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Paul Holliday Wilson

Paul Wilson’s Answers

3 total

  • In an acquisition, how is an assignment of contract (governed by New York law) made when the contract itself is silent on this?

    The software license and services agreement (governed by the laws of New York) is between a software company and a licensee (a company in a different industry). The agreement prohibits the licensee from making any assignments without a prior writt...

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    While there are exceptions, the general rule is that contracts are freely assignable unless they specifically state otherwise. It seems in your case that the agreement did not contain a prohibition against the licensor assigning the contract, so the likelihood is that there should be no problem.

    The above said, before troubling yourself with whether the contract can be assigned, you should first look at how the licensor was acquired. If the licensor was acquired in a stock purchase deal (i.e., the buyer bought the stock of licensor, rather than its assets), you likely don’t have to worry about the issue of assignment at all. When a company’s stock is acquired, the company itself remains largely unchanged – it just has different owners. Given this, the company can typically continue to operate under all of its contracts just as it did before it was acquired, as if nothing had changed.

    When the assets of a company are acquired, on the other hand, those assets – including its contracts – need to be assigned to the buyer (basically, they need to be handed over to a different entity). That brings us back to the beginning of my answer. With certain exceptions, if there is nothing in a contract stating that it cannot be assigned, it typically can – even if the other party to the contract objects.

    Feel free to contact me at any time if you would like to discuss this by phone (there are other ways companies can be "acquired," such as in mergers - and the above discussion is to a degree an oversimplification). We are a boutique New York corporate law firm, working exclusively with small to medium size businesses. My degree is from Harvard Law School, and I practiced at a very large Wall Street law firm (on multi-billion dollar transactions) for several years before starting my own practice in 2001. Our motto is “bringing Wall Street law to Main Street business.”

    Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

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  • Forming a Corporation: S-Corp or LLC?

    I am starting a production company with one other person. Currently it's just the two of us but we hope to expand down the road to hire full time staff. We get hired by local companies who pay us on a project to project basis. We are looking to ex...

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    From a legal perspective, either an LLC or an S-Corporation will protect you from personal liability. That said, there are some types of behavior that increase the chances that a judge will "pierce the corporate veil" of a business entity and hold its owners personally liable for business debts. One such behavior co-mingling personal and business funds within the same bank account. While it seems you already know not to do this, please understand that it is not the act of keeping your personal and business funds separate that provides you with limited liability. Rather, it is the act of creating and operating your business through one of these entities (and following the rules - like not co-mingling funds) that gives you limited liability.

    From a tax standpoint, both the LLC and the S-Corporation are "pass-through" entities, meaning that they are essentially invisible from a tax perspective. This means that, if your entity earns $1 million in profits, and if you and your partner each own 50% of that entity, then you will each be deemed to have earned $500,000 in income - even if the $1 million is left in the company (as opposed to being distributed to you).

    Unlike with an LLC or an S-Corporation, the owners of a C-Corporation are not taxed on profits that are left within the business. That said, the C-Corporation must itself pay taxes on all profits that it earns (just as if it were a person), and if the C-Corporation decides to distribute those profits to its owners, the owners are additionally taxed on the money they personally receive. This is sometimes referred to as the problem of "double taxation". While there are many strategies to deal with the problem of double taxation (such as distributing money to owners via reasonable salaries and bonuses - making these amounts corporate costs rather than taxable profits), many smaller and simpler businesses prefer the LLC or S-Corporation over the C-Corporation for this very reason.

    At the end of the day, you really need to talk with your tax advisor and corporate attorney to determine which entity would be right for you. Please feel free to contact me at any time if you would like to discuss this by phone. We are a boutique New York corporate law firm, working exclusively with small to medium size businesses. My degree is from Harvard Law School, and I practiced at a very large Wall Street law firm (on multi-billion dollar transactions) for several years before starting my own practice in 2001. Our motto is “bringing Wall Street law to Main Street business.”

    Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

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  • General release when some members leave the 'C' corporation

    If some founding members of the 'C' Corporation would like to leave the corporation and the Corporation transfers back the money (the investment) to them, there is any form such as release which they need to fill out in order to officially termin...

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    The paperwork that is required to terminate the founding shareholders’ relationship with a corporation depends on how one structures their exit. If the corporation plans to return their money in exchange for their stock, you would likely need a “redemption agreement.” You can also have the exiting shareholders sign a general release within this agreement, or as a separate document, but you don’t have to. If the shareholders do sign a general release, this would absolve the corporation from any liabilities it may otherwise owe to the shareholders (if done properly).

    On the flip side, you may want to consider whether the corporation should ask the shareholders to make certain promises as they give back their stock in exchange for money. You might want them to promise that they won’t compete against the corporation for some period of time. You might want them to promise that they haven’t pledged their stock as collateral against any personal loans, and/or that they know of no reason to believe the corporation may be sued, and so on. In each instance, you would want to the exiting shareholders to agree to indemnify the corporation (i.e., to make it whole) if any of their promises turn out to be untrue.

    Finally, you would need to look at all of the existing paperwork with regard to the corporation to see if there is anything else that needs to be done when they exit, or if there are special rules that have been put in place that you need to follow in your particular situation. There may be a shareholders agreement, which would be a very important document. Other documents may apply as well, and the only way to really determine what you need to do in your particular situation is to read all of the corporate documents very carefully, or to have an experienced corporate attorney do so on your behalf.

    Feel free to contact me further about this if you would like the assistance of a corporate attorney. My firm is a boutique New York corporate law firm, working exclusively with small to medium size businesses. My degree is from Harvard Law School, and I practiced at a very large Wall Street law firm (on multi-billion dollar transactions) for several years before starting my own practice in 2001. Our motto is “bringing Wall Street law to Main Street business.”

    Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

    See question