By Peter M. Nemkov
Attorney At Law
CABI Corporate Counsel
A common problem faced by brokers (and lawyers) when completing an Asset Purchase Agreement or a Listing Agreement is determining who is the client. The problem arises when there is an individual involved who is an owner of a business entity. The typical scenario is that the individual gives confusing information intermixing himself with the entity or more commonly misidentifies the entity itself. This problem can become magnified in the subsequent negotiation and preparation of related documents such as Leases or Lease Assignments, Franchise Agreements, Loan Documents and Licensing.
For a quick listing of the structures involved, the most common business entities are the –
- S Corporation – comprised of –
- Shareholders – who are the owners
- Board of Directors – who make the business decisions
- Officers (President, Secretary, etc.) – who sign the documents
- Limited Liability Company (LLC) – comprised of –
- Members – who are the owners
- Management (this is tricky)
- Some LLCs are managed by Managers (similar to a corporation’s Board of Directors)
- Some LLCs are managed by the Members
- There are no Officers in an LLC
When engaging a new client, the best first step is to determine the status of the client by checking the Colorado Secretary of State’s website –
- www.sos.state.co.us/biz/BusinessEntityCriteriaExt.do
- and check for the Records Search/Summary
The Records Search/Summary will accurately identify the entity’s name, registered address and name of the registered agent (who is typically an owner). The Summary will also state whether the entity is in “Good Standing” or is “Delinquent” (which usually occurs when the Annual Report is not filed with the Secretary of State).
Other sources of information about the structure of the client can be found in such documents as –
- S Corporation –
- ByLaws – to determine quorum and voting rights needed to sell or purchase a business.
- Organizational or Annual Minutes – to determine the identity of the Officers, Directors and Shareholders.
- Shareholder Buy-Sell Agreement – to determine the rights of the Shareholders in the event of a stock sale.
- Limited Liability Company (LLC) – all of the information contained in the series of corporate documents listed above are combined and contained in one document called the Operating Agreement.
Another area of confusing information is the business tradename, where the client will intermix the entity name – which is the party with the legal right to enter into the transaction – with the tradename – which is a name or a “doing business as” but which has no legal authority. The status of tradenames and their relationship to the actual entity name can also be determined by checking on the same Colorado Secretary of State website.
Making some initial determinations at the beginning of a transaction as to the actual identity of the client can prevent subsequent “pain and suffering” as the transaction progresses and the numerous documents are being negotiated and prepared.
Mr. Nemkov has provided corporate legal services for CABI, is a transactional business attorney, and has been involved in over 2,000 business closings.
Peter M. Nemkov
Peter M. Nemkov, Esq., P.C.
1873 South Bellaire Street, Suite 1401
Denver, Colorado 80222
(303) 691-9760
PMNesq11@comcast.net
© Peter M. Nemkov
