was a deemed distribution even though technically the withdrawing partner would have still been liable to the bank under the terms of the bank loan.

What happens when the partner or partners receive a series of liquidating distributions?  When a partnership liquidates and the distributions are made through a series of liquidating distributions, recourse and non-recourse liability relief may not occur until the final distribution is received.  The reasoning behind this matter is that a withdrawing partner remains a tax partner of the partnership until the final distribution is received from the partnership.

If you are considering withdrawing from a partnership or liquidating a partnership, it is important to under the tax implications of the distributions from the partnership you will receive and how debt relief can be treated.  You can speak with a Denver tax attorney by contacting The McGuire Law Firm.  The McGuire Law Firm provides a free consultation with a Denver Tax Attorney to all potential clients.

Contact The McGuire Law Firm to schedule your free consultation with a Denver Tax Attorney!

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Unemployment Employer Audits in Denver, Colorado

Audits are performed by the Division of Unemployment Insurance within the Colorado Department of Labor and Employment as federally required. The requirement has been established in hopes of insuring compliance by employers as well as to provide guidance, information and help to employers.  How are businesses audited by the Division of Unemployment Insurance in Colorado?  This is a common question asked by business owners in Colorado, and the answer is that most of these audits are at random.  The United States Department of Labor requires that all states audit one percent (1%) of all employing businesses each year.  In Colorado, the “pool” to choose from is all employers that are registered or performing services within Colorado.

 

During the audit, the auditor will work to verify the following:

–          The proper classification of all workers (independent contractor versus employee)

–          The accuracy of wages being reported for workers

–          The appropriate filing of reports and information

 

The examination includes records such as tax returns, income statements, general ledgers, bank statement and other documents.  Authority is given through the Colorado Employment Security Act, in sections 8-72-107 through 8-72-110.

Often issues come about regarding the classification of workers. Many times an individual will be treated as an independent contractor when in fact they should be paid and treated as an employee.  The definition of an employee or employment is broad in Colorado, and does not necessarily fall under the common law relationship that may be used by the Internal Revenue Service.  In Colorado, there are two main concepts used to determine the status of a workers: 1) Is the individual free from control and direction in regards to the performance of services, when considering the contract for the performance of the services and in fact when the true circumstances are reviewed and, 2) Is the individual customarily engaged in an independent trade, occupation, profession or business related to the services the individual is performing.

An auditor will review all of the facts and circumstances during an audit such as any agreements in place, the day to day operations of the business, use of tools, how is payment made for services, advertising and the typical everyday operations and interactions within the business and the related parties.  An auditor can determine that individuals are employees as opposed to independent contracts and thus look to reclassify the status or classification of a worker.

You can contact The McGuire Law Firm to speak with a tax attorney or business attorney in Denver, Colorado regarding your business and tax matters.  The McGuire Law Firm allows a free consultation with a tax attorney in Denver or Golden Colorado.

 

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Stock Sale

What is a stock sale?  How is a stock sale different from an asset sale?  Is a stock sale or asset sale better?  As a business attorney, these are common questions I hear from clients when they are considering selling their business.  A stock sale and an asset sale have advantages and disadvantages, which may me more pronounced to either the buyer or seller.  The article and video below have been prepared by a Denver business attorney at The McGuire Law Firm to provide information regarding a stock sale.  Please remember that the information provided on this site is for informational purposes and it is recommended that you always consult with your business attorney and/or tax attorney before entering into any business or individual transaction.

Unlike an asset sale, a stock sale is the sale of the corporate stock.  Thus, the corporate assets are not necessarily purchased, but the ownership of the corporation has changed.  Thus, with a stock sale the corporation remains.  This may be a benefit to the seller of the stock because they may only recognize capital gain on the sale of the stock, as opposed to the corporation recognizing gain under an asset sale if the corporation were a C corporation.  However, because the corporation remains, the liability of the corporation for previous acts “follows” the corporation.  Thus for liability purposes and exposure to prior corporate actions, many buyers would prefer an asset sale.  Furthermore, when buying the stock of a corporation, the buyer does not receive the same step up in basis for the corporate assets that they would have, had they purchased the assets through an asset sale.  Thus, the depreciation amounts carry over through a stock sale from the seller to the buyer, which is typically a disadvantage to the buyer.  The step up in basis to the purchase price of the assets would generally lead to a larger deduction and thus tax benefit.

There are other matters and issues to consider between a stock sale and an asset sale.  If you have questions related to the sale of your business, the purchase of a business or another business transaction, please contact The McGuire Law Firm to speak with a Denver business attorney.

Schedule a free consultation with a business attorney in Denver or Golden Colorado by contacting The McGuire Law Firm.

What is a Limited Partnership?

What is a limited partnership? Previously, a Denver business attorney from The McGuire Law Firm has discussed certain types of entities including partnerships in previous articles.  The article below will discuss a limited partnership.

A limited partnership could be considered a type of hybrid business structure because there are multiple types of partners/members. In a limited partnership there must be at least one partner who is liable for the debts of the partnership, and other business obligations.  Additionally, there must be at least one limited partner who is not liable and responsible for the business.  In comparison to a general partnership, a limited partnership cannot be formed simply by conduct.  Remember, a general partnership can be formed when two or more people begin conducting business for a profit.  A limited partnership must file the appropriate forms and papers with the necessary state agency such as the secretary of state.

The general partner will have management authority and will thus operate and manage the partnership and related business affairs.  The limited partner acts more as a passive investor, and does not have the responsibility of managing the business.  Thus, what can you compare a limited partner to?  In many respects, a limited partner is similar to a shareholder in a corporation.  The limited partner invests in the partnership and under the worst case scenario they may lose their investment, but such limited partner is not responsible for the debts and obligations of the partnership.  If a limited partner does exert too much control or dominance over the general partner or general partners, the limited partner could actually be liable for the business debts.  By exerting such control, the limited partner has de facto become a general partner of the limited partnership and thus exposed themselves to liability.  Different acts control such issues within a limited partnership and state law and case law should always be researched and reviewed.  Many current laws also allow business agreements that tailor the relationship between the partners and between the partners and the business. This may include tailoring the fiduciary duties a partner may have to the partnership and a partner not being liable for a breach of a fiduciary duty when one would expect such partner to be liable.  In many respects, it appears the fiduciary duties of a partner in a limited partnership can be limited more so than in a general partnership.

For tax purposes, a limited partnership is a pass through entity whereby the entity is not taxed, but items are passed through to the individual partners.

The one major drawback to the limited partnership is the exposure to the general partner.  Thus, most general partners within a limited partnership today would be corporations.  Because of the limited liability afforded to those who own and run the corporation, a limited partnership with a corporate general partner should help prevent personal exposure.

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