Fall 2014 issue of Horizons

FEATURE

with these agreements. It is not unusual to find outdated agreements, as well as fact patterns indicating companies are in violation of one or more material agreements.

transaction, and may even be willing to offer employment terms post-transaction that are more favorable than their current terms. It is advisable that, if not already in place, you have key employees sign employment agreements with confidentiality, non- competition, and like clauses if for no other reason than to make this a customary process and reduce the surprises to your key employees when your prospective buyer requests such in the weeks prior to closing. Now is also the time to resolve any informal agreements or perks previously agreed to with existing employees and/or family. These issues can disrupt exit processes and scare away a prospective buyer. Document Your Customer, Supplier, and Vendor Relationships Chances are slim that a prospective buyer will want to acquire a business that is operating on a series of handshakes, even if such arrangements represent strong, long- term relationships. It is imperative that you document (and receive executed copies of) all third-party agreements and arrangements so that your prospective buyer is clear on the terms under which it is bound with customers, suppliers, and vendors going forward. After all, these on-going commitments will become your prospective buyer’s commitments, assuming that such agreements are transferable post-transaction. In addition, it is advantageous to have these agreements ready-to-go when the multiple rounds of document requests begin. When negotiating the terms and conditions to these agreements, be aware of how built-in price increases, volume discounts, and unusual termination clauses may be perceived by a prospective buyer. Finally, as you go through this process, make certain that these agreements are current and that your business is in compliance

Organize Your Business’ Corporate Governance Documents A prospective buyer and its legal counsel will want to see your business’ corporate governance documents. These will likely include articles of incorporation, by-laws, operating agreements, filings and certificates of good standing with various federal, state, and local governments, an entity organizational chart, a current capitalization table/evidence of ownership, documents evidencing historical stock and ownership transactions, and board and shareholder meeting minutes, among others. Many organizations spend considerable time during a transaction process locating these documents and, after locating them, struggling to identify whether the versions located are the most current. This is not a situation you want to be dealing with while managing your business and being responsive to your prospective buyer’s other requests. While it is always a best practice to keep corporate governance documents organized and accessible, it is especially important to keep ahead of this task in the months and years leading up to a potential exit. Ensure the Business Is Properly Licensed and Current On Its Regulatory Filings No prospective buyer wants to walk into a situation in which the business they have just acquired is lacking the proper regulatory, environmental, or other permits it requires for its operations. This is a sure way to sell your business at a discount, if you can sell it at all. But, these situations are more common than you think. Most often, the proper licenses or filings have

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