SpaceX Leaves Delaware; Should Others Follow?

On January 30, 2024, the Delaware Chancery Court voided Elon Musk’s $55.8 billion compensation package as CEO of Tesla, ruling it unfair to shareholders. In response, Musk criticized Delaware and announced plans to transfer SpaceX’s incorporation to Texas, with Tesla potentially following. This decision has sparked debate among business owners about incorporating in Delaware. Despite the controversy, Delaware remains a popular state for incorporation due to its established legal framework, specialized courts, and favorable regulations. The post explores the implications of Musk’s actions and the ongoing relevance of Delaware for business incorporations.

Earnouts: Pitfalls for the Unwary Seller

Earnouts can bridge valuation gaps in M&A deals, but careful drafting is crucial. Sellers should negotiate clear calculation methodologies, specific covenants for the buyer's post-closing operation of the business, and robust dispute resolution procedures. Proper structuring of earnout provisions can help manage seller expectations and reduce the likelihood of future disputes.

The Process of Buying or Selling a Business: M&A Purchase Agreements

The purchase agreement is key in M&A transactions, detailing conditions for closure, business terms, asset delineation, due diligence, post-closing recovery, and transition covenants. Styled based on the transaction (asset, stock, merger), it's drafted post-due diligence, varying in length. It includes parties involved, assets, liabilities, purchase price details, closing process, representations, warranties, tax matters, other covenants, indemnification, and miscellaneous provisions. Structure is driven by buyer and seller preferences, affecting asset or stock purchase decisions and tax implications.

The Process of Buying or Selling a Business: A First-Time Seller’s Guide to Due Diligence

Selling your business is not just about finding a buyer and agreeing on a price. Once the basic terms of the deal are agreed upon in a letter of intent, the buyer will want to sift through your business and legal records with a fine-tooth comb. This meticulous review of your business from contracts to customer lists is called due diligence. Due diligence allows the buyer to uncover risks when buying a business.

The Process of Buying or Selling a Business: A First-Time Buyer’s Guide to Due Diligence

Due diligence is the buyer’s process of discovering and evaluating information about a seller’s business to confirm that acquiring the seller’s equity or assets is a sound investment. However, the process of conducting due diligence differs between transactions for a variety of reasons. Factors such as the deal structure (equity purchase versus asset purchase), cost, the unique qualities of the seller, and time constraints affect how the buyer’s deal team approaches due diligence.