When one successful company merges with or acquires another successful company, the deal attracts a lot of attention, particularly when the players are big names in high-profile industries. The growth potential of each entity can be enormous.

But what can also be profitable are strategic “carve-outs,” which occur when assets are “scooped out” of an ailing company. You may be able to purchase just the piece of the company that you are interested in, or you may be able to buy the entire company and then sell off the assets that you don’t care to keep.

There is more inherent risk with carve-outs because you are dealing with something that is currently troubled financially. The flipside is that these assets often come at a reduced price.

When looking to purchase a carve-out, it is imperative to look at every piece of the company’s financial puzzle and be sure the asset can be turned around successfully. Thorough analysis is paramount.

Some of the questions you want to ask yourself:

-From the ground up, what problems did the asset or company face?

-What does the expense structure look like?

-How long will it take to make the necessary adjustments for the company or asset to become profitable?

-Is the risk worth the potential reward?

Just because an entire company or asset is not performing well doesn’t mean it is worthless. Perhaps the asset simply needs a shift in its business strategy or a minor restructuring of its finances to put it in the black.

When looking for a carve-out, the best bets are within industries that you have experience with or carry the potential for “synergy” with your current business. This can save a lot of money and make the deal more profitable in the end. For example, if you manufacture household goods, you would do best to purchase a product that can be easily integrated into your current operation. Because you are purchasing a troubled asset, it makes little sense to take more risks than necessary.

While companies seeking carve-outs usually look to their local competition, sometimes it makes sense to go beyond your own borders, too, particularly in today’s challenging economic climate. To stay competitive and to diversify in tough times, it may make sense to expand to a global market. Of course, that carries with it a whole host of added legal requirements.

If you are a company looking to “carve-out” a competitor’s assets, it is important to speak with an experienced attorney.

Anthony Spotora is a Los Angeles entertainment lawyer and Los Angeles business attorney. To learn more, visit Spotoralaw.com.

In today’s economic downturn, more and more businesses may be looking to alter their business models. Such a plan for change is often referred to as a corporate turnaround strategy.

With revenue streams suffering, it can be difficult to figure out what to do when your business is experiencing such disappointment. But with the few tips below, it is possible to develop a plan that will help you identify problems and alter the course of your business for the better.

1. If your business is experiencing problems and feels like it is in freefall, the first step to take before you do anything else is to seek stabilization. Take a look at what assets are critical for the survival of both the company and its ownership and then protect and preserve those assets.
2. Next, you need to undertake a lengthy and comprehensive identification period. You need to get back to finding out what your business is all about. What are the core values that your company holds? Who are your main customers, and are you continuing to provide them with goods or services that they want? What do you really stand for? Have you gotten away from your business principles?
3. Once you have answered these questions, you need to make an honest list of the core problems with your business. Seek input from not only management, but staff, too. What processes are counterproductive? What uncritical functions need to be scaled back? Remove the excess. Perhaps layoffs need to take place. Perhaps entire departments need to be scaled back. If it doesn’t fit with the core values of your business, it probably needs to go.
4. Put together an implementation plan for making these changes. Provide specifics on how these changes will be implemented. Develop a timetable for taking certain steps. Eliminate the chance of chaos by carefully explaining how the restructuring will take place.
5. Now you are ready for the actual restructuring. It will be all-important to follow the specified steps in your implementation plan.
6. Review your restructuring plan periodically and make updates and tweaks as necessary.

Undertaking a corporate turnaround can be a complex and stressful process. If your business is looking to complete a turnaround, it may also be helpful to hire a consult or an experienced corporate attorney who can offer a fresh set of eyes.

Anthony Spotora is a Los Angeles business attorney, intellectual property lawyer and entertainment lawyer.  To learn more, visit Spotoralaw.com.

If an individual is looking to business-incorporation/”>form a new business, they may want to consider forming a Limited Liability Company. This type of business structure is similar to a corporation but is less formal, more flexible and offers several benefits, including personal liability protection, for its owners.

What is an LLC?

A “Limited Liability Company” (LLC) is a hybrid between a partnership and a corporation. It has the operating flexibility and “pass through” tax treatment of a partnership with the limited liability for its “members” accorded to corporate shareholders. “While an LLC is a business entity, it is best to think of it as an unincorporated association,” said Anthony Spotora, an extremely experienced business attorney. “Although sometimes incorrectly referred to as Limited Liability Corporations, they are in fact not corporations.” See California Corporations Code, Title 2.6.

Further Benefits

LLCs are highly attractive to some because of the flexibility in tax choices. LLC business ventures qualify for a single layer of taxation, which prevents ownership from being double-taxed under the corporate tax structure.

“However, LLCs may also elect to be taxed under a corporate tax structure if they wish,” Spotora advised. “In fact, the full list of taxation choices for LLCs are as a sole proprietor, a partnership and either an S- or C- Corporation.”

LLCs also often require much less administrative paperwork and record-keeping than do corporations. The laws also allow LLCs to customize the rules for how the LLC is best operated.

Drawbacks

Some people feel that LLCs do have disadvantages, however.

In California and a handful of other states, LLCs must pay a franchise or capital values tax on the business.

LLC’s in California must pay an annual tax to the state’s Franchise Tax Board. The fee is $800 per year, though if the LLC’s net annual income exceeds $250,000, then there will be an additional fee that must be paid, too.

Also, some people believe LLCs have a more difficult time raising financial capital because investors may be more comfortable investing funds into corporate firms.

If a person is considering forming a Limited Liability Company or other business entity, it is important for them to speak with a knowledgeable attorney. Anthony Spotora is a Los Angeles business attorney who specializes in incorporation and can guide you on the best strategy for your business.

You can visit our blog to learn more about corporate formation and other topics in business law, including the impact of RULLCA, California’s 2014 revision of the laws governing LLCs.

Businesses looking to raise capital by selling securities have options that will offer them exemption from the SEC’s registration requirements. The Regulation D exemptions allow companies to raise capital by using a Private Placement Memorandum document as the official disclosure paperwork for investors.

Issuers of private placement memorandums (PPMs) should familiarize themselves with Regulation D, the rules that establish three transactional exemptions from the registration requirements of the Securities Act of 1933. These exemptions allow some smaller companies to offer and sell their securities without having to register securities with the SEC.

Rule 504 provides an exemption from the registration requirements of the federal securities laws for some companies when they offer and sell up to $1,000,000 of their securities in any consecutive twelve-month period. This rule does not put a limit on the number of investors, permits the payment of commissions, and imposes no restrictions on the manner of offering or on the resale of securities. In addition, no specific disclosure or registration requirements apply under this rule.

Rule 505 allows some companies which offer securities exemption from the registration requirements of federal securities laws. A company can offer and sell up to $5,000,000 of securities sold in any consecutive twelve-month period. An unlimited number of accredited investors are allowed under this rule, and sales are permitted for up to thirty-five non-accredited investors. However, Rule 505 requires the issuer to notify the prospective investors that they will receive “restricted” securities. Furthermore, under Rule 505, an issuer may not use any general solicitation or advertising in order to sell securities.

Rule 506 allows companies to raise an unlimited amount of money.  This rule is available to all issuers for offerings sold to an unlimited number of accredited investors and no more than thirty-five non-accredited purchasers. However, this rule requires that all non-accredited investors, if they are alone or with a purchaser representative, be sophisticated. This means that they must have sufficient knowledge and experience in business and financial matters that will allow them to evaluate the merits and risks of the proposed investment. Rule 506 also prohibits any general solicitation or general advertising in the sale of securities.

Los Angeles business attorney Anthony Spotora, Managing Attorney to his eponymous Century City law firm, Spotora & Associates, advises that, “Time and time again the exemptions provided by Regulation D have offered our clients a reasonable and business savvy means of achieving their often long-desired goals.  From film financing and real estate to product development, we have drafted and had the good fortune to then witness how a properly prepared PPM, inclusive of the apposite rules of Regulation D, can serve as a necessary conduit between an undercapitalized company and the investors vital to its success.”

Companies who choose to use the exemptions offered under Regulation D do not have to register their securities and generally are not required to file reports with the SEC. PPMs should be prepared in consultation with a lawyer who has experience drafting private placement memorandum and dealing with federal and state securities law.

A Private Placement Memorandum (PPM) is a document that outlines the terms of securities to be offered in a private placement. A private placement is the issuance and sale of a company’s stock to a small number of select investors and is utilized as a means of raising capital; private placement is the opposite of a public issue, in which securities are available for sale in the open market. A PPM resembles a business plan both in its content and in its structure, except these documents tend to be lengthy and extremely thorough, are broken into several components — one of which is a business plan — and are most commonly used in business to provide information to potential investors, so that they may evaluate the merits of an investment in the company.

While the content of a PPM might vary based on the particular offering or the circumstances of the company, most PPMs typically contain the following elements:

• A complete description of the security being offered for sale, including the terms of the sales and the associated fees;
• A description of the issuer which includes organizational structure, the history of the company and the context of the offering;
• A detailed business plan providing information related to market opportunity, the company’s value proposition, its products and/or services, marketing and sales plans, management, financials, and proposed use of proceeds;
• Detailed instructions on how to participate in the offer;
• A summary of relevant or possible conflicts of interests with the issuer, its principals, its affiliates, or a combination of any of the foregoing;
• The numerous risk factors associated with the investment, including risks that are common to similar investments and those risks which are unique to the issuer and its securities.

In certain contexts, particularly if securities are being offered to prospective investors who lack accreditation (unaccredited investors are less sophisticated investors who do not meet the net worth requirements under the SEC’s Regulation D and require special protection when buying stock), a PPM will be required by law. If this is the case, the contents of the PPM will be subject to and regulated by the disclosure requirements of applicable securities regulations, inclusive of state blue sky laws.

Even when a PPM is not required by law, it can provide an invaluable amount of protection for the issuer. For example, statements of an issuer, whether they are written or oral, are subject to both federal and state anti-fraud laws. Among other possible actions, a well-prepared PPM can help issuers avoid a potential securities fraud claim. The PPM will establish a record of exactly what was communicated to the investors about the offering as well as the company, and what was subsequently accepted.

Our business attorney have decades of corporate law experience in private placement and can help you navigate through the regulatory requirements and draft your private placement memorandum.

For more information contact our firm:

Spotora & Associates, P.C.
(310) 556-9641
1801 Century Park East, Floor 24
Los Angeles, CA 90067