Business Asset Purchase – Offset

Whenever a business entity seeks to acquire a busines asset it is strongly advised to structure part of the transaction as installment payments or include a withholding amount (to be disbursed subject to cash flow and liability representations being accurate).

The offset provision is usually contained within the indemnity povision of the purchase and sale agreement, or there may be a separate provision for withholding and required conditions for satisfaction.

The practical reality is there are many reasons a seller may want to offload a business asset. The seller almost invariably will paint the busines asset with overly optimistic exaggerations and potential.

A well crafted indemnity and offset provision will shift the burden on the seller to disprove the purchaser’s offset claims are improper.

Disclaimer

Multiple Properties – Tax Benefit of LLC (Pre-Death Planning Opportunity Only)

Under California Proposition 58, the Parent to Child Exclusion for transfer of the pre-exisiting Proposition 13 tax base is unlimited for one residential property, plus one million ($1,000,000.00) per parent spouse for non-residential property (maximum two million [$2,000,000.00] if two parents).

For an owner of an investment property or properties exceeding two million, tax planning for purposes of preserving the pre-exisiting Proposition 13 tax base can be accomplished through the use of a business entity, e.g. LLC or L.P.

The tax re-assessment rules for a business entity holding real property differs in that it depends on 1) a change of control of more than 50%; or 2) more than 50% of the original co-owners change.

Importantly, any Business Entity planning and structuring regarding the investment property is only possibly before the owner dies.

As time goes on there will be more LLCs created as more real properties will be worth one million or more and more tax assessment will catch up to that threshold.

For a consultation regarding this topic please contact the Law Offices of Hanlen J. Chang.

Disclaimer

What is a Certification of Trust?

The Certification of Trust (“Certificate”) serves multiple purposes.

First, it is a synopsis of the main terms of the Trust. Once a Trust is established, it must be “funded”. Assets that typically get transferred into the ownership of the Trust are Real Property, Bank Accounts, and Regular Brokerages.

The Settlor (Individual establishing the Trust) then presents the Certificate to the Financial Institution. Likely he or she will be asked for the Certificate.

Usually it is a good idea to bring the “original wet ink” signed and notarized Certificate due to chain of custody concerns. If you bring a homemade Copy, the Financial Institution may reject it, and ask for an “Attorney Certified Copy of the Certificate”.

The Financial Institution wants the Certificate because it wants the “Synopsis”, or main terms and summary v. the forty page Revocable Trust document for which it lacks legal resources.

A second purpose involves Real Property. If Real Property is transferred into the ownership of the Trust, the Certificate will indicate the same. The Certificate can be recorded with the County Recorder. If not recorded, it will need to be presented to the Title Company upon sale of the Real Property.

The Law Offices of Hanlen J. Chang provides a Certification of Trust with each Revocable Trust package.

Disclaimer

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

Don’t Put Your Estate in the Hands of a Machine

Recently there has been a lot of discussion and predications about the impact of automation and artificial intelligence on the legal profession.

While technology has made administrative repetitive tasks more efficient, it is still far off from substituting the counsel of an experienced attorney.

In terms of Estate Planning, the use of document providers such as Legal Zoom has gained in popularity. The most touted benefit is the cheaper cost.

However, you get what you pay for. Translation: What is the value, quality, and assurances provided?

Value Factors

Fiduciary

Tax Advice

Legal Advice

Court Experience

Translations

Trust Funding

Insurance

Trust Administration

 

Attorney

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

 

Document Provider

No

No

No

No (Represent Yourself)

No (Own Comprehension)

No (Do it Yourself)

No

No (Do it Yourself)

 

Issues Not Likely Addressed by Document Provider

  • How to transfer and effectuate ownership of specific assets (e.g. real estate) into the the Trust.
  • How to relate financial assets to the Trust only held in the name of an individual (e.g. Life Insurance and Retirement Accounts.)
  • Tax planning and management of each specific asset. (Assets have differing tax characteristics, application to beneficiaries, and the method and sequencing of distribution.)
  • Cross-border considerations and International Tax implications.
  • Advice regarding scenarios that are more likely to cause disputes, legal actions or delays.
  • Insights regarding the Trust or Estate administration. When you die what is required of those in charge to effectuate your testamentary wishes? Common tasks include tax valuations and tax returns, legal notices, legal filings, and distributions.

In conclusion, technology is a great thing, but it is still a tool that is only as good as the operator and the person providing the input. Savvy customers should ask themselves if they want to hire someone to delegate responsibility for complex and sophisticated matters, or rely on their own education, skill, and capability.

Disclaimer