Author: Katie Blom

Cross Your T’s: Conducting Due Diligence

Buying or selling a business can be an exciting opportunity. With that excitement, many buyers and sellers skip due diligence entirely or cut corners. Failing to do due diligence can have serious consequences. When the excitement wears off, many buyers and sellers are left wondering what went wrong.

Most people buying a business look at the financial information. But many fail to conduct full due diligence and look at all parts of the business. Failing to look at the circumstances of the sale can be disastrous for both buyers and sellers. Buyers may discover they can’t operate the business at a profit or at all. Two particular areas of concern are: 1) Licenses and permits and 2) Liabilities.

Many businesses require licenses or permits in order to operate. Due diligence involves making sure the business you buy has those and that they can be transferred to you (for example, an Appleton permit won’t work if you plan to set up shop in Green Bay). The last thing you want is to go through the purchase process only to find that you can’t operate the business because you don’t have the necessary permit.

Another area to investigate is liabilities that might not show up in financial statements. For example, a business might be in violation of employment laws or facing environmental lawsuits. Depending on the liability and how the sale is structured, a buyer may be on the hook for those, leading to extra costs and cutting into profitability.

Sellers also face problems if due diligence isn’t completed. Depending on what warranties you make, omitting information might make them untrue. And untrue warranties lead to liability.

Buying or selling a business should be an opportunity for growth, not a hassle years down the road. Taking the time to do it right now can save you time later.

Minor Challenges: Estate Planning With Young Children

As parents, the last thing we want to consider is not being there for our children. It’s understandable, then, that when asked to consider that “what if” we try and avoid it. But it’s critical to confront the “what ifs” when estate planning to make sure your minor children are supported and cared for. Two of the biggest issues to address are: who manages their inheritance and how they’ll receive it.

A traditional will poses unique problems when minors are involved. While the probate court will probably agree to the guardian you name for your children in the will, that guardian won’t have any control over the children’s inheritance. Your children’s expenses are paid out of their inheritance and must be approved by the court, which has limited flexibility to consider individual needs. Then, when your children come of age, they get the remaining inheritance in one lump sum (no matter what!).

A better approach is setting up a revocable living trust (RLT) for your children.  The guardian you appoint as trustee manages the children’s inheritance. You can give them the flexibility to spend more or less of the inheritance depending on each child’s needs.  You can also provide for your children to receive their inheritance only when they’re older (for example, 25 rather than 18) or over time (instead of one lump sum). An extra advantage is that property in the trust can be protected from creditors.

Hopefully, the only guardian your children ever need is you. But thoughtful estate planning now ensures that your children will be taken care of if the unexpected happens. A properly set up RLT can meet your children’s needs and give you peace of mind.

Hostile Work Environments: Uncomfortable for You and Your Employees

As an employer, you probably already know you can’t discriminate in hiring or firing people based on protected characteristics (race, gender, religion, disability, etc.). But you also can’t harass an employee based on those characteristics. If harassment creates a “hostile work environment” you could be legally responsible.

What is a hostile work environment?
A hostile work environment is when the harassment becomes so severe as to interfere with an employee’s ability to do their job. Isolated incidents usually aren’t enough to create a hostile environment. Having a “crappy job” isn’t enough, either, so it can be difficult to make a hostile environment claim.

I would never harass an employee, so I’m clear, right?
Unfortunately no. The Wisconsin Department of Workforce Development (DWD) notes that an employer might be liable for actions of their employees or even customers if the employer knows or should have known of the harassment and didn’t take appropriate action.

If it’s hard to make a successful claim, do I really need to worry?
Yes! Even if you don’t end up being sued, harassment can lead to low employee morale and productivity. It can even affect your reputation in the community (and we know people in the Fox Valley care about a business’ reputation).

So what can I do to protect my business?
Talk with an experienced employment attorney to create fair and workable policies. Then, make sure your employees know the policies and enforce them! Take all claims seriously and address them before they create a hostile work environment. You’ll avoid many problems and have something to fall back on if you do get sued.

You started your business because you enjoy what you do and hopefully your employees feel the same. Setting down some ground rules can protect you and help all employees feel comfortable at work.

Executing Your Estate Game Plan Part 2

Setting up an estate plan is a great start to accomplishing your estate planning goals. But too many times we take the plan we’ve drawn up and lock it away until it’s needed. In this series, we’ll take a look at what you can do now to make sure that your estate plan will actually meet your goals when it’s time to be carried out.

Part 2: Discussing Your Estate Plan

Discussing your estate plan with your loved ones can be difficult, but it’s one way to ensure that your wishes will be carried out.

The most important discussions should happen before you draw up your estate plan. These are the discussions you need to have with anybody you want to assign responsibility to. Those people include guardians for your minor children, trustees, powers of attorney and healthcare powers of attorney. Make sure that person understands what you’re asking of them and is willing to take on the tasks that come with the position.

After you draw up your estate plan, it’s a good idea to go over what you’ve decided, in general terms, with the people who will be executing it. For example, trustees will probably want to have at least a basic idea of how you set up the trust so they know what to expect.

Finally, many family members have emotional attachments to some of your personal effects, like family heirlooms. Being up front about why you made certain gifts can soothe any hurt feelings, not to mention avoiding a court battle.

Ultimately, it’s up to you how much of your estate plan you want to share with others. But a few honest discussions now can avoid some of the headaches and stress down the road.

Next: When to Update Your Estate Plan

Executing Your Estate Game Plan Part 1

Setting up an estate plan is a great start to accomplishing your estate planning goals. But too many times we take the plan we’ve drawn up and lock it away until it’s needed. In this series, we’ll take a look at what you can do now to make sure that your estate plan will actually meet your goals when it’s time to be carried out.

Part 1: Funding Your Trust

Trusts are an important part of estate plans today. They allow a trustee to manage your property for you and distribute it based on the terms you set out when you created the trust. But in order for the trust to work the way you want it to, you have to fund it. Funding a trust means actually transferring your property to it.

Why is it so important to fund your trust? Because any property that you don’t transfer is subject to probate, along with all of the probate delays and costs. In other words, you can lose one of the most important reasons you set up the trust in the first place.

Some transfers are fairly easy to make. For example, your personal effects were probably transferred to the trust by simply stating that fact in the trust document. Other transfers, like business interests or retirement plans, can be much more complicated and have trade-offs you should discuss with your attorney and/or financial advisor.

You’ve taken the time to create a trust that makes sure your loved ones are taken care of. Properly funding your trust makes sure that those loved ones are supported the way you intended.

Next: Discussing Your Estate Plan

Getting Personal: The Real Reasons You Need an Estate Plan

Many of us think of estate planning as the way wealthy people distribute their estate with minimal taxes. But estate planning shouldn’t be all about the money: it’s about taking care of people you love. Everyone needs estate planning.

Non-money reasons to have an estate plan include:

  • Number one, especially for young adults, is to appoint a guardian for your minor children. Make sure someone you know and trust will care for your children if you can’t.
  • Setting up a trust can give your children a safety-net to protect their inheritance and take care of them as they grow.
  • A life insurance policy can pay your mortgage, medical bills, or final expenses and cost as little as $300 a year. It’s a small expense to ensure your spouse and children have support if something happens.
  • A power of attorney and healthcare power of attorney choose someone you trust to make financial and medical decisions for you in case you can’t. This, along with a living will, can make sure your wishes are known and limit stress on loved ones having to make those difficult decisions.

Your estate plan is about more than your financial worth. You want your loved ones to be taken care of even if you can’t be there to do it. The attorneys at Epiphany Law will work with you to create a plan that meets your personal needs and protects those you love regardless of the size of your estate.

Business Contracts: What you need to know about automatic renewals and extensions

Effective May 1, 2011, a new Wisconsin law requires businesses to notify customers of automatic renewal or extension provisions in business contracts.

According to the statute, “business contracts” are contracts “entered into for the lease of business equipment, if any of the business equipment is used primarily in this state, or for providing business services.” The statute does not apply to contracts that allow customers “to terminate an automatically renewed or extended contract period by giving the seller notice,” but only if the contract requires one month or less of advanced notice from the customer.

Referred to as 2009 Wisconsin Act 192, the law impacts business contracts involving equipment and services in a variety of industries (construction, food service, consulting, IT, and manufacturing, to name a few). To remain compliant, you are required to notify your customers as to how they may decline renewal or extension of business contracts. If you fail to notify your customers, the renewal or extension provisions will become unenforceable.

The notice requirement consists of both an initial disclosure about the automatic renewal or extension provision in the contract and a reminder notice in certain cases.

These notices must include information regarding:

  • any increase in charges that will apply under an automatic renewal or extension
  • what the customer must do to decline renewal or extension
  • the date by which the customer must decline renewal or extension

The statute also allows customers to bring an action or counterclaim for damages against a seller for violations. Damages can include twice the amount of the damages incurred by the customer, including reasonable attorney fees.

Now is a good time to go back and take a look at your business contracts to ensure compliance with this new law, as it applies to all business contracts entered into, modified, or renewed after May 1, 2011.

Business Startup: A Legal Checklist

There are a million things to consider when starting a business, not the least of which are the legal aspects of such an important undertaking.

The following checklist will help you identify key legal concepts all business owners should consider:

  • Obtain a Federal Employer Identification Number (EIN): A federal Employer Identification Number (EIN) is a 9-digit number assigned to sole proprietors, LLCs, corporations, partnerships, estates, trusts, nonprofit organizations, farmers’ cooperatives and other entities. It’s used for tax filing, reporting purposes and establishing business tax accounts. It’s important to complete this application correctly, and business owners should use this instead of their individual Social Security numbers. NOTE: Anyone who hires independent contractors in Wisconsin must insist that the contractor use a federal EIN instead of a Social Security Number!
  • Determine the proper legal entity: When starting a business, you’ll need to decide what form of business entity to establish. The type of business you own, whether it’s a sole proprietorship, partnership, LLC or corporation, determines the extent to which your liability will be limited, and how your income will be taxed.
  • Articles of organization or incorporation: Articles of Organization must be drafted to form a Wisconsin LLC, and Articles of Incorporation are required to form a Wisconsin corporation. Be careful when selecting whether an LLC should be member-managed or manager-managed, as this will dictate who can make decisions on behalf of the entity.
  • State identification number: A Wisconsin Employer Identification Number (WEIN) is required for employers who pay wages subject to withholding of Wisconsin income tax or for other persons with a withholding requirement (e.g., third-party payers of sick-pay plan benefits, etc.). Only one WEIN is issued to an applicant for withholding tax purposes, regardless of the number of business locations.
  • Seller’s permit: In Wisconsin, a seller’s permit is required for every individual, partnership, corporation or other organization that makes retail sales, leases or rentals of tangible personal property or taxable services in the state. It is issued by Wisconsin’s Department of Revenue.
  • Operating agreement or bylaws: An operating agreement is an essential organization document for an LLC which governs the business and defines the members’ financial and managerial rights and duties. Such an agreement is similar in function to corporate by-laws. If a business is ever sued, the court will look for the company’s operating agreement or bylaws to ensure that the company, so it is important to have this to avoid having the court “pierce” the corporate veil and get to the business owners’ personal assets.

Other Key Considerations:

  • Put everything in the name of your business – Litigation in America is often absurd and losing your business to a lawsuit, if you are not properly protected legally, makes you more vulnerable to losing your home, your car and your retirement savings. It is essential that you protect your assets by having all leases, customer and vendor contracts and other legal documents and permits listed in your business name instead of your personal name. It is also essential that you avoid commingling funds between personal and business accounts.
  • Have a business plan – A business plan is a document that outlines every critical aspect of the business’ operation. It’s an important communication tool that should be a work in progress. Writing a business plan can be intimidating, but it’s not something that should be avoided. There are a number of local, state and federal resources at your disposal that can help with the process. Along those lines, it’s a good idea to enlist the help of a team of reliable advisors when it comes to the formation and operation of your business. They can provide valuable guidance for situations that occur from day to day and well into the future.

You’re Ready to Buy a Business – Now What?

Starting a new business from scratch requires a lot of work and expense, so for many entrepreneurs buying an existing business is more appealing. An established customer base, employees and suppliers, and the notion that someone has already done all the heavy lifting, are just a few of the reasons “pre-owned” can rival “new.”

But buying an existing business is still a complex process. Typically, potential buyers have preliminary discussions about terms of the sale with the seller. After a preliminary agreement is reached between buyer and seller, a Letter of Intent, or LOI, is often the next step. The LOI sets forth the rudimentary terms of the deal and establishes confidentiality. It also establishes whether the seller has to deal with you exclusively during the next phase, or if he can entertain other offers.

Following the LOI, you will need to do your homework, or conduct “due diligence.” Due diligence is a detailed review of the business that will help you uncover potential problems. Consequently, you will want to review and verify all of the information the seller has provided to you. The items you will need to review include the record book, historical and current financial data, tax returns, business plans, minutes of directors’ and shareholders’ meetings, all contracts with suppliers and customers, and all information relating to employees and contractors.

Buy-Sell Agreements: Protect Your Business From The Unexpected

As a business owner, have you ever worried about what would happen to your business if one of your partners became disabled, got divorced or died? If you had a Buy-Sell Agreement in place, you could sleep a little easier.

Simply put, a Buy-Sell Agreement is a contract that dictates how, when and for how much a company or its remaining owners will be required to pay to acquire the interests of a departing owner. This kind of agreement is essential if your business has two or more owners, but it makes sense for any kind of business entity, from LLCs to corporations and everything in between. In addition to the peace of mind it provides, business owners with a Buy-Sell Agreement in place can avoid costly court battles, or worse, total business failure.

An effective Buy-Sell Agreement should address how the funds needed to buy out an owner will be provided. This funding needs to align with the triggering events. Often, insurance is maintained to fund purchases in the event of death or disability. Other situations are often covered by structuring a purchase over 5 to 10 years.

There are different types of triggering events that Buy-Sell Agreements address. For example, if an owner dies, the surviving business owners may inherit heirs for business partners who care little whether the business survives. The death of a spouse, disability, bankruptcy, termination of employment and retirement are other types of triggering events that put a business at risk.

There are also three forms of such an agreement. They include Cross-Purchase, Entity-Purchase and a hybrid of the two. An experienced business attorney can help you determine the appropriate type for your situation. To have an effective Agreement, the owners must agree upon a mechanism to set the future value of the business. Possibilities include: book value, multiple of earnings, appraisal and annual valuation by owners. Again, these are things you should discuss with your attorney.

Your business needs protection from the unknown and ensuring that critical events are properly covered is essential to the long-term survival of your business. A Buy-Sell Agreement can provide just that.

It is an essential requirement to the long-term survival of your business.