Are You Commingling Multiple Businesses?

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If you own multiple limited liability companies or corporations are you commingling the businesses?

If so, you expose these ventures to unnecessary legal dangers.

For example, a court might decide one company is the alter ego of the other and hold both of them liable in a lawsuit. Instead walls of protection, you’ve let down the drawbridge and invited in plaintiffs to raid all of your companies.

So, how do you avoid this commingling danger?

Treat them as separate companies.

For instance, don’t raid the bank account of Company A to pay Company B’s expenses simply because the latter is short on cash.

And when the entities do business with each other, use written contracts that explain the rights and duties of each entity under the agreements.

For example, if Company A wants to advertise on Company B’s website, there should be an advertising agreement in place where B gets compensated somehow by A for running the ads. No freebies from one company to the other simply because you own both.

What about intellectual property? If one company owns the IP, but you want both companies to use it, chances are you’ll need some type of licensing agreement between one entity as owner (licensor) and the second entity as licensee.

An experience business lawyer can help you put the right documents in place to protect your multiple businesses from improperly commingling. And if you’ve already been commingling, he can help you fix the situation to minimize the legal risks.

What Does Your Business Entity Own?

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If you set up a limited liability company (LLC) or corporation for your existing business, what does the new entity own?

Too often, the answer is nothing.

How does that happen?

Your sole proprietorship or partnership never gets around to actually transferring the business assets to the new entity.

So, you’re really still running the business as before while pretending there’s a corporate liability shield in place to protect you as the owner.

Unfortunately, a hollow entity (without assets) isn’t going to protect you personally.

Naturally this means you’ll want to transfer the assets to the entity so that it can operate as intended for tax and liability purposes.

An experienced business lawyer can help you use the right contracts and assets transfer paperwork in a way that makes sense for your business model. Because if you’re going to set up a corporation or LLC, you might as well take advantage of it.

Products Licensing: How To Profit From It

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Whether you sell products or services, you can make additional revenue by products licensing.

If you sell products, find complementary products available from third parties and license the right to sell them to your customers.

Depending upon the price point, a third-party product that you license can serve as an upsell, cross-sell, entry level product for your own product(s), or even be bundled with your products and sold together.

Of course, you can also license your products to be sold by others. Whether you receive a flat $XX per sale, a percentage of the sale, or some other revenue, it’s an easy way to generate additional cash flow while the third party handles the marketing and sales for you to their prospects and existing customers.

What if you only sell services? Chances are there are products that fit within your niche that can be licensed to sell.

Naturally, whether you’re the licensor or the licensee, the product license must make sense, i.e. be a natural fit for the licensee’s customers.

An experienced business lawyer can help you put together the right type of licensing and distribution agreement for what you plan to do that helps you maximizes profits while minimizing the legal risks.

Should Your Purchase Of A Business Be Confidential?

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When you buy a business, it often makes sense to keep the transfer of ownership confidential. Whether it’s an equity or asset purchase, it rarely makes sense for existing customers to know ownership has changed.

Of course, there are exceptions to this general rule.

For example, if you plan to change the company’s trade name, customers are going to want to know why.

However, prospective and existing customers expect reliability. And ownership changes don’t create an image of stability but signify change instead.

If you’re buying a business and want to keep the acquisition confidential, make sure your purchase agreement contains enforceable nondisclosure provisions that reduces the risk the seller or someone else will tell others about your purchase.

Fortunately, these contractual provisions can be crafted by an experienced business lawyer to precisely the scope of what you want said and left unsaid about ownership and the transition.

What happens if you change your mind after signing the agreement? For example, you decide there’s a valid reason for letting everyone know you just bought the company. Sellers are often willing to amend the purchase agreement so that confidentiality no longer applies or is less rigid.

How To Replace A Business Partner

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how to replace a business partnerIf you co-own a business but things aren’t working out with your business partner, that usually means one of you has to go if the company is going to survive. In other words, either you or the business partner gets bought out.

Who Is A Business Partner?

Now before discussing this issue in detail, it’s important to note that “business partner” in this article generically means another equity owner. In other words, it’s a shorthand way of referring to partners in partnerships, LLC members, corporate stockholders, etc.

Existing Roadmap For Getting Rid Of A Partner

If your business’ legal documents were set up correctly, there will be a procedure already agreed to in writing by the equity owners (e.g. an LLC operating agreement) that provides for a business partner leaving. Typically, this type of written agreement will empower the company to buy out the departing partner. And if the company does not, then the remaining equity owners will have the option to buy out the partner instead.

New Agreement For Exiting

But what if there’s nothing in writing to govern the sale? Or both of you want to stay? You can reach a new buy-sell agreement on how to decide who stays and who goes.

For example, a popular method is a Texas shootout. Both you and the co-owner each bring to the table sealed envelopes with your offer to buy out the other person’s equity. When the envelopes are opened, the one who has made the highest offer buys out the other.

What Not To Do To Your Business Partner

What shouldn’t you do when getting rid of a partner?

  • Never dilute the partner’s equity by bringing in other equity owners without the partner’s consent.
  • Don’t stop paying the partner his share of the profits in the hope that he’ll go away.
  • Avoid breaching your fiduciary duty. For example, don’t funnel business opportunities elsewhere where you can profit while stiffing the partner and competing against the company in the process.

Communication Is Key

  • You can agree to disagree.
  • You can agree that it’s time for someone to leave the company.
  • And you can agree on a method for making that happen.

Because silence isn’t golden when a business relationship sours. It’s a recipe for corporate bankruptcy and lawsuits between the partners that could have been avoided.

An experienced business lawyer can help you walk through the process of getting rid of a business partner. Don’t just wing it and hope for the best.