Business Closings

One day, a client came to my office for help. He was accompanied by his wife, who told me that her husband, who was a Cigar manufacturer in Cuba, had lost all of his family savings in a business venture in New Jersey. They wanted me negotiate with the ATF (Bureau of Alcohol, Tobacco & Firearms) the acquisition of a license to legalize their business of selling tobacco products.

What had happened was that the client, who had arrived from Cuba a couple of years before, rented a store to conduct business in his specialty: buying tobacco leaves and wrapping them in the form of cigars. He formed a corporation on his own. He then contacted a local accountant (not a CPA) to help him file the state returns, obtain a Federal Tax Identification number (TIN) and to open a tax account with the State Division of Taxation. He then entered into a written lease with his Landlord.

A few weeks after opening his door to the public, the federal agents closed his business. He had not obtained a license from the Bureau of Alcohol, Tobacco and Firearms!!! The federal agents were very nice to him and did not pursue any criminal charges. But they had no choice but to stop him from continuing with his tobacco sales until the client obtained the required federal licenses. As it occurred, the man was so distraught with the entire ordeal that he abandoned the business.

Which brings us into the topic of business closings. It could be possible that at the start of the industrial revolution opening an establishment by any merchant was a matter merely opening the doors to the public and… presto!!! Everything else would take care of its own with minimal government intervention. Not anymore. To begin with,, some type of government license –municipal, state or federal, or all of them- is usually required to open a business. Some municipalities may require a Certificate of Occupancy inspection prior to the business closing. A TIN number should be obtained and a tax account must be set up with the New Jersey Division of Taxation.

The client must also decide whether to register a trade name with the County Clerk, or whether to open a Limited Liability Company or a corporation. If there are partners, there should be a partnership agreement in order to determine the contributions of the partners and the split of the profits. A lease with the Landlord should be negotiated. In summary, there are plenty of reasons to justify consulting an attorney when opening a new business.

And, of course, if the client is buying an existing business then the terms of a Contract for Sale of Business must be negotiated. Bulk Transfers are regulated by the State of New Jersey, who must be notified of the transaction least 10 days prior to the closing. The Contract for Sale of Business should have the standard clauses such as forbidding the seller to compete with the purchaser after the sale , how to apportion the sales price at closing, what guarantees will be given by the seller for the machinery transferred, what inventory is included, how the inventory remaining will be paid at closing , etc.

The example of the Cuban Immigrant who lost all his life savings trying to save some money on legal counseling is the best example of a person who can be “penny wise and point foolish”. If you buying selling or opening a business the best thing to do is to look for an attorney who can counsel and guide you to do things “the right way”.