What You Always Wanted to Know About ROFRs But Were Afraid to Ask

The term ROFR (pronounced “ROH-fur”), or R-O-F-R, is often bandied about by legal professionals, business parties, and courts in connection with business and real estate matters without any additional context or explanation of exactly what it is they are referring to. Before you do an internet search and end up listening to this guy, let me explain what a ROFR is. It’s an acronym for a legal entitlement called a right of first refusal.  While the name itself sounds, and admittedly somewhat is, self-explanatory, a ROFR is much more than merely a right to “refuse” something.

Purchase Price Escrows vs. Holdbacks, An Overview

Recently, I’ve worked on several business sale transactions where the parties expressed varying preferences as to the use of an escrow account versus a holdback mechanism in the transaction structure, so I thought a brief overview of those two concepts might be something that readers of entreVIEW might find interesting.

In a business sale transaction, the parties typically (but not always) opt to incorporate either an escrow account or holdback mechanism, both of which generally serve the same role in any transaction—the parties agree to set aside a portion of the purchase price that a Buyer can recover against, as needed, after the closing. This could be for purchase price adjustment, often related to

Corporate Formalities: A Necessary Long Game

A common pitfall of many entrepreneurs and startups is a failure to adhere to even minimal corporate “formalities” or good governance practices that can contribute to their long-term upside (positively or negatively). Corporate formalities entail things like entity formation, taking minutes at meetings, keeping reasonably detailed and up-to-date records, and the like. 

For entrepreneurs, the most important place to start is choosing the appropriate type of business entity and filing the necessary documents to legally form that entity with the appropriate state authority.

Entering the Best “Season” of the Year

Calendars everywhere are about to turn over to October, meaning the country has officially entered, for my money at least, the best season of the year. Although light jackets, vests, and pumpkin spice lattes are certainly an added bonus, the best season of the year has little to do with the weather and the seasonal menu changes that come along with it and everything to do with sports, business transactions, and the jolt of excitement they inject into everyday life from mid-September through the ball drop at midnight on New Year’s Eve.

Buy-Sell Provisions: More Than Just an Emergency Plan

Regardless of the type of entity, every business has or should have (more on the should aspect below) a governing document that is at least a basic agreement among its owners that governs (1) the operation of the business and (2) the owners’ contractual rights, obligations, and restrictions with respect to their ownership interests in the business. The second of these contains what are commonly referred to, by lawyers at least, as the “buy-sell” provisions. If for some reason the owners decide not to enter into a written governing document, then the statutory default provisions of the business’s state of formation (which vary from jurisdiction to jurisdiction) automatically govern the entity and the owners. For example, if an owner of a limited liability company is determined to be legally incompetent to manage their affairs and the business either doesn’t have a governing document or that document is silent as to the treatment of an owner’s interest in the event of legal incompetence, what happens? Under Delaware law, the most widely recognized state of formation for businesses, the owner’s personal representative can effectively step into the owner’s shoes as an owner, thereby resulting in a previously unrelated (and likely inexperienced) third party having an active ownership interest in the business.