Speaker 1: What we're talking about today is the new model. The old model is bust your ass 70, 80 hours a week, look up to breathe, and then get right back to the grindstone. And there's people who are workaholics and they still work a lot. That's kind of the old school. Now, I'm not raising the flag and supporting the younger folks, pre-millennials and millennials that want to work from home and from the beach and only work four hours a month or whatever the book is. But it's somewhere in between. And I think we're starting to realize as human beings that it's not all about being in an office every waking hour of the day and weekends and all that stuff. And while there's no real achievable balance, you have to have some meaning and purpose in your life. If not, it's really quite worthless just to make more money and not do anything good with it.

Speaker 2: Yeah, absolutely.

Speaker 3: So when it comes to transactional law, did I say that right? Is it transactional law, right? So asset purchase agreement, lease, acquisition of a franchise. I mean, these are things that I want to kind of get into. I know we're going to run short on time. So, Keaton, where do you want to focus in on?

Speaker 4: Well, why don't we talk about the difference between buying a business as a whole and buying a business, just the assets of a business and the difference. You want to kind of go into an asset purchase agreement and the difference between the two?

Speaker 2: Absolutely. So your point, oh, you were asking me to do such. Yeah, sure. I thought I had been hogging the mic.

Speaker 4: I'll try them in.

Speaker 2: Okay, so Keaton really laid it out very clearly. There's two ways you can buy a business. You can buy the actual business, the actual legal entity. So let's just, for simplicity, call it a corporation to where you're buying the ownership interest of that corporation. Or you can buy just the assets that that corporation owns. And I will tell you, most of the time, regardless of which side of the transaction we're on, so whether we're representing the buyer or the seller, we usually fall in the asset purchase instead of the business purchase range. And the benefit in doing that, if you are the one actually buying the company, is you don't really want their baggage.

Speaker 3: I was going to say, it's got to be liabilities.

Speaker 2: There are liabilities, but even if you're buying the whole company, the corporation, in our excellent legal documents, we're going to make sure that there is language in there that is protecting that if any of those liabilities raise their ugly heads, that the seller will be, this is a fun legal word, indentify, which means we'll reimburse you for those expenses and damages and so forth.

Speaker 1: Is that for a certain amount of time or does that go on for perpetuity?

Speaker 2: That is negotiated, all right? For 60 days. When we're representing the buyer, we absolutely want it to go on forever. And if we're representing the seller, we're going to want to limit that as much as possible.

Speaker 1: How does, whether you do an asset purchase agreement or you buy the whole corporation, how does the aspect of blue sky come to play? In other words, the goodwill and all that of a company. If you're buying only the assets and you're going to use the same name because it's got a good reputation, and then you create another corporation and you still use the same website and the same company name and same branding, meaning you absorb their positive blue sky, could the argument be made then that you're liable for some of the things that that company might have done wrong in the past?

Speaker 2: You're going to definitely, if you're using the same name, you're definitely going to be brought up as a potential liable party until everything gets clarified. You're definitely getting sued. You're getting sued. But you have all the documentation that you need and evidence you're going to need to show, look, I didn't actually take ownership of the asset, not even the business, but even if we were talking about somebody buying the business, I didn't step in until here. And this happened two years before I was ever a party. And that's going to be a great support when you go into a litigious situation. But I'd like to point out that when you talk about using somebody's name, that's an intangible asset. It's not something that you may be able to see, but it is still something that you can purchase in an asset purchase agreement. So you have both your tangible, such as furniture, fixtures, equipment, and as well as your intangible, which could be the company's name or just the overall goodwill. You can buy that without actually buying the legal entity itself.

Speaker 1: I'm in marketing and have been for three decades. So for me, when I talk to clients and I find out they're buying out a competitor, I always say, let's make sure we get the domain name, let's make sure we get all their back client lists and all this other stuff. And a lot of business owners forget that. And then they buy the company and then they don't have access to the website. They don't have the contacts. They don't have the CRM, the client relationship manager, anything.

Speaker 2: Yeah, good point.

Speaker 3: I love it. You guys are talking at such a high level. I'm digging it all. Hardly anything, Blue Sky, I never even heard of that. I know what that is, right?

Speaker 1: Try to buy, well, a few years ago, I had a client buying a Harley Davidson dealership. And so there was the building, then there was the inventory, which wasn't all paid for yet. So it was a liability to Harley Corporate. And then there was several million dollars worth of Blue Sky because try to go find a Harley dealership that corporate will sell you, not gonna happen. So if you want one, you have to pay this premium.

Speaker 3: Well, just for the benefit of listeners like myself, can we get a definition of Blue Sky?

Speaker 2: So this is a marketing term, I believe. Classify this as a legal term.

Speaker 1: It wouldn't show up on a contract?

Speaker 2: It's not gonna show up on a contract.

Speaker 1: What does it mean conceptually?

Speaker 2: What would show up on the contract is goodwill. And that is a legal term, something that Howie had also mentioned. And that just, it's the reputation. Oh, reputation. Essentially, it's the reputation of someone. So you can go in and buy all the assets that, well, that doesn't make sense because Harley Davidson are their assets. But you could go in, let's just say, to a well-known company and buy all the assets. But if you don't buy the name, you're gonna build that business from scratch versus, hey, we also are buying into the people who know that we're called this particular title. So you're buying into the history of clients coming in and seeing the name and going, oh yeah, that's a good business. Versus, oh, they changed names, is that even the same business? Let's go somewhere else. Which kind of would bring us into the franchising topic.

Speaker 4: Yeah, absolutely. It's a great segue.

Speaker 2: It's a great segue, but I don't wanna get so spread out that we don't talk about the lease. So I'm just gonna put a pin in the franchising for right now, which is attached to this Goodwill blue sky that we're discussing. Do you wanna talk about how leases get brought into these transactions?

Speaker 4: Sure, yeah. So whenever you're dealing with, especially an asset purchase agreement, we see it time and time again. Chen and I work with a lot of restaurants, people that are buying restaurants quite often. And so when you're buying the assets of the restaurant, you're also acquiring the lease. And so usually there's a lease in place between obviously a landlord and a tenant. And the thing is that that lease isn't always up. Usually they're in the middle of a lease. And so the buyer that's coming in has to get approval from the landlord to be able to be assigned this lease. And so we're seeing it kind of be a struggle right now for some of these buyers to come in and get landlord approval for these leases because the seller is on the hook. They have a lease for 36 months, five years, 10 years. And so the landlord's getting, they're getting guaranteed money. They have a contract. So it's really not in their best interest always to let this buyer come in and assume or get assigned this contract. And so we're seeing that kind of be an issue for a lot of these buyers right now.

Speaker 3: Why not just make them extend the lease?

Speaker 4: So there's a couple of things that we try. One is just negotiating a new lease for maybe an increased rent because that would obviously be a benefit to the landlord. But it's really truly up to the landlord to decide if they want to allow that.

Speaker 2: A lot of times what happens is the landlord is, can be satisfied if the seller is willing to stay on the personal guarantee. So okay, the buyer comes in, they're gonna assign either the old lease or even have them sign a new lease, but they're not letting the seller, the current tenant off the hook. That is what I see most of the hangup. And it really depends if we're representing the buyer, the seller, for the buyer, we don't care. But seller, they're like, yeah, I'll sell, but I want completely off of this lease. And it can be challenging to get a landlord to agree to why let this person go. You can just have both of them liable instead of only one of them being liable. And sometimes we can get them off, sometimes we can't. It really depends on the landlord relationship and how big they are, how much, you know.

Speaker 4: Negotiating power they have or leverage. Exactly.

Speaker 1: A lot of these things come down to leverage. Well, it's probably a good lesson for entrepreneurs. If you're gonna go out and buy a business, you better make sure your house is in order because you should be better off than the person you're buying the business from because then you have more leverage with that new landlord. Sure. And you say, hey, look, you can have this person or you can have me guaranteeing this and I'm taking it over. And you can use that as an opportunity. I did that when I bought a business and I used that. I negotiated with a landlord before I agreed on the price to buy the business.

Speaker 4: Yeah. And that's huge. And I think that, you know, when you're getting into a business, signing a commercial lease agreement, I've seen it time and time again, it's so exciting. You know, you're getting a new business, starting something cool, but it's so important. It's so serious. And you're locking yourself in for so long that it's really important to make sure that you have, you negotiate some of the terms of those leases and you really make sure. It can break you.

Speaker 1: I've had clients that didn't understand that. They signed a lease, triple net, and then the AC breaks and it's $12,000. And so how could it be $12,000? My rent's only $2,400 a month. They're like, yeah, but you signed for it. But I've only been in business now for three months. I don't have $12,000 to fix the AC. I'm like, well, then go, you know, change your business to a hot sauna or whatever. Hot yoga. You nailed it though. Like.

Speaker 2: We call it the HVAC system, right? So the, what is that? Heating, ventilation, air conditioning. That is the number one thing that I'll go look at when they're inheriting somebody else's space. Like, are you warranting this? And plumbing. And plumbing. When was this last repaired? Is this a brand new one or not? And unfortunately, a lot of the clients that we may get have already signed this lease. And now they're wanting, they're like, hey, what can we do about this? You know, they didn't actually have counsel review it. So they didn't know what they were getting themselves into. And so even if you're not able to negotiate certain terms, it's really important that you know what legal commitment you're making. So what we can do to assist with that is we'll guide you through, okay, these are the commitments. You can either do it or not do it because sometimes the landlord's just not willing to bend. But at least you can make an educated decision for yourself. Is it worth taking this risk?

Speaker 3: Wow. All right, is that it on lease? Because we're going to be out of time here pretty soon. I know you guys want to talk about acquisition of franchise.

Speaker 2: Yeah, and I can make this brief, but we were talking a little bit ago about the blue sky term, goodwill. And this really goes into the name and reputation of a business. And so what a lot of people don't realize is when you see the same name popping up all over the place and all over the country, and maybe even all over the world, that this is considered a franchise. And people just look at a franchise as one big business. There's like the corporate headquarters, and then they own all these little franchise locations, which is not the case. And it's a huge public misconception.

Speaker 4: What's an example?

Speaker 2: So a great example of a franchise would be Starbucks, McDonald's. What you're going to see when you franchise a business is you're actually licensing the right for somebody else to not only use your name, but your proprietary ingredients, your operating, your corporate environment, the look, the feel, the smell, everything. You're licensing that right to an independently owned and operated individual or entity.

Speaker 1: Chick-fil-A, for sure, are franchises.

Speaker 2: Are going to run, yeah.

Speaker 1: Now Starbucks, almost all of them that you see that are independent, they're all company owned. They're not franchises. They're licensed to casino. I love this.

Speaker 2: I love this, because as soon as that came out of my mouth, I'm like, I think I just listed one of the, and Walmart is another corporate owned one. They do not franchise.

Speaker 1: Subway sandwiches, franchises. So each Subway sandwich shop you go to, you'll notice a difference. Starbucks, you're going to get pretty much the same experience everywhere, unless they're inside of a Target or a casino or whatever. That's a licensed agreement, but it's not a franchise.

Speaker 2: I've never been in a casino, so I wouldn't know.

Speaker 1: I'm not going to tell you I took two of my minors there.

Speaker 3: You can't stop though. You have to keep walking through, right? So you're sure you can't stop here.

Speaker 2: And thank you for pointing that out, because I felt I'm like, I just need to do a fact check in my brain, but I kept rolling with it. But they are still a great example of consistency. You do get that same feel of importance when you go in and you get your, what do you like Starbucks? Maybe you need Black Rifle, whatever it is, there's going to be that consistency. Some of them are all corporate owned, like you said, but then others will license that out. And what they're doing is they're licensing that goodwill. They're licensing that intellectual property, the intangible things. The reputation, all of those things. So you're not having to go out, if you want to start a sandwich shop, you don't have to go reinvent the wheel. You're paying somebody to use this name so that when you open up, you know you're going to have that immediate flow of clients that come in. And a lot of business people do not realize that when they're starting to spread out and open multiple locations, and they bring other parties involved, they're actually franchising, whether they know it or not. And when you're franchising without the proper disclosure documents, without following federal rules and state rules, you are in violation of the law. And sometimes we find this out when they come to us for help, and it's like, wait a minute, you don't even have your initial franchise documents. And sometimes people will come to me and say, hey, will you make a franchise agreement? I'm going to go ahead and have somebody open one of my locations over there. And then it's like, all right, sit down. We need about an hour. I'm going to explain how this works. And so I think it's just really important for people to know that if they are thinking about expanding their businesses, franchising is absolutely an option, but there are very specific rules and regulations that govern it.

Speaker 3: That's great information. Yeah, we're running up on the clock. Was there anything else you wanted to get out on the floor? No, I think that was great.

Speaker 4: I think we covered it.

Speaker 3: Yeah.

Speaker 1: Great. So just to make a point, between Keaton and Jaime Sepulveda, Strategic Property Management, we're always outdressed.

Speaker 3: Yeah, no kidding, right?

Speaker 1: And so I'm in support of my co-host since he hired me. And so I wear something that looks similar to his.

Speaker 3: I'm just trying to match Howie's pace here. I had polo shirts. If I would have got the memo,

Speaker 4: I would have wore the same thing.

Speaker 1: I wanted to match the plants, so that was my goal. And Heather, the co-host for the previous show, was wearing green as well. So I think there's something about green and the plants in that corner. I think that we should require that. That's the green. We don't have a green room here at the podcast, but we do have a green section. Yes. Love it.

Speaker 3: All right, Keaton and Shanna, if folks want to get in touch with you, Keaton, how they do that?

Speaker 4: Yeah, they can give us a call at 210-503-2800. That's 210-503-2800. Or they can reach out to us at our website at txsuits.com.

Speaker 3: Did you ever watch the show Suits? Did you watch it?

Speaker 4: I'm on episode, or sorry, season three, episode eight right now.

Speaker 2: Season four, episode two.

Speaker 4: Oh, so you're loving it.

Speaker 2: I accidentally got hooked.

Speaker 4: Me too. I tried not to.

Speaker 2: I tried hard not to.

Speaker 3: Well, I'm gonna say it takes a dip, I think, when a lot of infighting starts happening, but then they come out of it. I love that family feel. When they have that going on, like they did at the first, they're always worried about Michael getting in trouble, right? Yeah. But towards the end of the series, it's just great. So you're almost done? I'm done, yeah. I'm all the way finished. Okay.

Speaker 2: So want me to tell you how it ends? How many seasons are there?

Speaker 3: Nine.

Speaker 2: Oh, no, no, no. My life does not have time to finish this. That's why I tried so hard.

Speaker 1: Don't start any more businesses. No more non-profit. No more businesses.

Speaker 4: Until you get done with it. Until you watch Suits.

Speaker 3: It's a total guilty pleasure. I loved it. I don't regret it at all. I like to just sit down, have that couch time with wife, and just enjoy those things, you know?

Speaker 1: Yeah, well, I'm on season 27 of Judge Judy, so I don't know if that's not- Yes. Whenever I have a show about that.

Speaker 3: That explains a lot now. It explains a lot. I get it now. All right, let me wrap this up. Quick reminder, check out our latest podcast or catch video versions of the show anytime by visiting our website at satalkradio.com. That's going to be it for us for this one. You guys have a great rest of the week, and we'll see you on the next one.

Speaker 4: Thanks again. Awesome, thank you.