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Like corporations, limited liability companies (“LLCs”) often incentivize employees with equity awards.  Lots of companies and employees are familiar with equity awards from corporations (e.g., stock options), but LLCs use profits interests awards and phantom equity.

Profits Interests

Profits interests are the most common form of LLC equity compensation.  Someone holding a profits interests will share in the increased value of the company after award is granted.  The award has no value on the grant date, but as the company’s value increases, so too does the value of the profits interest award.


If properly structured, profits interest awards are not taxed on the grant date or on vesting and are generally subject to capital gains treatment upon sale. To ensure there’s no tax when the award vests, a profits interest holder is very likely to file an “83(b) election” immediately after receiving the award.

To maintain capital gains treatment, the recipient must, among other things, be treated as an owner of the company from the grant date forward and must hold the profits interests for at least two years before selling. The difference in tax rates can be significant.  Current capital gains rates currently have a 20% ceiling, while the highest ordinary income tax rate is currently 37%.

Conversion from Employee to Owner

Under IRS rules, the recipient of any profits interest award becomes an owner of the LLC and is no longer an employee.  In most cases, this has negative tax and other consequences that must be weighed against the benefits of receiving the award.  Some negative consequences for the recipient include:

  • The recipient’s salary becomes self-employment income, and the recipient will likely become subject to self-employment taxes at a rate of 15.3% instead of the 7.65% rate employees pay.
  • The company will no longer withhold employment taxes. Instead, the recipient must make estimated quarterly tax payments.
  • The recipient will be disqualified from participation in any employee-only benefit plans.
  • The recipient will not be eligible for unemployment benefits.

Phantom Equity

Phantom equity mimics owning equity in the LLC. These awards entitle the recipient to a “bonus” that approximates owning real equity at the time of specified liquidity events (e.g., merger or acquisition).  Phantom equity is not as commonly used by LLCs as profits interests are, but phantom equity avoid some risks inherent to profits interests.


Phantom equity is not taxed on the grant date; however, the proceeds received by the recipient on a liquidity event will be taxed at ordinary income rates, instead of capital gains rates. As mentioned above the difference in these rates can be significant. To ensure that phantom equity plan works as intended, attorneys and accountants will ensure a plan complies Tax Code Section 409A.

Recipient Remains an Employee

Unlike profits interest awards, a phantom equity award does not affect the recipient’s status as an employee of the company.  Consequently, the employee does not have negative employment tax consequences and remains eligible for all company-sponsored employee-only benefit plans and unemployment benefits.

Because of their beneficial tax treatment, profits interests tend to be the preferred method for incentivizing LLC employees with equity.  However, for equity awards that are small by comparison to the recipient’s salary, the negative consequences of becoming an owner of the LLC may outweigh the benefits of the award.  In such cases, phantom equity awards can be an excellent alternative for incentivizing employees.

From the company’s perspective, profits interests are more complex and require more administrative work than phantom equity. Nonetheless, the tax savings for your LLC’s key staff may justify the overhead expense of profits interests. A LLC could implement both plans, with phantom equity for staff with shorter tenure and lower compensation and profits interests designed for long-term and higher-paid service providers.

For more information about choosing which type of equity incentive is appropriate for your LLC, please contact attorneys Russ Rotondi, Marco Materazzi, Dave Kopilak, Shannon Hartwell, Jake Cormier, Jay Purcell, or Genny Kiley from our Business Transactions practice group.

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Sales of most small companies involve a fairly standard and predictable process that can be followed when selling your business.  In addition to having a sharp corporate attorney at your side, understanding the process will help you prepare and mitigate surprises.

1. Get Your House in Order. Buyers will investigate all aspects of your business to fully understand its assets and identify all potential liabilities.  You can get ahead of this process by conducting due diligence on your own company before seeking a buyer. Consider setting up your own secure digital data room to organize and store all documents related to your business in an accessible way, making it easy for you, your business lawyer, and the buyer to review them when the time comes.

Are financial statements and tax returns complete and filed? Buyers will often want to see three years of financial and tax records.

• Are corporate records in order? Produce electronic board and shareholder minute books and ensure that capitalization records are current and complete.

• Do you have signed copies of all current contracts with customers, suppliers, landlords, and employees? Distribution agreements?  Intellectual property license agreements?  All material contracts should be identified and kept together.

• Are all government licenses and permits current?

• Do any contracts, licenses, or permits require the consent of any third parties before they may be transferred to a buyer? Look for language about “assignment,” “assignability,” or “change of control.”

• Are all records related to assets and liabilities (titles, bills of sale, financing agreements, loan agreements, leases, etc.) readily available?

Identify red flags, such as missing, lapsed, expired, or incomplete documents, and remedy any issues before a potential buyer raises concerns.  The more prepared and organized you are, the more smoothly the buyer’s diligence investigation will go. This standard form due diligence request list can help you get started: DUE DILIGENCE CHECKLIST

2. Determine Which Transaction Structure You Prefer. Tax and liability considerations often drive the structure of the transaction.  Consequently, buyers generally prefer asset transactions, while sellers tend to prefer stock transactions or mergers. There are different ways to structure sales of businesses (often referred to generally as “M&A,” short for “mergers and acquisitions”).  Here are a few of the most common structures:

• Asset Transactions. In an asset transaction, the buyer determines which assets and liabilities it wants to acquire.  Anything not acquired by the buyer remains an asset or liability of the seller.  Some assets, such as contracts and licenses, may not be transferable to a buyer without obtaining consents from third parties.  Asset transactions are generally taxable to sellers, while buyers get a step-up in the tax basis of the acquired assets.

• Equity Transactions. In an equity transaction, the buyer purchases all of the stock or membership interests of the seller’s company and becomes the new owner, taking on all of the seller’s assets and liabilities.  Stock transactions often have better tax consequences for sellers and generally relieve sellers of liabilities disclosed to the buyer before the transaction.  A potential downside of an equity transaction is that recalcitrant shareholders may cause problems or delay completion of the transaction.

• Mergers. In a merger, the buyer or its subsidiary merges with the seller.  As a result, and similar to an equity transaction, the buyer acquires all of the assets and liabilities of the seller. Mergers have the potential to be structured as reorganizations that are tax free for sellers.  Usually, mergers do not require unanimous shareholder consent and also tend to require fewer third-party consents for the transfer of contracts and licenses.

3. Know the Value of Your Business. There are many methods for determining the value of your company and myriad factors that may be considered.  These are three of the most common methods for determining the value of your company. They are often used in some combination.

Asset-Based Valuation. An asset-based valuation, also known as book value, is a relatively straightforward valuation method where net value is determined by subtracting the amount of a company’s liabilities from the amount of its assets.  Asset-based valuations are most commonly used by businesses that hold investments, have steady cash flow, or are liquidating.

• Market-Based Valuation. A market-based valuation values a company by comparing it to similar companies in similar industries in similar geographical areas.  Reviewing recent sales of these businesses will help you determine a competitive value for your company.  Market-based valuations are appropriate for any business if the details of sales of comparable companies are available.

• Earnings- or Revenue-Based Valuation. If your company is profitable, an earnings-based valuation may be appropriate.  Earnings-based valuations are based on past performance and forecasts of future earnings.  If your company is not yet profitable, but has high growth potential, a revenue-based valuation may be a good valuation measure. The ultimate value is generally based on a multiple of earnings or revenue, which may be discounted when a company’s future earnings or revenue is uncertain.

4. Letter of Intent. A letter of intent (“LOI”) outlines the structure and the broad terms of the transaction.  Although an LOI is generally not binding and does not guarantee that a transaction will close, it should be taken seriously.  It is wise to talk with your business attorney before the LOI stage.  The LOI will lead and direct the terms of the purchase agreement, so do not agree to anything in the LOI that you can’t live with during the course of the transaction. Negotiating the business terms that are most important to you at this stage makes finalizing the purchase agreement much more efficient.

Buyers will likely want an exclusivity period during which you will not enter into negotiations for the sale of the company with any other potential buyer. Exclusivity provisions are binding.  The LOI should also include confidentiality provisions to protect information you provide to the buyer during the diligence period, and to protect both parties from disclosure of the terms of the transaction.  Confidentiality provisions are also binding.  Finally, consider whether an earnest money deposit is warranted at the LOI stage.

5. Purchase Agreement. The purchase agreement is the legal document that details the terms of the transaction summarized in the LOI: what is being sold, at what price, and on what terms.  The agreement will also include thorough representations, warranties, and covenants by both parties; indemnification provisions to provide protections for both buyer and seller; and conditions that must be satisfied by both parties before the transaction closes. Consider who among the seller parties will be responsible for making representations, warranties, covenants, and ultimately for any related potential liabilities.

Selling a business is a complicated process; however, good preparation, an understanding of the process, and an experienced, competent corporate lawyer as your counsel can lead to a positive result for all parties.

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Franchise law is a heavily regulated area of law.  We help clients expand their businesses through franchising and other distribution methods. We have experience in many industries including, restaurants, health, and beauty, alcohol, and cannabis among others. Our representative services include the following:


We also help potential franchisees interested in buying a franchise. We are able to assist with evaluation of franchise opportunities with respect to:

Alternative Structures

However, not all businesses are suited to franchise. We are also experienced with helping clients structure alternative distribution methods to prevent classification as a franchise.


Our M&A attorneys are highly experienced in counseling clients who are considering acquisitions or exit strategies.  We have many years of experience handling deals of various types and sizes, ranging from sales of small closely-held business, private companies, and publicly-traded corporations.  We have represented business owners, private equity firms and investment banks in a wide range of industries. 

We have a deep business bench, and Emerge attorneys have handled transactions of all shapes and sizes.  Whether your deal is valued at $100,000 or $100,000,000, our experienced attorneys will guide you through the deal process.

We understand the intensity, technical skill and judgment needed to get deals done, and we provide our clients with timely, practical and cost-effective legal advice.  We are highly capable in all aspects of M&A, including the following:


Emerge Law Group is highly experienced in the cannabis industry.  We have helped many clients obtain state licenses and local permits to operate cannabis businesses throughout California, Oregon, and Washington.

Emerge attorneys were instrumental in the drafting and passage of Oregon Measure 91, legalizing marijuana in the State of Oregon, and have represented cannabis businesses well before many law firms were willing to enter the cannabis industry. As a firm that has provided legal services in the cannabis space for many years, we are familiar with the unique and complex issues businesses and individuals face in an emerging and highly regulated industry.

We regularly help clients with:

Cannabis laws and rules are also regularly changing.  Members of our team are dedicated to attending legislative hearings, state agency and local city and county meetings to stay up-to-date on any new changes and how to adjust to any new changes.

See our Cannabis Industry page for more information.


There is tremendous excitement about the potential for psychedelic drugs to benefit a wide variety of populations, including terminally ill patients suffering with anxiety and depression. Until recently, psychedelic substances have been accessible only in the illicit market and are illegal under federal and state to manufacture, distribute, or possess. These substances have, since 1970, been treated as having no legitimate medical use, and no commercial application. As such, no one invested in this area or required legal services, outside of the criminal context.

Today, researchers in a multitude of clinical studies are proving the medical safety and efficacy of these medicines, with the objective of changing the treatment of these substances under the Controlled Substances Act. Companies are now actively raising money to develop intellectual property and seize market opportunities associated with psychedelic drugs.

In addition, advocates at the state and local levels are not waiting for the rescheduling of these substances and are active in undertaking efforts to decriminalize these substances and/or make them affirmatively legal under state and/or municipal law. Decriminalization already has occurred in cities including Denver, Oakland, Santa Cruz, and Ann Arbor. Oregon is poised to be the first state to make psilocybin therapy affirmatively legal. Emerge Law Group is working with a wide array of clients pushing forward in this emerging area.

See our Psychedelics Practice Group page for more information.



Businesses of all kinds benefit from a customized but systematic approach to structuring legal relationships. Emerge Law Group helps businesses and business owners with a variety of tax planning matters.

Representative client services include:


Estate planning encompasses everything from a will and power of attorney to combined estate and business succession planning. In almost all cases, the purpose of the plan is to help the client protect those they care about most in the event they can no longer be there for them.

Emerge Law Group has experience with a wide range of tools used in estate planning, including wills, trusts, and family business entity planning.


Emerge Law Group can assist with the resolution of difficult tax controversies. Our areas of emphasis and experience include:


Emerge Law Group assists clients with a wide range of real estate transactional matters.  We regularly help clients with:


Emerge Law Group also assists clients with all aspects of local government land use and development processes, ranging from preliminary property analyses and building permit issues to complex land use reviews and hearings. Our attorneys are experienced in obtaining land use entitlements and development permits for a wide range of uses.

We regularly help clients with:

Above all, we understand the value of working with cities and counties to enhance communities while developing the land to its potential. We strive to create solutions to land use issues that serve to better our clients and the communities in which they live and work.


The attorneys in Emerge Law Group’s Litigation and Alternative Dispute Resolution practice group litigate commercial, intellectual property, and public interest matters in state and federal courts, as well as private mediation and arbitration proceedings.  Our lawyers have represented national and regional financial institutions, major media, entertainment and technology companies, and other Fortune 500 companies in a broad array of high-stakes disputes.  Our team of litigators has handled leading cases that have shaped the law in cutting-edge business, technology, free speech, and public interest impact lawsuits in trial and the courts of appeal.

We have particular expertise in handling civil litigation and regulatory enforcement matters in the cannabis and psychedelic industries.  While many firms claim expertise in the these industries, few have our depth of experience successfully litigating contract, trademark, partnership, shareholder, land use, and real estate disputes in court and arbitration.  Even fewer firms have our level of experience handling writ of mandate proceedings against the government regulators.

Our litigators practice in California, Oregon, and Washington, but have appeared in state and federal courts nationwide.  Our knowledge of our clients’ businesses, goals and concerns, and our experience litigating at the highest levels, give us unique insight into possible outcomes and pitfalls as we continuously confront issues of new impression.

No matter what the industry, we pride ourselves in achieving our clients’ objectives through efficient and creative solutions primarily designed to avoid disputes in the first place—which is always the best litigation strategy.  Many times, our clients obtain excellent outcomes before or at the earliest stages of litigation because our adversaries quickly recognize the challenges they will face in litigating against us.  When litigation is unavoidable, however, we work hard to provide our clients with both cost-efficient and “big firm” quality representation.



Your intellectual property (or “IP”) strategy can harness your most valuable information and intangible assets including your name, your brand, your designs, your content, your services, and your products — what makes your business stand apart in a competitive world.  We can help you evaluate and build your IP portfolio, then secure it, monetize it, and protect it.

IP encompasses multiple areas of law and different types of information or material.

Our Intellectual Property practice focuses on:


Trademarks include names, signs, logos, designs, phrases, slogans, expressions, and sometimes even colors, sounds, or smells that identify or distinguish one business compared to others.  Trademark protection is fundamental in securing your “brand.”


Copyright covers original works of creative authorship fixed in a tangible medium of expression.  This includes literary, dramatic, musical, and artistic works, such as poetry, novels, designs, movies, songs, computer software, and architecture. Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed.  Depending upon the type of work, “moral rights” (such as the right of attribution) may be implicated as well.


Trade secret laws can vary somewhat between states, but generally trade secrets cover information, including drawings, cost data, customer lists, formulas, recipes, patterns, compilations, programs, devices, methods, techniques or processes that derive economic value from not being generally known and are the subject of efforts that are “reasonable under the circumstances” to maintain secrecy.


Depending upon where you live or operate, there is a special patchwork of laws and regulations that protect and regulate personal information.  If you are handling or giving out personal or potentially sensitive information, you may be implicating privacy laws.


Publicity rights address the commercial use of an individual’s face, name, image, or likeness.  These rights vary state-to-state.  Marilyn Monroe, for example, lived in multiple states which created complex questions about her publicity rights.

Our Intellectual Property services include:


In states where new cannabis banking opportunities exist, Emerge Law Group has the proven expertise in creating canna-banking programs to efficiently capitalize on those opportunities. Our Banking Practice Group specializes in working with banks and credit unions to develop regulatory compliant programs and operational best practices. We also train banking staff to become experts in canna-banking so they can effective understand and manage the risk affiliated with canna-banking.

We regularly help clients with:


At Emerge Law Group, we recognize that employees are the heart and soul of any successful business.  Our Employment Law Practice Group works with employers to help them effectively manage their workforce, navigate the complex web of federal, state and local employment laws and, if necessary, defend against claims before administrative agencies and in court.

We regularly help clients with:


Our corporate finance and securities lawyers are experienced attorneys who have practiced at large law firms, worked as in-house counsel for public companies and investment banks, and owned and operated start-up companies. We work with clients to help achieve their financing goals while safely navigating the highly technical securities law landscape. 

In addition to representing issuers, we also routinely represent institutional and individual investors, including in connection with fund formation and investments.

Our expertise includes:

We have a deep understanding of the financing options available to businesses, including simple unsecured loans, asset-backed financing, convertible debt, common and preferred equity, crowdfunding and various other structures.  We work closely with our clients to understand their business and financing needs, ensure they are prepared to approach investors and choose the right partners, structure and negotiate terms, navigate the due diligence process and successfully close the deal.



Emerge attorneys have represented businesses in the alcohol and beverage industry, including wineries, breweries, distilleries, restaurants, bars, movie theaters, golf courses, and gas stations.  We can help you vet new locations, acquire existing locations, and apply for the appropriate liquor license.  We also provide training to comply with applicable rules and regulations, prepare operating procedures, submit renewals, and keep clients protected in the event of any potential violations or administrative hearings.


Emerge Law Group is highly experienced in the cannabis industry.  We have helped many clients obtain state licenses and local permits to operate cannabis businesses throughout California, Oregon, and Washington.  We regularly help clients with:

Cannabis laws and rules are also regularly changing.  Members of our team are dedicated to attending legislative hearings, state agency and local city and county meetings to stay up-to-date on any new changes and how to adjust to any new changes.

See our Cannabis Industry page for more information.


Emerge Law Group is a leader in the psychedelics industry.  There is tremendous excitement about the potential for psychedelic drugs to benefit a wide variety of populations, including veterans struggling with PTSD and terminally ill patients suffering with anxiety and depression.  Until recently, psychedelic substances have been accessible only in the underground; they are illegal under state and federal law to manufacture, distribute, or possess.  These substances have, since 1970, been treated as having no legitimate medical use, and no commercial application.  As such, businesses have not invested in this area or required legal services, outside of the criminal context.

Today, psychedelics are proceeding toward legalization on multiple paths.  Researchers in a multitude of clinical studies are proving the medical safety and efficacy of these medicines, with the objective of changing the treatment of these substances under the federal Controlled Substances Act, opening legal access to them.  Private and public companies are now actively raising money to develop intellectual property and capitalize on the market opportunities associated with psychedelic drugs.  Opportunities to be early actors in this new arena are tremendous.

See our Psychedelics Practice Group page for more information.


Our business transactions team is made up of highly experienced transactional attorneys who have practiced at large law and accounting firms, worked as in-house counsel for public companies and investment banks, and owned and operated start-up companies. We understand complex legal matters and provide high quality legal services in a cost-effective manner.  Our clients value our experience, knowledge and judgment.


Our team routinely advises clients regarding:


Emerge attorneys also advise on-going concerns with: