“The time to repair the roof
is when the sun is shining.”
-John F. Kennedy
You entered into a pretty basic commercial deal, and decided to do things properly and get it drawn up by an attorney. You’ve now received a ‘draft’ from the attorney and it’s long. It was a simple deal. Why are there so many terms? Why is it several pages in length? The answer lies in risk-shifting, or preparing for the rain.
Contracts are generally signed in good times, when the sun is shining. The parties typically have high expectations of the success of the agreement and may not consider what happens if and when things don’t go as planned. However, it is important to prepare for the bad times, to formulate terms that consider risks that may arise after the contract is signed. There are many ways a contract can be drafted to guard against the rain – two of the more common ones are representations and warranties and indemnity provisions.
Representations and Warranties
A representation is simply a statement of fact upon which another party is expected to rely, while a warranty is a party’s assurance as to a particular fact coupled with an implied indemnification obligation if that fact is false. Representations and warranties are generally used to allocate risk by (1) apportioning exposure to potential losses and shifting risk from the recipient to the maker; (2) creating a direct claim against the maker if representations and warranties are inaccurate; and (3) serving as a basis for the parties’ indemnification rights.
An indemnification clause is a promise to protect and defend another in the event a particular set of circumstances leads to a loss suffered by another party. Indemnity provisions are the primary vehicle by which parties typically shift or apportion risk in a contract. Indemnity provisions may include any, or all, of three obligations to (1) indemnify, (2) defend, and (3) hold harmless the other party. A well-drafted indemnification provision allows parties to customize their risk allocation by shifting the burden of loss and compensating an indemnified party for risks it did not assume and expenses that may not be recoverable under common law, like attorneys’ fees.
Having an attorney draft or review your contract before signing is recommended. It is imperative that you understand the potential consequences of the risk-shifting provisions in any contract. By carefully drafting and negotiating a contract before execution, during the good times, you can best protect yourself or your company from the inevitable rain.
Otis, Bedingfield & Peters, LLC is proud to announce that attorney Nate Wallshein was appointed to the board of the Matthews House.
The Matthews House is an organization that empowers young adults and families in transition to navigate difficulties on the road to self-sufficiency. Many individuals in the program do not have a significant support system nor the skills necessary for living independently. The Matthews House provides resources and relationships necessary for those to take control of their lives and shape positive futures for themselves.
“I am humbled and thrilled to serve on the Board at The Matthews House. The staff and volunteers provide much needed services in our community by empowering youth and families in times of transition, and by providing preventive, educational, and vocational training. The incredible support from northern Colorado residents drives our success and continues to strengthen our community,” said Nate Wallshein.
Otis, Bedingfield & Peters, LLC provides real estate law and business law services throughout Northern Colorado. OBP has 15 attorneys spread across its two offices in Greeley and Loveland. For more information, contact Nate Wallshein at email@example.com or Jennifer Lynn Peters at firstname.lastname@example.org or 970-330-6700 or visit www.nocoattorneys.com.
Otis, Bedingfield & Peters, LLC is proud to announce that attorney Lia Szasz has been admitted to practice law in Colorado and Wyoming.
Lia worked as a law clerk for the firm throughout law school. She recently passed the bar and joined the firm as an associate attorney.
Lia obtained her undergraduate degree from Washington State University and her J.D. from the University of Colorado School of Law. While in law school, Lia received the best overall combined brief and oral argument award in the Colorado Appellate Advocacy Competition, and represented CU in the American Bar Association’s Client Counseling Competition. Before law school, Lia worked for a real estate and estate planning law firm, and for a title company.
Her practice at OBP focuses on business law, agricultural law, real estate law, and complex commercial litigation.
With a background in agriculture and real estate, she is particularly adept at assisting clients with matters related to farming and ranching operations.
Lia is committed to serving northern Colorado both professionally and as a member of its community.
Otis, Bedingfield & Peters, LLC provides a range of legal services throughout Northern Colorado. OBP has 15 attorneys spread across its two offices in Greeley and Loveland. For more information, contact Lia Szasz at email@example.com or Jennifer Lynn Peters at firstname.lastname@example.org or call 970-330-6700 or visit www.nocoattorneys.com.
We’ve all heard the saying that there are only two things in life that are certain – death and taxes. The same might be said for your business that you’ve spent a good part of your life building. The difference is that the death of a business can be delayed or avoided all together and that depends upon how well you plan the passing of the business to a partner or the next generation.
Only about 30% of family businesses survive into the second generation and only about 12% into the third generation. For the most part, failures can be traced to one factor, little or no succession planning.
Succession planning, or, should I say, successful succession planning really boils down to creating continuity in management, culture and leadership in the midst of a change in ownership. It isn’t accomplished at an annual retreat or a planning session with an attorney, accountant or financial planner. It is developed and executed over a period of years.
Planning for a transition in the ownership of a family business has its own unique set of difficulties because you add family dynamics to the business dynamics. There are several key components to developing a successful plan that deals with family dynamics separately from the business dynamics. The key components to the development of a successful plan that deal with family dynamics are communication and trust. The key components to the development of a successful plan addressing business dynamics include culture, management and leadership.
The culture of a business is what defines that business internally and externally. It is the value system of the company and it establishes the reputation of the company within itself and the community. It defines the vision and goals of the company. Culture is what attracts and retains employees and customers. We all know that a big part of the reason why people do business with you is because they like you. Whether or not they like you more often than not depends upon culture.
Management of a company is not so much about who owns the company, but who will do the work of the business that makes it successful. The four areas of focus for management include administration and finance, operations and customer fulfillment, sales and marketing. More often than not in a family business, several of those areas are handled by you or another family member. While you may have developed the ability to handle each of those areas as you grew your business, turning over the reins of management of the company you’ve built requires that any person taking over one of those areas has the ability to hit the ground running. Before any business can be transitioned to the next generation, you must train those who will take over your responsibilities. You may be able to fill some areas with family members, but you might have to fill gaps in other positions with outsiders. More than likely, you are the individual who provides the leadership for the company and are the individual to whom everybody looks for direction. Before you can transition out of the business, you will need to find the individual or team who will take on that leadership role and give them the opportunity to position themselves in the eyes of all employees as the source of leadership and direction moving forward.
Assessing the abilities and competencies of employees and family members is a critical, but often awkward, part of succession planning. Not only must you find the right people, you must give them enough time to grow into their positions. Simply reaching a certain point in life and turning to a child and telling them that “it’s now your turn to make it or break it,” is a sure recipe for failure.
Finally, once the culture is clearly established, strong management is trained and in place, and leadership is established, you will have reached the point of being able to successfully “pass the baton” of ownership to the next generation. This is the point at which you complete the plan and set in motion your release of ultimate control to the next generation, whether in stages or all at once. Obviously, some control will be relinquished through developing and empowering management and allowing others to develop in leadership roles, but a change in ownership is really the transitioning of the ultimate control and responsibility for the business. A succession plan is as unique as each business and the owners of that business. There are many different tools available to the professional helping you develop your succession plan. They involve not only the structures for change in ownership, but also for providing incentives to retain key management and leadership and policies to create loyal employees.
The additional and unique nature of family dynamics in a business succession plan are more often than not accomplished through clear communication of the plan and the building of trust that the plan will be followed. Before the next generation can buy into any succession plan, they must first understand what that plan is. In addition, trust that the plan will be followed and executed can only be accomplished by the business owner fulfilling the promises and goals established by such a plan. Successful business succession planning is really most about preparation, common sense, communication and execution. It takes commitment to develop a plan and even greater commitment to follow it.
We are privileged and proud to say we work for the awesome attorneys at OBP!
At Otis, Bedingfield & Peters, LLC, we believe every client deserves the highest quality legal services from a law firm that is part of their community. We know we can’t be everything to everyone everywhere. That’s why we focus on providing only real estate law and business law services in the Northern Colorado region. Our commitment to real estate law and business law and our Northern Colorado community permeates everything we do. We value personal relationships, knowledge, integrity, trust and loyalty. Read More >>