Titles V and VI of the JOBS Act are closely related in that they both pertain to when private companies must register their securities under the Securities Exchange Act of 1934. Typically, after a startup has gone through multiple rounds of financing and has provided equity compensation to a large number of employees, it finds itself in a position where the number of shareholders it has triggers the requirement to register its securities and begin periodic public reporting of material information, in effect making it a public company. But this transition is not always desired by the company’s management or controlling shareholders.

Why would a company want to avoid going public? The compliance burdens on public companies go far beyond the periodic reporting obligations under the Securities Exchange Act. Public companies must contend with a myriad of additional laws and regulations such as the Foreign Corrupt Practices Act, Sarbanes Oxley, the “say on pay” rules, rules governing audit and compensation committees, federal proxy rules, and many others. The most famous example of a company that reportedly did not want to go public is Facebook. In January 2011, Facebook received large scale and unwanted press coverage about its alleged plans to raise capital through a single purpose “feeder” entity that would have kept its total number of shareholders of record below the threshold that would have required registration. Facebook eventually ended up going public and there is considerable debate about whether the government should be pushing companies to go public when they don’t want to. Titles V and VI seem at least partially a clear response to this debate.

Prior to the JOBS Act, under the Securities Exchange Act, an issuer was required to register its securities with the SEC if it had total assets exceeding $10 million and a class of equity securities with 500 or more holders of record. Title V increased the number of holders of record triggering the registration requirement from 500 persons to 2,000 persons as long as the number of non-accredited holders of record remains under 500. Title V also amended the Securities Exchange Act to provide that this number of holders of record does not include employees who acquired their securities through an employee compensation plan that is exempt from federal registration requirements. The number also does not include holders who purchased their securities through crowdfunding offerings under Title III of the JOBS Act.

To implement the amendment pertaining to employee security holders, Title V requires the SEC to adopt safe harbor provisions that issuers can follow when determining whether security holders received their securities pursuant to an exempt employee compensation plan. Title V does not impose any deadline on the SEC to carry out this rulemaking directive. The SEC has not yet adopted rules pursuant to Title V, but has issued guidance that all of Title V (including the provision related to not counting shareholders from employee compensation plans, albeit without any safe harbor) went into effect immediately on passage of the JOBS Act.

Title VI of the JOBS Act raises the threshold for banks and bank holding companies for mandatory Securities Exchange Act registration from 500 shareholders of record to 2,000 shareholders of record (and unlike Title V, there is no limitation to the number of non-accredited investors). After the passage of the JOBS Act, a bank or a bank holding company is required to register its securities when its total assets exceed $10 million and any class of its equity securities is held of record by 2,000 or more persons. As with other types of issuers, this number does not include employees who acquired their securities through an exempt employee compensation plan or holders who acquired their securities through crowdfunding offerings.

Title VI also amended Section 12(g)(4) of the Securities Exchange Act, which provides a mechanism for “deregistration.” Issuers may terminate the registration of certain securities by filing a certification with the SEC that the number of holders of record of the class of securities in question has fallen to less than 300 persons. Title VI sets the threshold at 1,200 persons for banks and bank holding companies. (It remains 300 persons for other types of issuers.)

Title VI requires the SEC to issue final regulations to implement Title VI not later than one year after the date of enactment of the JOBS Act, which was April 5, 2012. As with the rest of the deadlines within the JOBS Act, this deadline was not met and it is not clear when it will ever be met. This is of little consequence to most companies (since Title VI only applies to banks) and, as with Title V, the SEC has issued guidance that Title VI already went into effect immediately.

I wonder whether raising the threshold for registration under the Securities Exchange Act will be of any significant value to large private companies seeking to remain private, because of the requirement that a company must still register if it has 500 or more holders of record that are not accredited investors. It is unlikely that most companies will have up to date information on the financial status of their shareholders as an investor’s status may change after the initial purchase of shares or shares may be resold to new shareholders under Rule 144. Therefore, I’m not sure how any company with significantly more shareholders of record than 500 can safely rely on the increased standard. The limitation on the number of non-accredited investors seems like another example of a compromise made during the legislative process that ends up crippling the overall provision to the point where it is of little value. On the other hand, the provision which exempts shares held by employees who received their shares under an equity compensation plan will be useful, because companies will have a better ability to keep track of these shares and their holders’ status as employees.

Concluding Thoughts

I have found that when the JOBS Act is mentioned, people tend to have one of two reactions. Some react with enthusiasm about the possibilities of crowdfunding and talk about how great it is the Congress “legalized” it (which of course it didn’t). Others react with scepticism that the bill was little more than an attempt by Congress to show that it was doing something about a bad economy in an election year. This second group usually believes that the JOBS Act will either have no effect whatsoever or be the catalyst for a deluge of fraudulent securities offerings. As in the first group, this second group mostly thinks of crowdfunding when the JOBS Act is brought to mind. This is a product of the fact that crowdfunding gets a vast majority of the attention in news coverage about the JOBS Act.

Of course the crowdfunding provision (1) has made no difference so far because of delays in the SEC’s rulemaking, (2) isn’t likely to make any difference in the near future (because I expect those delays to continue and when the rules eventually come out, the investor protection groups will have an absolutely ferocious reaction causing further delays), and (3) possibly will never have any significant impact if the implementing regulations of the crowdfunding law make it infeasible to use. But the JOBS Act is more than just a crowdfunding law. The provision related to online angel investment platforms may help legitimize these platforms and make them a great tool for startups looking for capital. The removal of the ban on general solicitation may also make Regulation D offerings easier (or harder if the SEC piles on more requirements as it has been asked to do). Finally, the IPO on-ramp already has had the effect of making the IPO process less risky and of easing the compliance burden for companies once they do go public. But these are, at best, modest changes and certainly not anything that could be called a game changer.

So now, a little over a year after the passage of the JOBS Act, it is safe to say the JOBS Act has had a limited impact. There is a good reason for that. In making a poorly constructed attempt to balance the need to reduce securities compliance burdens with the need to have effective regulations which prevent fraud and other wrongdoing, Congress may have ended up passing a law that has little real world effect. Perhaps as some of the provisions that have yet to be implemented come into effect, such as crowdfunding and Regulation A+, the JOBS Act may start to have a greater impact. But for now, the JOBS Act remains a work in progress.

© 2013 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post The JOBS Act, a Year Later – Part 7: Titles V and VI and Concluding Thoughts appeared first on Strictly Business.

Previously in this series, I discussed the progress of implementing the JOBS Act, specifically Titles I, II, and III. In this sixth post, I will continue that discussion by focusing on Title IV, which creates a new exemption from the federal securities registration requirement for certain public offerings in an amount of up to $50 million. This new exemption is based upon an exemption that currently already exists (but is rarely used) called Regulation A.

Regulation A exempts from the registration requirements of the Securities Act of 1933 a public offer or sale of securities in an amount up to $5 million (per year) where the issuer is a U.S. or Canadian entity that is not (a) already a publicly reporting company, (b) a “development stage company” (i.e. a company raising money with no actual business plan) (c) a registered investment company (i.e. a mutual fund or anything similar), (d) issuing interests in oil, gas, or similar rights, or (e) disqualified because of prior fraudulent or criminal acts of the company or persons affiliated with it.

Regulation A offerings are similar to registered offerings in that an offering statement, which is a scaled down version of a full registration statement, must be filed and qualified by the SEC before any sales of securities are made, securities can be offered publicly, an offering document similar to a prospectus (although simpler) is required, general solicitation and advertising is permitted, resales are not restricted, and investors need not qualify as “accredited” on the basis of their net worth or other indicators of financial sophistication. Unlike registered offerings, however, under Regulation A the required financial statements are simpler and need not be audited, and issuers generally do not incur ongoing reporting or other obligations. Regulation A offers issuers the opportunity to “test the waters” in writing or by radio or television broadcast to determine whether there is any market interest in a contemplated offering before filing an offering statement.

Federal securities laws do not preempt state regulation of offerings under Regulation A, which means that such offerings are not exempt from state securities registration and other requirements. The cost of registering the offering in each state where it is offered is usually too high for an offering as low as $5 million. Even without the blue sky compliance costs, Regulation A offerings, because of the SEC qualification process, have a higher offering cost than Regulation D offerings. As a result, Regulation A is rarely used because issuers usually find Regulation D (specifically Rule 506) to be a better option.

Title IV of the JOBS Act was designed to provide a workable alternative to Regulation A that addresses its limitations. It requires the SEC to add by rule another class of exempted securities with a maximum offering amount of $50 million per year. As in Regulation A, the securities may be offered and sold publicly, resale will not be restricted, and the issuer may solicit interest before filing an offering statement. Unlike Regulation A, however, the provisions of Section 12(a)(2) of the Securities Act, which provide for heightened civil liabilities arising from prospectuses and communications, will apply to any person offering or selling the securities, and the issuer must file audited financial statements with the SEC each year (and possibly other periodic reporting as the SEC may designate).

The JOBS Act addresses the issue of state securities regulation by amending Section 18 of the Securities Act, which prohibits states from requiring registration of a “covered security,” defined to include various securities exempted from registration under the Securities Act. The JOBS Act adds to this list, securities offered under Regulation A+ that are offered or sold on a national securities exchange.

Since one of the main problems with Regulation A is that even with the scaled down compliance responsibilities, a Regulation A offering is still expensive to pull off and is rarely cost-effective for an offering of $5 million or less. The increase in the offering limit may make a Regulation A+ offering a more cost-effective option. The issue of costly blue sky compliance may or may not be helped by making securities offered under Regulation A+ “covered securities.” In order for an offering to gain this status, the securities offered must be listed on a national securities exchange.[1] However, when a company lists its securities on a national exchange, under Section 12(b) of the Securities-Exchange Act of 1934, it must become a public reporting company. In addition, even with the changes under the JOBS Act, if a company has over 500 shareholders who are not accredited investors, it is also likely that it would be required to become a public reporting company. So it seems that any use of Regulation A+ is likely to trigger a reporting obligation under the Securities-Exchange Act (unless the upcoming SEC implementing regulations do something to mitigate these issues). I therefore wonder how often it will be that a company finds Regulation A+ to be a superior option over Regulation D. At best, issuers will find this exemption to be a less expensive form of IPO rather than a way for private companies to raise equity (and remain private).

Like Titles II and III, Regulation A+ will require SEC rulemaking before it is effective. Given how behind the SEC is on rulemaking, it could be a long time before we ever see Regulation A+ in active use. This may be another case where a provision of the JOBS Act appears at first blush to significantly ease the regulatory burden on capital raising activities, but in reality the change ends up having a very limited impact.

Footnotes

[1] Alternatively, the JOBS Act also authorized the SEC to include sales of securities to “qualified purchasers” under Regulation A+ within the definition of a “covered security.” However, the SEC has long had the power, since the passage of NSMIA in 1996 to exempt sales to qualified purchasers but has declined to do so by failing to define what a “qualified purchaser” actually is. Please note that a “qualified purchaser” for Securities Act exemption purposes is not the same thing as a “qualified purchaser” for Investment Company Act purposes.

© 2013 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post The JOBS Act, a Year Later – Part 6: Regulation A+ appeared first on Strictly Business.

Previously in this series, I discussed the progress of implementing the JOBS Act, specifically Titles I and II.   In this fifth post, I will continue that discussion by focusing on Title III, which creates a new exemption from the federal securities registration requirement for certain small offerings conducted over the internet, a practice commonly known as “crowdfunding.”

Title III creates a new Section 4(a)(6) to the Securities Act of 1933 exempting offerings up to $1,000,000 on the condition that:

• The aggregate amount sold to any investor by the issuer, including any amount sold in reliance on the crowdfunding exemption during the 12-month period preceding the date of the transaction, does not exceed certain thresholds based upon the investor’s net worth and annual income.[1]
• The transaction is conducted through a broker-dealer or a registered “funding portal” (both of which are considered “intermediaries” under the exemption).
• The issuer complies with other requirements, including that the issuer file with the SEC and provide to investors and intermediaries information about the issuer, including financial statements (which must be certified by the issuer’s principal executive officer, reviewed by an outside accountant, or audited by an outside accountant depending on the size of the target offering amount), the names of its officers, directors, and greater than 20 percent shareholders, a description of the issuer’s business plan,  the intended use of proceeds for the offering, the target amount for the offering, the deadline to reach the target offering amount, and a description of the company’s ownership structure. Issuers are prohibited from advertising the terms of the exempt offering, other than to provide notices directing investors to the intermediary.  Issuers would also be required to disclose any amounts paid to compensate promoters of the offering through the channels of the broker-dealer or funding portal. Issuers relying on the exemption would need to both file with the SEC and provide to investors, no less than annually, reports of their results of operations and their financial statements as the SEC may determine is appropriate. The SEC may also impose any other requirements that it determines appropriate.

Intermediaries will be required to:

• register with the SEC as a broker-dealer or a “funding portal”;
• register with a self-regulatory authority (most likely FINRA);
• provide disclosures to investors, as well as questionnaires, regarding the level of risk involved with crowdfunding offerings;
• take measures to reduce the risk of fraud, including obtaining background checks from officers, directors, and significant shareholders;
• ensure that all offering proceeds are only provided to issuers when the amount equals or exceeds the target offering amount, and allows for cancellation of commitments to purchase in the offering;
• ensure that no investor has invested in excess of the limits described above;
• take steps to protect privacy of information;
• not compensate promoters, finders, or lead generators for providing personal identifying information of personal investors;
• prohibit the intermediary’s officers, directors, or partners from having any financial interest in an issuer using that intermediary’s services; and
• meets any other requirements that the SEC may require.

Issuers and their officers, directors, partners and other similar controlling persons would have  heightened liability for material misstatements or omissions in connection with the offering.  Securities sold under the crowdfunding exemption would not be transferable by the purchaser for a one-year period beginning on the date of purchase, except in certain limited circumstances. The provision would preempt state securities laws by deeming securities issued pursuant the crowdfunding exemption “covered securities” (similar to Rule 506 offerings).

In contrast with some of the other provisions of the JOBS Act, there has been next to no activity from the SEC on crowdfunding.  Title III itself required the SEC to issue implementing regulations by December 31, 2012. As of May 2013, there are no signs that the rules will be issued any time soon.  The SEC has not even proposed preliminary rules (which must go through a comment period prior to the adoption of final rules) as it has with Title II. In addition, after the SEC issues its rules, FINRA will also need to act to create its own rules governing intermediaries.  Therefore, it is unlikely that we will have a working crowdfunding exemption prior to 2014 at the earliest.

In addition to timing issues, as I discussed in a previous post, I have concerns that the crowdfunding exemption, as passed by Congress, will turn out to be unusable.  As can be seen from my description above, the exemption is very complicated, with significant compliance burdens and liability risks imposed on the issuer and its management.  Small issuers will likely find that the cost of professional services necessary to manage this compliance risk may be too high to make conducting a crowdfunding offering worthwhile.  It may be possible that funding portals will be able to manage some of this compliance burden for issuers, but by taking on those burdens, it may be that the portals themselves become financially unviable in the long run.  In addition, even without all of these compliance burdens, issuers may still find that crowdfunding may be more trouble than it’s worth (see this post for some of the reasons why).

So has my opinion on Title III changed at all in the last year since the passage of the JOBS Act?  It has only slightly.  I still believe the exemption is significantly more complicated than it needs to be.  I also still believe that there are enormous practical problems with any crowdfunding exemption.  However, one thing that has struck me over the last year is how much of a hopeful and enthusiastic response the crowdfunding exemption has received from some parts of the startup community.  A significant crowdfunding industry has sprung up since the passage of the JOBS Act, consisting of hundreds of startup funding portals dedicated to crowdfunding and numerous associations and conferences.  The sheer size of the industry increases the chances that somebody will find a way to make the exemption workable and cost-effective.  Of course, with the SEC’s delays in implementing the exemption, this industry remains one without a legal business model.[2]  With these continued delays, many startup funding portals may fold due to a lack in revenue, or pivot to other business models, suffocating the enthusiasm that offers a glimmer of hope that we may, one day, see a functioning crowdfunding model in the United States.

Footnotes

[1] In addition, it is strongly implied by the new Section 4A(a)(8) that the investor limits apply across all issuers.  For instance, if an investor’s annual limit is $2,000 per year, that investor could not invest more than $2,000 in crowdfunding in total.  Under the JOBS Act, it is the intermediaries who are required to enforce this.  It is unclear (though it will likely be clarified in the regulations) what the consequences to the issuer will be for an inadvertent violation of this provision.

[2] Just about all of the funding portals that currently claim to be up and running are doing one of three things: (1) operating a site that offers kickstarter-type donation-based crowdfunding, (2) operating an online angel investment platform (restricted to accredited investors), or (3) operating illegally.

© 2013 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post The JOBS Act, a Year Later – Part 5: Crowdfunding appeared first on Strictly Business.

This is part 11 of our series discussing the sale of a business from the seller’s perspective.  We’ve covered commencement of a potential deal through the closing and are now discussing indemnification.  If you missed the first section of this post, you can find it here.

In this post, we’ll jump into some of the specific negotiation points with indemnification provisions, providing tips and explanation at the same time.

Tip 1 – Include Deductibles and Caps. It’s customary to limit the maximum amount the seller may have to pay to the buyer under the indemnification provisions with “deductibles” and “caps.” Deductibles are thresholds below which the seller will not have to indemnify the buyer even if the buyer has a loss (sort of like a deductible on your automobile policy).  And caps are ceilings on the maximum amount for which the seller may be required to indemnify the buyer.  There are multiple variations on how deductibles and caps can be structured but just know that both are important and should be reviewed with your lawyer and considered in light of your deal. Your lawyer will be able to tell you what amounts are customary given the size of the transaction and other factors.

Tip 2 – Consider the Term of the Indemnity.  If you’ve sold your business, you don’t want the buyer coming back to you many years later attempting to recover for some supposed loss or damage.  You want your indemnity obligation to expire as quickly as possible.   Therefore, you should include a time limit(s) within which the buyer must provide notice to you of any potential claims it may have. Actual negotiations of the time limits are usually very detailed and complicated and it’s customary to have various time limits depending on the source of the potential claim by the buyer.  For example, the limit to bring a claim for breach of most of the representations and warranties might be one or two years, but the limit for tax claims might be the applicable statute of limitations that governs when the IRS can bring an action; and there might be no time limit at all for, say, environmental issues.  Your lawyer will need to help you understand and negotiate these provisions.

Tip 3 – Be Sure Indemnity Is the Buyer’s Exclusive Remedy. From your perspective as the seller, you want to make sure the indemnification provisions are the only mechanism through which the buyer can recover from you after the closing.  You don’t want to spend substantial time and energy negotiating indemnification terms and then have the buyer essentially circumvent the contract by suing you on some other basis.  Therefore, be certain to include a clause making indemnification the buyer’s exclusive remedy. Including such a provision means the buyer won’t be able to bring other types of actions, at least with respect to those liabilities covered in the indemnification provisions, and gives more certainty to the seller (for example, the seller knows the caps discussed above will be the maximum liability). A buyer will generally contest such a provision, and may successfully carve out some types of liabilities, especially those that are due to a seller’s fraud or intentional misrepresentation.  But for the most part, the negotiated indemnification terms should be the buyer’s sole remedy.

Tip 4 – Limit the Types of Damages the Buyer Can Recover. The buyer will want to recover as many types of damages as possible, while the seller wants to limit the types of recoverable damages. Types of damages that can be sought in court include direct, indirect, incidental, consequential, special, exemplary, and punitive, and different courts may interpret these in different ways. The seller generally attempts to include in the indemnification provisions a limitation on the types of damages that the buyer can recover. Lawyers and academics argue over what these categories of damages actually cover and whether it is appropriate or customary for them to be excluded in the indemnification provisions. The key point, however, is that you don’t want to be liable for remote, indirect damages that arise from circumstances of the buyer that the buyer did not communicate to you when the transaction was underway. Your lawyer should be able to propose a provision that will limit your damages appropriately.

Tip 5 – Carefully Limit Setoff Rights. The right to setoff is an issue that arises when part of the purchase price is to be paid over time (e.g., via a promissory note), a term the buyer will often push for to, among other reasons, provide a readily available fund from which indemnity payments can be deducted if the buyer should make a claim. The note’s maturity date may correspond to the time limitation in the indemnification provisions. If the buyer has the right of setoff and reasonably believes it has a claim for indemnification, it can withhold payment under the note until the matter is settled. This mechanism gives the buyer much more power in the event of a potential indemnity claim, so the seller should be careful to clarify and limit the boundaries of any right to setoff.

Tip 6 – Consider Including Adjustments for Tax Benefit/Insurance Proceeds. If a buyer suffers a post-closing loss related to the acquired company, it may derive some tax benefit from the loss. If the indemnification provisions are silent with respect to tax benefits, then the buyer can bring an indemnification claim against the seller for the entire amount of the loss, while possibly still enjoying at least some of the tax benefit occasioned by the loss. Similarly, a buyer who suffers a loss may receive insurance proceeds for the loss, but unless the indemnification provisions provide otherwise, these are not deducted from the amount of the claim brought against the seller. The indemnification provisions can provide that indemnification should be net of tax benefits and insurance proceeds, but such provisions can be extremely complicated (and expensive, given the time they take lawyers to draft and negotiate) to include in the purchase agreement. As a buyer, you should certainly consider adding such provisions but discuss these with your lawyer.

© 2013 Casey W. Riggs and Jennifer Wilson — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post Selling Your Business — Practical Tips for Sellers — Part 11: Indemnification (Part Two) appeared first on Strictly Business.

In the last post of this series, I discussed the progress of implementing the first half of Title II of the JOBS Act, which instructs the SEC to amend Rule 506 to allow for general solicitation in Rule 506 offerings if certain additional conditions are met.   In this fourth post, I will look at the second part of Title II (namely Section 201(c)), which exempts some online angel investment platforms from the federal broker-dealer registration requirement.

First, I need to address the question: what exactly is an “online angel investment platform?”  When I use that term, I refer to an interactive website which matches startups with potential investors who are “accredited investors” under federal securities laws (i.e. they are wealthy).  Generally, federal securities law requires anyone in the business of “effecting” securities transactions on the account of others to register as a broker-dealer.  Registering as a broker-dealer is an arduous and difficult process and carries an extremely high compliance burden.  Thus, if online angel investment platforms were required to register, it would likely put most of them out of business.

These platforms existed prior to the passage of the JOBS Act in a legal gray area.[1]  Section 201(c) of the JOBS Act is an attempt to provide clarity on their status.  The provision exempts platforms that permit the offer, sale, purchase, or negotiation of securities transactions, including by general solicitation, as long certain conditions are met, namely: (a) neither the platform nor anyone associated with it takes any compensation in connection with the transactions on the platform, (b) the operator of the platform never takes custody of funds or securities, and (c) the platform and its associated persons have not been disqualified from the securities industry.  The provision does allow the platform to offer ancillary services, such as due diligence services (but not investment advice) and the supplying of standardized documents.

Unlike the rest of Title II, Section 201(c) does not require SEC implementing regulations to be effective, and therefore is already in effect.  In February 2013, the SEC issued some guidance on its interpretation of Section 201(c) in a set of online Frequently Asked Questions.  In its guidance, the SEC confirmed that it views Section 201(c) as fully operational, though it did state that it believes that an online platform can’t permit a general solicitation to occur on its service until the SEC finalizes the regulations permitting Rule 506 offerings with a general solicitation (I will get to more on that below).  Unfortunately, the SEC took two other positions that are, in my view, counter-productive.  First, the SEC stated that it viewed any compensation paid to the platform or persons associated with it as disqualifying the platform from the exemption, even if the compensation is not “transaction-based” (i.e. based on the success of the capital raise or in proportion to the size of the offering).  This extends even to compensation paid in the form of a flat fee.  It is unclear from the guidance whether an online platform may receive compensation for ancillary services.  The second interpretation is that, while Section 201(c) does exempt these platforms from broker-dealer registration, they are still broker-dealers and may have to comply with other regulations covering broker-dealers other than the registration requirement.  It is important to keep in mind that this kind of interpretive guidance can influence court decisions, but carries no official force of law.

So can the exemption for angel investment platforms be used now?  Yes, with one caveat.  It could certainly be argued that most uses of such a platform constitute an impermissible general solicitation, and thus we still need to wait for the SEC to finalize it’s regulations related to easing the restrictions on general solicitation.   Recently, in an August 30, 2012 letter (which was subsequently released publicly), the large international law firm K&L Gates LLP provided a legal opinion to AngelList LLC, the operator of an online angel investment platform, that it (a) is not required to register as a broker-dealer under federal securities laws and (b) companies posting information to accredited investors on the AngelList website are not engaged in a general solicitation in violation of Rule 506. K&L Gates took the view that AngelList need not register as a broker-dealer because of Section 201(c) of the JOBS Act, and that even absent this exemption, AngelList would not be required to register as a broker-dealer because it does not fall within the definition of a “broker” in the Securities Exchange Act of 1934 or perform any of the activities that the SEC and its staff have identified as causing an entity to be considered a broker. Most importantly, K&L Gates opined that companies posting information to accredited investors on the AngelList website are not engaged in a general solicitation in violation of Rule 506 because for 15 years SEC no-action letters have permitted similar websites that provided even more extensive services and information about offerings to accredited investors without raising general solicitation concerns.  Key to K&L Gates’ reasoning is the analysis found in the 1997 and 1998 Lamp Technologies, Inc. SEC no-action letters (available here and here). In the Lamp letters, the SEC Division of Corporation Finance staff concluded that posting information about private funds to a password-protected website accessible only by persons who (i) completed a questionnaire that allowed Lamp to reasonably determine that they were accredited investors, (ii) waited for a 30-day “cooling off” period, and (iii) paid a subscription fee would not involve a general solicitation or advertising in violation of Regulation D. The Division’s analysis hinged particularly on the fact that access to the website is limited exclusively to accredited investors. As AngelList’s website is so limited, and its activities are more limited than those described in the Lamp letters, its activities also should not be deemed to constitute a general solicitation or advertising.  Of course, K&L Gates’ opinion letter carries even less force of law than the SEC’s FAQ webpage, so no one can be 100% safe in relying on it.

Of further note, in two recent no-action letters issued by the SEC related to online angel investment platforms, the SEC’s Division of Trading and Markets issued no-action letters to FundersClub Inc. and AngelList LLC who were seeking confirmation that their online activities would not result in enforcement action by the SEC. The no-action letters did not address the issue of whether the solicitation of investors by an online platform would constitute general solicitation or advertising. The SEC did, however, permit the operators of such platforms the ability to take a “carried interest” (i.e. a portion of any gains from an investment) in exchange for monitoring the investments for the investors using the platform, on the basis that this was investment advisory activity rather than broker-dealer activity.  While this form of compensation is fairly standard in the VC and hedge fund industries, some attorneys have previously (and I believe incorrectly) taken the position that when a carried interest is taken on a deal-by-deal basis (rather than as part of a pooled investment fund), it constitutes “transaction-based compensation” and thus activity requiring broker-dealer registration.  Of course it does mean that while these platforms will not need to register as broker-dealers, they may have to register as investment advisers.[2]

Overall, there have been some fairly positive developments when it comes to online angel investment platforms.  Some of these have been the result of the JOBS Act and some the result of further development of existing law.  In either case, I think these are positive steps forward for the startup community and this area represents the most promising change brought about by the JOBS Act.

Next time, I’ll be discussing developments (or non-developments) in the area crowdfunding.

Footnotes

[1] No definitive determination has ever been made as to whether the activities of an online angel investment platform could be considered engaging in the business of effecting securities transactions on the account of others.  Some platforms already began doing business without registering prior to the passage of the JOBS Act, risking federal or state enforcement action or a private lawsuit. To date, no enforcement action has been taken.

[2] This is still preferable for the angel investment platforms, since the compliance burden for investment advisers is generally lower than for broker-dealers.

© 2013 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post The JOBS Act, a Year Later – Part 4: Online Angel Investment Platforms appeared first on Strictly Business.

This is part 10 of our series discussing the sale of a business from the seller’s perspective.  We’ve covered commencement of a potential deal through the closing and now turn back to the purchase agreement to discuss the indemnification provisions, which deal with post-closing events.  Indemnification provisions are among the most heavily negotiated portions of a purchase agreement, yet business owners may be tempted into thinking they are simply something lawyers like to argue over without realizing their importance.  In this post, we’ll try to give a simple explanation of the indemnification provisions, explain how these provisions may come up after the closing, and give a few generic tips for sellers in handling indemnification.  In the next post, we’ll provide some detail on specific provisions of the indemnity section and provide more seller tips related to those provisions.

A very basic seller indemnification provision reads something like this:

The seller and each shareholder, jointly and severally, will indemnify and hold harmless the buyer and its shareholders and subsidiaries (collectively, the “Buyer Indemnified Parties”), and will reimburse the Buyer Indemnified Parties for any loss, liability, claim, damage, or expense (including costs of investigation and defense and reasonable attorneys’ fees and expenses), whether or not involving a third-party claim, arising from or in connection with … [a list of matters].

So what does all of this legalese mean? In simple terms, the duty to indemnify and hold another harmless means to compensate the other for a loss suffered. In the context of a purchase agreement, the indemnity given by the seller and its shareholders is a contractual agreement by them to compensate the buyer for certain losses the buyer suffers after the closing and which are related in some to way to representations, warranties, covenants, or other obligations of the seller and/or its shareholders set forth in the purchase agreement. [1] (We discussed what “joint and several” means in this post.)

In short, if the buyer is harmed or damaged in specific ways after the closing, then the seller is contractually agreeing to compensate the buyer for that damage or harm.  From the seller’s perspective then, it’s critical to review and understand the seller’s indemnity obligations and to be sure they are as narrowly drawn as possible. [2]

Some of the matters typically made part of the seller’s indemnification provision are as follows:

• breaches of representations or warranties made by the seller or shareholders;
• breaches of covenants or other obligations of the seller or shareholders;
• any liabilities arising out of the ownership or operation of the company’s assets before the closing;
• any product manufactured by or shipped by the seller or any services provided by the seller before the closing;
• certain specific matters which may be disclosed in the disclosure schedules; and
• all liabilities specifically retained by the seller.

Here are two short examples of situations where post-closing indemnity might come up. One, suppose the buyer purchases the seller’s business based on a multiple of 5 times the seller’s EBITDA (based on seller’s financial statements).  The purchase agreement contains a representation and warranty from the seller that its financial statements are true, correct, accurate, in accordance with GAAP, etc.  After closing, the buyer discovers that the seller has not properly booked certain sales, and that revenues and earnings are overstated.  Here, the buyer may attempt make an indemnity claim based on the allegation that it overpaid for the business based on the seller’s misrepresentation of its financial statements.  And if the buyer purchased the business for a 5x EBITDA multiple, then the buyer might attempt to use the indemnity provision to reduce the purchase price based on this multiple.

Second, suppose that after closing, the IRS audits the business the seller has sold and finds an underpayment of taxes for one or more years ending before the closing. If the buyer is harmed by the under reporting of tax (either because the buyer overpaid for the business or perhaps because the deal was a stock sale and the purchased business is responsible for the tax), then the buyer will expect the seller to indemnify it for its losses.

With this background in mind, here’s a list of tips for sellers in negotiating the indemnification provisions of the purchase agreement:

Tip 1 – Don’t Leave It All to Your Lawyer.  Indemnification is a little more esoteric than the parts of the purchase agreement that deal with business issues, but it’s a critical part of the purchase agreement.  Make sure you read the indemnity section and ask your lawyer to review it with you (several times).

Tip 2 – Thoroughly Review the Representations, Warranties, and Disclosure Schedules.  One of the causes for indemnification by the seller is the seller’s breach of representations and warranties.  In fact, this is how the indemnity section and the representations and warranties are connected (the seller breaches a representation which causes the buyer loss or damage and the seller must indemnify).  Therefore, it’s vital that the seller thoroughly review and understand the representations and warranties and make adequate disclosures if there are potential issues related to the representations and warranties.  For more on this discussion, see this post.

Tip 3 – Thoroughly Review Retained Liabilities. – Another cause for indemnification is liabilities or obligations retained by the seller.  Therefore, it’s important to review and understand what the seller is retaining and, if applicable, to properly discharge those liabilities after the closing.

In the next post, we’ll get into some specifics of the indemnification provisions, such as damages subject to the indemnity, baskets (deductibles), caps, set-off rights, and others, and provide more practical tips for sellers with respect to these specific provisions.

Footnotes

[1] Note that indemnification is not strictly limited to post-closing matters but that’s the major concern and the focus of this post.  Also, it’s important to note that, even without indemnification provisions, if either party breaches the purchase agreement, the other can bring a claim for damages (lawsuit) for breach of contract. But the indemnification provisions broaden (or narrow) the scope of potential claims and add many important details, such as the procedure to be followed if a third-party brings a claim against either the buyer or the seller after the closing.

[2] There will likely be indemnity required of the buyer if the seller is harmed in some way but this tends to be much less important and is not the focus of this post.

© 2013 Casey W. Riggs and Jennifer Wilson — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post Selling Your Business — Practical Tips for Sellers — Part 10: Indemnification (Part One) appeared first on Strictly Business.

Tip 1 – Engage the Right Attorney – When engaging an attorney, be sure to get someone who has experience with your particular need.  Too many business owners engage “an attorney” without understanding that there are vast differences in skill sets and experiences of different lawyers.  Don’t use your brother-in-law, the criminal defense attorney, to help with your LLC or corporate work, for example.  You’ll save time and money and get better representation in the long run if you choose someone experienced in what you need.

To find the right attorney, ask for recommendations from other business owners or friends (with business experience) and then check websites for relevant experience.  When you meet with a potential attorney, ask lots of questions on the front end and make sure he or she has handled work similar to yours before you engage him or her.

Tip 2 – Communicate Clearly – Before talking to your attorney, get organized and make sure you can convey succinctly and clearly what it is you need help with and when you need it.  Too many clients dive into preliminary conversations or send cryptic e-mails leaving their attorney confused about what they need.  Remember, most attorneys bill by the hour; the better you can describe your problem, the faster your attorney can get to a solution and the less it will cost you.  And try to give reasonable turn-around times.  Many clients wait until the last-minute and then need immediate attention to their matter, which isn’t always possible.

Tip 3 – Consider Asking for a Flat Fee – Many attorneys will consider flat fees for well-defined projects.  If a client needs a document from me and production of that document is within my control, then I think a flat fee is reasonable to ask for.  If, on the other hand, I’m going to be involved in negotiations with some third-party that I’ve never met, it’s harder to quote a flat fee.  But it never hurts to explore this option.

Tip 4 – Be Responsive – I find that I am most efficient when I can sit down and knock out a project in a short amount of time.  However, I often start a project and then get stalled waiting on my client to get back to me with information or to answer questions.  That means when I pick back up, the project is not as fresh in my mind and it takes more time to finish it off.  We all know business owners work long hours, but the more responsive you can be the better in terms of getting a good service at an efficient price.

Tip 5 – Give Feedback – The best relationships between attorney and client are those where the parties frequently talk to each other.  From an attorney’s perspective, we can give better service when we know you and your business better and your feedback is important in this process.  If you like (or dislike) how your attorney has handled something, let him know.  The dialog will create a better relationship and service for you.

© 2013 Casey W. Riggs — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post Working Effectively with Your Lawyer: Five Tips to Effectively Engage and Use Legal Counsel appeared first on Strictly Business.

In the first post of this series, I discussed the disappointment experienced by many proponents of loosened securities regulations with the implementation of the Jumpstart Our Business Startups Act (or JOBS Act).  In this third post, we’ll look at the first part of Title II of the JOBS Act (namely Section 201(a) and (b)), which directs the SEC to permit general solicitation in some Rule 506 offerings.

Title II of the JOBS Act does not repeal the ban on general solicitation associated with all private placements; instead, it directs the SEC to amend Rule 506 and Rule 144A [1] to allow for general solicitation if certain additional conditions are met.  Those conditions are: (1) all purchasers must be accredited investors and (2) the issuer must take reasonable steps to verify that all purchasers are indeed accredited investors.  After much delay, the SEC finally issued a preliminary rule in August of 2012 (I previously discussed the delay here and the substance of the preliminary rule here). In the proposed rule, the SEC essentially parroted the wording of the JOBS Act and declined to provide for a safe harbor in the regulations to further define what “reasonable steps” actually means. Instead, the SEC stated that whether the verification steps taken are reasonable would depend “on the particular facts and circumstances of each transaction.” The SEC did give extensive suggestions and examples of what reasonable steps would be required in various situations in its commentary to the proposed rule.

A number of my fellow bloggers thought that the SEC’s proposal struck the right balance, including William Carleton and Joe Wallin, and I agree with most of their points.  However, when the preliminary rule was originally proposed, I was concerned that the lack of a safe harbor would inject too much uncertainty into the exemption and that the SEC would face considerable criticism from pro-business groups because of this.  Instead, it turned out that pro-business groups were mostly supportive, and asked only for various minor clarifications. For the most part, pro-business groups did not have a major issue with the lack of a safe harbor; in fact the National Small Business Association was concerned that any safe harbor would become the de facto rule, and thus if a proposed safe harbor’s requirements were too burdensome, the benefits of Title II would be lost.

Besides that lack of clarity, you might think that merely parroting the wording of the JOBS Act would not be particularly controversial, but you’d be wrong.  The preliminary rule unleashed a torrent of critical comments, particularly from investor protection advocates.  Here are some examples of their comments and suggested changes:

• The SEC’s Investor Advisory Committee commented that the proposed rule should go further to protect investors. It recommended that the SEC: (1) require the filing of either a new “Form GS” or a revised Form D; (2) require that all solicitation material be furnished to the SEC; (3) adopt a safe harbor for verification, rather than reasonable belief, of accredited investor status, including standards; (4) make the filing of Form D a condition for relying on the Regulation D exemption; (5) ensure that performance claims in solicitation materials are based on performance reporting standards; (6) amend the definition of “accredited investor” to require greater financial sophistication; and (7) fulfill the Dodd-Frank Act Section 926 mandate to implement rules disqualifying certain “bad actors” from relying on Rule 506.
• The North American Securities Administrators Association, Inc. (NASAA), composed of state securities regulators, professed itself “greatly disappointed” with the proposed rule because it fails to provide guidance to issuers or protections for investors. The NASAA’s recommendations were as follows  (1) the SEC must consider the impact on state-level enforcement; (2) the rule should require a more detailed Form D to be filed before any general advertising and after the offering, and failure to file the Form D must result in the loss of the exemption; (3) the SEC should establish non-exclusive safe harbors for the verification of accredited investors; (4) the rule should include disqualification provisions for bad actors as mandated by the Dodd-Frank Act two years ago; (5) the SEC should place reasonable restrictions on advertising by issuers and private funds; and (6) the SEC should clarify what ancillary services are permissible for new platforms that facilitate securities sales under Rule 506.
• The Consumer Federation of America (CFA) wrote to express strong opposition to the proposed rule, commenting that it fails to protect investors and maintain market integrity. Incensed that the SEC requested comment only on the issues of verification of accredited investor status and the addition of a checkbox to Form D and not on alternative regulatory approaches, the CFA stated that “it would not be possible to adopt a minimally acceptable rule based on this proposing release.”  The CFA also criticized the proposal because it covered private funds such as hedge funds and private equity funds.

While I certainly understand the concerns of investor protection groups, many of the changes requested are simply outside of the scope of what Congress intended when it passed the JOBS Act.   They represent a longstanding wish list for proponents of more stringent securities laws.  For instance, making the failure to file a Form D result in a loss of the federal and state Rule 506 exemption is something that many state securities regulators have wanted for some time but is a really bad idea and has nothing to do with the ban on general solicitation.  That said, the fact that we haven’t heard anything from the SEC since August indicates that the SEC is taking the investor-protection concerns raised very seriously, and so there is a good chance the eventual rule will be more restrictive than the proposed rule.  The timing of any final rule remains unknown.  In retrospect, it probably would have been more effective for Congress to have created a new statutory exemption in the Securities Act in lieu of asking the SEC to issue a rule.

Next time, I’ll cover the second half of Title II of the JOBS Act, which relates to online angel investing platforms.

Footnotes

[1] Rule 144A is another private placement exemption involving sales of securities to certain institutional investors.  Since it isn’t applicable to most issuers and investors (at least in the startup and private fund world), I won’t cover it here. You can read more about Rule 144A here.

© 2013 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post The JOBS Act, a Year Later – Part 3: Repealing the Ban on General Solicitation appeared first on Strictly Business.

Today, most closings are handled via email exchange of scanned signed documents, with original hardcopy of signed documents to follow by mail, and transfers of funds by bank wire.  While this is usually a convenient way to finalize the transaction (as opposed to the older way of having everyone around a table to sign and exchange documents), it requires more advance planning and can become a logistical nightmare if the process is not completely thought through, particularly when many parties or third parties not affiliated with the buyer or seller are involved.

Here are some tips for sellers in handling the closing:

Tip 1 — Have a Checklist.  Having a closing checklist is a must! The buyer’s counsel generally prepares a checklist and circulates it to all parties. If that doesn’t happen in your case, ask that your lawyer prepare one – and be sure to read it and ask questions if anything is unfamiliar. Most deals will include numerous documents and require signatures from a number of parties, including several third parties.  To keep organized, it’s almost a certainty that you’ll need a checklist to note each document to be signed, the status of the document until it’s in final form, and who needs to sign it.  The checklist should be constantly updated until right before the closing when it’s final.  If you have your own checklist prepared, be sure the buyer has a copy.  Most likely the buyer will have its own but just be sure you and the buyer are working off the same list and are in agreement as to where things stand as closing approaches. The closing checklist should include tasks to be completed after closing, too, so don’t discard it after the closing.

Tip 2 — Get Third Party Signatures in Advance.  As we’ve previously discussed, there will likely be a period between the signing of the purchase agreement and the closing when the parties will be required to get certain third-party consents and take care of other pre-closing conditions.  Be sure to have these in hand before closing if at all possible.  You don’t want to be trying to track down a third-party who is out-of-town on vacation on the day of closing.  If it’s necessary to hold signatures in escrow pending closing, that’s fine, but be sure the signing party is prepared to release the signatures upon the closing (usually an e-mail or call to you and your lawyer will suffice for this).

Tip 3 — Double Check Wire Transfer Instructions.  Get your wiring instructions from your bank in advance and double-check them.  Then double-check that the buyer has them correct on any document it’s using to get the wires out.  I saw one deal delayed because of a transcription error on wiring instructions delivered correctly by the seller but erroneously transcribed onto a bank document by a secretary for the buyer’s counsel.  The seller was not pleased to get his funds a day late. A better solution is to simply attach the wire transfer instructions received from the seller to the buyer’s bank’s internal document but do it far enough in advance so the bank can let you know if it has a problem with this setup.

Tip 4 — Coordinate Schedules and Availability.  It seems inevitable that someone will be traveling on the closing day, often in some foreign country.  So be sure to coordinate schedules of everyone who will be signing well in advance.  If any party or third-party will be out-of-town, be sure to get his or her signatures in advance to be held in escrow and set up clear instructions on how his or her signatures will be released. Don’t forget officers within your company whose signature might be required on one minor document. For example, the managing members or top officers know they will have to sign documents and be available throughout the day of the closing, but the company secretary, who might not otherwise be involved in the transaction or even around on a regular basis, may be required to sign just one certificate. Be sure to get that signature when you can.

A well thought through closing should be a simple event, but the importance of adequate preparation and planning cannot be underestimated. The buyer’s and your lawyers will be the ones in the drivers’ seats, but don’t settle in for a nap in the back — be on top of what you and others within your control will be required to review, provide, and sign throughout the process.

© 2013 Casey W. Riggs — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post Selling Your Business – Practical Tips for Sellers – Part 9: The Closing appeared first on Strictly Business.

I’m not saying I agree with his overall conclusion or every point, but he does make some good points, such as the fact that Title V of the JOBS Act, which allows private companies to delay going public, is causing a reduction in IPOs which may have surpassed any benefits of the IPO On-Ramp. Mr. Seward’s view largely stems from the fact that he believes the JOBS Act went too far in deregulating, rather than the view that the JOBS Act has been a disappointment because it hasn’t been implemented quickly enough.

As I discussed in my first post in this series, we’ll have a much clearer view of the effect of the JOBS Act years from now than we will now. But it doesn’t hurt to see what one year’s worth of hindsight can tell us.

© 2013 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post The JOBS Act, a Year Later – Part 2.5: The IPO On-Ramp (the Other Side of the Coin) appeared first on Strictly Business.

We’ve previously noted that most deals are of the “sign and close later” variety as opposed to a “simultaneous sign and close.”  The interim period between the signing of the purchase agreement and closing (which we’ll refer to as the “Pre-Closing Period”) is usually necessary to work through issues with parties who aren’t involved in the transaction.  Examples of such issues include getting consents from third parties to the seller’s contracts, obtaining governmental authorizations, getting the buyer’s financing in place, and working through issues with employees.  From the seller’s perspective, the Pre-Closing Period is critical.  You’ve got a deal “signed” but haven’t closed and you want to minimize any risk that the deal falls apart.

The buyer’s draft of the purchase agreement will probably include numerous covenants (both affirmative and negative) requiring the seller to take or not take certain actions and will contain many conditions that must be met for the closing to take place.  Once the seller executes the agreement, it is committed to the deal but wants as many “outs” as possible if something goes wrong between signing and closing, if it learns of information it might not like, or maybe even if it changes its mind.

Sample affirmative and negative covenants that a buyer might require from the seller include the following:

Affirmative Covenants.  The seller will (between signing and closing):

• Operate the business only in the ordinary course
• Keep its business relationships intact (those with employees, customers, vendors, etc.)
• Maintain its properties and insurance
• Comply with all laws
• Update the buyer on any changes or developments concerning the seller’s business
• Continue to keep the deal confidential
• Continue to assist the buyer with its due diligence

Negative Covenants.  The seller will not (between signing and closing):

• Increase pay of officers, employees, etc. or enter into termination or severance agreements
• Terminate customer or vendor agreements
• Make any capital expenditures
• Pledge or transfer any company assets outside the ordinary course
• Negotiate with any other party concerning the sale of the business

And sample conditions to closing might include:

• All of the seller’s representations and warranties remain true
• The seller shall have complied with all of the covenants
• The buyer shall have been satisfied with its due diligence investigation in its sole discretion
• The seller shall have obtained all necessary authorizations and consents
• There shall have been no adverse change in or development in the seller’s business
• The buyer shall have obtained financing to fund the purchase price

The buyer’s draft of the purchase agreement will typically contain language giving the buyer maximum opportunity to get out of the deal if any condition or covenant is not true.  The seller needs to do its best to minimize this risk.  Here are some tips for sellers in handling these portions of the purchase agreement:

Tip 1 — Keep the Pre-Closing Period Short.  To state the obvious, the longer the period between signing and closing the greater the risk that something will go wrong (e.g., a material adverse development with respect to seller’s business).  So keep the period as short as reasonably possible while allowing time to get third-party consents and handle other post-signing, pre-closing matters.

Tip 2 — Review Covenants Closely and Narrow Them Down.  Be sure the covenants are reasonable and necessary to protect the buyer from adverse events specific to seller’s business during the Pre-Closing Period and are not overly broad.  As an example, be sure the buyer’s “walk right” for a material adverse development excludes events such as a downturn in the economy or the industry in which the seller operates.  When the purchase agreement is signed, the buyer shouldn’t be able to get out of the deal merely because there is a negative development that affects all businesses in the seller’s industry.  That’s the buyer’s risk to take.

Tip 3 — Eliminate Closing Conditions that Are within the Buyer’s Sole Control.  Many buyers will include closing conditions that are within the buyer’s sole control, such as the example above that the buyer must be satisfied with its due diligence investigation in its sole discretion.  From the seller’s standpoint, this gives the buyer too easy of a walk right.  When the purchase agreement is signed, the seller wants to make sure it’s a firm deal and will close absent some extraordinary negative development between sign and close.  Delete contingencies such as this.

Tip 4 — Keep It Material.  The seller should attempt to introduce materiality or material adverse effect language in its closing conditions.  For example, there may be a closing condition that states no lawsuits are pending against the seller as of closing.  The seller should limit this to lawsuits that could reasonably be expected to have a material adverse effect of some sort on the seller’s business.  Another example is the condition that all of the seller’s representations and warranties remain true at closing. Again, the seller is best served by limiting this broad condition by using language such as “in all material respects.”

Tip 5 — Beware the Financing Contingency.  Many deals will be contingent on the buyer having obtained financing on terms acceptable to it in its sole discretion.  As a seller, you want to be comfortable that the buyer will in fact obtain the necessary financing before you spend your time and resources negotiating a deal, and certainly before the purchase agreement is signed.  Ask for and review the buyer’s bank commitment letter early on; and if the buyer is telling you that it will have the financing in place, then attempt to eliminate the financing contingency in the purchase agreement.  If you’re unable to eliminate it, then consider placing a covenant on the buyer that it will use its best efforts or reasonable best efforts to obtain the financing on terms set forth in the commitment letter.

The covenants and conditions to closing sections are very important parts of the purchase agreement and the transaction and should not be taken lightly.  Sellers should pay careful attention to these provisions to maximize the likelihood that the signed deal actually closes.

© 2013 Casey W. Riggs — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post Selling Your Business – Practical Tips for Sellers – Part 8: Pre-Closing Covenants and Conditions appeared first on Strictly Business.

In my previous post, I discussed the disappointment experienced by many proponents of loosened securities regulations with implementation of the Jumpstart Our Business Startups Act (or JOBS Act).  While some provisions of the JOBS Act went into effect immediately, implementation of many of the core provisions of the law has been excruciatingly slow while the SEC goes through the rulemaking process.  In this second post, we’ll look at the first set of provisions of the JOBS Act: “the IPO On-Ramp.”

Summary of the IPO On-Ramp Provisions

Unlike some of the other provisions of the JOBS Act, Title I went into effect immediately.  It adds the concept of an “emerging growth company” (referred to as an “EGC” in this post) to federal securities laws. An EGC is defined as an issuer of securities that had total annual gross revenues of less than $1 billion during its most recently completed fiscal year, if the first registered sale of the issuer’s common equity securities occurred or will occur after December 8, 2011. The designation continues until one of certain milestones of growth is met, such as when the issuer hits annual revenues of $1 billion or more.

One of the most important benefits to being an EGC is that before an initial public offering, EGCs may submit a draft registration statement, the lengthy and detailed content of which is prescribed by volumes of intricate regulations, for confidential nonpublic review by SEC staff before public filing, as long as the initial submission and all amendments are publicly filed not later than 21 days before the company begins pitch meetings with prospective investors (called “road shows”). Before the enactment of this provision, all companies were required to publicly file their registration statements prior to the commencement of the IPO, even if it turned out later that an IPO was not feasible. EGCs are also allowed to communicate with certain institutional investors to determine whether they might be interested in a contemplated securities offering before or after filing a registration statement (called “testing-the-waters communications”).

After the IPO, an EGC has scaled-down securities compliance obligations. For instance, EGCs are exempt from certain requirements governing the content of materials sent to shareholders relating to shareholders meetings, including disclosure of “golden parachute” agreements (compensation agreements with executives based on an acquisition, merger, consolidation, or asset sale) and the relationship between executive compensation actually paid and the company’s financial performance, as well as the requirement to disclose employee compensation, CEO compensation, and the ratio of those amounts in various filings. EGCs are only required to present two years of audited financial statements in an IPO registration statement and two years of accompanying financial data in any registration statement (in contrast to the three years and five years, respectively, that are required of non-EGCs).  In addition, the JOBS Act eases the SEC reporting rules that apply to EGCs on various topics including executive compensation and allows EGCs to delay complying with any new or revised financial accounting standard that applies to public companies until private companies must also comply.  EGCs are not required to have accounting firms attest to their management’s internal control assessment, and are not subject to rules requiring mandatory audit firm rotation or a supplement to the auditor’s report.

The JOBS Act also allows a brokers-dealer to publish research reports about an EGC that is proposing an offering without this being deemed an offer for sale or offer to sell a security (which would complicate or even prevent the IPO), even if the broker-dealer in question is participating in the offering.  Title I also prevents the SEC and FINRA from restricting certain securities analyst communications in connection with EGC IPOs.

Impact of the IPO On-Ramp

Unlike many of the other provisions of the JOBS Act, the IPO On-Ramp is generally favored by the venture capital community because they believe that it will help make the process of going through an IPO easier, less expensive, and less risky for the company, consequently making it easier for a VC to exit from its investment (which in the end, is the way VCs actually make money).  In contrast, many of the other provisions of the JOBS Act, like crowdfunding and Regulation D reform, are aimed at benefitting much smaller companies.[1] Thus, in a sense, the IPO On-Ramp should probably be viewed as a measure that deregulates big business, rather than a provision that attempts to strike a new balance between the competing public policy concerns of preventing fraud via securities laws and spurring the innovation of entrepreneurs by making it easier to raise money.  Nonetheless, there has already been at least one fraud investigation involving the IPO On-Ramp, though it is unclear if the passage of the JOBS Act actually facilitated the fraud in any way.

The large international law firm Skadden, Arps, Slate, Meagher & Flom LLP did a comprehensive study on the effects of the  IPO On-Ramp in January 2013.  The found that EGCs made considerable use of the confidential submissions process.  This makes sense since it allows the EGC to avoid publicly disclosing potentially sensitive strategic confidential information in the event of a failed IPO (and avoiding the adverse publicity of a failed IPO).  When combined with the provisions allowing “testing the waters” communications, EGCs have been able to mitigate some of the risks associated with the IPO process.  For instance, before the JOBS Act, if there was insufficient investor interest in the IPO, (i) the company would be out a lot of money, (ii) there would be negative publicity as a result of the failed IPO, and (iii) it would be difficult to immediately do a private placement after the IPO attempt because of the public nature of the IPO process (thus violating the general solicitation restrictions).

The Skadden study also found the provisions relaxing disclosure on executive compensation and compliance with some of the Sarbanes-Oxley provisions to also be very useful to EGCs and commonly used.  Conversely, the Skadden study found that the relaxed requirement to include only 2 years of financial statements was rarely used, since most companies by that point have enough financial statements to more than cover the normally required 3-year and 5-year periods.

Overall, I’d characterize the IPO On-Ramp as a modest success.  Some of the provisions, such as confidential submission of IPO registration statement to the SEC have been used by a number of companies going public.  It does not appear, at least as of yet, that these provisions have increased the likelihood of fraud in any substantial way.    Therefore, the IPO On-Ramp seems to provide for some level of deregulation (and thus reduced compliance costs) without harming the governmental policy interest of preventing fraud.

Footnotes

[1] Many in the VC community actually are opposed to crowdfunding for many of the reasons I described in part 1 of this series.  Cynics might argue that VCs oppose these provisions because they create additional competition for them when it comes to finding quality investments.

© 2013 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post The JOBS Act, a Year Later – Part 2: The IPO On-Ramp appeared first on Strictly Business.

The purchase agreement will typically contain a comprehensive list of representations that the seller is asked to give. Often, there will be 20 to 30 different sections covering various areas of the seller’s business, assets, etc. The following is just a sample:

• Due organization and good standing
• Capitalization
• Noncontravention (i.e., the purchase agreement will not contravene the seller’s organizational documents, any laws, any governmental orders, etc.)
• Financial statements
• Compliance with laws
• Tax matters
• Intellectual property
• Contracts
• Litigation
• Employees
• Environmental, health, and safety
• Related party transactions
• Customers

The representations serve three primary purposes from the buyer’s perspective. First, they further the due diligence process by (hopefully) ferreting out problems or issues with the seller’s business or assets so they can be addressed before an agreement is signed or taken into account in arriving at a purchase price; if they are sufficiently grave, the parties may abandon the deal.

Second, in the case of a deal in which the purchase agreement is signed and the closing is scheduled for a later date (as opposed to simultaneous signing and closing), the representations serve as a basis for allowing the buyer to walk away from the deal without closing (“walk rights”) if the buyer learns that the representations are not accurate at closing.

Third, they serve as a basis for allowing the buyer to recover some of its purchase price (through indemnification) after closing if the seller’s representations are inaccurate and the buyer incurs damages (this latter function is referred to as “risk shifting” in industry jargon because each party is attempting to negotiate the language of the representations to shift the risk of post-closing events to the other party).

Here’s sample language from a purchase agreement requiring the seller to represent that it is in compliance with legal requirements:

The Seller is, and has been since January 1, 2010, in compliance with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed, commenced, or threatened against the Seller alleging any failure to so comply.

As is customary, the buyer has used very broad language in this representation and the seller needs to know how to handle the representation in its negotiations of the purchase agreement. With that in mind, here are some tips for sellers engaged in those negotiations:

Tip 1 — Consider Who Should Give the Representations.  The purchase agreement will typically include a lead-in statement that applies to the entire list of representations, such as the following:

The Seller and Shareholders, jointly and severally, represent and warrant to Purchaser that the statements contained in this Section 2 are true, correct and complete as of the date of signing and the Closing Date, as modified in the applicable section of the disclosure schedule accompanying this Agreement (the “Disclosure Schedule”).

This particular language is from an asset deal and requires the seller (the entity) and the shareholders of the seller to make the representations. So task one is to determine if this is appropriate or not. Ideally, in an asset deal, the seller’s shareholders will not have to give the representations, but often the buyer will insist that they do (at least perhaps majority owners). The smaller the company and the fewer the shareholders, the more likely it will be that individual shareholders will have to make the representations.

Also note that the representations are joint and several — meaning that the seller (the entity) and the shareholders are on the hook for the statements. At the end of the day, it may be the case that the entity and the shareholders have no choice but to give some or all of the representations, but think this through very carefully and limit shareholder responsibilities as much as possible.

Tip 2 — Review and Narrow.  The buyer’s initial draft of the purchase agreement will likely request overly broad representations from the seller as to its business and assets. The seller’s initial task is to review the statements very closely and determine those that it can give with certainty and those that are perhaps less certain. As an example, many sellers might react as follows when reviewing the sample representation on legal compliance above: “I think we’re in compliance with all laws but I am not totally sure.”

In that case, the seller’s goal is to make the statement completely true with as much certainty as possible by either narrowing the representation and/or making adequate disclosures (the latter is discussed below). When reviewing the representations, be sure to get input from others in the organization who might have knowledge of any issues covered by the statements (e.g., a human resources manager).

After you have a good understanding of your ability to make each representation with certainty (or not), consider narrowing the representations as much as possible, particularly those that result in significant risk to the seller and its shareholders. Common ways to narrow representations include adding “knowledge” and/or “materiality” qualifiers to the statements requested by the buyer. As an example, here’s the representation on legal compliance quoted above rewritten from the seller’s standpoint (with the seller’s additions in bold):

Except as set forth on disclosure schedule [cross-reference section number], and except with respect to any violations which would not have a Material Adverse Effect, the Seller is, and has been since January 1, 2012, in compliance with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed, commenced, or, to the knowledge of the Seller, threatened against the Seller alleging any failure to so comply.

The seller’s modified language changes the representations in four ways. First, the seller has added a disclosure schedule in which the seller will note any violations of laws or pending or threatened suits, charges, etc.

Second, the seller’s version limits the entire representation to legal violations that would cause a Material Adverse Effect (a term that will be defined in the purchase agreement to indicate the negative effect of certain events on the seller’s business), but not that there are no violations, period.

Third, the seller has changed the applicable date from January 1, 2010 to January 1, 2012.

And fourth, the seller has added a knowledge qualifier with respect to issues that are simply threatened rather than actually in process. Taken as a whole, the representation as revised by the seller poses much less risk for the seller and hopefully the seller can now make this statement with a high degree of certainty.

Tip 3 — Disclose, Disclose, Disclose!  The seller must disclose any items required to make a representation true. So for example, if the legal requirement representation described above is true except that the seller believes it may have violated an employment law and has received an initial notice from the EEOC, then the disclosure schedule can be used to make the representation true. Here’s a sample disclosure:

The Seller received notice from the EEOC on [date] that it was reviewing a complaint filed by [ex-employee] alleging age discrimination.

The disclosure schedules are sometimes referred to as “insurance” in industry jargon, in the sense that they help insure the seller against future claims by the buyer.

Tip 4 — Update Disclosure Schedules. Most deals are of the “sign and close later” variety (as opposed to a “simultaneous sign and close”). When closing follows the signing at a later date, the seller must monitor the representations between the date of signing and the closing. It’s almost certain the buyer will require the seller to make the representations at the time of signing and at the time of closing. The seller needs to update its disclosure schedules such that they, as well as the representations they modify, remain true on the closing date.

The representations and warranties section of the purchase agreement is often the longest and most laborious section of the document. Knowledgeable sellers will pay significant attention to the statements included and limit their risk by narrowing the reach of the representations and by making adequate disclosures. Don’t simply leave these to your counsel and assume they are just verbiage for the lawyers to tinker with — know what the representations state about you and your company.

In the next post, we’ll discuss conditions to closing.

© 2013 Casey W. Riggs — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post Selling Your Business – Practical Tips for Sellers – Part 7: Representations, Warranties, and Disclosure Schedules appeared first on Strictly Business.

First, let’s start with an overview of the JOBS Act. The JOBS Act is divided into six main sections called “titles.”

• Title I of the JOBS Act — also known as the “IPO On-Ramp” — creates a new category of company called an “emerging growth company,” which is defined roughly as a company with less than $1 billion in revenue. An emerging growth company would enjoy more lax regulation by the SEC than other public companies for up to five years. For example, the act permits emerging growth companies to defer compliance with Section 404(b) of the Sarbanes-Oxley Act until the company is no longer considered an emerging growth company. Section 404(b) requires the company’s auditor to report on and attest to management’s assessment of the company’s internal controls, a requirement that necessitates high compliance costs. The IPO On-Ramp was effective upon passage of the JOBS Act. More details will be discussed in a future post.
• Title II makes two distinct changes in the law related to private placements. First, it contains a provision instructing the SEC to revise its rules to remove the general solicitation prohibition applicable to offerings made under Rule 506 of Regulation D, as long as all purchasers are accredited investors. Second, it exempts from broker-dealer registration certain online platforms that pair investors with companies seeking capital and potential co-investors and those that provide ancillary services (such as due diligence or provision of standard documents). The provision related to online platforms became effective upon passage of the JOBS Act. The provision repealing the ban on general solicitation in Rule 506 offerings has not gone into effect because of delays in the SEC’s rule-making process, generating considerable friction between some members of Congress and the SEC.
• Title III is the so-called “crowdfunding” law. Probably the most well-known of all the provisions in the JOBS Act, it creates a new exemption from securities laws for certain offerings conducted online. It has not yet gone into effect because of delays in the SEC’s rule-making process. At the time it passed, I was very critical of it, mainly because I thought that the heavy compliance burdens it imposed would make it unworkable for small companies looking for investors. In a future post, I’ll reexamine and possibly reassess my views in light of the events of the last year and discuss recent developments associated with this portion of the act.
• Title IV essentially instructs the SEC to revise a little-known securities registration exemption known as Regulation A, increasing the amount that can be raised under that exemption from $5 million to $50 million. Like the Regulation D reform and crowdfunding provisions, title IV has not yet gone into effect because of delays in the SEC’s rule-making process. More details will be discussed in a future post.
• Titles V and VI make it easier for companies to remain private (i.e., avoid having to become a public reporting company). Prior to the passage of the JOBS Act, if a company had over $10 million in assets and any class of its equity securities was held by 500 or more shareholders of record, it was required to become a public reporting company, which essentially forced the company into conducting an initial public offering. It was widely speculated in the media that Facebook became public only because of this rule and would have preferred to remain private had it not been required to register. The JOBS Act increased the number of shareholders a company may have before the registration requirement is triggered in two ways. First, it increased the threshold so that it is triggered if the company has either (1) 2,000 or more persons or (2) 500 or more persons who are not accredited investors (except for a bank holding company, for which the threshold is a straight 2,000). Second, it provided that shareholders who received their shares through an employee compensation plan are not to be counted towards these limits. Shareholders who acquire their shares through a crowdfunding offering also do not count towards these limits. These provisions took effect upon passage of the JOBS Act, though some rule-making still needs to be done by the SEC.

What is most striking about the JOBS Act is how little effect it’s actually had thus far. This is because the SEC has failed to issue many of the implementing regulations that actually make many of the most important provisions of the act effective. Many of the act’s provisions are not self-effecting; that is, until the SEC issues regulations, they have no force or effect in law. Disappointment has abounded. I have previously written about how Rep. Patrick McHenry (R – NC), chairman of the subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, wrote a letter in August 2012 to Mary Shapiro, the chairman of the SEC at the time, accusing her of ignoring the law by failing to issue the revisions to Regulation D allowing for general solicitation. More recently, Reps. Darrell Issa (R – CA), Jim Jordan (R – OH), Jeb Hensarling (R – TX), and McHenry sent a letter to SEC Chairman Elisse Walter, expressing that they are “surprised and troubled” to see the SEC expending resources on a project to force political spending disclosures by corporations while so much of the JOBS Act remains unimplemented (namely Titles II, III, and IV). More recently, McHenry and others introduced legislation in Congress to impose on the SEC a deadline of October 31, 2013 to implement Title IV (related to reforming Regulation A). Since the SEC has missed every other deadline in implementing the JOBS Act, I’m not sure what will come of this.

What’s causing the regulatory paralysis? The central issue is that there are two completely different mindsets at work when it comes to the world of capital formation. On one side, there is the view that we need to deregulate the issuance of securities for startups, small companies, and high-growth companies because our current securities laws are too complex and difficult for small companies to comply with. Compliance would require companies to hire legal counsel that is highly specialized (and thus expensive) at the precise point in time when they are least able to afford to do so. According to this viewpoint, making securities laws less onerous would make it more likely that good ideas will be able to obtain needed investment, creating economic growth. This was the central premise behind the JOBS Act.

But there’s a second viewpoint, held by many just as strongly as the first, which is that securities regulations are in place to prevent fraud and loosening them is only likely to increase fraudulent behavior. In addition, advocates for stringent securities laws argue that, while some offerings may not be fraudulent, most potential investors are not in a position to evaluate whether startup investments are a good allocation of capital or whether they are too risky for them to bear. In this view, the potential for fraud plus most people’s inability to evaluate investments has three negative effects: (1) investors will suffer from losses that they cannot bear economically (think of the widow who loses her life savings in a risky venture); (2) because of the widespread losses that people will incur due to fraud and bad business ventures, over time people will become less willing to invest because of fear of such losses (i.e., a loss in confidence in the markets — think the Great Depression, which is when the federal Securities Act of 1933 was passed); and (3) because there will be large numbers of amateur investors investing in things that they have no way of evaluating, capital will actually get mis-allocated, which will hurt economic growth.

The problem is that both of these perspectives are right. Securities laws ARE complex. They are often difficult to comply with, and the severe consequences for failure to comply with them (criminal and civil money penalties, rescission rights for investors, and inability to raise future capital among them) deter entrepreneurs from seeking investors for their ventures. The high cost of legal services and significant amount of compliance is often way out of proportion to the budgets of many startups. It is also true that fraud presents a serious problem and is quite common. In addition, investments in startups often become just another form of gambling rather than a carefully considered investment decision.[1]

The public policy concerns underlying both of these viewpoints are good ones. Some might accuse me of being wishy-washy and trying to have it both ways. Actually, I am (with regards to having it both ways), because the facts motivating both viewpoints are not mutually exclusive. It is possible for it to be true that (a) securities regulations make obtaining capital complex enough to deter entrepreneurs from embarking upon promising ventures AND (b) people often get defrauded or make poor investment decisions or evaluations of risk.

My view is that too many people talk about increasing regulation or decreasing regulation as if one or the other is inherently a good or bad thing or that one public policy concern should always trump another. What we need is smart regulation that specifically targets the things we are trying to prevent (like fraud) and doesn’t prevent things that we aren’t trying to prevent (like useful allocations of capital).

With this background in mind, are the provisions of the JOBS Act “smart” regulation? Often with these kinds of things, the consequences will only be evident years after implementation. The difficulty of balancing the two viewpoints I described above is what is significantly slowing down the implementation of the JOBS Act by the SEC. To make things worse, just a few years before the JOBS Act, Congress imposed significant regulatory responsibilities on the SEC in the Dodd-Frank Act and the SEC is behind in its implementation of that as well. All of this creates quite a mess.

In the next post, I will explore how the implementation of the IPO On-Ramp has transpired.

Footnotes

[1] Indeed, prolific economic commentator Steve Rattner recently wrote an opinion piece in the New York Times expressing this precise view.

© 2013 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post The JOBS Act, a Year Later – Part 1: Introduction appeared first on Strictly Business.

The first draft of the purchase agreement will generally be prepared by buyer’s counsel and will be divided into several separate sections, such as the following:

• Description of the Transaction
• Representations and Warranties of the Seller
• Representations and Warranties of the Buyer
• Pre-closing Covenants
• Conditions to Closing
• Post-closing Covenants
• Termination
• Survival and Indemnification
• Miscellaneous or General Provisions

The actual sections included will depend, in part, on whether the deal is structured with a signing date followed by a later closing or, alternatively, as a “sign and close” transaction where both events happen simultaneously. In the latter case, the purchase agreement is generally simpler and won’t include the Pre-closing Covenants or Conditions to Closing sections.

The first section, which we’re discussing in this post, will often contain the major business terms.  Here’s a brief list of the major terms and tips for reviewing this section of the purchase agreement.

Assets/Interests to Be Sold.  The buyer’s draft of the purchase agreement should accurately describe what is actually being purchased by the buyer (the specific assets in an asset deal or the stock or other ownership interests in a stock deal) and those assets or liabilities being retained by the seller, if any.  Hopefully, there is agreement on such big picture terms prior to receipt of the purchase agreement so that there won’t be lots of negotiation on these points.

As a seller, you’ll want to be sure all of the descriptions are correct.  In particular, in an asset deal, be sure all assets you intend to remain with you (“excluded assets”) are specifically listed.  Typical excluded assets are cash, marketable securities, assets associated with retained liabilities (e.g., 401(k) assets if the plan is being retained), and often certain personal assets (e.g., the seller’s vehicle).  Generally, the buyer will draft very broad language when describing the transferred assets, such as “all assets used in the business, including…”  Therefore, it’s up to you, as the seller, to carve out assets that should not be transferred.

On the liability side, be sure all liabilities that the buyer will take are listed (here, the buyer’s purchase agreement will usually use very restrictive language such as “seller retains all liabilities and obligations except for the following: [list of specific liabilities]”).  Typical liabilities that the buyer will assume include obligations under assigned contracts and accounts payable.  Again, this is only relevant in an asset deal.

A stock deal is typically simpler to describe but be sure the description of stock or other interests being purchased and sold is correct.

Purchase Price.  Often, the purchase price terms will be one of the first subsections of this section.  It should include (i) the portion of the purchase price to be paid at the closing and how it will be paid (e.g., $5,000,000 million by wire transfer to a bank account of the seller), (ii) any portion of the purchase price to be paid via delivery by the buyer of a promissory note to the seller (e.g., $2,000,000 by delivery of the buyer’s promissory note to seller), and (iii) any portion to be paid via an earn-out.  Many times there are potential adjustments to the purchase price too (e.g., working capital adjustments), some of which may be made at the closing and others which are made post-closing.  Such adjustments should also be very clearly described.

Closing.  The “Closing” should be defined and described in the purchase agreement.  Most deals now close by exchange of documents by electronic transmission with originals to follow by overnight mail.  A specific date for the closing should be set, especially in a deal that will provide for signing of the purchase agreement before the closing.  Also, it’s common to set the effective time for the closing (e.g., 11:59 p.m. on the date of closing), to eliminate any confusion about events that occur or conditions that apply on the “Closing Date” but before or after the “Closing” itself.

This first section of the purchase agreement should be fairly straight forward and should not require significant negotiation but it is one of the most important sections because it contains the major business terms.  So be sure to think it through and review it very carefully with your lawyer and probably your CPA.

In the next post, we’ll discuss representations and warranties in the purchase agreement.

© 2013 Casey W. Riggs — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The post Selling Your Business – Practical Tips for Sellers – Part 6: The Purchase Agreement appeared first on Strictly Business.