E2 Visa Questions: Purchasing a Business
Angie: Hi, everyone, thanks so much for joining us. I’m Angie Rupert, founder of Rupert Law Group. We focus exclusively on E2 visas and today you have joined us for the “E2 Visa Common Questions” series hosted by me, Angie Rupert. And today we’re gonna be talking about purchasing a business for E2 visa applicants. Obviously, this is really important to a lot of applicants. You know, you can start your own business, but many people choose to buy an existing business and we’re gonna talk a little bit about that today.
Joining you is me, the host. As I mentioned, I’m the founder of Rupert Law Group. We handle exclusively E2 visas in all treaty countries wanting to move to all 50 states. So, wherever you are and wherever you wanna be, we can help you do that. Joining me today is Tina Alleguez. Hi, Tina, thanks so much for joining us. Tina is a very experienced corporate attorney. She has 30 years of litigation experience and she is general counsel for many companies, including owners of companies. You’ve heard of, like, 7-Eleven and the Subway franchise. So, with that, thanks so much for joining us, Tina. We are excited to have you.
Tina: Thank you. Glad to be here. Great subject to talk about.
Angie: [inaudible 00:01:28]. So, Tina, here’s the situation that I get a lot and maybe you get this with some of your clients as well. They come, then they say, “Oh, I found this fabulous laundry mat, but I wanna buy, and now what do I do?” And I immediately send them to you, but when you get them on the phone, what do you tell them they should do?
Tina: Well, you know, like most lawyers, we have a million questions. So, when clients come to me and say, “Oh, well, I want to buy a business,” and it’s for this purpose, for an E2 visa. And, you know, some of the main points that I tell them, they really should inquire first, they need to find out who the owners are of this business. And what type of a business entity is it? Is it a partnership? Is the business run as a sole proprietorship? Is it run as a limited liability company, a corporation? That’s a key question because depending on that, then we can determine how we’re going to do the buyout.
You know, I mean, that’s the critical question first. Then we have to find out, okay, where is it incorporated? Is it a California corporation? Sometimes companies, even though they’re doing business here, they’re incorporated in a different state, but they’re registered to do business here in California. So, we need to find out where is the company formed. And then, other critical question, find out if you can, it can be through some investigation, but you should find out is the company involved in any lawsuits? Are there any liens against the company because you don’t want to buy a company that’s in heavy litigation or that might
have liens from the franchise tax board or the IRS, especially if you’re trying to get your [inaudible 00:03:29].
Angie: It’s interesting that you mention that, Tina. So, these are kind of some of the first steps. I know there are a lot of steps to purchasing a business, but we didn’t even get into, you know, the P&Ls and the financials and all of that. So there really is a lot to purchasing the business, I guess, is the long and short of it. And you would be best served certainly to have an attorney on your side, even if it’s a family member. I mean, Tina, I’m sure you’ve worked with all kinds of family members buying from others, friends buying from others. Sometimes that’s the stickiest type. Am I right?
Tina: Actually, those are the worst. I hate to lay it out like that, but in my experience in 30 years litigating and probably the last 15 where I’ve handled a lot of business disputes, the worst, worst disputes are amongst family members and sometimes fathers and sons, sometimes siblings, but it not only ruins the business, it ruins the family. There’s just too much emotion. And because people are family, they often do not document anything. So, that just creates for more tension and more problems. So, yes, I mean that, you’re absolutely right, Angie.
Angie: It sounds like that it’s a really good idea, even if you’re buying this from the best friend that you’ve ever had, even if you’re buying it from your uncle or your sister or, you know, your fiancé’s sister, it’s really important to have a really good attorney on your side who understands business formations and business purchases to make sure that everything goes smoothly because, obviously, for the purpose of the E2 visa, your business needs to be around really solid foundation, but then also you really don’t wanna burn bridges with people who are very, very important to you. So I think your first step, it sounds like, even before these steps are to contact someone like you, who can help you, help guide them and get everything documented. So there are, you know, if things go south or if X happens, then Y is the solution and we’ve already written that out.
Tina: Yeah. Critical to do the due diligence. Doesn’t matter if it’s family or not. It’s important to do the due diligence. So you need somebody, a counselor, a CPA, even. If you have an accounting person that…they’re a great help because you really need to look at all the documents of the company, the internal documents of the company, to see how it’s functioning, you know. Companies do all sorts of things and you have to look at the financials, how do they keep their financials? Do they document their financials? Are they keeping everything, you know, in shoe boxes or do they have an accounting software? Do they have a CPA who keeps track of things? Can you see a profit and loss statement? You know, I mean, these are all important things if you’re going to be investing in a business, whether it’s your family member or, you know, an outside third party that you don’t know.
Angie: I think that’s a really good point because a lot of my clients fall into the category where they’re buying from relatives or something like that. So, Tina, you can guide them through a lot of the steps kind of in purchasing the business. One question I get a lot, and I’m sure you get even more than I do, is if they’re buying into a business, right? So it’s one thing to say, okay, “Here’s business A, it’s selling for $200,000. I’m gonna buy it.” That’s the end of that. But it’s another to say, “Hey, here’s business A, it’s $200,000. I’m gonna buy 51% of this business.” So, if someone were to come to you to say that, and let’s just say that we kind of got past that due diligence phase, and everybody feels happy with kind of how the business runs and it has been valued by a third party and the valuation’s right, what do you recommend as far as, or what are the steps as far as buying into a business?
Tina: Okay. So if you’re buying into a business, once you know the structure, because if it’s a limited liability company, it’s much more flexible and you don’t buy, you know, shares, you buy an ownership interest, and they’re called membership certificate, but basically you’re buying an interest. So, it’s very different. And really you would just have a purchase-sale agreement that would be drafted, preferably by a lawyer that sets forth exactly, you know, how much of the business you’re buying, and you receive an ownership interest. I mean, this is assuming there’s already been an appraisal done. You’ve already determined what the price of the business should be. So if you’re buying 51% and the business is worth, let’s say, $100,000, then you’re paying $51,000 and it gets documented. There should be a company resolution that the company is going to be selling 51%, if all, because you have members in an LLC and they are going to own 100%, you simply calculate how much each member, if you know how much each member owns, then… Gosh. Okay, I have to go back because that’s not clear at all.
So let’s assume that we have a company maybe with four members and each of them owns 25% in an LLC. Obviously, each of them has to sell an equivalent portion to this new person that’s coming in to buy 51% or maybe not. Maybe one person decides they’re willing to give up most of their interest because they wanna take a backseat. So all of this has to be discussed and whatever the arrangement is, then that’s put into a purchase-sale agreement that sets forth, you know, the future percentages. And then what follows after that is amending the operating agreement because there should be an operating agreement in place between these four members that determines how their business operates. And now that they’re acquiring a new member, there has to be an amendment that indicates there’s another member coming in who’s going to own 51% and any other changes that might need to be made internally based on the negotiations for that purchase.
So that’s in the case of a limited liability company. In the case of a corporation, that person’s buying shares, so again, you would [inaudible 00:10:50] the company to determine the value, and then based on the value, you would do the same thing. There’s a purchase-sale agreement. I mean, in some instances, I think, Angie, you mentioned, oh, well, we kind of glossed over it, but there are instances where somebody wants to buy 100% of a business. And if they’re doing that, as a lawyer, I sometimes say, just purchase the assets in the business, don’t purchase the stock because you don’t wanna assume the existing liabilities or potential liabilities of that business, in which case you would form your own company and you purchase 100% of the stock in that other company and 100% of that stock goes into your new entity.
And it would be easy to explain if I had a little diagram, but that’s kind of the gist of it. Otherwise, you know, you’re buying only some of the shares, which means, you know, in your agreement, you have to determine whether or not you’re assuming some of those old liabilities, you might not want to. And I, as a lawyer, would encourage you to not assume 100% of any liabilities that exist pre the date that you decide to become an owner of this company. It’s a complex area and hard to kind of synthesize in just a few minutes, but, you know, it’s doable with a contract basically.
Angie: I think that you hit the nail on the head when you said, if I had a diagram, I could show this to you easily. So, I think, but I think that we have proven our point here, which is please don’t do this by yourself. This is a really kind of complex area of law. That’s why I would never touch it myself. I’m an attorney. I’ve been an attorney for a long time, and it’s just an area that there’s a lot of nuance. And if it’s something that you don’t do every day, you might run into some trouble later down the road. So, that’s why you would hire someone like Tina to help, come in and to simplify your life. Because, you know, I know that that’s one of Tina’s goals is to understand what you want, understand what you need, and then put it together so all you do is review and sign. It makes it a lot easier than trying to dig through all of this yourself.
So, with that, I want to, once again, put up our pictures, although you can see us right here, but put up our pictures with our contact information. Please feel free to reach out to either one of us at any time. Tina and I have worked together to help E2 clients and we would love to do the same for you. So please reach out anytime. And Tina, thanks so much. I really appreciate your time today.
Tina: Thank you.