Tag: small business owner

Are Real-Money Video Game Tournaments Legal?

Video games are quintessential contests of skill and online multiplayer modes are a must in most modern video games. And yes, playing skill video games for real money prizes is legal in the majority of U.S. states. Some of the most popular video games (Call of Duty, Fortnite, Magic: Arena, and others) frequently feature official in-game tournaments with real-money prizes for the top finishers. Fueled by the global popularity of esports, there is also a growing number of third-party esports tournament sites and apps. These third-party offerings are essentially on-demand, which means that there are always head-to-head challenges waiting and frequent “cash cups” with winners able to win a hundred dollars or even more.

Real-money game tournaments and contests serve as a more casual alternative to professional esports. Not everyone has the time (or the reflexes) to go pro or even compete at the collegiate level. But, you may be skilled enough to dominate your local group of friends at Call of Duty or FIFA and there are plenty of offerings to let you win real money prizes against online opponents. Some of the most innovative companies even integrate streaming (for example through Twitch) to add an exciting “audience” element to real money play. Anyone can feel like an esports pro. There is also a growing opportunity for market crossover, with streamers getting involved in real-money play and adding a whole new dimension to their entertainment potential, audience, and branding opportunities.

What kinds of legal issues will a contest or tournament organizer/developer encounter? As with any business, there are several distinct legal areas in play.

Esports competitions or tournaments are not expressly regulated or prohibited under U.S. federal or state law.

First, from a government regulation perspective, no states expressly prohibit esports or video game tournaments. However, there are several jurisdictions that prohibit any sort of real-money gaming. This is the case even if the game involves a pure contest of skill (even offline, like a hole-in-one contest). Accordingly, tournament organizers and app developers stay away from those restrictive jurisdictions.

In the remaining states, game contests, tournaments, and esports are not licensed under any sort of “gambling” or “fantasy sports” regulatory scheme. The largely unregulated market means that there are a number of service providers out there that disagree on where their product can be offered. Some are more conservative than others, but there is not a definitive list of where gaming competitions are legal or illegal. At least one state – Nevada – passed legislation to create an esports advisory board (within its Gaming Commission), to recommend best practices for maintaining integrity of esports competitions and related betting. According to Nevada lawmakers, they recognize the value in the esports competition industry and want to ensure Nevada remains an attractive investment environment for this burgeoning industry. At this time, the potential advisory committee is the closest any state has come to any sort of esports-specific legislation.

A lot depends on the specific competition and tournament model, as well as the types of games being played. For instance, are shuffled cards involved (Magic: The Gathering)? Or some other element of randomness (like team or opponent selection)? Are bots or AI players involved? How do all these elements interact and do they introduce a significant chance element that may affect the outcome? Does the randomness element render the game illegal “gambling”?

Third-party video game websites and apps implicate the intellectual property rights of the underlying game’s developers and may be subject to DMCA takedown notices or federal trademark lawsuits.

Second, esports competitions and tournaments do implicate intellectual property rights, specifically the rights of the game developers. A game’s developer (like Blizzard, Riot, or Epic) owns the copyrights in its games and underlying code. Third-party apps and websites operate without any sort of license from the developers, which may be a violation of copyright or trademark law. Disclaimers alone may not be enough – using game imagery, logos, or even gameplay footage may constitute copyright or trademark infringement. A player or streamer may be protected by the “fair use” copyright law exception, but a company that organizes and monetizes game tournaments is unlikely to prevail on this argument. At the same time, a properly run game tournament organizer may not have sufficient interaction with the game itself to violate IP rights. After all, the players are the ones playing. Each situation is highly fact-specific and there is certainly no bright line rule.

As real-money video game tournaments become more widespread, expect to see pushback from the game studios. At least one studio – Epic – has announced an aggressive stance towards third-party platforms that facilitate playing Epic’s games for real-money prizes (particularly Fortnite). However, as of the date of this article, no lawsuits have been filed.

Combining real-money tournaments with streaming is an attractive business model, but may involve complex licensing and contract issues.

Third, streaming tournaments and competitions, as well as partnering with known streamers, involves a number of contract law and licensing issues. Each streaming service has its own set of terms. Players (and organizers) streaming real-money game content must ensure that they are compliant with the terms or risk being banned from the platform. Further, who owns the streaming content? Normally, the creator has the intellectual property rights to their own content, but it is not so clear-cut when streaming a tournament or other organized contest. Tournament organizers should ensure that rights and expectations are clear from the outset, especially if a well-known esports streamer or player is involved. If the streamer is granting the organizer a license to showcase their gameplay, the license should at a minimum be in writing. Any royalties, cross-promotions, and sponsorships likewise need to be negotiated ahead of time. Even the best intentioned relationships go awry when money becomes involved.

For developers looking to launch a new esports or game tournament app or website, an experienced gaming attorney is a must-have. Artaev at Law has worked with a number of gaming companies from across the world and has the expertise you need. Reach out today to set up a meeting with Dan.

Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, investment, or tax advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2021 Artaev at Law PLLC. All rights reserved.

Categories
Uncategorized

Business Law Essentials for the Modern Video Game Company.

As a game developer, unless you are working on the new Ace Attorney game, law and lawyers are the last thing on your mind. But no matter how high-tech, innovative, and cutting-edge your product, video games and mobile apps are still a business and there are industry-specific legal areas to consider. Doing it right will protect your investment and ensure that your business grows in the right direction with minimum risk and liability. Artaev at Law specializes in legal issues facing video game and mobile app developers and also has extensive general business experience to help you run your company the right way.

The Fundamentals.

1. Form Your Corporation or LLC.

When starting your business, the first thing to do is to form a business entity. It is important to choose the right type of entity depending on your future goals and needs in mind. For example, if you are planning to solicit investors and venture capital, a Delaware corporation is likely your best option. In other situations, a limited liability company (“LLC”) may be a simpler approach, but at the same time may create unintended tax consequences in the future if you decided to merge, reorganize, or consolidate your company with others. Whatever form you choose, incorporation is critical for all business owners because it creates a separate business entity with its assets and liabilities independent of its owners. A formal business organization also helps address important governance, financial, and succession issues right at the outset.

To officially form your company, you file articles of incorporation (or organization) in the state where you want to be registered. An experienced business attorney can advise you on the right type of entity, as well as the advantages and disadvantages of incorporating in various states (i.e. should you form a Delaware corporation?) Every state requires an initial registration fee, an in-state registered agent to serve as your official point of contact, as well as an annual filing and renewal fee to keep your company current and in good standing.

2. Have an Attorney Draft Your Bylaws or Operating Agreement.

The next step is to have an attorney draft the bylaws or operating agreement. This internal governance document is absolutely critical. It spells out who owns the company, how decisions are made, how money is distributed, how shares are transferred, what happens if an owner dies, and many other important considerations. Even if you are a one-person business, the bylaws or articles of organization are still necessary when you want to open a bank account, obtain a business loan, sell all or part of your business, and otherwise ensure that you are running your business the right way. Having formal documents and procedures, as well as keeping written records of corporate meetings are also critical to maintaining the corporate form for liability protection purposes. Aggressive creditors have successfully argued that a business that does not observe such formalities is a “sham” and that a court should “pierce the corporate veil” to allow them access to an owner’s personal assets.

3. Separate Your Business Money and Assets.

Maintaining a separate bank account and finances for your business is another vital step. Virtually all business problems are linked to money. A separate business finance setup (including a bank account) avoids commingling personal and business funds, which is another circumstance that could expose you to liability. Further, failing to separate business and personal expenses and properly account for distributions creates a very difficult and unpredictable tax situation at the end of the year. For example, if you use personal credit cards for business expenses, make sure to keep records and promptly and accurately reimburse yourself. Also, if you apply for an SBA or other loan, make sure that the loan is disbursed to your business account and not to your own personal account (yes, this actually happened with one of my clients). Otherwise, you are creating an accounting, tax, and legal nightmare – and risking an IRS audit.

Make sure to reserve adequate money for income taxes from any operational income. Also, state and federal taxes must be paid on a quarterly estimated basis, since as a business owner there is no employer automatically withholding taxes from your paycheck. If you have employees, you will need to make sure to pay the appropriate payroll, worker’s compensation, and unemployment taxes. If you do not have employees, self-employment tax is still something that must be calculated and paid periodically.

Finally, on cryptocurrency or “crypto.” If you are planning on using crypto as part of your business, there is a whole separate set of considerations. The IRS considers crypto taxable property, including stablecoins. Taking payment in crypto may be innovative and position your business as “high-tech,” but there are obstacles to using crypto instead of fiat currency in running your business. For example, even if a vendor allows you to pay them for goods or services in crypto, each transaction is a taxable event. The IRS considers you to have sold crypto and incurred capital gains tax liability each and every time. There are also state and federal laws that preclude you from paying wages in crypto, but bonuses and other discretionary pay are another story. Crypto may have promising implications for the future, but there are many practical obstacles for business owners interested in integrating crypto into their day-to-day business.

Intellectual Property.

Intellectual property or IP law is of paramount importance to game developers and designers. On one hand, you want to protect your own creations and inventions against unscrupulous competitors seeking to copy your product. On the other hand, you have to be able to protect yourself from others’ IP claims, including DMCA copyright takedown notices and cease-and-desist letters.

Intellectual property generally consists of three main categories: (1) patent; (2) copyright; and (3) trademarks.

1. Patents.

Patents are most often associated with scientific discoveries and mechanical devices. In the video game context, a so-called utility patent may be available to protect a game’s unique mechanics or a specific gameplay methodology. The protected design must be unique and non-obvious. But patents do not protect the code itself, the game concept, or idea. For example, Skillz.com, a leader in the real-money skill-game market, has over 50 patents, including a patent for technology that ensures fair and level asynchronous play. Skillz does not have a patent for any specific game played on their platform and in fact, there are a lot of copycat apps on the Apple App Store that are essentially the same games as those available through Skillz. The downside of patents is that patent protection is fairly expensive to obtain and to police, involves publication and public disclosure of the technology, and may even be waived by playtesting certain concepts.

2. Copyright.

Copyright law protects creative works like books, movies, music, and yes, video games. The underlying code for a game is also protected by copyright and pirates who illegally copy the code and sell copies of the game are violating federal copyright law. Most recently, copyright claims have come up in the context of streaming and whether streamers are allowed to use certain music and other creative elements during their broadcasts.The creative concepts – or the “theme” of the game – are also protected. This means the storyline, the characters, art, music, box design, and other distinct creative and thematic elements. But not everything is protected by copyright.

Distinct from the “theme” of the game are the game mechanics, which cannot be copyrighted. “Game mechanics” is the actual gameplay – this can be as simple as moving the joystick to move an avatar around in a virtual environment. The United States Copyright Act codifies this concept and expressly states that copyright protection does not extend to “any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” 17 USC 102(b). The distinction between the copyrightable theme and the non-copyrightable game mechanics is not always clear and there may be some overlap. Additionally, the concept of “fair use” protects certain commentary, criticism, and parody from an infringement claim.

3. Trademarks.

Trademark protection exists chiefly to prevent customer confusion and to protect the integrity of a brand. In the video game context, trademark will primarily protect the name of the game, but can also protect unique “trade dress” elements that constitute unique menu or box designs, or user interface elements. A trademark can also protect a slogan or recognizable phrase associated with a game.

Trademarks are relatively easy to obtain and the USPTO website allows you to search for existing trademarks to ensure that your branding does not infringe on existing products. Trademarks also vary in strength depending on whether they are more generic and descriptive, or unique and arbitrary. For example, the game name “Grand Theft Auto” is also the term for a certain felony associated with vehicular theft. The name literally describes a core game concept (stealing cars), so it would be considered either a “suggestive” or “descriptive” mark. On the other side of the spectrum, an entirely unique “fanciful” or “coined” mark enjoys the strongest protection – for example the terms “Skyrim” or “Warcraft” (at least arguably) do not have any other meaning outside the game context.

4. Other Intellectual Property Issues.

The most two common questions facing game developers are: (1) How can I prevent someone from copying my game? and (2) How do I avoid getting in trouble for copying someone else’s game? While you may have taken steps to protect your intellectual property, the fact is that games are especially vulnerable to knockoffs and plagiarism. International law may even become an issue if an overseas company takes and repurposes your idea. By hiring an attorney as part of your team, you can ensure that you have taken the right steps to obtain copyright protection for your user interface, graphics, art, etc., and that you have properly registered your trademarks. An attorney can also ensure that any contractors – such as artists, coders, or composers – properly assign all rights back to the game developer through “work for hire” agreements. Licensing agreements with any publisher must also delineate the rights and responsibilities of all parties. Royalties and assignments must be fair, clear, and definite. If you have a co-designer or a business partner, you must absolutely have a business agreement before your idea starts making money, so there are no surprises or hard feelings. If there are copyright concerns or knockoffs, a DMCA takedown notice or demand letter is often an effective tool to dissuade would-be thieves. Conversely, if you are receive a takedown notice or demand from another designer, you need to have an effective and prepared attorney ready to respond.

Regulatory Concerns.

Most game developers are not going to encounter regulatory issues or attract the attention of state or local prosecutors. However, if you are considering real-money play (such as skill games) you will need a legal opinion as to where your game may be offered. Payment processors, advertisement platforms, and distributors may all require additional information and assurances as part of their internal review and approval process.

Finally, if you are distributing internationally, you need to be aware of the region-specific laws and regulations. Some regions are more friendly to gaming than others – for example, real-money skill-games are popular and abundant in India, but there is no uniform national-level law. Hong Kong is a haven for real-money gaming, yet at the same time, China does not allow them. Plus, there are international tax treaties and financial regulations to navigate.

Whatever your game and whether you are a veteran or just starting out, an experienced gaming attorney can be a great asset to your business.

Contact Artaev at Law PLLC to set up your initial consultation. We are Michigan’s gaming law firm and we specialize in the unique concerns that you may encounter as a game developer.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.


© 2021 Artaev at Law PLLC. All rights reserved.

What Should You Know Before Buying Into a Business? 5 Key Considerations for the Informed Investor.

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Buying into a business can be an exciting next step in your career and present uncapped opportunities for growth. It can be especially lucrative from a financial perspective, as well as the professional allure of working for yourself. For example, if you are a doctor working for a clinic, you may be given an opportunity to buy into as a partner. Or, as an employee you may be presented with an option agreement that lets you purchase a membership stake in your employer. Note that this discussion is limited to privately held companies – if you are buying stock in a publicly-traded company (or receiving stock options as part of your compensation) or otherwise investing in an SEC-registered security, you may encounter different issues.

Here are 5 key considerations when faced with a (private) buy-in opportunity:

1. Retain an attorney to represent you. Buy-in options often come from a boss or trusted partner with whom you have an existing relationship. You may even be friends outside of work, which may make you reluctant to involve an attorney. However, you owe it to yourself to treat this as a business deal – because it is a business deal – and it is better to get professional advice now, rather than try to undo something years down the road. There are countless court cases that develop from one person trusting the other too much, people taking advantage of each other, or even a fundamental miscommunication or difference in expectations.

2. Review the operating agreement or the bylaws of the business. As part of your fundamental due diligence, you must ask for the basic formation documents. For a corporation, the foundational document is called the bylaws and for a limited liability company (LLC) the document is called the operating agreement. This document describes the rights and obligations of members, distributions, voting, buy-sell rights, mandatory offers to sell in situations like death, divorce, or insolvency of a member, and other important provisions. Be especially careful if you are buying a minority stake, which does not give you voting control If the company is governed by a majority vote and one person owns the majority, it is effectively at the control of that majority shareholder. Make sure you know what your rights are as a minority shareholder before you invest – you certainly want to avoid a situation where you are “frozen out” or otherwise oppressed, with no remedy other than potentially going to court.

3. Do not assume that you will receive distributions just because you are now part owner. As a shareholder or equity owner, you are also sharing in the losses of the business, as well as its gains. Just because you paid $50,000 into the business, you are not guaranteed a return or any profit at all. Again, it is important to understand the operating agreement or bylaws of the business. When are distributions paid? Monthly? Yearly? Who decides how the gross income of the business is allocated? What happens if the business loses money? Are the owners required to contribute additional capital? Can the majority owner issue additional shares and introduce new members?

Additionally, when you buy into a private company, you cannot cash out your investment very easily. Even if an operating agreement or bylaws include a mandatory sale clause, there is a matter of determining the sale price and the company may very well not have the assets to buy out your shares, even if you try to sell them back. Further, private companies restrict the ability of its owners to sell their shares to third parties or on the open market. In other words, an investment in a privately-held company is an investment for the long-haul, and you should be financially and psychologically prepared for that fact.

4. Get familiar with your new tax status and obligations. If you were a W-2 employee, your tax situation is relatively simple. But if you switch to partnership status, suddenly you will be responsible for paying your own taxes (quarterly), calculating the right amount of self-employment tax, and setting aside sufficient funds for future tax obligations. You will likely receive a new document from the business – a K-1 form – which will change the way you do taxes. Also, any retirement contributions (401k, IRA, etc.) will need to be reassessed in light of your new partnership status. It may be a good time to consult with an accountant as well.

5. Take the time to do your due diligence. Because you are likely dealing with a familiar person when buying in, you may feel pressure to act quickly or forgo asking the tough questions. Again, this is a business deal and a significant financial obligation that you are assuming. Just because your boss assures you that “this is a great opportunity and we will be millionaires” does not make it so. In addition to reviewing the business forms, you should ask for and review (with your lawyer and/or accountant) the financial documents like profit and loss statements, assets and liabilities, projections, and the business plan. After all, you would not buy a house without an inspection and a walkthrough, nor would you buy a car without test driving it first. Even if you think you know the business from working there as an employee, ownership is a different game and it is in your best interest to gather as much information as you can before making a significant financial investment.

Business ownership presents an exciting opportunity. As long as you are proceeding patiently and consulting outside professionals, you will be able to make a fully informed decision. And remember, even if presented with an option to buy-in, it does not mean you have to take it now or even take it at all. It is called an “option” because it optional and should be exercised only if it is in your best interest.

More questions? Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.


© 2021 Artaev at Law PLLC. All rights reserved.

Categories
independent contractors

Are Non-Compete Agreements Enforceable Against Independent Contractors in Michigan?

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This is one of those gray legal areas where the answer is “it depends on the facts of the situation.” Previously, I wrote about the basics of non-compete and non-solicitation agreements that are becoming increasingly common in all industries. At their core, non-compete agreements restrain the free labor market, and are therefore analyzed under the Michigan Anti-Trust Reform Act (“MARA”) (MCL 445.774a), which sets out a four-factor “reasonableness” test for the agreement. To be enforceable, the non-compete must: (1) Protect a reasonable competitive business interest; (2) Be reasonable in terms of duration; (3) Be reasonable in terms of geographical area; and (4) Be reasonable in terms of the the type of employment or business affected. Although the four-factor test in MARA expressly refers to “employer” and “employee,” lawyers and businesses frequently cited the same test when evaluating non-competes in other relationships, such as between two sophisticated business entities or an independent contractor.

In a 2017 opinion, Innovation Ventures v. Liquid Manufacturing, the Michigan Supreme Court clarified that the MARA test only applies to employment relationships. A different test applies to commercial agreements between sophisticated business entities. The case involved the manufacturer of 5-Hour Energy, and the Court looked at the plain language used by the Legislature to determine that the test does not apply to agreements between businesses. The Court further explained that MARA does not set forth a test for commercial agreements, but instead instructs courts to look to federal anti-trust law for similar legal analysis. The applicable test is the so-called “rule of reason,” which can be summarized as whether, under all relevant facts, the covenant unreasonably restrains competition. While the test may seem similar to the MARA four-factor analysis, it is different because it focuses on the reasonableness of the effect on the free market, rather than the impact on the restrained party.

What about independent contractors? Can a hiring party insist on a non-compete as part of the independent contractor agreement? And if so, what are the parameters for a valid non-compete for an independent contractor? First, parties are generally free to contract for anything, and so an independent contractor may certainly agree to a non-compete clause as part of their contract. Second, the non-compete will be evaluated under the same “rule of reason” as an agreement between two sophisticated commercial entities. This is because an independent contractor is not an employee – thus MARA’s four-factor test does not apply. Where MARA does not apply, the Legislature instructs courts to look at federal anti-trust law. Thus, the outcome is the same as with commercial contracts under Innovation Ventures. That means the rule of reason applies and the court will look at the effect of the restraint on the relevant market.

In applying federal anti-trust law, there is also a concept called a “per se” anti-trust violation. A “per se” violation is conduct that violates Section 1 of the Sherman Anti-Trust Act by its very nature and does not require proofs of the actual anti-competitive effect or the relevant market. Simply put, a “per se” anti-trust violation is one where there is no redeeming competition-facilitating effect. A classic example in the employment arena is the low-wage hourly worker non-compete. A restraint on an $11-per-hour janitor precluding him or her to work for a competitor serves no legitimate purpose whatsoever and is clearly abusive. A court will not enforce such a “per-se” violation. The independent contractor analysis would be similar – if there is no legitimate pro-competitive justification for the non-compete, it may not be enforceable.

One final word of warning. If you are a business considering or using non-compete clauses in your independent contractor agreements, some courts consider such clauses indicative of an employment relationship. If an individual or government agency (like the worker’s compensation agency) challenges your classification, a non-compete clause is evidence of control that weighs in favor of finding someone is an employee. And, if someone is misclassified as an independent contractor, there are a myriad of penalties, fines, and other problems that you may face.

Non-compete and non-solicitation clauses and contracts are becoming more and more standard. However, it is a mistake to blindly use them for all your employees or independent contractors. Each situation warrants its own analysis. Otherwise, your business risks not only losing non-compete litigation, but also risks other unintended adverse effects, such as a finding of an employment relationship where one was not intended.

More questions? Need a non-compete reviewed or drafted for your situation? Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.


© 2021 Artaev at Law PLLC. All rights reserved.

Does Your Business Have a Pre-Nup? The Importance of Planning for Life’s Unexpectancies.

Nobody likes to plan for life’s unpleasantries, including divorce. While divorce remains an unfortunate fact of life, proper planning with your business attorney can help protect your business from the unexpected. This is particularly critical where a business has multiple owners, members, or partners.

In a recent case out of New York, a company’s three partners were shocked to learn that the fourth partner’s impending divorce would result in his ex-wife owning part of the business. Small businesses are particularly vulnerable to members’ interests becoming part of a divorce property dispute. And unlike blue-chip stock, who owns the shares of a small business has a direct impact on the day-to-day operations and decision making. In the New York case, the owners admittedly failed to plan for a divorce and ended up having to borrow $250,000 to buy out the divorcing partner.

However, with proper planning and consultation with a business lawyer, you can hedge against contingencies like divorce ahead of time. One such way is through a carefully-drafted Operating Agreement that expressly sets out what happens if a membership interest becomes subject to a divorce judgment. Common provisions grant the company a right of first refusal to buy out any sort of membership interest subject to transfer, and also set forth the rules for valuing such interest using either the Company’s books, a CPA, or an independent appraiser. Another common (and highly useful) provision prohibits a transferee of any membership interest from voting or otherwise participating in the Company’s affairs, until officially admitted as a “member” by the other members. Thus, even if a divorce decree awards a spouse part of the membership in the company, the spouse is limited to the economic benefit of such ownership until (and only if) the rest of the membership decides to allow the new member to participate in the actual business. Another planning tool is a separate buy-sell agreement, which sets forth the rules and conditions for each owners’ membership interest.

Divorce is not the only “D” word that a prudent business owner must plan for. Death of a member is another contingency that should be expressly addressed in a company’s documents. Disability or incapacity is another. Finally, a business should have specific provisions in place to address the potential of bankruptcy or insolvency.

The four “D”s–divorce, death, disability, and debt–are realities that no one likes to think about. However, planning for the bad as well as the good is a part of running a business. With a plan in place, a company will suffer much less disruption and uncertainty when the unthinkable happens. And that is good corporate governance.

Have more questions? Contact Dan Artaev at dan@artaevatlaw.com or 269-930-0254 to set up your free initial consultation.

© 2020 Artaev at Law PLLC. All rights reserved.

Don’t Spin Out: 5 Lessons for Every Business Owner From the Peloton Copyright Lawsuit.

Those of you who follow me on Instagram know that I am the #Trilawyer (basically, a lawyer whose hobby is doing triathlons). The cycling leg just happens to be my favorite, I love going to spin class at the gym, and I am also a big fan of watching pro cycling on TV. So obviously when I saw the news featuring BOTH the law and indoor cycling training, I had to write about it. A group of music publishers are suing Peloton, the company behind those heavily advertised stationary bikes and on-demand spin classes, for allegedly using popular music in their on-demand videos without the proper licenses.

The Peloton situation actually provides some valuable lessons for every business owner, regardless of industry. But first, some background on what happened with Peloton, at least according to the plaintiffs’ one-sided view in the Complaint. For those who have not seen their advertising barrage, Peloton is a public company that sells high-end stationary bikes and treadmills. How high end? A spin bike will set you back a couple thousand dollars, but luckily you can finance it with low low monthly payments over 36 months (just like your TV, couch, cell phone, pure-bred poodle, and anything else these days). The treadmills are even more expensive at something like $5k, but the lawsuit is about the spin bikes.

Why would someone pay $2000+ for a stationary bike when you can buy a great one for $300-400 on Amazon? I have no idea. But one of Peloton’s central marketing points is a subscription service (for a separate monthly fee) that will give you access to streaming fitness videos, spin instruction, competitions, and other content that simulates an in-studio workout from your mid-town high-rise apartment or summer chalet or weekend home in the Hamptons. At least according to the commercials.

If you have ever been to a spin class at the gym, you know that the instructor’s playlist is a big part of the experience. The instructor plays a list of songs for the workout session that are generally synchronized to the tempo of the current workout intervals. For example, if the instructor wants the class to sprint at 110 RPMs on a flat road (meaning easy resistance), then she may play something fast and upbeat to get the class going. If the session calls for hills at 60-70 RPMs and heavy resistance, then she may play something slower and heavier to match the workout. Peloton offers a library of pre-recorded workout sessions that it streams to subscribers and like the in-gym spin classes, the recordings feature an instructor with a playlist taking the participants through a particular class. The problem – according to the lawsuit – is that Peloton does not have permission to use the musical content in its workout videos. In the world of copyright law, a company must have the proper license for commercial use before it can use music as part of its business. In the case of videos synchronized to music, the law requires what is called a “sync” license that permits that particular song to be used with a specific video. Apparently Peloton failed to secure those “sync” licenses for at least some of the videos that it broadcasts. Copyright law also provides for punitive damages for willful violation of copyright, and Peloton may be facing a steep price tag if the court determines that Peloton’s failure to secure licenses was a deliberate decision. Which it very well may have been, as it is surprising to think that a company that size missed a rather obvious music licensing issue.

Whatever the merits of the litigation, and whatever the outcome, there are some important takeaways for all business owners from this lawsuit. Even if you have never been inside a spin studio, even if you do not use music at your business, there are still valuable lessons to be keep in mind:

  1. Trying to save a few bucks at the beginning may cost you big bucks later on. The most common reaction online to the Peloton lawsuit is that “how could a big public company not have seen this coming?” Peloton grew quickly, and it may be possible that the company deliberately skipped paying licensing fees at the beginning to save money, but this attempt to scrimp at the outset may end up costing millions down the road. This is why no matter your size, it is important to properly budget and anticipate all expenses. For example, talk to an insurance agent you can trust and get the right amount of insurance coverage for your business. Buy workers’ compensation insurance. Comply with MIOSHA regulations. Hire a lawyer to draft a proper business agreement between you and your partner to reflect your respective rights and obligations to the company. Do not co-mingle personal and business bank accounts. You get the picture – a cheap shortcut now can come back and cost you much more money in the future. It could even potentially sink your entire business.
  2. What may seem like common sense to you may be illegal. You may be thinking – but if I buy a CD at the store or a song from iTunes, don’t I own the music? Can’t I play it for whoever and whereever I want? It may be common sense that you own something that you buy, but it is not always true, especially in the modern age of digital media. With respect to music for example, you are often buying a license for personal, in-home use. Say you have a bar or a restaurant, and you decide to play your own iPod playlist over the speakers for atmosphere. Without a separate license, you just violated the music studio’s copyright and can be sued. Or, if you decide to start your own weekend DJ business using your old LPs. Same thing – the CD you buy at the store to listen to in your car does not give you the right to play that same CD at a wedding for money. Sound confusing and counter-intuitive? It may be, but it also protects the rights of the music publisher and keeps the cost of CDs and iTunes singles accessible to the general public. The bottom line is that you need to consult with a professional about all aspects of your business to make sure you are doing it the right way, and to ensure compliance with all applicable laws. And the right professional will identify all the relevant issues, not just the obvious ones.
  3. You are never too big (or too small) to be sued. You might also be thinking, oh who cares, I run a mom-and-pop gas station/grocery store/bar and no one is going to sue me for playing my CD collections over the speakers. Or you might think, my business partner is my friend, he will never sue me. My employees are all like family, right? Wrong. Just one example is a string of lawsuits filed against nightclubs for playing songs without the proper commercial license in 2016. From my own experience as a business litigator, there are far too many cases where business partners break up and decide to sue each other because they never had a written agreement. Actually, one of the major reasons to create a separate legal entity for your business – like an LLC – is to anticipate lawsuits and to protect your personal home, car, and bank account in case of unanticipated trouble. Luckily, creating the right corporate entity and maintaining corporate formalities to ensure protection are not particularly complex or expensive endeavors, and should be done by all business owners.
  4. Anticipate and budget for lawsuits as the cost of doing business. You can take all of the precautions in the world, hire the best attorneys, and run a flawless business. You are still going to get sued. That’s the reality of doing business. There may be a disagreement with a supplier over the quality of the product supplied. One of your workers may get injured on the job. Or, a vengeful ex-partner or employee may decide to use entirely frivolous litigation to harass and extort you. Thus, it is critical to budget for such eventualities just like you budget for utilities, rent, or salaries. I have counseled numerous businesses who think that they can handle a legal proceeding in-house, and end up creating more trouble for themselves that then costs MORE money to untangle down the road. It is a great idea to treat litigation as just a cost of doing business, set aside some funds each month, and have a lawyer on retainer, so that when you do get sued, your attorney can jump on the case right away and minimize any damage.
  5. Hire the right lawyers to review all aspects of your company. Of course, you have to have the right people for the job. Contact a knowledgeable and well-rounded business attorney like me to provide a consultation for your business. That way you can make sure that you have all the right documents, that you have secured the necessary licenses, and that you are fully prepared in case something goes sideways. And remember, there is always someone willing to do it cheaper. Choose your professional wisely!

Contact attorney Dan Artaev today at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

© 2020 Artaev at Law PLLC. All rights reserved.

4 Must Have Legal Documents for New Business Owners

Whether you are a one-man computer whiz coding the next blockbuster iPhone app, or a five-employee manufacturer making parts for a Tier 1 auto supplier, you need basic corporate forms to protect your assets and investments. A limited liability company (or LLC) is the preferred way to organize and obtain this protection. Plus, if you ever apply for a business loan or decide to sell your business, having an organized and up-to-date corporate record book will do wonders to enhance your value. After all, when Google offers to buy your start-up for a couple million dollars, the transaction will go much smoother with an up-to-date Operating Agreement, corporate consents, assignment documents, and annual statements for the buyer to review.

I recommend the following 4 must-have corporate documents for every business owner:

  1. Articles of Organization –  If you registered your LLC with the State of Michigan, you already filed the basic Articles as part of your initial paperwork. These Articles effectively form your LLC, set forth its name, purpose, duration, and designate a registered agent (or contact person) for your company. Even if you are a sole proprietor, it is worth spending the initial $50 filing fee (and the $25 renewal each subsequent year) to create an LLC. That way, your personal assets are separate from your business assets and are protected from both creditors and litigants.
  2. Operating Agreement — While all LLCs have Articles of Organization, not all bother to have their attorney draft an Operating Agreement. An Operating Agreement sets the rules for how the company is run, including how many votes it takes to make a decision, who owns how many shares, and how shares are valued and transferred. This is a critical document that can prevent many disputes down the line, especially when there are multiple owners involved.
  3. Written Consents/Resolutions – Written consents, or resolution, are records of the business’s decisions. The Operating Agreement will set forth the process for making decisions through written consents (as opposed to meetings). Even if you are the sole owner, it is critical that you draft and maintain written consents whenever the LLC acquires property, makes a distribution, sets a salary, has its annual meeting, or takes another material action. Written decision records help prevent future disputes and also ensure ongoing protection of the corporate form for the owners.
  4. Assignments – If you decide to transfer shares to another LLC member or give an investor an equity stake, the share sale must be documented in an Assignment. The typical assignment document will set out the purpose of the transaction, the value exchanged, the final distribution of shares, and will address the assumption of company liabilities (if any) by the transferee. It may be tempting to simply exchange cash for a promise of membership, but a formal assignment will clearly define the parties’ rights and responsibilities, which will prevent future disputes.

Establishing the proper corporate forms and drafting the paperwork need not be expensive. An attorney will generally be able to register your LLC and draft an operating agreement for a couple thousand dollars. Written consents and assignments can then be created on an as-needed basis. This up-front investment is well-worth the protection that it provides for your assets, as well as protection from disputes and even intra-company litigation down the road.

BONUS TIP – just as critical as a good attorney, a business owner should consult with a reputable insurance provider and a CPA. A solid insurance policy and a tax expert to review your financials will protect you from the unexpected and likely save you money in the process.

Have more questions? Contact Dan Artaev at dan@artaevatlaw.com or 269-930-0254 to set up your free initial consultation.

© 2020 Artaev at Law PLLC. All rights reserved.

Terror From Beyond the Grave: 5 Critical Mistakes To Avoid When Terminating Your Company

It is a classic horror movie plot line. The good guy finally killed off that scary monster/evil janitor/gremlin. Hooray! Triumphant, the hero turns his back to celebrate with fellow survivors when SUDDENLY the monster/evil janitor/gremlin rises from the dead to take down that one final victim! In the business world, if you do not take the proper steps to terminate your corporate entity and ensure that it is “dead AND buried,” (which I swear is a real term of art) the entity can come back from the grave. The undead entity will then cause all kinds of problems and could even result in potential personal liability for the unwary business owner.

First, termination does not mean a business has failed. Even if your company grows and is successful, there may be a time that you need to terminate its existence. The most common example is when you sell your business. If it is an asset sale, the buyer purchases the real estate, equipment, customer lists, intellectual property, etc., but leaves the corporate entity for the seller to dispose of.

Second, before we get to termination, I assume you have read my other posts and properly incorporated your business. You also should have had your attorney draft the initial corporate documents. These documents will often contain the rules and procedures for the terminating the corporate entity. Following these internal rules and procedures is critical to a successful dissolution and wind-up.

Finally, and without further ado, the following is a list of the 5 most common missteps to avoid when terminating your business:

Mistake #1 – Not consulting with an attorney and an accountant. Termination is not as simple as filing a form with the State of Michigan. There are multiple considerations that control the process and are unique to your business. For example, what do your bylaws or articles of organization say about termination? Do you need unanimous consent of the equityholders or a majority vote enough? Are there tax implications and personal tax liabilities to consider? What about the timing of any liquidation distribution? Only a professional can provide fact-specific counsel for your particular situation.

Mistake #2 – Confusing “dissolution” and “winding-up.” Although both terms refer to the termination of a corporate entity, the processes are different and controlled by different statutory provisions. Dissolution is something that is triggered by an event – for example, a unanimous vote of the LLC members or a bankruptcy as set forth in the bylaws. Winding up on the other hand refers to the process of liquidating the corporate entity. In other words, dissolution is the process of making the company “dead” – whereas winding-up is a process to ensure that it is “buried.”

Mistake #3 – Assuming that dissolution alone protects you from personal liability. Dissolution alone is not enough to protect a business owner from creditors and litigants. In Michigan, the law permits a dissolved corporation to “sue and be sued in its corporate name.” MCL 450.1834(e). Same goes for a dissolved LLC. MCL 450.4805(3). Moreover, improper dissolution could lead a court to conclude that the corporate form was a sham designed to elude creditors, and result in a court order to “pierce the corporate veil.”

Mistake #4 – Failing to follow the statutory requirements. Whether your company is organized as a for-profit corporation, a non-profit, or an LLC, there are specific statutory requirements for the termination process. For example, Michigan law requires an LLC to provide specific information in its certificate of dissolution. MCL 450.4804. This is critical because proper dissolution is a statutory prerequisite to winding up the LLC’s affairs (meaning liquidation). See MCL 450.4805 and 450.4806. In other words, failure to carefully follow the dissolution process risks a subsequent argument that the wind-up process was invalid and the liquidation was illegal. Note also that there are separate laws that govern corporations and LLCs and it is imperative that you follow the correct procedure for your specific type of entity.

Mistake #5 – Neglecting creditors for the benefit of shareholders. Terminating a company does not relieve the company or its equity holders from liability for debt obligations. If you are unable to pay your lender or cannot pay an adverse judgment, then you should consider filing for bankruptcy. In the process of a normal dissolution and liquidation, Michigan law presupposes solvency and mandates that creditors get paid first. MCL 450.4808(1)(a). And of course, government tax obligations must be paid even before the other creditors. MCL 450.4808(2).

Dissolving and winding-up your business is a complex process that requires consultation with a professional. Failure to ensure that the company is “dead AND buried” presents many risks going forward and can even lead to personal liability for the owners.

Contact attorney Dan Artaev today at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

‘Tis the Season for (Corporate) Resolutions!

What do you associate most with the start of a new year? I personally think of resolutions and how the gym used to get crowded with all those who resolve to get in shape. So for many, the New Year is about a new start, a chance to set goals, and a chance to catch up on everything that has been neglected in the old year. For the busy business owner, the start of the year is a great time to “resolve” to get their corporate resolutions “in shape.”

But what is a corporate resolution? A corporate resolution is a formal document that approves a company action. Despite the name “corporate resolution,” the term applies to limited liability companies too. For example, if you and your business partner decide to appoint John Smith as the new Manager, there needs to be a written record showing that the requisite number of shareholders voted to approve the appointment, and that the action is consistent with your bylaws. A sale of assets or a purchase of real estate must also be memorialized. Indeed, lenders and title companies often require a resolution to finalize a transaction, as evidence that the particular party to the transaction has the necessary authority to close. Bylaws generally provide for decisions through meetings or by written consent in lieu of meeting. In either case, an actual written corporate resolution that evidences the decision is a must. As my law school business enterprises professor always said: “If it isn’t in writing, then it did not happen.” Corporate resolutions are that “writing” to prove the the business action in question “did happen.”

Some common corporate actions that should be memorialized through a resolution include, but are not limited to, the following:

  • Occurrence of an annual meeting.
  • Appointment or removal of an officer, such as president, vice-president, or treasurer, including the terms of employment.
  • Issuance of new shares or membership interests.
  • Changes to the Board of Directors and any compensation packages for said Board members.
  • Calls for capital contribution.
  • Retention of a business attorney, accountant, or other third party professional.
  • Approval of any amendments to the bylaws.
  • Becoming a party to any real estate lease or equipment lease.

Corporate resolutions are an essential part of good business governance and best practices. A well-organized and up-to-date corporate book has many benefits — for example, when you finally sell your business. Or if a lender wants to see your corporate book before they approve the new line of credit or loan. Additionally, whether an entity adheres to formal corporate practices is one of the factors the courts consider when deciding whether to pierce the corporate veil. Yet many business owners – especially busy up-and-coming entrepreneurs – neglect this relatively simple but critical task.

Finally, what about single-member LLCs or solo corporations? Do they still have to keep written records of their business decisions? YES. Corporate resolutions (as well as other formalities) are equally as important when you wear the many hats of the owner, manager, and sole employee of your business. Indeed, they may be more important in the single-owner context because it not practical to hold a “shareholders meeting” with yourself or record meeting minutes with one person.

Contact attorney Dan Artaev today at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Starting a Business? Choose Your Organizational Structure!

Every business owner needs to incorporate. Forget about sole proprietorships or a partnership — running your business without formally organizing is like driving without insurance: You will be OK so long as you don’t get into an accident. But when someone rear-ends you, you will be in dire financial straits regardless of who caused the wreck.

Incorporation is “insurance” that will protect your personal assets (your house, car, bank accounts, 401k) from financial risks associated with running a business. The rule is that creditors and plaintiffs cannot come after your personal assets to satisfy a business debt or liability. There are of course exceptions to this rule, called “piercing the corporate veil.” But many business owners ask: Should I register as a corporation? Non-profit? LLC? PLLC?

As with all of legal questions, the answer is “it depends on the facts.” Your attorney and accountant will help you decide what works best in your particular situation. However, here is a basic overview of the four most common entity types in Michigan:

  1. For-Profit Corporation – The Michigan Business Corporation Act sets out the rules for corporate formation and the default provisions for corporate governance. Usually, an attorney setting up the corporation will draft two documents: (A) Articles of Incorporation, which is the basic form filed with the State of Michigan creating the corporation and (B) the Corporate Bylaws, which is an internal corporate document that sets out the corporation’s management, number of shares, stockholders, Board of Directors governance, and various other provisions. There are also various sub-classes of corporations that differ for tax purposes–for example an “S-Corp,” but you will need to consult with your accountant to determine eligibility. Corporations have been around for a long time and are generally a good choice for business owners seeking to set up a tried-but-true business structure – one that is supported by decades of case law and statutory gap-filler provisions. But again, whether a corporation is the right choice is a decision to be made only with the assistance of your legal and financial advisers
  2. Nonprofit Corporation – Michigan also has a Michigan Nonprofit Corporation Act that governs the creation of non-profit entities. Nonprofit status should not be confused with “tax-exempt”–whether an entity is considered “nonprofit” is a matter of Michigan law, while it is the federal government and the IRS that determine “tax-exempt” status. Consult with your accountant on all tax related matters! Generally, if your intent is to create a corporate entity for charitable or other non-commercial purposes, the non-profit corporation may be the best way to maximize the relevant tax advantages. From a legal standpoint, a nonprofit is created in the same manner as a for-profit corporation, with certain exceptions–for example, a charity must be registered with the Michigan Attorney General. And again, if you seek tax-exempt status, you must file the appropriate paperwork with the IRS. Click here for a detailed guide on forming a nonprofit corporation in Michigan.
  3. Limited Liability Company – This is a relatively new type of entity created through the Michigan Limited Liability Company Act in 1994. An LLC is the preferred corporate form for many small businesses due to its simplicity and modern approach to pass-through taxation. Indeed, a single-member LLC enjoys the same single taxation as a sole proprietorship, as well as the protection of the corporate form without some of the extraneous formalities of a corporation. While simple, an LLC must still file Articles of Incorporation with the State of Michigan and draft an Operating Agreement that sets forth the rules on how the LLC is run. Even when running an LLC, it is critical to observe the corporate forms to maintain limited liability and avoid the dreaded “piercing of the corporate veil.”
  4. Professional Corporations and PLLCs – Michigan Law requires certain professionals (such as physicians, dentists, lawyers, and certified public accountants) to incorporate as professional entities. Generally, a professional corporation is similar to a regular for-profit corporation and a PLLC is similar to a regular LLC. The most important distinction for a professional corporation or PLLC is that the professional remains personally liable for their own misconduct or negligence. However, the other members of a PC or PLLC remain protected from liability for the misdeeds of a single member. Thus, while professional incorporation as a solo practitioner is not a given, multiple-member entities should definitely consider the advantages of statutory liability protection.

Have more questions? Contact Dan Artaev at dan@artaevatlaw.com or 269-930-0254 to set up your free initial consultation.

© 2021 Artaev at Law PLLC. All rights reserved.

Why Annual Meetings Are Critical to Protecting Your Personal Assets From Business Debts.

As a new and growing business owner, you read my articles on incorporation and essential corporate documents, and took my advice to heart. You retained an attorney and accountant, drafted and filed the basic forms, and Small Business LLC is up-and-running. However, you are not done — there are important steps to take for you to maintain the benefits of the “corporate form” and keep your personal and business assets separate. Take special note if you are a single member LLCs or single-shareholder corporation. When you are busy running your business, it is easy to overlook corporate formalities — yet whether you are a solo shop or a 50 employee corporation, these formalities are equally as necessary and important to protect your investment.

The exception to the general rule that an owner’s personal assets are protected from a business’s creditors and litigious plaintiffs is called “piercing the corporate veil.” This term of art originated from one of those archaic law school cases that no one remembers, yet practitioners and courts frequently use this phrase today. The idea behind “piercing the veil” that a business owner cannot abuse the corporate form and use it to commit fraud. If a plaintiff convinces a court that the defendant corporation or LLC is a sham, the plaintiff gets to “pierce the veil” and proceed against the business owner directly and personally, as if the corporation or LLC never existed. 

Of course, there is always the possibility that an unpaid creditor will accuse your company of fraud and abusing the corporate form even in instances of legitimate business insolvency. After all, everyone wants to get paid, and if there are significant personal assets shielded by the corporate form, it may just be worth the time and money to argue.

Here are some basic tips on how you can maximize the protections of the corporate form and mitigate the risk that a court will order “piercing the veil”:

  1. Separate bank accounts – This might seem basic, but it is astounding how many business owners co-mingle corporate and personal funds. It is absolutely critical that you maintain separate accounts and keep track of business income and expenses separate from your personal expenses. When examining whether the corporation is a sham, this is one of the first factors that a court will consider. In other words, pay your mortgage from your personal account and buy inventory using the company credit card (as opposed to your personal VISA). 
  2. Have an annual meeting – If you are organized as a corporation, an annual meeting is required by law. While it is not required for LLCs, having an annual meeting (and keeping a written record that such a meeting was held) is another important factor that courts will consider when deciding whether the owner is entitled to continuing “corporate veil” protection. 
  3. Keep a binder with written consents and meeting minutes – Your bylaws or articles of organization likely provide for the ability to make corporate decisions through written consents. Your attorney can help you prepare these documents, but generally these “consents” are written evidence that a particular transaction, such as a sale of real estate, a purchase of assets, an appointment of an officer, was authorized by the company. It is good practice to pick a shelf in your office and maintain a three-ring binder with all the consents arranged chronologically. If the company holds a meeting (whether annual or otherwise), it is best practice to record meeting minutes and keep them in the same binder as the written consents.
  4. Maintain good standing with the State of Michigan – This is the easiest requirement to observe, yet it is frequently overlooked. Each year, the State of Michigan requires business owners to file an annual statement form and a fee. Failure to do so for a period of time is not only evidence that might cause you to lose corporate protection, but actually can cause your entity to be automatically dissolved. While it is possible to bring your company back into compliance through retroactive payments and filings, the process costs extra fines and needlessly exposes the business owner to losing the benefit of corporate entity protection.

Contact attorney Dan Artaev today at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

5 Often-Overlooked Essentials When Selling Your Business

You finally got that phone call from the California venture capital firm that wants to buy your  start-up for a couple of million dollars. You are eager to sell and use that money to pursue other projects and passions. The attorneys and accountants have been retained, and the Asset Purchase Agreement has been drafted. 

But while the attorney drafted the proper asset descriptions and indemnification clauses, and the accountant has allocated the purchase price for the taxes, has your team addressed these five often-overlooked essentials? After all, the sale of a business is much more than just signing the papers and turning over the keys.

  1. Is the buyer hiring the existing employees? When transferring the assets of a business, one can easily overlook the employees who operate those assets and make the business run. Assuming that the buyer is buying the employees together with the business is a grave (and potentially costly) error. Most employees are at will and may walk out from their job if you spring a “surprise” acquisition on them one morning. This may especially be devastating in an industry like manufacturing, where qualified employees are difficult to find. To mitigate that risk, the buyer should provide offer packages to all current employees at least a few days before the sale. As a seller, it may benefit you to make a small monetary or personal gift to some of the long-time or more senior employees to thank them for their years of service and to throw a transition pizza party for the crew. Remember that the sale will be a personal and emotional event for those who work for you. While you are selling the machines and office furniture, the employees make the business run.  
  2. Are any key services performed by a family member or by the seller him or herself? In small businesses, owners often rely on their family members (or themselves) to perform certain key services (like quoting prices or estimating inventory) without a formal employment relationship. The seller should disclose any key services done by family members so that the buyer can make adequate provisions to hire someone to perform those key services. After all, the goal is to keep the business going after the sale and to provide for as few delays as possible. 
  3. What happens to the invoices and receivables received after closing? Continuing in the ordinary course of business, there will be both invoices and checks that the buyer receives post-closing. Who is responsible for the invoices for inventory received pre-closing? Who gets the checks for pre-closing product? And what about any open purchase orders – are those being assigned? To prevent future conflict, all of these topics should be addressed before the money is wired.
  4. What about the building? If the seller owns the building and is selling that building with the business, the transaction is relatively straight-forward. But if there is a lease, the seller must obtain landlord’s consent before assigning the lease. Alternatively, the buyer must enter into a new lease that starts on the day of the closing to ensure a smooth transition and continued operations.
  5. Have the customers been informed? It is a mistake to assume that the business’s customers will simply continue doing business with the new owner. Business is as much about relationships as it is about the numbers. The buyer and seller should discuss a transition plan with respect to existing customers and ensure that these valuable relationships are preserved going forward.

Of course, these are just some examples, and there will be other key topics specific to the nature of your business and to the transaction. 

Contact attorney Dan Artaev today at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

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