Overview On January 30, 2024, the Delaware Chancery Court voided Elon Musk’s $55.8 billion pay package as CEO of Tesla, ruling that the process leading to the approval of Musk’s Tesla compensation plan was “deeply flawed” and unfair to Tesla’s shareholders. In response, Musk expressed public criticism of the Court’s decision, including posting on X (formerly Twitter) that entrepreneurs and founders should “never incorporate your company in the state of Delaware.” Ultimately, in response to the Tesla ruling, Musk filed to transfer SpaceX’s state of incorporation from Delaware to Texas and indic ..read more

Overview In private M&A transactions, earnouts provide sellers with an opportunity to receive one or more post-closing payments upon the achievement of certain financial targets and/or operational milestones, helping to bridge the gap when the buyer and seller cannot agree on the value of the target business. In recent years, with high-interest rates, reduced access to debt financing, and concerns about future growth opportunities, earnouts have helped parties get deals to the finish line. Despite their utility, earnouts must be carefully negotiated and drafted to reduce the likelihood of ..read more

On January 1, 2024, previously enacted federal legislation called the Corporate Transparency Act (the “CTA”) went into effect. The CTA aims to assist law enforcement in tackling money laundering, tax fraud, terrorism financing, and various other illicit activities facilitated by anonymous shell companies. Here we briefly discuss the basics of the CTA and how certain requirements under the CTA can be triggered in the context of buying or selling the equity of a business.   General Requirements of the CTA The CTA mandates that “reporting companies,” as defined by the CTA, must submit specif ..read more

This is a continuation of a series of posts about buying or selling a business targeted to those less familiar with the process. This post provides a high-level overview of the purchase agreement. Overview The purchase agreement is the principal legal document used to effect a merger, acquisition, or sale transaction (an “M&A transaction”). Depending on the transaction structure and the types of entities involved (e.g., corporations, limited liability companies, etc.), it may be styled as an “asset purchase agreement,” a “stock purchase agreement,” a “merger agreement,” or something else ..read more

Selling your business is not just about finding a buyer and agreeing on a price. Once the basic terms of the deal are agreed upon in a letter of intent, the buyer will want to sift through your business and legal records with a fine-tooth comb. This meticulous review of your business, from contracts to customer lists, is called due diligence. Due diligence allows the buyer to uncover risks when buying a business. Keep sensitive information confidential: Due diligence involves giving the buyer information you wouldn’t want competitors to know, like the identities of your customers and the ter ..read more

Due diligence is the buyer’s process of discovering and evaluating information about a seller’s business to confirm that acquiring the seller’s equity or assets is a sound investment. However, the process of conducting due diligence differs between transactions for a variety of reasons. Factors such as the deal structure (equity purchase versus asset purchase), cost, the unique qualities of the seller, and time constraints affect how the buyer’s deal team approaches due diligence. At this point in the deal process, the buyer believes it has identified a worthwhile acquisition target and has l ..read more

In the previous post in our series on the process of buying or selling a business, we focused on providing an overview of the process. In this second post, we will provide an in-depth analysis of the non-disclosure agreement (an “NDA”; sometimes referred to as a confidentiality agreement) that is negotiated and entered into between a potential buyer and seller. Basics of an NDA             An NDA is a binding agreement between a potential buyer and seller separate from the letter of intent or term sheet. In an NDA, each party agrees to ce ..read more

As discussed in our recent QSBS overview, qualified small business stock (“QSBS”) can offer significant tax benefits for founders, advisors, and investors. For high-growth startups, these tax benefits are often well worth the time and brainpower spent planning and structuring for the requirements imposed by Section 1202 of the Internal Revenue Code. However, to fully take advantage of these benefits, understanding and navigating the 5-year holding period requirement under Section 1202 is essential. In this article, we’ll explore one common scenario that illustrates a key consideration with re ..read more

A Valuable Tax Consideration for Founders and Early Investors One crucial early exercise for founders, entrepreneurs, and early-stage startups, often given limited attention, is considering the long-term tax implications of the business’s corporate structure. These decisions around the corporate structure are driven by several considerations, some of which are non-economic in nature, which must be weighed and ultimately prioritized by the founders. However, in thinking through these issues, founders should understand the potential advantages of Qualified Small Business Stock (“QSBS”), which c ..read more

This post was jointly written by Trey H. Woodall and Casey W. Riggs. Buying or selling a business can seem like a daunting task, but understanding the deal process can produce an overall more efficient and better experience and result in better terms. This overview will help you understand how a deal progresses through the following stages: Buyers and Sellers Finding Each Other Protecting Confidentiality Initial Due Diligence Offers and Letters of Intent Continuing Due Diligence Negotiating the Transaction Documents Closing the Deal Post-Closing This is the first in a series of posts about ..read more