Anna represents both plaintiffs and defendants in a wide range of commercial cases. She focuses her practice on tort & product liability, high-stakes civil litigation, complex business disputes, and investigations. After working in private practice for more than a decade, including as a Maslon partner, Anna dedicated several years to public service as a prosecutor in the Hennepin County Attorney's Office in Minneapolis. In that role, she managed a dynamic caseload that included homicide, sexual assault, financial crimes, and drug and property cases through all stages of prosecution. She subsequently managed litigation in house as senior legal counsel for a large pharmacy benefit manager.

Terri, a business attorney and mediator, focuses her practice on M&A, restructurings and shareholder business divorces, and mediation of commercial disputes. As a deal lawyer, rather than a litigator, she is unique among mediators because she brings her many years of experience negotiating deals to the mediation table—along with her trademark high energy, active listening skills, creativity, and pragmatic approach.

To learn more, see Minnesota Lawyer: Top Women in Law.

Closely held companies are particularly vulnerable in such scenarios as they often have no trading market for their shares, no independent board, and often no clear separation between the roles of owner, employee, and manager. Owners who become unhappy cannot simply sell into the market and walk away. The same people frequently draw a salary, set strategy, and share in profits, so a single disagreement can simultaneously threaten their income, career, and investment.

Minnesota law recognizes this reality: Under the Minnesota Business Corporation Act (the "Corporations Act"), shareholders in a closely held corporation owe one another a heightened duty to act in an "honest, fair, and reasonable manner," and courts measure conduct against the "reasonable expectations" of the owners as they existed at the outset and developed over time (Minn. Stat. § 302A.751). Similarly, members of a Minnesota limited liability company ("LLC"), under Minnesota’s Revised Uniform Limited Liability Company Act (the "LLC Act"), owe one another a good-faith-and-fair-dealing obligation measured against the operating agreement, and owe the company a duty of loyalty and care (unless otherwise eliminated). (Minn. Stat. § 322C.0409, subds. 2-4.)

These standards cut both ways. They protect the minority owner who is squeezed out, while rewarding owners who take the time to write their expectations down—because written agreements in corporations are presumed to reflect those reasonable expectations (see Minn. Stat. § 302A.751) and members in LLCs are deemed to have assented to the written operating agreement.

The good news is that many of these disputes are preventable. A little planning at the beginning of a business relationship is often far less expensive than litigating that relationship years later. In this article, we share strategies related to the issues we see most often, as well as practical drafting tips to help you prevent each one from derailing your business later.

1. Carefully consider how you bring in other owners (equity is not the only option).

Business owners often treat equity as the default solution for incentivizing employees, advisors, consultants, and investors. In reality, ownership is only one option, and it is frequently the wrong one. Owners not only have the right to share in a company’s profits and losses or receive dividends or distributions, but they may also carry voting rights, fiduciary protections, statutory rights to inspect company books and records, and, in Minnesota, the ability to sue for a fair-value buyout if they later feel mistreated (See Minn. Stat. §§ 302A.751 and 322C.0701). Adding an owner is typically much easier than removing one.

Before issuing ownership interests, consider whether a cash bonus, a profit-sharing arrangement, phantom equity, or stock appreciation rights can accomplish the same objective. Phantom equity and stock appreciation rights are particularly attractive to closely held companies worried that a new minority owner could create friction at a critical moment, such as a sale, because they provide key employees with a real financial stake in the company’s success without handing over actual stock or voting or inspection rights. Phantom equity is simply a contractual promise to pay a future bonus measured by the value of a stated number of shares; a stock appreciation right pays only the increase in value over time. These arrangements do require careful attention to cash flow—since the company must be able to fund the payout when it comes due—as well as periodic valuations and compliance with deferred-compensation tax rules under Section 409A of the Internal Revenue Code. As such, they should be documented in a written plan.

For an LLC taxed as a partnership, another alternative is a profits interest—a grant that shares in future profits and appreciation but has no value if the company were liquidated the day it is issued. A profits interest can serve as a powerful incentive for a senior executive, but it carries a trap for rank-and-file employees: The recipient of partnership interest cannot also be a W-2 employee, so the grant converts salary into self-employment income, ends payroll withholding, and can cost the employee access to certain benefits. For a small grant, the administrative burden often exceeds the benefit.

The practical point is the same across all of these tools: Match the incentive to the objective, and reserve true equity for the people you actually intend to make long-term co-owners.

Drafting tips. If you do grant equity, never do it on a handshake or a casual line in an offer letter. Document the grant in a written agreement that addresses vesting, what happens to the equity if the relationship ends, and, critically, a mandatory repurchase right so the company or the other owners can buy the interest back when the employee leaves. Tie that repurchase to the buy-sell mechanics discussed in Strategy 5. The most common problematic scenario is the departed employee who is no longer contributing but still owns a piece of the company and retains a statutory right to demand its records.

2. Draft written governance documents and require that changes be agreed upon in writing.

Minnesota corporations and LLCs have substantial flexibility in structuring governance arrangements. (See Minn. Stat. §§ 302A.181 and 302A.457 (corporations) and Minn. Stat. § 322C.0110 (LLCs).) That flexibility is one of the chief advantages of the closely held form, but it can also create uncertainty if important agreements are never documented. The statute will fill the gaps with default rules—and as Strategy 3 explains, those defaults are frequently not what the owners assumed.

This issue is particularly important for LLCs. The LLC Act expressly provides that the operating agreement governs the relations among members, the rights and duties of managers and governors, the conduct of the company’s activities, and the means and conditions for amending the agreement itself (Minn. Stat. § 322C.0110). In other words, the statute supplies rules wherever the operating agreement does not. Although Minnesota’s LLC statute allows an operating agreement to be oral or implied (see Minn. Stat. § 322C.0110, subd. 17), the surest way to avoid litigation is to have an express written operating agreement that states that it is the sole such agreement of the company and can only be amended in writing signed by the parties.

The most common gaps we see are often basic questions the documents simply never answer: Who has authority to bind the company, and up to what dollar threshold? What vote is required for a major decision, and what counts as "major?" How is the agreement amended? What happens when an owner dies, divorces, or quits? When the documents are silent on these points, the disagreement becomes about the rules, not the business, and there is no referee in the room.

Drafting tips. Adopt comprehensive written governance documents (e.g., a shareholder control agreement and bylaws for a corporation, or an operating agreement for an LLC) and make sure they include these two clauses, which can be easy to overlook yet potentially costly when missing:

• An integration clause stating that the written documents constitute the parties’ entire agreement and supersede all prior oral or written understandings, so a partner cannot later claim that a lunchtime conversation modified the deal.
• An amendment clause requiring that any change to the document be made only by a signed writing approved by a specified vote of the owners (and/or, if required, board members), and that the document may not be amended or modified by oral agreements or course of conduct. Both corporations and LLCs are able to authorize such amendment without having a formal meeting via a written action of its managing parties (see 302A.239, 322C.0407).

A few extra pages on the front end can save significant time and expense later.

3. Limit voting rights for passive investors and clearly define who makes major decisions.

Many owners assume voting power automatically follows ownership percentage, but that is not always true, and the default rules may surprise you. A Minnesota company may establish different classes or series of equity with full, partial, or no voting rights, so long as the terms are set out in—or authorized by—the articles and terms provided in the governance documents to alter from the default assumption of voting and financial rights. (See Minn. Stat. §§ 302A.401, 322C.0110, and 322C.0407.) If the articles are silent, however, all equity is deemed to be a single class of voting common equity with equal rights in accordance with their ownership percentages (pro rata). (See id.)

By default, shares are the unit of ownership in a corporation, and economic and voting rights are allocated pro rata according to the number of shares owned. By contrast, LLC members’ rights are shared equally per capita, meaning that a member who contributed 90% of the capital and a member who contributed 10% would, by default, each have one equal vote, and the 10% member could veto many corporate actions.

However, the Corporations Act and the LLC Act both allow the articles and governance documents to deviate from the default rules. So LLCs that want voting power to track ownership, and corporations that do not, must say so in the applicable governance documents. In an LLC, one clean way to achieve distribution-weighted voting is to designate the company as board-managed: In a board-managed LLC, the statute provides by default that each member possesses voting power in proportion to the member’s distribution interest. (Minn. Stat. § 322C.0407, subd. 4, cl. (17).) By contrast, the member-managed and manager-managed defaults give each member equal (per capita) rights, so an LLC using either of those structures that wants voting to track ownership must instead provide for it directly in the operating agreement.

Not every investor needs the same level of control. Governing documents should clearly identify which decisions require owner approval and which may be delegated to management. Many disputes arise over disagreement about who the decision-makers are, and not necessarily the decision itself.

Drafting tips. Build a deliberate allocation of control rather than accepting the defaults:

• Use share classes or membership classes to separate economic rights from control. A passive investor can hold non-voting or limited voting interests that still carry full economic participation and, if appropriate, a preferred return. However, if the company is taxed as an S corporation, you can have only one class of equity (voting and non-voting classes are OK).
• Define "major decisions" by an enumerated list—such as issuing new equity, incurring debt above a threshold, selling the company, approving related-party transactions, amending the governing documents, etc.—and specify the vote each requires (majority (50%), supermajority (higher percentage, such as 75%), or unanimous (100%)). Delegate everything else to the management team so the business can run.
• Calibrate supermajority and protective provisions carefully. A supermajority or unanimity requirement protects a minority owner from being steamrolled, but it also gives minority owners a veto right, and a veto in the wrong hands is how deadlocks are born. (See Strategy 4.) A common compromise is to give a minority investor a narrow set of "protective provisions"—veto rights over a short list of fundamental actions that could harm their investment (e.g., dilution, a change in the business, or a sale below a floor)—while leaving ordinary operations to majority or management control. However, these protective provisions still limit the operation of the company and decision-making abilities of the majority owners and the management team, so these rights should be narrowly tailored (and avoided if possible).

4. Avoid even numbers and, if deadlocks cannot be avoided, establish procedures in the governing documents to break them without expensive litigation.

Deadlocks are among the most common and potentially damaging governance problems in closely held businesses, because the structures owners adopt for fairness (equal ownership, unanimity requirements, or mirror-image boards) are the very structures that produce operational paralysis. Although Minnesota law provides remedies in certain situations, including judicial remedies under Minnesota Statutes Section 302A.751 (corporations) and Minnesota Statutes Sections 322C.0701 and 322C.0702 (LLCs), litigation is rarely anyone’s preferred solution.

A court can dissolve the company, order one owner to buy out the other(s) at a judicially determined fair value, or fashion other equitable relief—but only after an expensive (and often long) lawsuit on terms the owners no longer control, and decided by a judge unlikely to have business experience. For a corporation, a court may even order a buyout on motion, and it will use the price and terms set in the company’s own buy-sell or shareholder control agreement unless it finds them unreasonable. (Minn. Stat. § 302A.751.) That is a powerful reason to set those terms yourselves, in advance.

If possible, you should avoid equal ownership and voting structures in the first place: A 51%/49% ownership split, an odd number of directors, or a tie-breaking director can prevent the problem entirely. If a 50/50 or veto structure is unavoidable, the governing documents should contain a pre-agreed mechanism to break the tie before it reaches a courtroom. Common tools include:

• Escalation and mediation. Require that a disputed major decision first go to the owners’ senior representatives (or a neutral mediator) for a defined period before any more drastic remedy is available. This is the lowest-cost mechanism and often resolves the matter without anyone exiting.
• A neutral tie-breaker. Provide for a casting of votes, an independent director, or a pre-named third party (e.g., an industry expert or the company’s accountant) to decide a defined category of deadlocked issues.
• Buy-sell/"shotgun" provisions. A buy-sell triggered by deadlock removes one owner from the business. In the classic "Russian roulette" or "Texas shoot-out" structure, one owner names a single price; the other owner then chooses whether to buy at that price or sell at that price. Because the initiator does not know which side of the deal they will end up on, the mechanism is designed to discipline them into naming a fair price. Variations include sealed-bid auctions and appraisal-driven floors.

Drafting tips. A shotgun buy-sell is elegant but dangerous when the owners are not evenly matched. If one owner has far deeper pockets or a much larger stake, that owner can name an artificially low price knowing the other cannot afford to buy (or sell at a steep discount), forcing a cheap exit. Where resources are unequal, a put/call structure priced by an independent appraiser is usually more fair. Whatever mechanism you choose, add guardrails so the deadlock provision is not abused as a back-door exit:

• Limit the trigger to a short list of genuinely fundamental decisions, not every disagreement.
• Require a cooling-off or escalation period (and ideally mediation) before the buyout right can be invoked.
• Consider a lockup so the mechanism cannot be triggered in the company’s fragile early years.

5. Plan for shareholder exits and ownership transfers before they occur (including buy-sell rights, rights of first refusal, and permitted transfers).

Ownership in a company is a personal property right, and the property is freely transferable unless there are restrictions on transfers in the governing documents. Owners of closely held businesses generally want to know (and control) the parties with whom they are doing business and will include extensive transfer restrictions in their governance documents. Minnesota law generally permits transfer restrictions and buy-sell arrangements when properly drafted. (See Minn. Stat. § 302A.429 (corporations) and Minn. Stat. §§ 322C.0502–.0503 (LLCs).)

For corporations, a written restriction that is "not manifestly unreasonable" and is conspicuously noted or referenced on the stock certificate is considered valid and enforceable against the holder and any transferee. However, such restriction is ineffective against someone who buys without knowledge of it, so the mechanics of notice matter. (Minn. Stat. § 302A.429.) For LLCs, a transfer that violates a restriction in the operating agreement is ineffective as to anyone with notice of the restriction, and in any event a "bare" transferee receives only the right to distributions, not management rights or access to information. (Minn. Stat. § 322C.0502.) These statutes give owners the tools to control who joins the ownership group; the job is to use them.

A well-designed exit framework answers three questions in advance: when an owner can or must transfer, to whom, and at what price:

• Triggering events. A buy-sell typically fixes purchase-and-sale terms on events such as death, divorce, disability, termination of employment, bankruptcy, or an unresolved deadlock. Each trigger deserves thought—the price and terms appropriate for a "good leaver" who retires may differ from those for a "bad leaver" terminated for cause.
• Transfer controls. A right of first refusal requires a selling owner who has a bona fide third-party offer to first offer the interest to the company or the other owners on the same terms. A right of first offer requires the seller to offer to the insiders first, before shopping the interest, and does not require a third-party offer at all. Use one or the other, not both—the procedures overlap and stacking them only adds delay. But be aware that a right of first refusal can have a chilling effect: A serious buyer may be unwilling to spend time and diligence dollars knowing the insiders can swoop in and match. Pair these with permitted-transfer carve-outs (for example, transfers to a family trust for estate planning) so ordinary, non-threatening transfers are not bogged down.
• Valuation. Among the most important concepts in any buy-sell is how "price" will be determined. Fix the purchase price methodology at the outset in the governing documents or buy-sell agreement, when the parties are getting along and no one knows who will be buying or selling, and interests are therefore aligned. Common approaches include: (1) a fixed price updated periodically by agreement, (2) a formula (such as a multiple of trailing-12-month EBITDA), or (3) an appraisal. If using an appraisal, specify how the appraiser is chosen, the timeframe, who pays, and whether minority or lack-of-marketability discounts apply. Leaving valuation to be negotiated at the moment of exit guarantees a fight, because by then the parties’ interests are directly opposed.

Drafting tips. In addition to the drafting concepts noted above, companies typically include a purchase option, first for the company (as a redemption where the company buys the departing owner’s interest), and if the company does not elect to purchase the equity, then for the other owners, who would have a right to a cross-purchase. Generally the company should not be obligated to redeem the interests, unless the owners agree that the situation would support a mandatory buyout (e.g., in the event of death or disability). Buy-sells funded by life insurance are common, but the funding structure now requires extra care: In Connelly v. United States, 602 U.S. 257 (2024), the U.S. Supreme Court held that a corporation’s obligation to use life-insurance proceeds to redeem a deceased shareholder’s stock does not reduce the company’s value for federal estate-tax purposes—which can inflate the estate-tax value of the very shares being redeemed. Owners relying on company-owned life insurance to fund a redemption should revisit the structure with tax counsel and consider a cross-purchase alternative. Finally, set the buy-sell price and terms with care, because under Minnesota law a court will generally honor them in a later buyout dispute. (Minn. Stat. § 302A.751.)

6. Establish clear information-sharing practices and follow them consistently.

Many owner disputes begin when expectations about access to information are unclear. Some owners expect detailed financial statements every month; others expect updates only when major events occur. Problems arise when those expectations do not align, and an owner kept in the dark is an owner who starts to suspect the worst.

Minnesota law does not leave information rights entirely to the owners’ goodwill. In a corporation that is not publicly held, a shareholder has an absolute right, within 10 days of a written demand, to inspect and copy the share register and core company records—including up to three years of board and shareholder proceedings, articles and bylaws, financial statements, and any shareholder control agreement. Other records are made available on a showing of a "proper purpose" reasonably related to the person’s interest as a shareholder. (See Minn. Stat. § 302A.461.)

For LLCs, timing requirements are less rigid and the rules more vague as to the type of information that can be requested—and they differ by management structure. In a member-managed company, members may inspect records material to their rights, and the company must even furnish material information without a demand. In a manager- or board-managed company, a member must make a particularized written demand stating a proper purpose, to which the company must respond within 10 days. (See Minn. Stat. § 322C.0410.) These rights cannot be drafted away entirely. An operating agreement may not "unreasonably restrict" them, though reasonable confidentiality conditions are permitted. (Minn. Stat. §§ 322C.0110 and 322C.0410.) The lesson is that fulfilling information requests is not an optional courtesy, and refusing a legitimate one can itself become the basis for a claim. Alternatively, in an LLC, members who want more fulsome information rights (more similar to those under 302A) may negotiate them in the operating agreement.

Drafting tips. Rather than deciding information requests on an ad hoc basis, build a predictable process into the governing documents that reduces misunderstandings and prevents owners from claiming they were intentionally kept in the dark. Suggested steps include:

• Specifying what owners receive and how often—for example, annual audited or reviewed financials, quarterly management reports, and timely notice of defined "material events" (e.g., a financing, a major contract, litigation, or a sale discussion).
• Setting a standard procedure for additional requests, including a reasonable response window and a confidentiality undertaking for sensitive information.
• Applying the policy consistently to all owners. Selective disclosure, such as giving the insiders information that a minority owner is denied, is the kind of conduct that supports a claim for oppression or unfairly prejudicial conduct.

7. Address issues regarding capital raises up front.

Decide now how future capital needs will be met and what happens to an owner who cannot or will not participate. Ask: Will additional capital come as mandatory contributions, optional contributions, or loans? If a round dilutes a non-participating owner, say so explicitly, and consider whether owners get preemptive rights (i.e., the right to buy enough of any new issuance to maintain their percentage) and investors get anti-dilution protections. Owners are far more accepting of dilution they agreed to in writing than dilution that arrives as a surprise.

Drafting tip. Build the financing and preemptive-right provisions into the governing documents at formation, not when a deal is on the table.

8. Discuss owner’s rights in a sale transaction before they become the subject of a dispute.

As noted above, the decision on when to sell a company is usually a major decision requiring a higher threshold of owner approval. Thus, disagreement about whether and when to sell is a classic deadlock in disguise. There are two drafting tools to include in the governing documents that will align the owners in advance:

• A drag-along right lets the controlling owners require the others to join a third-party sale on the same terms. This prevents a holdout from blocking a deal and, by delivering 100% of the company, eliminates the minority discount a buyer would otherwise demand.
• A tag-along (co-sale) right is the minority’s counterpart: If the controlling owners sell, the minority may participate pro rata on the same terms.

These are typically negotiated together, with a minority owner accepting the drag-along in exchange for the tag-along, so that no one is forced into a deal they cannot exit or left stranded when others cash out.

Drafting tip. Build the drag-along and tag-along provisions into the governing documents ahead of time, when the parties are in agreement.

9. Be aware of how Minnesota statutes handle conflicted transactions.

Transactions involving an owner, family member, or affiliated business are inevitable in closely held companies, but can constitute a conflict of interest and violation under Minnesota law if not properly handled. They are also a frequent precursor to disputes. However, Minnesota law provides a statutory process to insulate the impacted parties from potential claims from the other owners.

For corporations, a director’s conflicting-interest transaction is not void or voidable if any one of three conditions is met: (1) the transaction was fair and reasonable to the corporation; (2) the material facts and the director’s interest were fully disclosed and the transaction was approved in good faith by disinterested shareholders (two-thirds of the disinterested voting power) or unanimously; or (3) those facts were disclosed and a majority of the disinterested directors approved it in good faith, with the interested director neither counted toward the quorum nor voting. (See Minn. Stat. § 302A.255.) The statute also imputes to a director the financial interests of close family members, so a "spouse’s company" transaction is treated as the director’s own. (Id.)

LLCs have a parallel framework. Members or managers owe duties of loyalty and care and a contractual obligation of good faith. A conflicting transaction can be defended as fair to the company and, most usefully, it can be authorized or ratified after full disclosure of all material facts to the disinterested decision-makers. (See Minn. Stat. §§ 322C.0409 and 322C.04091.)

The LLC Act expressly authorizes modification, elimination, and/or exculpation of fiduciary duties in the LLC’s operating agreement (see Minn. Stat. § 322C.0110), while corporations are not able to redefine or eliminate fiduciary duties—only exculpate and reallocate governance authority. (See Minn. Stat. §§ 302A.251 and 302A.457.)

Drafting tips. Translate those statutory safe harbors into a standing conflict-of-interest protocol so the company does not have to improvise under pressure. This protocol should require advance written disclosure of any interested transaction, approval by disinterested owners or directors, recusal of the interested party from the vote, and documentation of the disclosure and approval in the minutes. Additionally, as discussed above, both LLCs and corporations may consider limiting fiduciary duties to the extent possible under the Corporations Act and LLC Act in their respective governance documents to permit governors and directors, respectively, to take certain actions, such as competing against the business or partaking in related-party transactions, if the disinterested board, managers, officers, or equity holders are made aware and vote to allow it.

10. Family owned businesses need formal governance documents, too.

Familial relationships do not eliminate the potential for disagreement; indeed, the overlap between personal, ownership, and management roles can make disputes more likely and more complicated, especially as additional generations become involved in the business. Clear, formal, written governance documents help set expectations, define decision-making authority, and provide an agreed-upon framework for resolving issues early.

Conclusion

Businesses that draft their most important documents with an eye towards the preventable issues above minimize their risk of becoming embroiled in costly disputes later. Minnesota courts have repeatedly stepped in where a majority owner frustrated a minority owner’s reasonable expectations—ordering buyouts and other equitable relief under Minnesota Statutes Section 302A.751. (Lund as trustee of Revocable Tr. of Kim A. Lund v. Lund, 924 N.W.2d 274 (Minn. Ct. App. 2019); Gunderson v. All. of Computer Pros., Inc., 628 N.W.2d 173 (Minn. Ct. App. 2001); Pedro v. Pedro, 489 N.W.2d 798 (Minn. Ct. App. 1992).) But by the time a court is involved, relationships, and often the value of the business, have suffered.

Finally, avoid "setting and forgetting" governing documents. Ownership changes, financing rounds, management transitions, and acquisitions are all good opportunities to review these documents and confirm they still reflect the parties’ expectations. This matters under Minnesota law specifically: Because written agreements are presumed to reflect the owners’ reasonable expectations (Minn. Stat. § 302A.751, subd. 3a.), outdated documents can be worse than no documents at all.

Thoughtful governance planning, clear documentation, consistent communication, and a periodic review of the documents you already have can go a long way in preserving important relationships and enterprise value.

This article is for general informational purposes and does not constitute legal advice. Governance, transfer, and tax provisions should be tailored to the specific company and reviewed with counsel.

The summit is a complimentary half-day event for women business owners who want to grow their business or are looking to sell their company within the next few years.

Register here: Women’s Business Summit.

LOCATION

Maslon LLP
225 South Sixth Street
Minneapolis, MN 55402

AGENDA

1:30 p.m. | Registration & Networking

1:45-1:50 p.m. | Opening Remarks and Introductions

Nicole Middendorf, Wealth Advisor, Raymond James Financial Services; CEO, Prosperwell Financial

1:50-2:40 p.m. | Panel Discussion: Business Exit Strategies to Consider

Panel discussion moderated by Dyanne Ross-Hanson, with panelists Nicole Middendorf, Susan Markey, Katie Monger, and Jo Trahms.

• How early should you begin planning to sell your business?
• Exit/transition options, and the advantages/disadvantages of each
• What your company is worth, and ways to increase value prior to a sale
• Role of a CPA, attorney, wealth advisor, and investment banker during a transaction
• Best practices for women business owners
• Readiness planning
• Q&A

2:40–3:05 p.m.: Break: Refreshments, Networking, and Connecting with Vendors

3:05–3:55 p.m.: Roundtable Discussion: Your Top Questions Answered by Successful Women Business Owners

Panel discussion moderated by Dyanne Ross-Hanson, with panelists Hillary Spreizer, Jill Haspert, Ashley Hawks, and Kathryn Tunheim.

• Buying, selling, and growing your business
• What do you know now that you wish you knew then?
• Q&A

3:55–4 p.m.: Closing Remarks

4-5 p.m.: Networking Reception

"As a business owner myself, I’ve experienced firsthand the complexities and opportunities that come with launching, growing, and sustaining a company in Minnesota,” Matt said. “I'm eager to deepen my understanding of the broader economic landscape and to learn how other businesses across the state are adapting and thriving."

Matt is an accomplished attorney and seasoned entrepreneur who returned to private practice after a decade of successfully running his own business. As the principal co-founder and board chair of Bauhaus Brew Labs, Matt has personally walked in the shoes of business owners and has overcome many of the same challenges. He has a proven track record of founding, developing, and expanding a small business, and his experience honed his capabilities in business finance, commercial transactions, strategic planning, and regulatory issues.

Matt assists clients with corporate formation and governance issues; securities offerings for closely held businesses; commercial contracts, including purchase agreements, sales and distribution contracts, and lending instruments; and general outside counsel services, particularly on compliance issues and regulatory considerations for food, beverage, and emerging cannabis businesses in Minnesota.

The book delivers a comprehensive analysis of the legal framework governing business and commerce in Minnesota, from choosing the right business entity and understanding tax implications to resolving shareholder disputes and navigating secured transactions.

For more information or to order, go to LexisNexis Minnesota Business and Commercial Law.

Susan is ranked in Chambers USA among the top corporate/M&A attorneys in Minnesota. She represents clients in general corporate, taxation, and nonprofit matters, drawing from a diverse background in government, accounting, and law to serve as a holistic business advisor. Susan regularly counsels clients on mergers and acquisitions, business formation, joint ventures, and general corporate matters, and she frequently assists with tax controversies, audits, appeals, planning, and structuring, as well as researching tax law and drafting legal appeals and memoranda. Susan also serves on the Maslon board of directors.

Katie, chair of the Corporate & Securities Group, assists clients across a broad range of corporate and transactional legal needs. She has managed and negotiated complex mergers & acquisitions, corporate reorganizations, buy-sell agreements, and business succession agreements. Her expertise also includes negotiating, drafting, and revising commercial contracts, with particular focus on technology-related agreements. In addition, she ensures clients remain up to date and compliant on data retention, website terms of use, and website privacy policies.

Terri, a business attorney and mediator, focuses her practice on M&A, restructurings and shareholder business divorces, and mediation of commercial disputes. She currently serves as a senior counsel with Maslon.

Yujin advises clients on contract drafting and negotiation, compliance issues, and general corporate law. Her background in international trade informs her approach to common and uncommon business challenges and how to successfully manage them.

Jessica assists clients in general corporate law, nonprofit formation, contracts, and mergers and acquisitions. Prior to attending law school, Jessica earned her master’s degree from Georgetown University in art and museum studies, and gained valuable experience as a museum collections and exhibitions manager and as a grant writer.

Matthew is an accomplished attorney and seasoned entrepreneur who returned to private practice after a decade of successfully running his own business. As the principal co-founder and board chair of Bauhaus Brew Labs, Matt has personally walked in the shoes of business owners, honing his capabilities in business finance, commercial transactions, strategic planning, and regulatory issues.

Laura is a Corporate & Securities Group associate who collaborates with corporate clients to achieve their business goals while protecting their legal interests. Laura focuses on mergers and acquisitions, contract drafting and negotiation, and legal compliance. She has a passion for helping small business owners and finds that these relationships are the driving force behind her work.

The summit is a complimentary half-day event for women business owners. Susan will serve as a panelist for "Business Exit Strategies to Consider."

RSVP here: Women's Business Summit.

AGENDA

1:30 p.m. | Check in

1:45-1:50 p.m. | Opening Remarks & Introductions

1:50-2:40 p.m. | Panel 1: Business Exit Strategies to Consider

Panel discussion moderated by Dyanne Ross-Hanson, with panelists Nicole Middendorf, Susan Markey, and Katie Monger.

• How early should you begin planning?
• Exit/transition options: Advantages and disadvantages of each
• What’s my company worth and ways to increase value prior to a sale
• Role of a CPA, attorney, wealth advisor, and investment banker during a transaction
• What you need to do before the year is over for your business
• Your top questions answered

2:40-3:05 p.m. | Networking

3:05-3:55 p.m. | Panel 2: Your Questions Answered from Women Business Owners: Successful Business Owner Roundtable

Panel discussion moderated by Julie Keyes, with panelists Melanie Porter, Mary Nutting, Lori Bauer, and Hillary Spreizer.

• Buying, selling, and growing your business
• Ask your questions of women business owners
• What do you know now that you wish you knew then?

3:55-4:00 p.m. | Closing Remarks

4:00-5:00 p.m. | Networking with Refreshments

Matt earned his law degree, cum laude, at the University of St. Thomas School of Law and his bachelor's from Belmont University in Nashville.

"I am looking forward to learning more about Minnesota businesses, the challenges they face, and the issues that will shape the future of our state," Katie said. "I'm especially excited about the visits we will make to businesses throughout the state and the opportunity to talk with industry leaders."

Katie assists clients across a broad range of corporate and transactional legal needs. She has managed and negotiated complex mergers & acquisitions, corporate reorganizations, buy-sell agreements, and business succession agreements. Her expertise also includes negotiating, drafting, and revising a variety of commercial contracts, with particular focus on technology-related agreements. She ensures clients remain up to date and compliant on data retention, website terms of use, and website privacy policies, and she protects her clients' intellectual property interests in the areas of copyrights and trademark application and management.

Clients also rely on Katie's expertise in corporate governance issues; she frequently acts as outside general counsel, providing guidance on entity formation, operating agreements, shareholder control agreements, ownership disputes, employment disputes, and the drafting of company policies regarding communications, signing authority, spending authority, and related matters.

Susan will serve as a panelist for "Business Exit Strategies to Consider" and "Legal & Financial Strategies to Consider."

For more information or to register, write to Info@Maslon.com.

Susan represents clients in mergers and acquisitions, general corporate, taxation, and nonprofit matters. She draws from a diverse background in government, accounting, and law to serve as a holistic business advisor, and strongly believes that legal advice should be both easy to understand and practical.

A buy-sell agreement is an agreement that outlines what happens to an owner’s share in an entity when that owner desires to transfer shares upon their death or departure. Buy-sell agreements are frequently used by closely held corporations, LLCs, and partnerships to facilitate transitions in ownership. Connelly has far-reaching consequences for any company with a buy-sell agreement funded by life insurance.

A Tale of Two Brothers

Two brothers—Michael and Thomas Connelly—were the only shareholders in a small building supply corporation. Because they wanted the company to stay in the family upon either of their deaths, they entered into a buy-sell agreement requiring the company to buy the shares of the first brother to die if the surviving brother declined to purchase them. The company obtained a life insurance policy on each brother to make sure it would have enough money to satisfy this requirement. 

When Michael died, Thomas elected not to purchase Michael’s shares, triggering the company’s purchase obligation. The company used the $3 million in life insurance proceeds it received as a result of Michael’s death to buy the shares. As executor of Michael’s estate, Thomas was required to file a federal estate tax return detailing the value of Michael’s assets, including his shares in the company. Thomas engaged a third party who determined that Michael’s shares in the company were worth $3 million; however, the third party excluded the life insurance proceeds when determining the fair market value of the company. Thomas reported the $3 million value on the estate tax return, relying on the Eleventh Circuit’s decision in Estate of Blount, which held that insurance proceeds should not be included in the value of a corporation when they are “offset by an obligation to pay those proceeds to the estate in a stock buyout,” 428 F.3d 1338, 1345.  

The IRS disagreed with Thomas’s reasoning. During its audit of Michael’s estate, the IRS contended that the total valuation of the company should include the life insurance proceeds—thereby making the total value of the company $6.86 million, rather than $3.86 million, when Michael died. Accordingly, the IRS said that Michael’s estate should have paid higher taxes based on the higher valuation of Michael’s stock. The estate paid the taxes and then sued the IRS for a refund. 

Supreme Court: Life Insurance Counts in Estate Tax Valuation

The case made it all the way to the Supreme Court. The dispute focused on the inclusion of the life insurance proceeds as part of the company’s total fair market value for purposes of the estate tax. The Supreme Court sided with the IRS in a unanimous decision, holding that life insurance proceeds that will be used to redeem a decedent’s shares must be counted when calculating the value of those shares for estate tax purposes. The court emphasized that the point of the estate tax is to assess the value of Michael’s shares at the time he died—even if the value would be drastically different a day later, once the life insurance proceeds were paid out.

What It Means for Your Business

A better understanding of the consequences of their buy-sell agreement may have prevented years of litigation for the Connelly family. There were alternate options available. The brothers could have purchased life insurance policies on each other, rather than having the company take out the life insurance. This structure, known as a cross-purchase agreement, would have placed the life insurance proceeds outside the company’s assets, potentially reducing the estate tax burden. (It is important to note that a cross-purchase agreement may have had different tax consequences for the brothers personally, but would have avoided a situation where the company experienced a stark increase in valuation.)

Connelly affects any company—including corporations, LLCs, and partnerships—with a buy-sell agreement funded by life insurance. Companies utilizing buy-sell agreements funded by life insurance should promptly review these agreements to ensure the best possible arrangement is in place to accomplish their owners’ goals and minimize tax liability.

We Can Help

Each estate plan is unique to the individual’s circumstances and wishes. If you own shares in a closely held company, it is imperative that you fully understand the tax implications of both your business succession plan and estate plan. Maslon’s experienced Estate Planning and Corporate groups can work together to help you navigate the complexities of estate planning for closely held businesses to ensure your wishes are met and tax liabilities are minimized.

For more information or to register, go to Minnesota CLE: How to Draft Better Contracts.

Terri Krivosha is a former partner and now senior counsel and chair of professional development at Maslon. A business attorney and mediator, she enjoys nothing more than helping shareholders, family business owners, and companies buy or sell businesses or solve their legal problems—the more complicated, the better. As a deal lawyer, rather than a litigator, she is unique among mediators because she brings her many years of experience negotiating deals to the mediation table.

The seminar features two presentations:

• Demystifying the Deal: Business owners may be unfamiliar with the transaction process or simply looking to sharpen their understanding. This panel will provide a roadmap of what should happen before, during, and after the sale of a company.
• Five Ways to Maximize the Value of Your Business for Sale: Owners—and potentially their family members, co-investors, and other key stakeholders—know better than anyone what it has taken to grow their business and the impact that its sale would have on their future. Panelists describe how to help ensure a positive outcome.

To register for the event, go to M&A Seminar on Preparing Your Company for Sale.

Susan Markey, a partner and chair of Maslon's Corporate & Securities Group, represents clients in mergers and acquisitions, general corporate, taxation, and nonprofit matters. She draws from a diverse background in government, accounting, and law to serve as a holistic business advisor, and strongly believes that legal advice should be both easy to understand and practical.

Evan Berquist is a partner in Maslon's Corporate & Securities Group focusing on mergers and acquisitions, strategic financing transactions, and general corporate and commercial matters. He has a decade of experience in private practice, most recently at an AmLaw100 firm, managing both domestic and international transactions for a wide range of clients.

Katie Eisler, a Corporate & Securities Group partner, manages and negotiates complex mergers & acquisitions, corporate reorganizations, buy-sell agreements, and business succession agreements. Her expertise also includes negotiating, drafting, and revising a variety of commercial contracts, with particular focus on technology-related agreements.

Terri Krivosha is a former partner and now senior counsel and chair of professional development at Maslon. A business attorney and mediator, she enjoys nothing more than helping shareholders, family business owners, and companies buy or sell businesses or solve their legal problems—the more complicated, the better. Terri loves helping clients and parties to a mediation resolve conflict.

For more information or to register, go to: Strafford: Structuring Acquisitions of Family-Owned Businesses.

Terri, a business attorney and mediator, helps shareholders, family business owners, and companies buy or sell businesses or solve their legal problems. Whether guiding shareholders through a company split, managing a large merger/acquisition for a buyer or a seller, representing family members or business partners in the sale of a long-held business, or helping a company restructure to better align business and goals, Terri brings a time-tested sense of which approaches work and which do not. In her mediation work, Terri brings her many years of experience negotiating deals to the table—along with her high energy, active listening skills, creativity, and pragmatic approach. View her mediation bio here.

For more information or to register, go to: Minnesota CLE 2023 Business Law Institute.

Terri, a business attorney and mediator, helps shareholders, family business owners, and companies buy or sell businesses or solve their legal problems. Whether guiding shareholders through a company split, managing a large merger/acquisition for a buyer or a seller, representing family members or business partners in the sale of a long-held business, or helping a company restructure to better align business and goals, Terri brings a time-tested sense of which approaches work and which do not. In her mediation work, Terri brings her many years of experience negotiating deals to the table—along with her high energy, active listening skills, creativity, and pragmatic approach. View her mediation bio here.

Terri and Susan team up for "Preventing Member Conflicts Under Chapter 322C: Drafting Challenges," in which they and Mitchell Hamline law professor Daniel Kleinberger discuss how transactional attorneys can help business owners plan for and prevent future disputes on the front end under Chapter 322C.

In addition, Terri presents "Negotiating Resolutions to Ownership Disputes Like a Pro to Avoid Litigation." In this session, she describes how to identify the questions your client is not asking (but should be) in a shareholder dispute, best practices for negotiating difficult issues, and how to identify themes in shareholder disputes that will help resolve the matter without litigation.

For more information or to register, go to Minnesota CLE: Ownership Disputes in Closely Held Businesses.

Terri, a business attorney and mediator, helps shareholders, family business owners, and companies buy or sell businesses or solve their legal problems. Whether guiding shareholders through a company split, managing a large merger/acquisition for a buyer or a seller, representing family members or business partners in the sale of a long-held business, or helping a company restructure to better align business and goals, Terri brings a time-tested sense of which approaches work and which do not. In her mediation work, Terri brings her many years of experience negotiating deals to the table—along with her high energy, active listening skills, creativity, and pragmatic approach. View her mediation bio here.

Susan represents clients in general corporate, taxation, and nonprofit matters. She draws from a diverse background in government, accounting, and law to serve as a holistic business advisor, and strongly believes that tax and corporate advice should be both easy to understand and practical. Susan assists clients with a wide array of tax issues, including tax controversies, audits, appeals, planning, and structuring, as well as researching tax law, drafting legal appeals, and memoranda. In addition to her tax practice, Susan counsels clients on mergers and acquisitions, business formation, joint ventures, and general corporate matters, while leveraging her tax background to help guide them toward profitable solutions.

For more information or to register, go to MSBA: Settling Disputes Through Early Mediation.

Terri, a business attorney and mediator, helps shareholders, family business owners, and companies buy or sell businesses or solve complex legal problems. Whether guiding shareholders through a company split, managing a large merger/acquisition for a buyer or a seller, representing family members or business partners in the sale of a long-held business, or helping a company restructure to better align business and goals, Terri brings a time-tested sense of which approaches work and which do not. In her mediation work, Terri brings her many years of experience negotiating deals to the table—along with her high energy, active listening skills, creativity, and pragmatic approach. View her mediation bio here.

Melissa is an employment and business litigation attorney who enjoys working with clients to protect and grow their business in a competitive marketplace. She focuses her practice on the full spectrum of employment counseling and litigation matters in addition to business disputes involving non-competition and non-solicitation agreements, trade secrets, business contracts and torts, and unfair competition and trade practices. She serves on the board of the Minnesota Infinity Project, an organization focused on gender disparity on the bench throughout the Eighth Circuit, and was appointed in 2019 to the state Commission on Judicial Selection.

For more information or to register, go to Minnesota CLE: Advanced M&A

Terri, a business attorney and mediator, helps shareholders, family business owners, and companies buy or sell businesses or solve their legal problems—the more complicated, the better. Whether guiding shareholders through a company split, managing a large merger/acquisition for a buyer or a seller, representing family members or business partners in the sale of a long-held business, or helping a company restructure to better align business and goals, Terri brings a time-tested sense of which approaches work and which do not. In her mediation work, Terri brings her many years of experience negotiating deals to the table—along with her high energy, active listening skills, creativity, and pragmatic approach. View her mediation bio here.

Susan represents clients in general corporate, taxation, and nonprofit matters. She draws from a diverse background in government, accounting, and law to serve as a holistic business advisor, and strongly believes that tax and corporate advice should be both easy to understand and practical. Susan assists clients with a wide array of tax issues, including tax controversies, audits, appeals, planning, and structuring, as well as researching tax law, drafting legal appeals, and memoranda. In addition to her tax practice, Susan counsels clients on mergers and acquisitions, business formation, joint ventures, and general corporate matters, while leveraging her tax background to help guide them toward profitable solutions.

For more information or to register, go to Minnesota CLE: Key Lessons for Complex Business Transactions

Susan represents clients in general corporate, taxation, and nonprofit matters. She draws from a diverse background in government, accounting, and law to serve as a holistic business advisor, and strongly believes that tax and corporate advice should be both easy to understand and practical. Susan assists clients with a wide array of tax issues, including tax controversies, audits, appeals, planning, and structuring, as well as researching tax law, drafting legal appeals, and memoranda. In addition to her tax practice, Susan counsels clients on mergers and acquisitions, business formation, joint ventures, and general corporate matters, while leveraging her tax background to help guide them toward profitable solutions.

Brad regularly represents manufacturers, contractors, technology, entertainment, and retail businesses in venture formations, raising capital, corporate finance, mergers & acquisitions, public reporting and general corporate matters. He has a diverse client base and enjoys working with businesses at different points of their life cycles. Brad works with entrepreneurs and dynamic startups to develop scalable business models and corporate structures for growth and raising capital. He also works with established businesses to raise capital in the private and capital markets, continue to grow organically and through strategic acquisitions, and to realize exit events.

For more information or to register, go to ALI-CLE: Structuring the Sale of a Business: Transaction Tips from the Trenches

Terri, a business attorney and mediator, enjoys nothing more than helping shareholders, family business owners, and companies buy or sell businesses or solve their legal problems—the more complicated, the better. Whether guiding shareholders through a company split, managing a large merger/acquisition for a buyer or a seller, representing family members or business partners in the sale of a long-held business, or helping a company restructure to better align business and goals, Terri brings a time-tested sense of which approaches work and which do not. In her mediation work, Terri brings her many years of experience negotiating deals to the table—along with her high energy, active listening skills, creativity, and pragmatic approach. View her mediation bio here.

Susan represents clients in general corporate, taxation, and nonprofit matters. She draws from a diverse background in government, accounting, and law to serve as a holistic business advisor, and strongly believes that tax and corporate advice should be both easy to understand and practical. Susan assists clients with a wide array of tax issues, including tax controversies, audits, appeals, planning, and structuring, as well as researching tax law, drafting legal appeals, and memoranda. In addition to her tax practice, Susan counsels clients on mergers and acquisitions, business formation, joint ventures, and general corporate matters, while leveraging her tax background to help guide them toward profitable solutions.

For more information or to register, go to: Minnesota CLE 2022 Business Law Institute.

Terri is passionate about helping businesses grow, succeed, and scale. As a strategic business attorney, she helps a vibrant network of entrepreneurial and dynamic businesses see the "forest through the trees." She works directly with the business people who lead organizations, providing general counsel advice that is not only prompt and pragmatic, but also customized to fit the stage of the client's business. She is exceptionally skilled at negotiating and drafting multiple kinds of contracts, strategic partnerships, and joint ventures; developing and implementing exit strategies; advising on selling or buying companies and raising capital to recapitalize businesses; and coaching clients on complex governance matters. In a testament to her distinguished career and profound impact in the community, Terri was named a 2021 Minnesota Icon by Finance & Commerce.

To answer a clear need in the marketplace for creative evaluative mediators who can assist counsel with dispute resolution, Terri has expanded the services she provides. As a qualified Rule 114 mediator, she brings her high energy, active listening skills, broad experience, creativity, and pragmatic approach to her mediation practice. View CV.

For more information or to register, go to: "Breaking Up Is Hard to Do: Navigating Business Separations Without Destroying the Business."

Terri is passionate about helping businesses grow, succeed, and scale. As a strategic business attorney, she helps a vibrant network of entrepreneurial and dynamic businesses see the "forest through the trees." She works directly with the business people who lead organizations, providing general counsel advice that is not only prompt and pragmatic, but also customized to fit the stage of the client's business. She is exceptionally skilled at negotiating and drafting multiple kinds of contracts, strategic partnerships, and joint ventures; developing and implementing exit strategies; advising on selling or buying companies and raising capital to recapitalize businesses; and coaching clients on complex governance matters. In a testament to her distinguished career and profound impact in the community, Terri was named a 2021 Minnesota Icon by Finance & Commerce.

To answer a clear need in the marketplace for creative evaluative mediators who can assist counsel with dispute resolution, Terri has expanded the services she provides. As a qualified Rule 114 mediator, she brings her high energy, active listening skills, broad experience, creativity, and pragmatic approach to her mediation practice. View CV.

The 60-minute CLE program will include participant breakout sessions to discuss two hypothetical cases and determine whether either should be mediated early—with conclusions shared through interactive polling.

The event is open to all. Register at: "Settling Disputes Through Early Mediation: A Framework for Success," Association of Corporate Counsel.

Terri is passionate about helping businesses grow, succeed, and scale. As a strategic business attorney, she helps a vibrant network of entrepreneurial and dynamic businesses see the "forest through the trees." She works directly with the business people who lead organizations, providing general counsel advice that is not only prompt and pragmatic, but also customized to fit the stage of the client's business. She is exceptionally skilled at negotiating and drafting multiple kinds of contracts, strategic partnerships, and joint ventures; developing and implementing exit strategies; advising on selling or buying companies and raising capital to recapitalize businesses; and coaching clients on complex governance matters.

To answer a clear need in the marketplace for creative evaluative mediators who can assist counsel with dispute resolution, Terri has expanded the services she provides. As a qualified Rule 114 mediator, she brings her high energy, active listening skills, broad experience, creativity, and pragmatic approach to her mediation practice. View CV.

Melissa is an employment and business litigation attorney who enjoys working with clients to protect and grow their business in a competitive marketplace. She focuses her practice on the full spectrum of employment counseling and litigation matters in addition to business disputes involving non-competition and non-solicitation agreements, trade secrets, business contracts and torts, and unfair competition and trade practices. Melissa also maintains a robust pro bono practice, primarily serving as counsel to the American Civil Liberties Union of Minnesota in litigation involving individual employment matters, constitutional rights, and government transparency.

Among his many points of advisement featured, Michael shares, "Sometimes people take control too far by not including enough flexibility for the beneficiaries. As a result, what seems like a reasonable provision in a trust today might make no sense some years down the road."

To read the full article, go to: Construction Magazine Network, "Protecting Valuable Assets from Outside Threats."

Michael's legal practice focuses on high-end estate and tax planning, estate and trust administration, charitable planning, and business succession planning. Michael helps his clients focus on what it is they really want to accomplish with their wealth. After assisting his clients in identifying their specific wealth planning goals, Michael works with them and their other professional advisors to develop and implement wealth transfer strategies that are consistent not only with their goals, but also with their cash flow needs and tolerance for risk.

It is this practical focus on the real-life impact of wealth transfer planning that distinguishes Michael's approach from that of the typical estate planning attorney. Beyond preparing legal documents, he also serves as his clients' wealth coach, personal CFO, professional pest, and skeptic-for-hire. Michael also provides his clients with access to his deep network of contacts, which often leads to solutions for many of life's little problems, even if they're completely unrelated to what you would normally think of as "estate planning."

To learn more or to register, go to: Minnesota CLE, Shareholder Disputes in Closely-Held Businesses.

Terri is passionate about helping businesses grow, succeed, and scale. As a strategic business attorney, she helps a vibrant network of entrepreneurial and dynamic businesses see the "forest through the trees."

Terri works directly with the business people who lead organizations, providing general counsel advice that is not only prompt and pragmatic, but also customized to fit the stage of the client's business. She is exceptionally skilled at negotiating and drafting multiple kinds of contracts, strategic partnerships, and joint ventures; developing and implementing exit strategies; advising on selling or buying companies and raising capital to recapitalize businesses; and coaching clients on complex governance matters. Terri works with clients in many industries, including manufacturing, technology, healthcare, consumer products, and professional services, bringing her experience in one industry to inform her advice in other industries.

• An Interim Final Rule ("Consolidated IFR") consolidating all of the rules applicable to PPP loans.
• An Interim Final Rule ("Second Draw IFR") on loans ("Second Draw PPP Loans") guaranteed by SBA to borrowers that previously received loans ("First Draw PPP Loans") under the PPP.

CONSOLIDATED IFR

The majority of the Consolidated IFR restates the previously released rules and guidance applicable to the PPP. However, the Consolidated IFR also clarifies the changes made to the PPP by the passage of the Economic Aid Act, as we highlighted in our previous legal alert: Coronavirus Relief Under the Consolidated Appropriations Act, 2021. Key changes made by the Economic Aid Act include deeming exchange-listed publicly held companies ineligible for PPP loans, deeming farmers and ranchers as eligible, and applying the "per location" employee headcount already applicable to restaurant and hotel businesses to certain news organizations.

SECOND DRAW PPP LOANS

Clarifications to Second Draw PPP Loans. Generally, Second Draw PPP Loans are subject to the same terms, conditions, and requirements as First Draw PPP Loans. However, borrowers seeking to obtain a Second Draw PPP Loan should be aware of several key considerations outlined in this alert. Supplementing the eligibility requirements in the Economic Aid Act (outlined in our previous legal alert: Coronavirus Relief Under the Consolidated Appropriations Act, 2021), the Second Draw IFR clarifies:

• For the requirement that an eligible borrower must have used (or will use) the "full amount" of the First Draw PPP Loan on or before the expected date on which the Second Draw PPP Loan is (or will be) disbursed, the Second Draw IFR clarifies the calculation of the "full amount" includes any increase on a First Draw PPP Loan made pursuant to the Economic Aid Act.
• For the requirement that an eligible borrower must have experienced a reduction in gross receipts of 25% or greater in at least one quarter in 2020 as compared to the corresponding quarter in 2019, the Second Draw IFR deems a borrower that was in business all four quarters of 2019 to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25% or greater in calendar year 2020 compared to calendar year 2019 if the borrower submits copies of its annual tax forms.
• The following entities are not eligible for a Second Draw PPP Loan: (a) any entity that previously received a Second Draw PPP Loan, and; (b) any entity that has permanently closed.
• Borrowers may use calendar year 2020 for calculating its payroll costs, in addition to calendar year 2019 and the twelve-month period prior to when the loan is made.
• A borrower that is a hotel or restaurant and also constitutes a seasonal business may calculate its average payroll costs based on the applicable methodology (i.e., by virtue of its status as a seasonal business), but is still eligible for the 3.5 multiplier applicable to hotel and restaurant businesses.
• Businesses that are part of a single corporate group may receive no more than $4,000,000 of Second Draw PPP Loans in the aggregate, which is less than the $20,000,000 maximum amount for corporate groups relating to First Draw PPP Loans.

Loans to Borrowers with Unresolved First Draw PPP Loans. If a lender submits an application for a guaranty of a Second Draw Loan for a borrower whose First Draw PPP Loan is under review (an "Unresolved Borrower"), the lender will not receive an SBA loan number until the issue related to the First Draw PPP Loan is resolved. SBA will set aside available appropriations to fund Second Draw PPP Loans applied for by Unresolved Borrowers.

Gross Receipts. "Gross receipts" for the purpose of calculating the revenue reduction is defined as all revenue in whatever form received or accrued (in accordance with the entity's accounting method) from whatever source, including the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered "total income" plus "cost of goods sold," and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms. Gross receipts do not include the following:

• taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees);
• proceeds from transactions between a concern and its domestic or foreign affiliates; and
• amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder, or customs broker.

All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.

If a borrower has acquired an affiliate or been acquired as an affiliate during 2020, gross receipts includes the receipts of the acquired or acquiring concern. In addition, the amount of any forgiven First Draw PPP Loan is not included toward the borrower's gross receipts.

Certifications. On the Second Draw PPP Loan application, an authorized representative of the borrower must make all of the certifications required to obtain a First Draw PPP Loan, except the certification that the borrower has not and will not receive another loan under the PPP is replaced with a certification that the borrower has not and will not receive another Second Draw PPP Loan. Importantly, this means that a borrower applying for a Second Draw PPP Loan will once again need to certify that current (presumably at the time of the Second Draw application) economic uncertainty makes the loan request necessary to support its ongoing operations.

In addition, the application will need to make additional certifications specific to Second Draw PPP Loans as required by the Economic Aid Act (e.g., it experienced a 25% reduction in gross receipts, it has received a First Draw PPP Loan, which has been or will be used by the date the Second Draw PPP Loan is disbursed). The new Second Draw applications are expected to be available very soon.

We Can Help

Please contact Maslon's Corporate & Securities Group if you have questions or need assistance applying for a loan under the revived Paycheck Protection Program.