Raleigh Estate Planning and Corporate Law Attorneys

You are here: Home / Blog

Do I Need A Lawyer When Buying Or Selling A Company? Absolutely!

By

Mergers and acquisitions (M&A) are transformative events for any business and the people involved. They can open doors to new markets, create economies of scale, and drive growth – or, they can turn into a disaster without the right partner to help guide you through the process. 

In North Carolina, businesses seeking to engage in M&A transactions need more than just a handshake; they need the guidance of a seasoned North Carolina mergers and acquisitions law firm to avoid potential pitfalls and ensure success on both sides of the transaction.

What Does The Business Purchase and Sale Process Look Like?

If you’ve never bought or sold a business before, the process can be daunting. What looks like a fairly straightforward transaction can be full of pitfalls without an experienced partner at your side. For most transactions, you’ll follow a process similar to this once you’ve identified a buyer (if you’re selling) or someone looking to sell their business (if you’re buying):

  • Preliminary Evaluation: The buyer conducts an initial review of the target company, including its financials, operations, and market position, to determine if it aligns with the acquisition goals. This is done under a non-disclosure agreement (NDA) to ensure privacy for any information shared.
  • Letter of Intent (LOI): Once a suitable target is identified, the buyer issues a non-binding Letter of Intent outlining the proposed terms and structure of the deal. This shows serious interest and sets the framework for negotiations.
  • Due Diligence: The buyer conducts an in-depth analysis of the target company. This includes financial audits, legal checks, operational reviews, and risk assessments to ensure no major issues are overlooked.
  • Negotiation and Agreement: Based on the findings from due diligence, the buyer and seller negotiate the final terms of the sale, including price, warranties, and contingencies. The parties draft and sign a binding Purchase Agreement.
  • Regulatory Approvals and Financing: If necessary, the buyer seeks regulatory approvals and finalizes financing arrangements. This ensures compliance with legal requirements and secures the funds for the purchase.
  • Closing: The transaction is officially completed. Legal documents are signed, funds are transferred, and ownership of the business is passed to the buyer.
  • Integration and Post-Acquisition Activities: If the buyer is an existing business, the buyer integrates the acquired business into its operations. This includes aligning systems, processes, and cultures while addressing any issues that arise during the transition.

Pre-closing, more deals fall apart than are generally completed, so it’s important to have an experienced partner like Wilson Ratledge by your side to identify any potential issues before they turn into a headache.

The Role of a North Carolina Mergers and Acquisitions Attorney

An experienced attorney helps you navigate every phase of an M&A transaction. From structuring the deal, to mitigating risk, to ensuring compliance with local and federal laws, legal counsel can help protect your interests and ensure you don’t make mistakes during the process.

How Legal Counsel Can Help

  • Deal Structuring: Determining whether the transaction will be a stock purchase, asset purchase, or merger, and how the purchase price will be paid (very few transactions are simple all cash at closing these days) happens at the Letter of Intent stage or before, and it can have significant tax and liability implications. It is vital that you involve legal representation as early in the process as possible to facilitate a smoother process after the Letter of Intent is signed.  Just because the LOI is non-binding does not mean either party should freely materially modify the transaction after the LOI is signed.  Your lawyer, along with other parties such as a banker or financial advisor, can help you understand the practical and tax implications of the different purchase models from the beginning.
  • Contract Drafting and Review: Ensuring all agreements are thorough, comprehensive and tailored to the specific needs of you and your business.  The importance of this piece of M&A cannot be overstated.
  • Risk Mitigation: Identifying potential liabilities and issues during due diligence and addressing them proactively.
  • Closing the Deal: Overseeing the final stages to ensure all documents are signed, the proper flow of funds, and compliance requirements are met.

Start Your M&A Journey With Confidence

Whether you are considering merging with another business, being acquired by or acquiring a competitor, the legal framework surrounding these transactions is complex but manageable with the right guidance. 

At Wilson Ratledge PLLC, we work closely with business owners to protect their interests and help them achieve their strategic goals. Let us help you navigate the legal aspects of buying or selling your company, and position your future for long-term success.

COA Latest Award of Benefits

By

Recently, the North Carolina Court of Appeals weighed in on the issue of upholding an award of disability benefits based on employment in Kersey v. Perdue Farms Inc., No. COA24-455 (filed Dec. 31, 2024).

It was an appeal by Defendants from an Opinion and Award by the Commission ordering that Plaintiff receive disability benefits beginning May 5, 2021.

On May 5, 2021, Plaintiff experienced a sharp, electric pain in his neck and shoulder, while manually cranking a gear that required an unusual amount of exertion due to a potential malfunction or inadequate lubrication of the landing gear he was working on. Plaintiff’s claims were denied, and he went on to obtain medical treatment on his own. Plaintiff did not work after the May 5, 2021, injury and Perdue Farms did not offer him any light duty, modified, or full duty return to work options. At hearing, Plaintiff testified that he believed he remained employed by Perdue Farms because he was still using the company’s health insurance and he had not received any termination notification.

On April 6, 2023, a Deputy Commissioner found that Plaintiff had suffered a compensable injury to his neck on May 5, 2021, and awarded indemnity benefits from that date and continuing until Plaintiff returned to suitable employment or further order of the Commission, which was confirmed by the Full Commission.

On appeal, Defendants argued that the Commission erred in finding that Plaintiff remained employed as of the date of the evidentiary hearing, which was rejected by the Court of Appeals in part due to Plaintiff’s hearing testimony. Defendants also argued that work restrictions had not been assigned, which was rejected by the Court of Appeals as one physician noted Plaintiff was “not to drive, operate heavy machinery or make important decisions while taking narcotics, muscle relaxants, or neuroleptic”; a second physician stated Plaintiff should not drive a truck until he was assessed by a surgeon and testified at deposition that he “would have absolutely kept this patient out of work”; and the surgeon subsequently signed an out of work note. In addition, the Court of Appeals agreed with the Commission that Plaintiff’s treating physicians recommended surgery, and his work restrictions were pending the surgery, so it would be unreasonable to expect Plaintiff to seek other employment.

As a result of the above findings, the Court of Appeals found competent evidence to support the Commission’s findings that Plaintiff believed he remained employed by Perdue Farms and no evidence of termination existed; that two physicians placed work restrictions on Plaintiff preventing him from returning to his pre-injury position; and Defendant did not offer Plaintiff suitable employment. Furthermore, there was competent evidence that Plaintiff remained available for work within his restrictions, and given his non-MMI status and continued employment, it was premature for him to seek alternative employment.

Why is this case so important and what does it mean for you?  Contact our workers’ compensation defense team to find out.

Seller Financing Issues When Selling Your Small Business

By

Have you ever considered offering seller financing to attract more buyers for your business? It can be a game-changer, opening the door to a wider pool of potential purchasers while helping you secure a higher price. However, seller financing is not without its challenges, and navigating these challenges will help protect your financial interests.

Seller financing—where the seller acts as the lender—is increasingly common in small business sales, particularly when traditional financing options are limited. While this arrangement can provide flexibility and competitive advantages, it also introduces unique risks and responsibilities. Understanding these issues can help you decide whether seller financing is the right choice for you and your business.

What Is Seller Financing?

Seller financing allows a buyer to purchase your business with a down payment, while you finance the remaining balance over a set period. This arrangement often includes a promissory note outlining repayment terms, interest rates, collateral, and default conditions.

Why Do Business Owners Consider Seller Financing?

  • Attract More Buyers: Offering financing can make your business more appealing to buyers who lack the upfront capital.
  • Command a Higher Sale Price: Buyers are often willing to pay a premium for the flexibility of seller financing.
  • Faster Sale Process: With fewer barriers to entry, deals can close more quickly.

Common Seller Financing Terms

Typical seller financing arrangements require:

  • A down payment (usually 10%-30% of the purchase price).
  • Repayment terms spanning 3-7 years.
  • Interest rates slightly higher than bank loans to compensate for the seller’s risk.
  • Collateral consisting of business assets

The Risks of Seller Financing

While seller financing offers significant advantages, it also exposes you to financial and legal risks. A well-structured agreement can help mitigate these concerns.

Risk of Buyer Default

One of the greatest risks is the possibility of the buyer defaulting on payments. This could leave you with an unpaid balance and, potentially, a repossessed business to manage.

Impact on Your Retirement or Future Plans

If you’re relying on proceeds from the sale to fund your retirement or another venture, delayed or missed payments could disrupt your plans.

Legal Complexities

Without clear legal terms, disputes over payment schedules, interest rates, or collateral could arise. Proper documentation is essential to safeguard your rights.

Protecting Yourself When Offering Seller Financing

When offering seller financing in a business acquisition, there are a couple of steps you should take to protect yourself from potential risks. 

The first step is conducting thorough due diligence on potential buyers. This involves reviewing their financial history, creditworthiness, and business experience to ensure they have the capability to meet repayment obligations. 

Additionally, requiring collateral—such as business assets or personal guarantees—can provide security and give you recourse in the event of a default. 

Working with a lawyer to draft a comprehensive agreement is critical to help you clearly outline repayment terms, interest rates, penalties for default, and collateral requirements to ensure all parties are appropriately responsible and protected. 

Lastly, understanding the tax implications of seller financing can help you prevent a surprise tax bill in the future. While it may offer benefits, such as spreading capital gains over several years, it can also introduce complexities related to immediate income recognition on depreciation recapture and “hot assets” (like inventory, accounts receivable, and others). 

We’re Here to Help

Wilson Ratledge business attorneys can help you navigate these issues,  safeguard your interests and set the stage for a successful transaction.

Whether you’re preparing to sell your business or need assistance structuring a financing arrangement, our team is here to guide you every step of the way. If you’re ready to take the next step, contact us today to discuss your goals.

NC Supreme Court Sets Standard for Extended Benefits

By

On December 13, 2024, the North Carolina Supreme Court filed its long-awaited decision in Sturdivant v. NC Dept of Public Safety, providing what should be the final word on the standard to be used in cases involving claims for Extended Compensation beyond the 500 week cap provided by N.C. Gen. Stat. § 97-29.  The decision is a vindication of the arguments advanced by the defense since the start of the litigation in these matters – that the term “total loss of wage-earning capacity” is different from the analysis of temporary total disability.

In Friday’s decision, the Supreme Court says the Legislature’s 2023 “clarification” that the term “total loss of wage-earning capacity” means the complete elimination of the capacity to earn any wages was really unnecessary, since the plain meaning of N.C. Gen. Stat. § 97-29 was clear when enacted in 2011:  “In sum, when the Industrial Commission interpreted the phrase ‘total loss of wage-earning capacity,’ it did so correctly.  The Commission properly concluded that the phrase means an employee’s ‘total loss of the ability to earn wages in any employment.’”  As a result, the Supreme Court rejected the Court of Appeals’ interpretation of the phrase “total loss of wage-earning capacity” and affirmed the denial of extended compensation to Plaintiff.

Read the full Order here.

With this decision, claims for Extended Compensation beyond the 500th week should be reserved for the extraordinary situation in which the injured worker’s capacity to earn wages is completely eliminated.  The ability to earn any wages whatsoever, in any capacity, should be a bar to Extended Compensation.

The Importance of Due Diligence in Mergers and Acquisitions

By

We have written before about mergers and acquisitions and potential reasons to consider in your growth or exit strategies, and generally, what the process entails.  Whether you are a target or acquiring company, due diligence is a critical element of any transaction. In this post, we discuss what you need to know about due diligence in mergers and acquisitions, including what it is, why it matters, and how it helps set your company up for success.

What Does Due Diligence Mean in Mergers and Acquisitions?

Due diligence in mergers and acquisitions is a comprehensive analysis of the target company’s books, records, contracts, financial statements, tax returns, corporate culture, intellectual property, real property, equipment, in order for the acquirer to satisfy itself that the transaction and post-closing integrations will result in the benefits anticipated when negotiating the letter of intent. The official process begins with signing a confidentiality agreement and a letter of intent. Typically, the buyer conducts due diligence with the help of internal personnel and external advisors such as business lawyers, tax attorneys, financial professionals, auditing firms, asset appraisers, cybersecurity analysts, and other industry consultants. 

Five Key Reasons Due Diligence Matters in Mergers and Acquisitions

Companies should conduct due diligence in mergers and acquisitions with the following goals in mind:

1. Understanding the Target Company

If you’re considering merging or acquiring a company, you already know something about it. However, due diligence lets you peek behind the curtain for a more in-depth look. You can analyze everything from management structure and strategic goals to revenue models and customer contracts. 

2. Mitigating Risks and Identifying Opportunities

As you look more closely at an organization, you will learn more about its selling points and drawbacks. On the upside, you may discover additional synergies, favorable business prospects, and valuable cost-cutting opportunities. On the downside, you may uncover environmental problems, labor law violations, or pending litigation. 

3. Complying With Laws and Regulations

Due diligence can alert you to financial, regulatory, and legal compliance issues prior to a merger or acquisition. You may spot red flags, such as government investigations (including tax or other regulatory audits) or intellectual property issues. Verifying compliance beforehand helps save time, resources, and reputational damage later.

4. Determining Valuation Adjustments

Evaluating financial statements, cash flow, revenue streams, and historical metrics helps you identify hidden issues that may affect the valuation.  Specific issues revealed during due diligence and be addressed by negotiating one or more of purchase price adjustments, escrows, additional warranties, and specific indemnity provisions.

5.  Integration Planning 

The information gathered during due diligence can be used to develop a successful integration plan. This includes identifying potential synergies, streamlining operations, and managing cultural differences.

Reverse Due Diligence: A Seller’s Perspective

While traditionally associated with buyers, sellers can also benefit from performing due diligence on themselves, known as “reverse due diligence.” This proactive approach helps sellers:

1.  Identify Weaknesses

By understanding their company’s shortcomings, sellers can address them before potential buyers uncover them. This can help to avoid surprises and negative negotiations.

2.  Enhance the Sales Process 

A well-prepared seller can streamline the due diligence process for buyers, leading to faster and smoother transactions.

3.  Maximize Valuation 

By highlighting their company’s strengths and addressing potential weaknesses, sellers can position themselves to achieve the best possible valuation.

Types of Due Diligence in Mergers and Acquisitions

Proper due diligence reviews each of the following areas:

  1. Financial  — A financial analysis involves looking at financial statements, accounting practices, fiscal performance, assets, and liabilities. 
  2. Taxes — Tax due diligence helps clarify the target company’s tax obligations and compliance, plus the potential tax liabilities of the buyer. 
  3. Legal — Legal due diligence reviews legal documents (including contracts, licenses, and intellectual property rights) and any legal issues like antitrust investigations or pending civil lawsuits. 
  4. Operational — An operational assessment looks at internal processes, from supply chain management and production facilities to IT systems and quality control measures.
  5. Commercial — Commercial due diligence assesses market share, competitive position, marketing strategies, customer satisfaction, and growth potential.
  6. Technological — These evaluations analyze technology infrastructure and practices, including software and hardware, cybersecurity measures, and data privacy compliance. 
  7. Personnel — From employment policies to compensation programs, human resources due diligence is essential for risk management and integration planning.
  8. Regulatory — This type of due diligence looks at the target company’s industry compliance and the requirements for regulatory approval. 
  9. Environmental — Environmental due diligence focuses on ecological variables like hazardous waste, contamination risks, and sustainability practices.
  10. Reputational — Due diligence should also seek out business intelligence about the reputation and integrity of potential partners.

Need Help With Due Diligence in Mergers and Acquisitions? Contact Us Today

If you are acquiring, selling, or merging with another company, Wilson Ratledge, PLLC, can facilitate the process. We offer professional legal and financial advice on mergers and acquisitions for small businesses and multi-million-dollar companies across various industries. Call 919-787-7711 or contact us online to see what our team can do for you.

Federal Court Issues Nationwide Injunction on Corporate Transparency Act: What Small Businesses Need to Know

By

On December 3, 2024, it was announced that Judge Amos L. Mazzant, III of the U.S. District Court for the Eastern District of Texas issued an order purporting to impose a NATIONWIDE preliminary injunction on enforcement of the Corporate Transparency Act, which required most small businesses to report beneficial owner identifying information to the Financial Crimes Enforcement Network. View the order here.

The preliminary injunction has now been appealed.

What does that mean for your business?  Enforcement of the January 1, 2025 deadline is still on hold unless the preliminary injunction is reversed.

We will continue to monitor the developments of this case and provide updates as they unfold.

Find more details surrounding the Corporate Transparency Act here.