Asset Purchase v. Shares

When one business contemplates acquiring another business, it can do so in the form of acquiring shares or purchasing the assets.

Usually the Acquirer (Buyer) will want to structure the deal as an asset purchase. This is primarily due to successor liability concerns (See California Corporate Code 1107 and Ray v. Alad Corp. (1977), 19 Cal.3d 22). Another important factor will be the Buyer’s desire to obtain a “step up” in basis of the appreciated asset, reflecting the actual purchase price.

From the Seller’s perspective, if a complete transition and clear break is the objective, a stock purchase is the desired acquisition structure. Essentially the buyer will “step into the shoes” of the seller, and take on all benefits, obligations, and liabilities “as is” (unless contractually taken into account or structured otherwise). Further, the seller often wants to benefit from the preferential long term capital gains treatment available with a share purchase.

There are many other considerations and exceptions to the above two general dispositions. For more information please contact the Law Offices of Hanlen J. Chang

Disclaimer

Business Lawyer – What are the Benefits?

Launching a business has a very small margin for error. New entrepreneurs need to make judicious decisions regarding tasks to perform in-house v. outsourcing. The value of time, effort, and costs cannot be underestimated.

The Business Lawyer can assist with the following:

Business Registration and Formation

Registrations and permits can vary among cities and counties, creating a mountain of checklists and paperwork.

The attorney can advise on selecting the most suitable business structure (e.g. is one of the goals to be acquired in the future?), preparing the Bylaws or Operating Agreement, obtaining the employer identification number (tax I.D.), and obtaining permits for the specific trade or industry.

Preparedness and Business Operations Counseling

The business attorney’s first hand experience of the most common business disputes can assist the entrepreneur with preventing or mitigating complications, such as partnership or shareholder disputes, tax compliance, foreign shareholder tax issues, vendor disputes, customer disputes, unfair competition, and employee issues.

The business attorney can also assist with shareholder transactions, minutes, officer and board decisions, board and shareholder meetings and notifications.

There are also ongoing regulatory reports and tax filings that need to be timely made in order to prevent penalties, failure to do so could end with the suspension or revocation of the business license.

Investment Capital and Financing

The business attorney through his or her network organizations and connections can assist the entrepreneur with financing and capital needs. Sometimes regular banking channels are unwilling to provide financing, so private capital providers may be of interest or necessary.

Proposition 60 and 90 – Attorney

Those seeking to avail themselves of the benefits of Proposition 60 or 90 can benefit from an attorney as both the real estate broker and title company contractually disclaim any responsibility for all legal or tax advice. No assistance or guidance will be provided by these transacting intermediaries.

Under Califonria real property tax rules, the longer you hold your real estate, the more valuable your tax base becomes (assuming the fair market value grows faster than the 2% property tax increase cap).

Pursuant to Proposition 60, a homeowner can sell his or her primary residence and purchase a new residence of equal or lesser value, within the same county, and keep the pre-existing lower tax base.

Proposition 90, allows the residential property seller to transpose his or her lower tax base to a newly purchased residence in another county. Only a handful of counties allow for Proposition 90 transfers.

In order to qualify for either Proposition 60 or 90, one has to be age 55 or older. There are additional factors and complications when multiple co-owners are involved.

Proposition 60 an 90 allow seller to have his or her cake an eat it too. Downsize and keep your lower tax base, while monetizing equity, a substantial portion often tax free.

For more information or inquiries you can contact the Law Offices of Hanlen J. Chang.

Disclaimer


Key Features of an Asset Protection Trust

In order for a Trust to effectively provide asset protection against potential creditors or claimants, it should contain the following key elements:

  • The Trust is Irrevocable (and not Revocable)
  • Contains a Spendthrift Clause
  • Discretionary Distributions (vs. mandatory and/or period payments)
  • Third Party Beneficiaries (i.e. not self-settled for own benefit)

If the settlor wishes to reserve additioanl oversight and reservation of rights, an impartial Trust Protector or Advisor can be appointed.

Another variation of an Asset Protection Trust is a foreign Trust with friendly and flexible laws for the Trust and Trustee, while possing legal obstacles for the Creditor.

Disclaimer

What is a Trust Protector

A Trust Protector is a fourth participant in a trust arrangement. The others include the Settlor (or Grantor), the Trustee, and the Beneficiary.

A Trust Protector advises on limited but fundamental and important trust decisions. The Trust Protector is not a fiduciary like the Trustee.

Common powers entrusted to the Trust Protector include: removing and replacing the Trustee, amending Trust terms for tax purposes, removing and adding Beneficiaries, and amending distribution provisions.

A Trust Protector should not be the settlor, the beneficiary, or the trustee, or an agent thereof, but an impartial fourth party.

A Trust protector can be added to a Revocable or Irrevocable Trust.

A Trust Protector can become important within the context of an irrevocable trust where the Settlor does not wish to totally relinquish all important rights, but instead entrusts the Protector as a check and oversight on the Trustee.

For more questions or inquiries please contact the Law Offices of Hanlen J. Chang

Disclaimer.