Author Archives BMK Law

by Norman D. Kallen, Partner, Brown Moskowitz & Kallen, P.C.

The COVID-19 pandemic brought to light a critical issue for which all small business owners should always have contingency plans: what should a sole business owner do to maintain business continuity in the event the owner becomes ill or otherwise disabled?

Sole proprietors, sole members of LLCs, sole shareholders of a corporation, self-employed individuals and independent contractors often are the only persons in their businesses authorized to conduct certain aspects of business activities on behalf of their entity or themselves. For example, these individuals may have sole authority to handle banking activities (sign checks, etc.), review and approve payment of payroll and accounts payable, review and approve invoices, and oversee policy related to accounts receivable. What if a sole member of an LLC is also the only officer of the company? Who steps into his or her shoes in the event of illness or other disability? Is there a mechanism for temporarily authorizing a trusted advisor, friend or family member to act on the owner’s behalf to handle any or all of the above-described activities?

The best way to provide for these types of circumstances is to plan in advance and prepare an agreement appointing a designated individual to undertake “running the business.” A power of attorney or a simple signatory authority document from a bank may be too broad or too narrow to meet the owner’s requirements. Moreover, if the business is operated in the form of an LLC or corporation, the only documentation that your bank may have for you to enter into is the authorization of an additional signatory on checks and loan matters. To that end, you may not wish to grant an employee, trusted advisor, friend or family member that authority immediately. Without some sort of agreement in place with either an employee, trusted advisor, friend or family member, you are placed at a disadvantage from a management perspective.

An owner should make a list of tasks that are essential to preserving the business in his or her absence. Next, the owner should very closely consider who he or she trusts to operate the financial aspects of the business. After these issues are clarified, the owner and the “stand-in” need to come to an agreement in writing regarding the duties, rights, liabilities, indemnification and the commencement or effective date for these duties and a date of termination of the agreement.

The agreement should explicitly set forth:

• The current duties of the business owner that would need to be continued in the event that the owner is unable to carry out those obligations;
• The full and proper legal name of the “stand-in”;
• The “trigger” circumstances under which the agreement will take effect;
• The exact list of undertakings of the “stand-in” which to a large extent would mirror 1. above;
• The grant of authority to the “stand-in” to execute the tasks set forth in the agreement such that a third party, including a bank, would be able to rely on the document as proper authorization for the “stand-in” to act;
• Allocation of risks – liabilities and indemnification; and
• Circumstances under which the business owner terminates the authority of the “stand-in”

Standard terms and conditions would also be included. It is important to have the document notarized, because it will, no doubt, be presented to banks or other institutions that require this formality.

The COVID-19 public health crisis was a wake-up call for all sole business owners and individual business entrepreneurs. The critical point is to consider and plan for illness and disability in any circumstance to ensure the continuity of your business in your absence.

If you would like more guidance, please contact Norman D. Kallen at Brown Moskowitz & Kallen, P.C. at (973) 376-0909, ext. 1114 or via email, nkallen@bmk-law.com

Succession planning is about actively listening to the needs and wants of business owners, discussing realistic goals based on experience and crafting a practical and achievable plan. Brown Moskowitz & Kallen recently advised River Edge, New Jersey-based leading landscape and hardscape company, Let It Grow, Inc. in the development of a succession plan that would sustain the legacy of its founder Paul T. Imbarrato.

Established in 1986, the Company is renowned for its expertise in the planning, execution and delivery of world-class design/build and landscape projects throughout the Northeast. With Mr. Imbarrato at the helm, Let It Grow has evolved into a leading regional firm serving prominent organizations such as Prudential, Unilever, Rutgers University, NJIT, and Westfield Garden State Plaza, among many others.

The succession plan was a collaborative effort developed over the course of several conversations involving Mr. Imbarrato, the Company’s incumbent accountant, an investment banker, a family office consultant, a benefits and insurance consultant and BMK. Ultimately, Mr. Imbarrato shared equity in Let It Grow with certain team members pursuant to a vesting schedule designed to motivate the recipients and ensure continuity of management. The succession plan also enables Let It Grow to remain independent while creating an incentive for the continuing recruitment of key industry talent. While Mr. Imbarrato is not ready to retire, his objective, in part, was to create a pathway for eventual retirement that does not require acquisition by private equity. Rather, Mr. Imbarrato wanted to ensure the Company’s sustainability for many years ahead.

“I was seeking a way to continue my firm’s legacy while enrolling my existing highly valued team in ownership of the Company,” said Mr. Imbarrato. “I take great pride in having built Let It Grow to the success it is today. I am now confident that success will continue in the hands of my employee owners even after I am no longer engaged in the day-to-day activities of the Company. BMK was instrumental in helping me transform my vision into a comprehensive and practical plan. ”

“The Let It Grow succession plan is a key example of how BMK listens to client needs and devises innovative solutions that align with their professional and personal desires,” said Stuart M. Brown, Partner and Co-Chair of the Commercial Transactions practice at BMK. “We knew Paul Imbarrato did not wish to sell his Company as his means of exiting the business he painstakingly created over several decades. He has great faith in his dedicated and talented employees. While no one can predict the future, Paul takes comfort knowing that he implemented a succession plan providing for continuity of management upon his retirement and establishing a means for the Company to continue to grow and thrive..”

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By Kenneth L. Moskowitz, Esq.

While the pressure to make deals or “book” work is certainly understandable, especially in the wake of the Covid-19 crisis and the on-going recovery, business owners and senior managers would be wise to resist the temptation to complete potentially problematic deals and, instead, should remain faithful to fundamental contracting principles.

As a threshold matter, contracting parties must be careful to complete all of the diligence necessary to ensure that the proposed “business deal” makes economic sense. As every business owner well knows, there simply is no substitute for such investigations, and shortcuts often lead to poor and regrettable deals or contracts.

Once being satisfied that a deal makes economic sense, contracting parties should take the time and maintain the discipline necessary to ensure that the deal made in principle is documented accurately, and that all of the material terms and conditions are clearly stated in the contract. Among other things, the contract must include a precise description of the subject goods, services and/or deliverables, as well as the schedule for such performance and for receipt of the required payments. Depending on the circumstances, the inclusion of an attorneys’ fee/cost of collection term, arbitration and/or choice of forum provisions may be prudent, if not necessary. Again, as business owners and their contract agents know, even what may appear to be a “good deal,” if not properly documented, can lead to a disastrous result.

Further, contracting parties should not be satisfied that the written agreement “more or less” memorializes the parties’ agreement, or take for granted that the other party to the contract has the same understanding and/or will faithfully discharge its contract responsibilities unless those duties are clearly and plainly recited. The hope or notion that once an ambiguous contract is signed the other party will perform as you expect, and/or that the other party can be counted on later to resolve contract ambiguities in good faith and on a fair and equitable terms consistent with your intent at the time of contracting, may not be realistic. The assumption of such risk — risk that may have been avoidable — would be regrettable and certainly could be costly.

Finally, while each potential contract negotiation has its own dynamics, fair and equitable contract terms should be negotiated, not dictated by one party. Even where one party to the contract is recognized to enjoy a superior bargaining position, the other party should resist a “take it or leave it” ultimatum that may leave it exposed. In that circumstance, the party in the inferior bargaining position should carefully consider pressing for the negotiation of those essential terms that are necessary to make the deal fair to both parties or, at the very least, “chipping away” to make the agreement more palatable.

Contract litigation is often the result of some failure in the negotiation and/or documentation of a business deal. Business litigation is time consuming, expensive and can have the detrimental effect of diverting the parties’ attention from the management and operation of their businesses. While the potential for litigation cannot be eliminated, completing the requisite diligence and exercising the needed discipline in the negotiation and documentation of the business deal or contract should reduce that risk.

©Copyright 2023, Brown Moskowitz & Kallen, P.C. All rights reserved. This article is for informational purposes only and is not intended to constitute, and does not constitute, legal advice.

Mr. Moskowitz is a former prosecutor and is a founding partner of Brown Moskowitz & Kallen, P.C., in Chatham New Jersey. He represents clients in diverse business disputes, commercial litigation, internal investigations, “corporate divorce” matters, insurance coverage litigation and other business-related disputes.

For further information, please feel free to contact Mr. Moskowitz by email at klm@bmk-law.com, or call him at 973-376-0909.

By Stuart M. Brown, Partner and  Norman D. Kallen, Partner

Brown Moskowitz & Kallen, P.C.

How should a business respond when it or its counterparty cannot fulfill obligations under an existing agreement or when entering into a new business relationship? There are myriad practical and legal answers to the question. Here, the focus is the application of the concept of force majeure in the context of contractual business relationships.Read More