| Read Time: 3 minutes | Business Law

Five Things to Know Before Selling Your Business

EDITOR’S NOTE: THIS IS A GUEST POST BY JOHN FINCHER, A CERTIFIED BUSINESS INTERMEDIARY IN AUSTIN, TEXAS. JOHN IS NOT AN ATTORNEY, BUT WE ASKED HIM TO SHARE SOME THOUGHTS WITH OUR READERS WHO MAY BE CONTEMPLATING SELLING A BUSINESS. CLICK HERE TO LEARN MORE ABOUT JOHN. 1. SELLING A BUSINESS IS A COMPLEX PROCESS AND CAN TAKE 9 MONTHS OR LONGER Selling a business is not like selling a house or any other personal property you that you own. I always say, “Selling a business has a lot of moving parts.” Those moving parts require the guidance of someone who is experienced in the process and can effectively move the deal from step-to-step. Planning is step number one and includes understanding the owner’s goals for a transaction, your company value, and signing an engagement agreement with a Sell-Side M&A Advisor. Step number two is providing the information requested from your Sell-Side M&A Advisor to prepare a Confidential Business Memorandum (CBM) with many details about your company, the market, your competition and the financials recast to show the true earnings of the business. A marketing plan is activated and buyers are contacted and required to sign a Non-Disclosure Agreement (NDA) before being presented with the CBM. On the third step, once interested buyers are located, there is a flow of additional information requested and questions answered. There are site visits after hours or on weekends to protect confidentiality that the business is for sale. A Letter of Intent (LOI) is negotiated with a buyer in this deal making stage. Finally, there is a move toward a Close that includes coordinating all of the due diligence requested from the buyer that includes your Sell-Side M&A Advisor setting up a secure data room that the buyer can access. Your Sell-Side M&A Advisor will work closely with your transactional attorney to resolve any open issues as your attorney negotiates and finalizes a Definitive Purchase Agreement. These four steps that I’ve briefly outlined require approximately nine months of time, which is the average, although deals have concluded in shorter time-frames and longer. 2. KNOW THE RIGHT TIME TO SELL When is the right time to sell your business? It would be logical to say that the right time to sell is when your business is worth the most money or selling it will achieve your financial goals. The short answer is to sell when your business has at least three years of upward trend in revenue and profitability and certainly before the next downturn, unless your business is recession proof. However, some sellers have to sell rather than want to sell. I call these the five bad D’s – Death, Divorce, Disease, Downturn and Disgruntlement and they don’t have a choice as to the timing. 3. USE YOUR LEGAL AND ACCOUNTING PROFESSIONALS TO CLEAN UP THE BUSINESS PRIOR TO THE SALE Cross your t’s and dot your i’s with expert legal advice to make sure your business is saleable from a legal perspective and with your CPA to make sure your business is saleable from an accounting perspective. Are your contracts assignable? Is your lease? Have you kept the proper annual shareholder meeting minutes if required by your legal entity? Do you have any pending lawsuits or legal matters that need settling? Do you have any regulatory or environmental issues? Do you have any tax liabilities that may need the help of your CPA professional to solve? Are your books and records accurate and will they hold up during due diligence? What is a likely tax scenario of how much you will owe upon the sale of your business and is there a compelling legal reason or tax reason to sell stock instead of assets? 4. BE MENTALLY PREPARED Are you willing to think win-win with a buyer? There are several ways to structure a sale and some will benefit the Buyer but not the Seller and others will do just the opposite. There will be much to negotiate throughout selling a business and oftentimes you will need to move toward the middle as will the Buyer. Contain your ego and emotion and use your Sell-Side M&A Advisor as an emotional buffer when necessary between you and the Buyer. Keep in mind that you will need a good relationship with the Buyer after the sale as there is much to transition from one owner to the next after the Close. 5. KNOW YOUR PATH AFTER THE SALE Know what you are going to do, after selling your business. Some people want to stay engaged with the business in some capacity and others are ready to walk away. Do you have other interests and passions to pursue that will give you purpose? John Fincher is a Certified Business Intermediary with Corporate Investment in Austin, Texas. He is a former entrepreneur who has bought, sold and merged companies and has been working for over twelve years representing sellers in M&A transactions.

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| Read Time: 4 minutes | Healthcare Business Law

Texas Stem Cell Law Update

THE FOLLOWING IS AN EDUCATIONAL ARTICLE INTENDED TO HIGHLIGHT RECENT DEVELOPMENTS THAT MAY BE OF INTEREST TO PHYSICIANS AND OTHER HEALTHCARE PRACTITIONERS. IT IS NOT A LEGAL OPINION AND SHOULD NOT BE CONSTRUED AS LEGAL ADVICE. THE HEALTHCARE INDUSTRY IS CONSTANTLY CHANGING SO FACTS, CIRCUMSTANCES, RULES AND REGULATIONS MAY CHANGE THAT WOULD ALTER THE ANALYSES BELOW. In recent weeks, the Texas Medical Board (“TMB”) has notified several physicians of complaints it has received alleging that the physician has been “aiding/abetting the unlicensed practice of medicine.” Specifically, the complaints allege that the physician is supervising midlevel practitioners (APRNs/PAs) who are “administering stem cells illegally in violation of HB 810” (emphasis added). TMB, like all licensing boards, has a duty to investigate complaints that are filed against its licensees. After receiving a complaint, TMB notifies the physician identified in the complaint, who is then given an opportunity to “furnish a narrative” responding to the allegations. Many complaints are dismissed at this stage, without TMB having ever initiated a formal investigation. In other words, these complaint letters do not necessarily indicate discipline is forthcoming. Nevertheless, they are a troubling development. The most pressing question is whether TMB’s reference to midlevel practitioners “administering stem cells illegally in violation of HB 810” is a mere restatement of the complaint it received (which is certainly possible) or whether it is telegraphing an aggressive new interpretation of HB 810 as precluding the delegation of all “stem cell” treatments. The legislation referenced in TMB’s complaint, HB 810, was passed by the 85th Texas Legislature and became effective on September 1, 2017. This bill – nicknamed “Charlie’s Law” – concerned “investigational stem cell treatments” and specified that patients are only eligible to receive such treatments if they have “a severe chronic disease or terminal illness” and their physician has “considered all other treatment options currently approved by the [FDA] and determined that those treatment options are unavailable or unlikely to alleviate the significant impairment or severe pain associated with the severe chronic disease or terminal illness” and if their physician recommends or prescribes the treatment in writing. Tex. Health & Safety Code § 1003.053. This statute defines “investigational stem cell treatments” as “adult stem cell treatment[s] that [are] under investigation in a clinical trial and [are] being administered to human participants in that trial [and have] not yet been approved for general use by the [FDA].” Tex. Health & Safety Code § 1003.051 (emphasis added). Texas stem cell laws are not a model of clarity. Nevertheless, it has been widely presumed that HB 810’s onerous restrictions do not apply to the types of “stem cell” products most commonly used in regenerative medical clinics and integrated medical-chiropractic practices, which are regulated by the U.S. Food and Drug Administration (“FDA”) as Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/Ps) under Section 361 of the Public Health Service Act (PHSA). There are several reasons to conclude that HB 810 does not apply to these so-called “361 products.” First, HB 810 specifically refers to treatments “not yet approved” by the FDA. 361 products do not require FDA approval; they must simply be registered with the FDA and comply with infection-control procedures. And because clinical trials are not required for 361 products, it seems unlikely such products would meet the definition of “investigational stem cell treatments” in HB 810. Second, it is abundantly clear that the purpose of Charlie’s Law was to circumvent FDA restrictions and thereby increase patient access to certain stem cell treatments. Again, the particular FDA restrictions at issue in the legislation do not even apply to 361 products and interpreting the law in this way would necessarily decrease patient access to such products. Third, TMB published a bulletin in May 2019 lamenting “concerns, highlighted by several recent news stories, related to a lack of proper supervision while patients are receiving treatment for certain cosmetic procedures and purported stem cell treatments.” Dr. Sherif Zaafran, M.D., FASA, Message From the TMB President: Mental Health Questions and Supervision Issues, TMB Bulletin, May 2019, at 2 (emphasis added). TMB’s concern relating to improper supervision, leads one to assume it believes that the procedure is, in fact, delegable under proper supervision. If HB 810 applies to every type of “stem cell” product, the use of all such products is restricted to physicians only, and it would therefore be illegal to delegate the administration of any “stem cell” product to a midlevel practitioner. If that were the case, it seems unlikely that TMB would suggest it is concerned about “a lack of proper supervision” when such treatments are delegated. Fourth, 361 products have been in widespread use in Texas and are commonly administered by midlevel practitioners. HB 810 became effective nearly two years ago, and until recently it did not appear that TMB was concerned about the legality of this arrangement. In short, a plain reading of the statute, a basic understanding of the legislative intent of Charlie’s Law, the recent statement published by TMB in its May 2019 bulletin, and common sense all suggest that HB 810 does not preclude a physician from delegating the administration of 361 products to midlevel practitioners. However, it is possible that TMB and/or a reviewing court might disagree with this analysis and subject delegating practitioners to discipline. Time will tell.

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| Read Time: < 1 minute | Business Law

Labor Poster Scams

Forming a business entity provides business owners with many advantages: liability protection, tax flexibility, access to capital, and more. But there is at least one downside: occasional junk mail. If you’ve recently incorporated, an “Important Notice” may arrive in an official-looking envelope informing you that you must post various labor notices in your workplace or face fines. Conveniently, they include an order form so you can purchase these forms immediately. Many of these letters are designed to mimic government notices and are intentionally deceptive (and possibly illegal). While it is true that some businesses are required to post certain notices for employees, companies that do not have employees do not have posting requirements. And for companies with employees, all of the required posters are available for free at twc.texas.gov. If you are unsure which posters you need, the U.S. Department of Labor has a Poster Advisor that will provide you with a list of required posters applicable to your business. Don’t be a victim. If you are unsure whether a mailing you have received is an official notice or misleading scam, contact an attorney.

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| Read Time: 3 minutes | Healthcare Business Law

Sex and Subluxation: A Legal Guide for Texas Chiropractors

Engaging in sexual activity with patients is, as we say in the legal field, a very bad idea. Sexual misconduct can trigger severe disciplinary action by the Texas Board of Chiropractic Examiners (“TBCE”) and civil liability for damages. Doctors who behave responsibly with patients can nevertheless face liability for sexual discrimination and harassment in the workplace. And even doctors whose personal conduct is unassailable can face liability for the actions of their employees. The risks are real. Learn how to protect yourself. SEXUAL MISCONDUCT WITH PATIENTS TBCE Rule 78.1 prohibits sexual misconduct with a patient within the chiropractic/patient relationship. “Sexual misconduct” is defined broadly to include both sexual intimacy (any conduct that is intended to cause or reasonably interpreted to cause stimulation of a sexual nature) and sexual impropriety (any behavior, gestures, statements, or expressions through any medium of communication towards a patient which may reasonably be interpreted as inappropriately seductive, sexually suggestive or demeaning). The following are examples of prohibited sexual intimacy: sexual intercourse; genital contact; touching breasts; masturbation; and any bodily exposure by licensee of normally covered body parts. The following are examples of prohibited sexual impropriety: inappropriate sexual comments about or to a patient or former patient including sexual comments about an individual’s body which demonstrate a lack of respect for the patient’s privacy; requesting unnecessary details of sexual history or sexual likes and dislikes from a patient; making a request to date a patient; and initiating conversation regarding the sexual problems, preferences, or fantasies of the licensee. There is one affirmative defense to disciplinary action enshrined in rule – if the patient is “no longer emotionally dependent on the licensee when the sexual impropriety or intimacy [begins] and the licensee [terminates] his or her professional relationship with the person more than three months before the date the sexual impropriety or intimacy [occurs].” Notably, the following excuses are not a defense to disciplinary action: the patient’s consent; the activity occurred outside professional treatment sessions; or the activity occurred off the premises regularly used by the licensee for the professional treatment of patients. HOW TO PROTECT YOURSELF FROM PATIENT COMPLAINTS Thoughtful, proactive behavior can minimize your risk of patient complaints. Communicate clearly with your patients before performing procedures in sensitive areas. Most complaints allege unwanted and inappropriate touching of breasts, buttocks, or genital areas. Before palpating pectoral muscles or lymph nodes, or treating iliopsoas muscles or anterior hip flexors, tell the patient what you’ll be doing and why. Consider having a chiropractic assistant present when treating patients of the opposite sex. If you don’t have a chiropractic assistant, consider leaving the exam room door open. Do not ask patients to disrobe unless it is absolutely necessary. If you determine that a patient should disrobe, Rule 78.1 (1)(E) obliges chiropractors to “respect a patient’s dignity at all times and […] provide appropriate gowns and/or draping and private facilities for dressing and undressing.” SEXUAL HARASSMENT In 2017, the Equal Opportunity Employment Commission (“EEOC”) recovered sexual harassment damages totaling over $46 million for aggrieved employees – and this amount only includes cases that were settled with the EEOC and does not reflect monetary benefits obtained through litigation or other means. Put simply, sexual harassment is a major problem for employers. There are two types of sexual harassment: quid pro quo harassment (in which the employee faces a negative employment consequence for refusing to submit to a harasser’s demands) and hostile work environment harassment (gender-based conduct that is pervasive or severe and interferes with an employee’s work performance). Even jokes about exchanging sexual favors for a raise have led to employee complaints against chiropractors for quid pro quo harassment. And doctors may be liable for hostile work environment harassment to an employee even if he/she was not the target of the inappropriate behavior. HOW TO PROTECT YOURSELF FROM PATIENT COMPLAINTS In general, doctors should be wary of the following: Making disparaging comments to women; Displaying sexually explicit or female-objectifying materials in the office; Showing employees and co-workers inappropriate images on your phone or other device; Using sexually explicit language in the office; Making inappropriate comments to female employees about their appearance (e.g., telling a female employee that she “has a good body”); Staring at employees in a sexually suggestive manner; Asking sexual questions of an employee; Inappropriate touching, including pinching, patting, rubbing, or purposefully brushing up against another person; and Making offensive comments about someone’s gender or sexual identity. CONCLUSION In the wake of recent scandals in Hollywood and the burgeoning #metoo movement, our culture is reconsidering the “rules” of workplace behavior. Actions that may have seemed appropriate in previous eras are now considered taboo. Doctors should exercise caution to avoid liability for sexual harassment. Sexual misconduct – it goes without saying – should be strictly avoided. Doctors should familiarize themselves with TBCE’s (justifiably) broad definition of the term and employ the common-sense strategies in this article to mitigate the risks of patient complaints.

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| Read Time: < 1 minute | Massingill News

Massingill Named “Rising Star” Lobbyist by Capitol Inside

Capitol Inside released its 2017 Texas Lobby Power Rankings and named principal attorney Joshua Massingill a “rising star” lobbyist. The publication’s biennial power rankings are a staple of Texas politics and recognize the state’s most prominent and effective advocates. The 2017 Texas Lobby Power Rankings are available here (subscription required).

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| Read Time: 2 minutes | Healthcare Business Law

Employment Law Basics: Tips for the Entrepreneurial Doctor

Note: This article first appeared in the Fall 2016 edition of the Texas Journal of Chiropractic, the premier resource for Doctors of Chiropractic in Texas. To read the article in its entirety, click here. In his book The E Myth Revisited, Michael E. Gerber opines that the fatal assumption made by many small business owners is that “if you understand the technical work of a business, you understand a business that does technical work.” According to Gerber, this fatal assumption causes the technician to have an “entrepreneurial seizure” and start his or her own business. The problem, he explains, is that it takes much more than technical proficiency to operate a successful business. Many entrepreneurial Doctors of Chiropractic have lamented that their extensive (and expensive) education focused almost exclusively on technical proficiency. As a result, they graduated well-prepared to deliver excellent chiropractic care to patients, but poorly-prepared to operate their own clinic. The solution to this problem, according to Gerber, is to envision your business as a franchise from day one. This philosophical shift in your thinking will encourage the implementation of systems that will make your business more profitable and efficient. This article will discuss some key components of one of the most important systems in a chiropractic practice: human resources. Many entrepreneurs dream of becoming the boss. Fewer actively fantasize about becoming the HR Director. But if you intend to hire and fire employees, you’ll need to familiarize yourself with the basic tenets of employment law and develop systems to retain happy, qualified staff and minimize your legal liability. […] To finish reading this article, visit the Texas Journal of Chiropractic.

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| Read Time: 2 minutes | Healthcare Business Law

Starting a Business: Tips for the Entrepreneurial Doctor

Note: This article first appeared in the Summer 2016 edition of the Texas Journal of Chiropractic, the premier resource for Doctors of Chiropractic in Texas. To read the article in its entirety, click here. Many new doctors graduate from chiropractic school, decide to launch their own practice, and subsequently discover that while their education prepared them to deliver quality care to patients, it did not prepare them to own and operate a business. Doctors of Chiropractic aren’t the only victims of this curse. I spent more time in law school learning about the medieval roots of modern property law than managing a law firm. But while the former is an interesting conversation topic (perhaps), it’s the latter that keeps me from filing for bankruptcy. The legal profession has historically relied on apprenticeship to fill the gaps in law schools’ practical training. The same goes for Doctors of Chiropractic, who typically learn how to operate a clinic by working for an established practitioner. But what about the doctor who opts to start his or her own practice immediately after graduation? Or the doctor whose boss spent more time on the golf course than mentoring employees? Where do they begin? The first step is to assemble a team of professionals to guide you to success. Most small businesses need an attorney, banker, and CPA from day one. Identify professionals who have experience working with healthcare practitioners and understand their unique needs. Place an emphasis on the professional’s ability to speak clearly and concisely – because advice you can’t understand is worthless. Don’t overpay, but remember that the hundreds you save by filing your own business formation papers with LegalZoom, or your own business taxes with TurboTax, may cost you thousands in the long run. […] To finish reading this article, visit the Texas Journal of Chiropractic.

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| Read Time: 2 minutes | Estate Planning

Community Property Basics

As you may know, Texas is a community property state. This means that Texas law differentiates between community property, which belongs to both spouses equally, and separate property, which belongs to one spouse. In general, property acquired during marriage is community property. Separate property consists of anything one spouse owned before marriage, property acquired by one spouse by gift or inheritance, and recoveries for personal injuries sustained by one spouse (except for a recovery for loss of earning capacity during marriage). DISTINGUISHING COMMUNITY PROPERTY FROM SEPARATE PROPERTY CAN BE DIFFICULT. In theory, the distinction is easy to draw. But in practice, things often get more complicated. For example, if you owned a duplex rental home before marriage, it would remain your separate property during marriage. However, rental income generated by the duplex during marriage would be community property. And if you sold the duplex, the proceeds would remain your separate property…unless you commingled the proceeds with community property and rendered them untraceable. The same goes for inherited property, which remains the separate property of one spouse unless commingled with community property. Things get especially complicated when a couple has acquired property while domiciled in other states with different marital property laws. These “wrinkles” make it easy to unknowingly convert separate property to community property. DIFFERENTIATING BETWEEN COMMUNITY AND SEPARATE PROPERTY IS VERY IMPORTANT FOR ESTATE PLANNING PURPOSES BECAUSE IT DETERMINES HOW PROPERTY IS DISTRIBUTED AT DEATH. In Texas, if Spouse A dies intestate (without a will) and is survived by Spouse B and their children, all of Spouse A’s community property is distributed to Spouse B. But if Spouse A had children from a previous marriage, then the community property would be split, with one-half going to Spouse B and one-half going to Spouse A’s children (but Spouse B would have the right to use the homestead residence for life). Separate property, on the other hand, is treated differently. Spouse A’s separate personal property would pass one-third to Spouse B and two-thirds to any children. Separate real property would pass to any children, but Spouse B would have the rights to one-third of the real property for life. However, it is important to remember that these rules merely specify what happens when a person dies intestate. A thoughtful estate plan allows you to specify exactly how, when, and to whom you want your property distributed. IF ALL THIS SOUNDS COMPLICATED, THAT’S BECAUSE IT IS. As you can see, even these relatively simple concepts can become exceedingly complex when spouses move between states, have children of separate marriages, etc. This article is not intended to serve as a definitive guide to Texas community property laws. The purpose here is merely to underscore the importance of having an estate plan. Failure to plan can result in some very complicated, and often very undesirable, outcomes. To learn more about Texas community property laws or the benefits of estate planning, browse our archives, or contact an attorney.

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| Read Time: 2 minutes | Business Law

What’s an Operating Agreement and Why do I Need One?

One of an entrepreneur’s first legal decisions often is deciding to create a limited liability company (“LLC”). This can be a great decision as it helps provide a limitation on the entrepreneur’s personal liability. But filing the paperwork to create an LLC is the beginning of the formation process, not the end. In order to preserve the limited liability an LLC offers, it must be operated as a wholly separate entity from its individual owners (called “members”) and rules must be followed – the LLC needs to be properly funded, company transactions (including distributions) need to be documented, company funds need to be kept separate, and the powers of the individuals running the LLC need to be defined, among other things. WHILE THIS MIGHT SOUND OVERWHELMING, MUCH OF IT CAN BE ADDRESSED THROUGH A GOOD LLC OPERATING AGREEMENT. An operating agreement serves as the internal rules for the LLC. A well-drafted operating agreement can: Document the members’ initial contributions; Establish the management authority of the LLC’s members or managers; Define how distributions are made; Specify the LLC’s rules for using a bank account; Define how meetings are conducted; Impose duties on members and managers, give rights to members; Address what happens when a member wants to sell their interest in the LLC; and more! In other words, a lot can be accomplished in an operating agreement! IN A NUTSHELL, AN OPERATING AGREEMENT SERVES AS A GUIDE TO MEMBERS AND MANAGERS OF THE LLC WHEN THEY’RE MAKING THE “BIG DECISIONS” AND IT HELPS PROTECT THE LIMITED LIABILITY OF THE LLC WHEN THOSE DECISIONS ARE MADE. Is your LLC in need of an operating agreement? Is your existing operating agreement dated? Are you unsure of what’s even in your existing operating agreement? If so, our initial consultations are always free and we’re happy to help. Contact us today!

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| Read Time: 2 minutes | Estate Planning

Will or Trust? Or Both?

In general, estate plans are either will-based or trust-based. Both wills and trusts are powerful estate planning mechanisms (and each has its own advantages and disadvantages). BUT DOES IT EVER MAKE SENSE TO HAVE BOTH A WILL AND TRUST IN YOUR ESTATE PLAN? THE ANSWER IS…YES. Our trust-based estate plan packages always include a “pour-over” will to provide for the distribution of any assets inadvertently excluded from the living trust. In other words, the pour-over will acts as a backstop that can be used in the event certain assets are accidentally omitted from the trust. This allows the client to rest easy, knowing that all of his or her property will be properly distributed. Also, sometimes a will creates a trust after probate. These kinds of trusts, which arise from a will and become effective when the testator dies, are referred to as “testamentary trusts.” Testamentary trusts are often created to care for young children because minors cannot directly receive substantial gifts. A testamentary trust allows the testator to leave a gift to a minor child and appoint a trustee to manage the trust until the minor becomes old enough to handle that responsibility him or herself. ONE OF THE MOST FUNDAMENTAL ESTATE PLANNING DECISIONS IS WHETHER TO MAKE A WILL OR A LIVING TRUST. But it is important to remember that trust-based plans should also include a will, and wills can create testamentary trusts. Does the terminology confuse you? Don’t worry – you are not alone. To learn more, visit the estate planning section of our web site, or contact an attorney today.

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