Monday, September 19, 2016

Business Formations and Transactions

Well-crafted transactional documents can save an enormous amount of time, money, and aggravation later on.  I regularly represent businesses in a wide range of transactional matters (including equity transfers; operating or shareholders agreements; financing; and other contracts).

I also represent businesses in dissolution proceedings and other litigation, which helps in anticipating the issues that can arise later on.  Too often, pure transactional attorneys fail to anticipate how their documents will apply in a litigation context.  In almost any business dispute, the parties and the courts first look to the applicable contracts, if any, to resolve the dispute. The exact same facts can have vastly different outcomes depending upon differences in contract language.  

Even when represented by experienced and expensive counsel, parties sometimes end up "agreeing" to contracts that do not correctly fit their situation or the actual agreement between them. 

For example, I recently had a dispute where a well-respected firm used voluminous but largely form documents that were mostly inapplicable to what the two-member LLC actually needed.  There was insufficient thought put into things that mattered (such as how and when profits were paid), but tons of ambiguous surplusage that the parties effectively ignored because it was inconsistent with their actual operation.  The court eventually resolved the dispute, but only after several hundred thousands of dollars in litigation costs that many smaller entities can ill afford.  

Similarly, I have seen many small businesses with either no agreement or something that was just thrown together, creating problems that are very difficult to correct in litigation.  For example, all too frequently, I see asset purchase agreements that fail to properly define the asset being purchased.  In smaller businesses, this can lead to, among other things, either a cost-prohibitive dispute, or a dispute where fee shifting takes on a life of its own. 

Even where there is no dispute at all (no-one plans a dispute when going into a new transaction), good agreements help make good business partners.  Much like fences help with neighbors, a properly crafted agreement defines boundaries and expectations in a way that facilitates the true "meeting of the minds" that is necessary for a smooth and productive business arrangement.