by Cátia Kossovsky,
Chair Corporate, Securities and Mergers & Acquisitions Practice Group
At some point, every company owner will consider how to grow or sell the company that he or she built. Hopefully, growth planning leads to increased revenues, operations, productivity, and creation of a larger footprint. While an exit strategy could lead to a sale for multiples of the company’s current value, giving the owner a nice payout.
Mergers and Acquisitions
Businesses looking to grow and continue operations will look to either raise capital through a sale of a portion of the company to investors, issuance of debt or going public through an IPO. Another way to grow a business could be through a merger with another company that is a competitor or has a complimentary line of business.
Owners looking to exit the business may sell to a larger competitor or someone with deeper pockets that wishes to enter the company’s line of business.
We assist our clients to reach those results by discussing their long-term plans. We then narrow those down to understand mid-term goals, and then again further down to identify short-term objectives. When designing the business structure for that client, we first assess the client’s immediate needs while taking the full long-term picture into consideration. Over time, we assist the client to build upon the initial business structure set-up as the need arises, or assist the client in correcting the trajectory as longer term direction changes.
Tax Treatment, Asset Liability Protection and Management Flexibility
Our main objective in creating the business structure is to assist the client achieve better tax treatment, asset liability protection, and management flexibility. All of these are important generally for any business to be successful. They are even more so for cannabis related businesses due to differences in various state laws and regulations and federal prohibition. One factor we take into consideration during strategic discussions with cannabis clients include understanding a client’s licensing and its respective transferability rights. This helps us to design a business structure that makes it easier for owners to eventually exit without interrupting the operations of the licensed entity. A second factor is to consider for marijuana clients, is separating activities that are subject to 280E tax implications from those that are not. This leads to measurable tax savings for the client. A third factor for cannabis clients, is the creation of separate lines of business that could generate additional revenue for the client. If these lines of business are properly constructed, they can be leveraged to further affect the client’s bottom line while also protecting the client’s liability exposure. When we take all of these factors into account coupled with the client’s desired end result, we are able to create a business structure that resourcefully protects the client from excessive tax burdens and legal risks while also creating a business that is attractive to potential exit or growth targets.
If you are interest in learning more or scheduling a strategic growth or exit planning meeting, contact me or your favorite HLG attorney. Our business structure team will happily help you visualize and implement your future goals into action, rendering your company better suited to reach your business objectives.