Expert Interview Series: Nicholas Dobbek of Wild Law on the Common Legal Needs of Small Business Owners

Expert Interview Series: Nicholas Dobbek of Wild Law on the Common Legal Needs of Small Business Owners

Nicholas Dobbek is a lawyer with Wildeboer Dellelce LLP who uses legal insight and entrepreneurial instinct to serve as a trusted business law adviser to his clients.

We recently asked Nicholas about the common legal issues small business owners might run into, especially related to mergers and acquisitions. Here's what he had to say:

What area of law do you practice in most often with Wildeboer Dellelce? What's your specialty?

I practise mainly in the areas of corporate and commercial law, as well as securities law. Many of my clients are entrepreneurs who are growing their businesses, and they need help with a whole host of commercial legal issues including business structures, human resources, protection of their intellectual property, contractual relationships, raising capital and the list goes on. I also work with more established private and public companies to help them with more complex commercial contracts, mergers, acquisitions and divestitures, raising equity and debt, and (for public companies) stock exchange listing and public securities law compliance.

When would a small business owner look for services from a lawyer with your skills?

A small business owner should seek advice from a commercial lawyer right from the outset. Even at this early (and often cash-strapped) stage, the right lawyer can provide high value and cost-effective advice on the structure, organization, key legal issues and strategy of the business that can be critical to long-term success.

The right lawyer should continue to provide effective legal advice as a business grows and faces new challenges, and is particularly impactful when a business owner is contemplating transformational change. This would include raising capital, taking on debt, significantly expanding the business such as through acquisitions or selling the business itself.

What types of issues do your small business clients come to you with most often?

That's a difficult question to answer since there are so many legal issues that a small business owner faces. When getting a business off the ground, some of the more important issues are business organization, employment issues such as the hiring and termination of employees, intellectual property issues and the negotiation of contracts with key customers and suppliers. Quite often, clients are looking to raise capital for their business and need advice on that as well. Small business clients are often surprised to learn that securities laws apply to just about every type of equity financing - they think those laws only apply to public companies.

What are some of the major legal issues in the realm of mergers and acquisitions?

Mergers and acquisitions touch on many legal issues that are relevant to both the buyer and seller, and so it is important to obtain legal advice even where the acquisition is relatively small. But ultimately, I would say there are three key considerations:

1. understanding what you are buying, including all of the rights and obligations that will be inherited.
2. Allocating risk between the buyer and seller
3. and ensuring that the transaction is as tax efficient as possible.

Tax implications arising from the sale or purchase of a business are one of the key legal issues that all sellers and buyers should consider and prepare for well in advance. The ideal structure for the sale or purchase of a business will depend upon a number of factors and can have a significant impact on the after-tax proceeds to the seller and the tax credits/advantages available to the business after the buyer acquires it. Given this, obtaining tax advice as early as possible is recommended and can provide sufficient time for the seller and buyer to explore any tax planning opportunities that may be available. This is a great opportunity to create additional value for both the buyer and seller in a possible transaction.

What are the most common mistakes or oversights you see business owners making when they're in the process of buying a business?

One of the most common mistakes that buyers make is underestimating the time and scope of review that is required to fully understand the obligations that are being assumed when buying a business. Mergers and acquisitions touch on many legal issues and so it takes quite a bit of time and resources to complete fulsome investigations into all of the different areas. By way of an example, if recurring sales are an important part of the business being acquired, it will be important for the buyer to understand whether long-term supply contracts might be compromised due to the sale. As another example, it is important to understand the employment issues associated with the business, and the obligations that the buyer will be taking on.

By understanding these issues, the buyer will be in a better position to negotiate the acquisition and ensure that they are only acquiring the assets and liabilities that they bargained for and that other liabilities remain the responsibility of the seller. A commercial lawyer should be able to help a buyer identify and focus on areas of risk and help the buyer control for these risks through the purchase agreement.

What special considerations should small business owners make when they're in the process of selling their business? What are the most common oversights you see in this area?

There are a number of things that a seller can do when preparing to sell their business, but to sum it up - they should ensure that their business is in good order before getting into serious discussions with a potential buyer. A buyer will want to review all aspects of the business before the acquisition occurs and this review can occur quickly once discussions ramp up. Being prepared for this review, and anticipating and fixing any issues with the business before a potential buyer commences their review, can save everyone involved both time and money and can often put the seller in a better position when it comes time to negotiate the purchase agreement.

Steps that a seller can take include:

1. Exploring whether any personal tax-planning opportunities exist in connection with a sale, which has the potential to greatly increase the after-tax proceeds of the sale to the seller.
2. Ensuring that the company's financial statements and internal financial reporting framework is up to date and can be used to provide relevant financial information about a seller's business to a potential buyer.
3. Reviewing legal agreements to identify agreements that will be key to a potential buyer, and ensuring that the business has enforceable contracts in place with key suppliers and customers that won't be impacted by the sale of the business.
4. Understanding what third-party consents might be required, for example, from the seller's bank lender, the company's shareholders or any regulators or governmental bodies.
5. A review of the employees of the business to understand potential risks to an acquisition caused by human resources issues.
6. Reviewing the minute books and corporate records of the business to ensure that they are up to date.
7. Generally ensuring that relevant business and legal documents are organized and that copies can easily be delivered to the potential buyer - often documents are uploaded to an online data site that can be accessed by the potential buyer and their advisors, which can save time and money.

A commercial lawyer should be able to help a seller understand and prepare for the sale process, which will in turn help the seller negotiate a better purchase price and reduce risk.

A great summary of steps that a business owner can take when preparing to sell a business can be found here: Key Legal Issues and Considerations When Preparing to Sell a Business.

Why is it critical for business owners to make sure they have legal representation for any mergers and acquisitions? What's at stake?

Mergers and acquisitions touch on a number of legal issues and give rise to a number of risks, many of which will be unfamiliar to a small business owner since these issues don't normally arise in the ordinary course of running their business. Understanding the legal issues at play is fundamental to both the buyer and the seller and will inform how risk is allocated among the parties in the purchase agreement.

Having a trusted legal advisor with expertise in this area can make a huge difference and will ensure that the buyer or seller understand the legal risks and don't get more (or less) than they bargained for. In addition, having an experienced lawyer guide a business owner through the process of an acquisition or sale of a business can lead to a more efficient and cost-effective transaction and will help mitigate the stress associated with what for many business owners will be one of the most important events in the life-cycle of their business.

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