Articles Tagged with “New Jersey sale of business”

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In New Jersey, sale of a business is governed by the contract negotiated by the parties.  But what if the contract is unclear, or the parties don’t agree on what theContract-pen-thumb-300x225-80678-300x225 terms of an oral contract are?  In the case of Lee v. Lee, involving the sale of a restaurant and liquor license in Bergen County, the Appellate Division examined several bedrock principles of New Jersey business law, including oral contracts, the duty of good faith and fair dealing, and how parties are required to deal with each other.  The opinion offers good guidance for the behavior of the parties in  the sale of a business in New Jersey.


Mikyung Lee and Seoung Ju Bang orally agreed with Jung Lee to sell them a restaurant he owned in Fort Lee, together with its liquor license.  The purchase price was $892,000, with a $50,000 initial deposit, and then another $50,000 when the contract was signed, with the remainder to be paid over time.  The buyers paid the first deposit, but before a contact was signed, Jung Lee said he needed the second $50,000 deposit.  Believing him to be acting in good faith, they gave him the second deposit.  He promised to send a written contract with the terms they agreed on, which included having Lee’s company, Plan J. Inc., a part of the transfer because it held the liquor license.

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accounting-761599__180The Bulk Sales Act was enacted in 2007, expanding upon the prior bulk sales law previously codified in 1995.  This law requires the parties in a transaction to notify the New Jersey Division of Taxation regarding certain transfers of property so that the Division can determine if there are any outstanding tax liabilities which can be obtained as part of the sale of the property.

The bulk sales notice requirements generally apply to real property (land and/or buildings) which is owned by a business or which are income-producing.  For example, the following types of transactions are subject to Bulk Sales requirements: the sale of real estate used in any trade or business, full-time rental property, real estate owned by a business, transactions where a deed in lieu of foreclosure is being provided (where a lender is taking back income-producing, mortgaged property from a delinquent borrower), auction sales, and business assets such as patents, copyrights, equipment, leases, merchandise, or other inventory not being transferred in the normal course of business.  Generally, all transactions transferring business assets (other than in the regular course of business) are included.  A typical residential real estate transfer is not subject to Bulk Sales requirements.

When there is a Bulk Sales transfer, the buyer must advise the Division of Taxation of the scheduled transfer at least 10 days prior to the scheduled closing date with the submission of a C-9600 form.  The buyer completes this form because the buyer bears the risk of liability – meaning that if there are outstanding tax liabilities owed by the seller of the property, and no notice is provided to the Division regarding the sale, the buyer may become responsible for the amount owed.  As a result the Division of Taxation may institute a judgment or levy against the buyer’s property or seize the buyer’s assets.

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handshake.jpgEvery owner of a closely held small business should have an up to date buy-sell agreement.

A buy-sell agreement is a written agreement between business owners. The purpose of the agreement is to ensure that the current owners are protected from ending up owning a business with an unwanted partner (or shareholder). It restricts the owners’ rights to sell or transfer their interest in the business to a third party. The agreement dictates what will happen in the event of the death of an owner, the disability of an owner, the retirement of an owner, the withdrawal of an owner, the bankruptcy of an owner, the divorce of an owner, or one owner’s desire to sell her share of the business.

A buy-sell agreement is the most effective mechanism to ensure for: the smooth transfer of ownership of the business in the event of death, divorce, bankruptcy or retirement of one of its owners; or an agreed upon method for valuation of the business; payment terms and method of funding the payment for the business interest of one of the owners for the buyout of a departing owner; eliminating or minimizing disputes between owners who are retaining ownership and those leaving the business, or between owners and heirs of a deceased owner or other possible unwanted business partners; ensuring that the remaining owners retain control over who their future partners may be; and ensuring that upon the death or disability of an owner, their family is financially secure.

It is crucial that each year after a buy-sell agreement has been finalized and signed that the owners review certain key provisions of the agreement to ensure they still reflect their wishes and changed circumstances:

  1. The valuation formula – the owners should ensure that it continues to reflect the value of the business and their own intent;
  2. The effect of any changes in tax laws upon the terms of the agreement;
  3. The funding mechanisms of the agreement – regardless of the funding scheme contemplated, be it through insurance maintained by the business on the lives of the owners, or through payments over time from the earnings of the business, it is crucial to review and ensure that the funding will be available to effectuate the terms of the agreement;
  4. The structure of the agreement – a redemption agreement, a cross purchase or a hybrid; and
  5. The triggering event – while buy-sell agreements typically include various potential scenarios including death, divorce, disability, voluntary termination, involuntary termination or bankruptcy of an owner, it is important to consider the specific circumstances of the owners of the closely held business and ensure that each triggering event is addressed in a way that is satisfactory to all owner’s actual needs.
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    lottery ticket.jpgThere are steps which must be followed in a timely manner to obtain a New Jersey Lottery License and have a smooth transition during the purchase of a business.

    At least 45 days before closing, the seller of the New Jersey business must send a letter to the New Jersey Lottery district office. The addresses of the district offices can be found here. The letter must include information regarding the pending sale including the seller’s name, address, home phone number, cell phone number, and work phone number, as well as the buyer’s name, address, home phone number, work phones and cell phone number, and the anticipated closing date.

    Upon receipt of that letter, a New Jersey lottery agent will contact the buyer and the seller, and they will be required to meet with the lottery representative . The buyer must bring the following to this meeting:

      1. Temporary tax certificate;
      2. New Jersey limited liability company number (or corporate number);
      3. Federal Tax Identification number;
      4. If a liquor license is also being transferred, the liquor license number
      and a copy of the transfer application;
      5. A money order for $100.00 payable to “NJ State Lottery;”
      6. The contact information for a least three people to be included on the application;
      7. All people listed on application must go to meeting;
      8. $18.00 money order for each of the people listed on application made payable to NJ State Police;
      9. The buyer must already have opened a “lottery bank account” under the new company’s such as “New Business, LLC, Special Lottery Account,” and the buyer must bring a check from the bank account
      10. The social security number and driver’s license for all people on application.

    The Lottery Division will conduct a background check on all people listed on the application.
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