The Taxman Always Rings Twice

In the past few years, I’ve worked on an unusually large number of matters requiring complex tax analysis in high-stakes situations. While I’ve always had a healthy respect for the importance of tax issues, these more recent engagements have left me in absolute awe of the risks associated with the tax code. Seemingly harmless transactions consummated years before can dramatically alter your tax position years after.

The notion I wanted to get across with this post’s hopefully catchy title is that there are always at least two occasions on which tax advice is critical for any transaction or business arrangement:  first, at the time of entering into the transaction or arrangement; and second, at the time of exiting the transaction or arrangement. Read more

How Early to Get Your Lawyer Involved

I sat in a conference session yesterday and heard the presenter say that you should negotiate all the “deal points” of a strategic alliance before getting your lawyer involved. Lawyers can be expensive and also might introduce complications and delays into a business arrangement, so I understand the temptation to feel that way. Nevertheless, I strongly recommend the opposite course — discuss your business strategy with your lawyer early in the strategic alliance process.

A business-minded lawyer will be sensitive to cost, complexity and timing issues. But he or she can also guide you on key structural issues arising out of a strategic alliance. In the simplest case, you might negotiate the “deal points” of a distribution arrangement by establishing the price and market area. Your lawyer might then be given those terms, discuss your overall objectives with you, and then recommend an altogether different structure that will serve you better (for example, perhaps you should ask for a long-term license agreement instead of a customary distribution agreement). If you knew that early, you might easily get your business partner to agree; however, after the deal points of an alternative structure are set, it might be tougher to change course. Read more

Joint Venture Tips

While it is natural to negotiate a JV thinking primarily of the “upside” if things go well, many of the legal terms will focus on how to terminate the JV and what happens on termination. Young couples getting married often choose to forego a prenuptial agreement. New business partners rarely should make that same choice.

Here are a few questions to consider:

1. What will your business want to do after the JV terminates, should that occur? Will you want to continue the JV business by yourself or with a new partner, or just continue your part of the business alone?
2. How big an investment are you making during the JV? How about the other side?
3. How integrated will the partners’ respective products and services become? Will they remain severable, or become permanently intertwined?
4. How high will the transition costs be to stay in business after the JV terminates?
5. Will you have the resources to invest in rebuilding lost business, or will you need a new investment partner?
6. Is the JV likely to fully penetrate the market, or is the market so large that there will be plenty of room for growth following termination?

If you answer these questions and others that arise out of your specific circumstances, it will help you decide (a) how “easy” or “hard” to make the trigger (on both sides) to termination, (b) what steps you need to take throughout the JV term to position yourself in a positive way for any termination, and (c) what rights you should have that emerge on termination.