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Selling your winery? You’d better check these 7 legal matters first

Time:2018-02-03 14:31wine - Red wine life health Click:

LEGAL matters These First Better

If you rely on third party grape sources or other outside suppliers, you should review those contracts. As an initial matter, make sure the contracts are in writing, and that they match the actual practice between the parties.

For example, if you have a contract to buy 20 tons of cabernet sauvignon grapes but the contract expired in 2010 and you’ve actually been buying 50 tons of grapes each year, then you should amend the contract to reflect the current terms.

Then check the assignment provision in each of the contracts to make sure they can be assigned to a new owner of the business. If a particular contract cannot be assigned and it is integral to the business, then you should consider what other solutions may be viable.

Could you, for example, continue to be the purchaser of the grapes but then immediately resell them to the buyer of the winery? In such a scenario, think about how long you would be willing to continue to act as an intermediary and whether there are any regulatory issues to consider.

As with all of the issues we have been considering, the resolution may not be easy or straightforward, but it will almost certainly be preferable to resolve it before you enter into a contract to sell your business.

6. AUTHORITY

The question of transactional authority has two components: legal authority to sign transaction documents, and day-to-day decision-making during the deal process.

The first issue is a simple matter for your lawyer to review: who has decision-making authority for the business, and do the governance documents for the business accurately reflect this authority? If not, you should have those documents updated so that they do not cause any delays at the end of the deal.

Note that you will have to represent in the sale contract that the person signing the contract has authority to sell the business, so you will want to make sure you have all of the entity’s legal documents tidied up before you begin the sales process.

The second issue is more subtle. If you have a family-run business, or a business with multiple owners, you should ensure that all members of the business are fully committed to the sale and have an opportunity to raise questions or objections before the process begins. If you begin the process and negotiate a sales agreement with a prospective purchaser, it can be very difficult to extricate yourself from the transaction if one of the sellers has second thoughts.

Similarly, if you have multiple owners of the business, you should consider appointing a single member as the point person for purposes of negotiating and finalizing the deal. During a transaction, decisions often have to be made quickly, and decision-making by consensus can be awkward and time-consuming and can undercut your ability to negotiate effectively.

Discuss with your attorney and with the members of the business what would be most appropriate for your situation from a practical perspective, so that you have a workable strategy in place before you go to market.

7. LETTER OF INTENT

Last but not least, make sure to show any offers or letters of intent to your attorney before you sign them! We cannot emphasize this last point strongly enough. Although letters of intent often state that they are “nonbinding,” California law takes a more complicated view of the process and can sometimes impose on the parties a binding obligation to negotiate in good faith. In other words, you can be stuck with a letter of intent, even if it says it is non-binding.

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