The client was a corporation that had been in business for several years and was owned by a dozen or so shareholders. One of the shareholders wanted out. We were asked if we could help with the transaction.
“Of course,” we said. “Before we start, let’s get on the phone with the accountants so we can talk through things. The structure of this deal could take a few different forms and we want to make sure we pick the most tax advantaged one.”
We were assured that there was nothing left to discuss with respect to the structure and, after checking once more that they didn’t want an all-hands call to confirm everything before we prepared any documents, we got to work as directed.
We prepared the documents, closed the deal, and billed them for our work.
A while after the deal closed, they came back to us: “We don’t like the tax impact,” they said.
We rewrote all the documents, changing up the structure of the deal as directed. For some of the documents, it was necessary to amend and restate them – in other words, we made it as if we never wrote the first versions of those documents. Only we had.
They signed the second set of documents, and we billed them for our work a second time.
A month later, we got a familiar call: “We don’t like the tax impact.”
Finally, we got everybody together on a call. Each of us asked some questions, each of us did some explaining, and we confirmed the best path forward given the circumstances
We prepared the documents a third time. This time, finally, the client was happy.
This story is just one of several similar ones we have. The specific details of the stories don’t matter nor do the details of the multiple iterations of any single deal. The takeaway is not about what any one client was trying to do, it is about the most efficient way to use your attorney – or any trusted professional advisor for that matter: “an ounce of prevention is worth a pound of cure"
The ounce of prevention here would have been that all-hands call at the very start, to talk through all of the possible iterations and issues and formulate a plan that works on all fronts.
We get that if you’re on a call with your accountant and your attorney, it’s an expensive call. We know some clients practically hear the meter ticking.
However, this story is a perfect example of how an expensive call or two can save you a lot of money in the long run. If this client had had that call up front, their legal bill would have been half if not one third the size it ended up being.
