Business planning : closely held enterprises / by Dwight Drake.
2011
KF1466 .D73 2011 (Map It)
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Items
Details
Author
Title
Business planning : closely held enterprises / by Dwight Drake.
Published
St. Paul, MN : Thomson/West, [2011]
Copyright
©2011
Call Number
KF1466 .D73 2011
Edition
Third edition.
ISBN
9780314271846
0314271848
0314271848
Description
xxviii, 848 pages : illustrations ; 26 cm.
System Control No.
(OCoLC)708624817
Note
Includes index.
Bibliography, etc. Note
Includes bibliographical references and index.
Series
Record Appears in
Table of Contents
Dedication
iii
Preface
v
Table of Cases
xxiii
ch. 1
America's Closely Held Businesses
1
A.
The Big Picture
1
Business Economic Outlook, 110th Congress Committee on Small Business
3
Small Business Facts, United States House of Representatives Small Business Committee Website (2008)
6
Excerpts from the Report of the National Commission on Fiscal Responsibility and Reform (December 2010)
7
Excerpts from Report to the U.S. Financial Crisis Inquiry Commission (February 20, 2010)
12
B.
Family Business Trends and Challenges
18
Excerpts from American Family Business Survey, Massachusetts Mutual Life Insurance and Family Firm Institute --- 2007
18
Excerpts from Laird Norton Tyee Family Business Survey, 2007 Executive Summary
22
ch. 2
The Starting Point---Client Objectives
23
A.
Introduction
23
B.
Private Business Classifications
24
1.
The Soloist
24
2.
The Toilers
24
3.
The Golfers
25
4.
The Hybrid
25
5.
The Big Fish
25
6.
The Family Affair
26
7.
The Personal Service Organization
26
8.
The Emerging Public Company ("EPC")
27
Problems 2-A and 2-B
27
C.
Basic Business Concepts---A Primer
29
1.
Income
29
2.
Cash Flow
30
3.
Current Assets and Current Liabilities
32
4.
Opportunity Costs
32
5.
Fixed vs. Variable Expenses
33
6.
Economies of Scale
33
7.
Leverage and Return on Equity
34
8.
Debt-to-Equity Ratio
35
9.
Gross Multipliers and Capitalization Rates
35
10.
Goodwill and Going Concern Value
36
Problem 2-C
36
D.
Taxes-The Future?
38
ch. 3
The Choice of Entity Challenge
45
A.
Introduction
45
B.
The Check-the-Box Game
46
1.
Corporations
47
2.
Unincorporated Entity
47
3.
Single Owner Entity
48
4.
Pre-97 Entities
48
5.
Changes
48
6.
Election Tax Consequences
48
C.
The Entity Candidates
48
1.
Old Favorites
48
2.
The S Corporation
49
3.
The Limited Liability Company
51
D.
Tax Perks and Traps
52
1.
C Corp Perks
53
2.
C Corp Traps
58
3.
Partnership Perks
65
4.
Partnership Traps
69
5.
S Corporation Perks
69
6.
S Corporation Traps
71
E.
That Other Tax
71
F.
The 16 Key Factors
74
1.
Future Potential Sale
75
2.
Different Ownership Interests
77
3.
Earnings Bailout
77
4.
Conversion Ability
79
5.
The Bracket Racket
80
6.
Loss Utilization
82
7.
Control Rights
83
8.
Fringe Benefits
84
9.
Self-Employment Taxes
85
10.
Tax Deferral
86
11.
Real Estate
86
12.
Passive Activity Rules
87
13.
Alternative Minimum Tax
88
14.
Estate Planning
89
15.
Going Public Prospects
90
16.
The "Not My Return" Factor
90
Problems 3-A thru 3-K
91
ch. 4
Organizing and Funding the Enterprise
94
A.
Documenting the Deal
94
1.
The Process and the Documents
94
2.
Twenty Operational Owner Issues
101
3.
Solution Techniques
109
Problem 4-A
112
B.
Entity Formation Tax Planning
113
1.
Corporate Formations: Eight Rules and Related Traps
113
2.
Partnership Formations-The Eight Rules and Related Traps
122
3.
Formation Equity for Service
128
4.
The Shareholder Debt Crapshoot
132
Problems 4-B thru 4-D
134
C.
The Capital Challenge
135
Small Business Economic Outlook, 110th House Committee on Small Business
135
New Venture Financing: Harvard Business School
138
D.
Securities Law Considerations
148
1.
A Primer-issteps and Misconceptions
148
2.
Securities Law: Getting Started Issues
155
Securities Laws for Start-Ups
155
3.
Key Rules
164
Rule 10b-5, 17 C.F.R. [§] 240.10b-5
164
Regulation D---Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933
164
Rule 147 Intrastate Offering Exemption (Edited)
172
4.
Small Businesses and the SEC
175
Excerpt From Questions and Answers Provided by the Securities and Exchange Commission for Small Businesses
175
Problem 4-E
176
ch. 5
Entity Conversions: Unraveling Prior Choices
178
A.
Introduction
178
B.
Converting From Partnership Status to C Status
178
C.
Converting From S Status to C Status
181
D.
Converting Out of C Status
182
1.
Becoming Eligible for S Status
183
2.
Election Mechanics
185
3.
The Tax Traps
186
E.
Converting a Partnership to a Limited Liability Company
191
Revenue Ruling 95-37
191
F.
Conversion In and Out of One-Owner Status
194
Revenue Ruling 99-5
194
Revenue Ruling 99-6
196
Problems 5-A and 5-B
197
ch. 6
Structuring the Buy-Sell Provisions
199
A.
Buy-Sell Agreements: A Primer
199
1.
Introduction
199
2.
Basic Objectives of the Planning Process
202
3.
Case Study and Select Planning Issues
203
4.
Biggest Mistakes in Structuring Buy-Sell Agreements
212
5.
Summary
220
Problems 6-A thru 6-C
220
B.
Professional Service Organizations: Transition Planning
221
1.
Introduction
221
2.
Why It's Tougher
222
3.
Case Study 1: The Fragile Five
223
4.
Case Study 2: The Mega-Sellout
225
5.
Case Study 3: The Too-High Buy-In
227
Problem 6-D
235
C.
Funding Buy-Sell Agreements
236
1.
Introduction
236
2.
The Strategies
236
Problems 6-E thru 6-G
246
ch. 7
Executing the Business Purchase or Sale
248
A.
Structuring the Deal
248
1.
The Non-Tax Agenda
248
2.
The Case
250
3.
C Corporations-12 Scenarios
251
4.
S Corporation Scenarios
264
5.
Partnership---Taxed Entity Scenarios
266
Problem 7---A
268
B.
Documenting the Deal
269
Negotiating the Purchase Agreement
269
1.
Introduction
269
2.
Representations and Warranties
271
3.
Covenants
280
4.
Conditions
284
5.
Indemnification
288
ch. 8
Family Business Transition Planning
292
A.
Introduction---Hard Facts; Hard Challenges
292
B.
The Family Business---Keep or Sell?
294
1.
Threshold Question
294
2.
Key Keep-Sell Decision Factors
295
3.
Key Business Indicators
300
C.
Essential Plan Elements and Traps
304
1.
Case Study: Wilson Incorporated
304
2.
Essential Plan Elements: Starting Points and Traps
306
D.
Corporate Transition Strategies
328
1.
Gifting Strategies
328
2.
The Redemption Strategy---A Complete Goodbye
339
3.
Cross-Purchase Strategies---Where's the Cash?
342
4.
Business Restructuring: A Phase-Out Option
351
5.
The Family Partnership or LLC---A Companion Play
354
E.
The Inside/Outside Children Conflict
356
1.
The Challenge
356
2.
The Planning Strategies
359
Problems 8-A and 8-B
367
ch. 9
Employment Agreements for Key Executives
369
A.
Myths and Money
369
B.
Structuring the Agreement
373
Ten Essential Considerations for Any Employment Agreement
373
1.
Defining the Term of Employment
374
2.
Compensation
376
3.
Arbitration
377
4.
Protections of Intellectual Properly
379
5.
Work Effort
380
6.
Prior Commitments
380
7.
Choice of Law Provision
381
8.
Integration and Amendment
381
9.
Liquidated Damages
382
10.
Execution and Document Retention Strategies
382
C.
Confidentiality and Non-Compete Protections
384
Ten Traps to Avoid in Drafting Enforceable Confidentiality, Non-Compete, and Non-Solicitation Agreements
384
Problems 9-A and 9-B
395
ch. 10
Deferred Compensation Planning
397
A.
Nonqualified Deferred Compensation
397
1.
Introduction
397
2.
General Concept and Terminology
399
3.
The Tax Traps
401
4.
Structural Questions
406
B.
The Supplemental Executive Retirement Plan ("SERP")
415
1.
Introduction
415
2.
Structural Basics and Collateral Consequences
416
3.
Five SERP Planning Scenarios
420
4.
The No-Fund Funding Options
423
Problems 10-Aand 10-B
433
ch. 11
Strategies for Using Stock and Stock Rights to Compensate Key Employees
435
A.
Introduction
436
B.
The Benefits and Burdens of Stock Ownership
436
C.
Factors in Assessing an Ownership Program
439
1.
The Real Cost Factor
439
2.
The "Value Now" Factor
440
3.
The Golden Handcuffs Factor
440
4.
The Cash-Out Factor
441
5.
The Phantom Income Factor
441
6.
Employer's Tax Factor
441
7.
The Fail-Out Leverage Factor
442
8.
The Real Thing Factor
442
D.
Six Planning Strategies
443
1.
Incentive Stock Options
443
2.
The Nonqualified Stock Option
446
3.
Bonus Stock
448
4.
Restricted Stock
449
5.
Stock Appreciation Right Strategy
451
6.
Phantom Stock Plan
453
E.
Partnership-Taxed Entities
454
1.
Profits Interest
454
2.
Capital Interest
455
3.
Phantom and Equivalency Plans
455
4.
ISOs
455
5.
Other Options
455
Problem 11-A
456
ch. 12
Business Life Insurance Planning
457
A.
Business Life Insurance---A Primer
457
1.
Introduction
457
2.
The Seven Starter Questions
457
B.
Corporate-Owned Life Insurance
466
1.
Introduction
466
2.
Why Corporate Ownership?
466
3.
The Consequences: Questions and Answers
468
Problems 12-A and 12-B
479
C.
Executive Life Insurance Wrap-Up
480
1.
Introduction
480
2.
Case Study 1: The Stock Option Backup
481
3.
Case Study 2: The Executive Carve-Out
484
4.
Case Study 3: Legacy Life Insurance
488
Problems 12-C and 12-D
489
D.
The Business Owner's Life Insurance Trust
490
1.
Introduction
490
2.
Case Study: Walter and Jane Ballard
491
3.
The Key Questions
491
Problems 12-E and 12-F
505
ch. 13
The Diversification Challenge
506
A.
The Challenge, the Pressures
506
1.
Risk Management Pressure
507
2.
Economic Leverage Pressure
508
3.
Disposition Flexibility Pressure
509
4.
Transition Planning
510
5.
Estate Planning Pressures
510
6.
Income Tax Pressures
511
B.
Diversification Strategies
512
1.
Bush Dividend Blow-out
514
2.
S Status Conversion
514
3.
S Conversion/Dividend Blow-Out Combo...
515
4.
Piecemeal Stock Sale
516
5.
Section 1045 Piecemeal Stock Sale
516
6.
Divide and Concur
517
7.
New Ventures
521
8.
Owner Deferred Compensation
522
9.
The ESOP Bailout
523
10.
The Life Insurance Bailout
524
11.
Family Employment
524
12.
Shareholder Leased Property
525
Problems 13-A and 13-B
525
ch. 14
The Enterprise and Its Competitors
527
A.
Perils and Naked Truths
527
1.
Who's President Doesn't Matter
527
2.
Forget the Odds
529
3.
A Criminal?
530
4.
Winning Is Losing
530
5.
The Plagues: Price and Output
530
6.
Signed Deal Not Required
531
7.
Beyond Price and Output
531
8.
Flying Solo Can Do It
531
9.
Market Power Comes In Many Sizes
531
10.
When Rule of Reason Rules
531
B.
The Guidelines
533
Antitrust Guidelines for Collaborations Among Competitors (Excerpts)
533
Problems 14-A thru 14-E
556
ch. 15
The Enterprise Employees
559
A.
The Compensation Challenge
559
B.
Employers and Health Care Reform
560
1.
The Status Quo
560
2.
The Future
567
C.
Employee Benefits
576
1.
Introduction
576
2.
Time-Off Benefits
576
3.
Tax-Preferred Employee Benefits
580
4.
Employee Retirement Benefits
585
5.
The Power of Cash---A True Story
592
Problems 15-A and 15-B
596
D.
Protecting Employees' Rights
597
1.
Preserving Rights of Termination
598
2.
Avoiding Sexual Harassment Problems
601
3.
Employee Drug Abuse
604
4.
Probationary Employment Risks
606
5.
Fixing the Handbook
608
E.
Protecting the Business From Acts of Its Employees
610
1.
Ten Protection Steps
611
2.
The Three Myths
618
Problem 15-C
619
ch. 16
Estate and Multi-Entity Planning
620
A.
Trophy-Chasers and Wealth Managers
620
1.
Ignorance is the Culprit
621
2.
Don't Lead with Taxes
622
3.
Control Options
622
4.
It's All Business
622
5.
Simple Complexity
622
B.
Multi-Entity Planning: An Example
623
C.
Planning With Family Partnerships and Family LLCs
627
1.
Introduction
627
2.
Five Mini-Case Studies
628
3.
Basic Planning Questions
634
D.
Asset Protection Planning
647
Excerpts from "Possibilities and Limitations of Asset Protection"
647
Problem 16-A
683
ch. 17
Valuing Closely Held Business Enterprises
685
A.
The Lawyer's Non-Role
685
B.
Valuation Techniques and Lingo
686
Excerpts from A Basic Guide to Valuing a Company
686
Problem 17-A
715
ch. 18
The Lawyer's Role---Building a Practice
717
A.
Serving Closely Held Businesses---Practice Tips
717
1.
Introduction
717
2.
Core Knowledge Prerequisites
718
3.
Spotting Winners and Losers
719
4.
Tips to Building a Successful Practice
720
B.
Business Advice From a Lawyer?
730
Recipe for an Overdue Change, Why Corporate Lawyers Sometimes Need to Give Business Advice
730
C.
Common Ethical Challenges
734
ch. 19
Select Forms
756
A.
The Form Game---Blessing or Curse?
756
B.
Form: Limited Liability Company Operating Agreement
757
C.
Form: Corporate Shareholders Agreement
780
D.
Form: Executive Employment Agreement
797
E.
Form: Life Insurance Trust
809
F.
Form: Asset Purchase Agreement
816
Index
837