brBuying A Businessbrbr- Willard Michlin brbrBuying a business in today s economic climate requires that you, the buyer, be on the ball, with regard to business basics. This economic climate, as far as businesses are concerned, is a sellers market. brbrWith the corporate downsizing, economic downturn and other factors, there are a lot of very knowledgeable buyers out there looking for one of the very few good business to buy. This means that you, as a buyer have a lot of competition. Consequently, you need to be well prepared. Professional business buyers, report that it takes anywhere from 3 months to 3 years to find the right business. So, if anything, what can be done to speed this looking process and at the end finally get a good business?brbrThe decision the first step is deciding to buy a business. Once you have made this decision and you are definite and firm about the fact that you are definitely buying a business, the process has started. brbrThe second step is to decide what kind of business. This is really really important. What are the criteria for this business you are looking to buy? Do not make a wish list or what would be nice. Make a list of what is important. For example, if your standard of living requires $100,000 income, do not compromise by looking at businesses that make only $50,000. brbrThat is unless you consider yourself a knowledgeable business manager and marketing person who knows that any business they buy will double in income and sales. That kind of buyer can buy a business that makes no profit and probably should. brbrOther criteria include; is it something you can handle? What kind of work are you willing to do? If you like sales and do not like running a factory, buy a distribution company, or sales organizations, and do not buy a manufacturing firm, unless you have a partner that likes running a production line. brbrI have people call me to inquire about buying a body shop that have no automotive experience at all. You can buy an auto repair shop, muffler shop, brake shop or lube store, and learn the business, with no experience to start. You probably should not buy a salvage yard body shop, or scrap yard with out being raised in the business. If you are a salesman you can buy almost any business. brbrAll manufacturing, distribution or retail sales require good personal sales skills. If you are poor at communication skills or English is a second language, consider buying a liquor store, gas station or hamburger stand, just a few of the businesses that do not require, personal selling, or do they?brbrAbout you - There are some things you need to prepare for the brokers when they start coming to you with possible businesses. You need to make sure that you have your down payment sorted out. Expected down payments are anywhere from 25% to 100% of the selling price. So make sure you know what you want to spend and then make sure you have the down payment easily available.brbrThen you need to get your financing options determined. You can get yourself pre-qualified for a business loan or an SBA loan if the business you are buying is required by you to show a profit on the books. SBA loans are only available to businesses that have shown a 5-year profit on their tax returns. If you are looking at businesses that are heavily unrecorded income, you must have cash or seller financing. brbrBeing your own broker - You should determine who is going to make your offer. A broker, or yourself? If it is you then you should locate the necessary offer forms and study them carefully. Determine what must be in your offer so that you can put in an offer, the instant you find a business that meet your requirements. This is an important step, as putting in an offer tends to lock out other buyers while you look over the business. Make sure you have contingencies in your offer, which means you have lots of get out of the deal clause.brbrI would like to suggest, for the less experienced buyer to hire as a consultant the sharpest attorney or business broker you can find and pay him for his time to watch your rear end, in negotiations and in reviewing the companies you are considering buying. In real estate we call this a buyers agent, except with businesses the listing agent will not always co-operate in splitting the commission. This means you need to be willing to pay your agent an hourly fee for helping you. Let me give you a real example. brbrDavid and his father were looking for a business to buy. They were interested in a Scrap yard that I was selling. I asked their buying agent to bring them over so I could interview them and to explain this business to them. In 3 minutes it was clear that they should not even consider this business. We spent the balance of the meeting talking about the businesses they had looked at and the pros and cons of each. I gave them my honest suggestions about each from their description. They thanked me and left. brbrTwo months later David calls and asked if he could come talk to me. He told me about an FSBO For Sale by Owner, who would never pay any agent a commission unless he got his price + the commission. That of course doesn t make sense to a buyer. David told me about the deal and I gave him my honest opinion about it. David asked what my time was worth and gave me a check for an hour s time.brbrTwo months again passed and David called and said, I need to see you today. He proceeded to tell me about a Car Wash Soap manufacturing company that was suppose to be making $500,000 profit per year. The asking price was $2 Million. David wanted several things from me. He wanted my opinion of the business, he wanted me to help get the price down to a more reasonable amount and he wanted me to verify the income. It took me 30 hours of reviewing the books and talking to the seller to determine that the business was making only $350,000 per year including what was not on the books. The books were made complicated, intentionally so that no one could understand what was going on. brbrI related my findings and told David he had to do his own negotiations but I would coach him every step of the way. David paid my fee and I didn t hear from David for one year. When he called, I asked what happened to the car wash soap business. He filled me in on the story. brbrHe bought the business for more than I suggested because he saw where he could improve the business instantly. The profit turned out not to be $500,000 as the seller guaranteed, but exactly $350,000 as I had determined. David took over sales and marketing and within 1 year had the company profit up to the $500,000 he was promised. brbrDavid now had found a related business that had been listed with an agent who did not understand the business he was marketing and could not sell it. David was now talking to the seller directly. The seller wanted $550,000. David wanted me to negotiate, on a consulting fee bases with the seller to get the price down. brbrI instructed David that I would appraise the business, and convince the seller that my appraisal was accurate, but David had to do the negotiations. The seller would never talk to me about the inside details if he was negotiating with me directly. This time I spent 5 hours with the seller, not the books, to determine the business was worth $350,000. The seller would not take the price, but felt I had done an excellent appraisal. I suggested to David to wait 60 days and open discussions again. I also told him the seller would eventually take the $350,000. brbrI again didn t hear from David, this time for 6 months. When David called I asked for his report on what happened. The seller called him after one month and sold the business to him for my appraised amount, just as predicted. What did David want this time? Two guys wanted to buy the business and David wanted me to justify a price of $500,000? I did my updated analysis and got paid. I will not find out what happened until David calls me with my next assignment.brbrGet the word out - Now that you have got all of your preliminary work done you are ready to go looking for businesses. You are ready to look for businesses for sale. Go on to the Internet and look at sites that have businesses for sale. Look in the classified section of your county newspapers and look at what is for sale. Contact business brokers and tell them what you are looking for in detail. Call on broker listings and FSBO (For Sale by Owners.) When you find something interesting you move through the steps with a broker, accountant or attorney or without a broker, accountant or attorney.brbrFind out what financial records they have. This will eliminate 75% of the businesses. The records are false because of cash sales and/or cash payroll. A lot of auto repair shops pay their mechanics a base salary on the books and the balance in cash. This is crazy and illegal. They have cash sales, which are illegal, and not reported and then they give this money to the employees illegally. Have fun figuring out the profit on these businesses. Some businesses do not want to give you any financials. They do not even want to lie to you about the numbers; they just do not give them to you. You need financials even to just see what the operating expenses are. brbrCash income — The problem with cash income, besides being illegal is it is unconfirmed. Jack bought a body shop doing $60,000 sales on the books. The seller showed Jack records that proved to Jack, an experienced body shop owner that the business was really doing $125,00 month in sales. After escrow closed Jack was given the production records for the last 5 years by the general manager that stayed with the company. The business was doing $60,000. Exactly what was on the books! There was no cash. The seller reported every dime. I hate to say it but if someone were willing to lie to the government and their business broker, why would they tell you the truth? brbrFind out what the seller wants the next key step is to ensure that you find out exactly what the seller wants. You have already stated what you wanted when you got the word out. Now, you need to make sure you understand what the seller wants. Make sure you get full information on this from the broker or seller. On this step, you are basically finding out what the seller wants for his or her business exactly. That includes, down payment, seller carry back terms, time he is willing to train you to run the business, and what he is including in the price. Inventory can be included or extra. Leased equipment basically has you as the buyer assuming the debt, where financing on owned equipment is paid off in escrow or the price is lowered because you are assuming the debt. With all of this information, you can begin your negotiations.brbrNegotiate Ok, now you know what the seller wants and you know what you want. On this step, the objective is to get the two wants to match up and agree with each other, so that the deal can take place. What you are trying to do at this stage is decide if you are going to go ahead with the deal or if you are going to continue talking with the broker and the seller until what they want is closer to what you want. The key here is keeping the conversation going (negotiate). As long as the conversation is going, it is much more likely to result in the deal taking place. So keep the conversation going!brbrAlmost the final action after the negotiations and an agreement has been reached, there is one final action that is vital. Your offer is in, but you are not done yet! Due diligence is required. Here you must get documentation on the financial figures you have been given. You want to verify that what you have been told is indeed the case. Get Profit and loss statements, business tax returns and other important documents. If you have been told that a body shop has a contract with the local city to service all their vehicles, or some such story, ask for and see the contract and verify that a valid contract does indeed exist. Part of this final action is ensuring that you have the advise of a competent professional as well. brbrEscrow - Never buy an asset sale purchase without an escrow. We have already established that the sellers may be lying to you about any number of things, but they may have debts that they do not even know about. The escrow will do a bulk sale notice that gives creditors of the business a chance to file their claims, and if they do not the buyer cannot be held liable. The escrow also makes sure that the payroll taxes; sales taxes; federal and state income taxes are paid in full. The IRS has come into companies and assessed for many years of unpaid taxes. As the buyer you would get stuck with this bill, if you didn t do an escrow. brbrConclusion - Following the above steps will see you through most of the pitfalls in buying a business.brbrAbout the Author brbrWillard Michlin is a Business Broker, California Real Estate Broker, Accountant, Well known Public speaker and Administrative/Business Consultant. He can be contacted at his Ventura, California office by calling 805-529-9854 or by e-mail at kismetrei@earthlink.net. See other articles by Willard Michlin at www.kismetbusinessbrokers.com br

brRegistration of Personal Names in the PRCbrbr- Jordi Llopis brbrINTRODUCTIONbrbrPersonal names are intangible assets which are used more and more often by enterprises, as they increasingly rely on the market appeal of famous people to sell products. Many personal names have a high level of recognition and awareness at all levels of society and as a result can have a high economic value. In practice, once the status of fame is reached, the name may be used in many commercial activities with a fair prospect of profitable business. brbrWhen Michael Jordan s name was once used in Nike products, within a certain period of time, fans and consumers alike stopped saying I am wearing a pair of Nikes , and instead began saying I have a pair of Jordans , eventually turning this model of Nike basketball shoes into a powerful brand. Jordan s brand has since been extended to a wider range of products and even services (restaurants). Many other famous people or celebrities allow their names to be used in connection with perfumes and other products. Such products connote a feeling, an experience of success, and the image of the person lending their name. brbrIn the People s Republic of China, famous people also register their names as trademarks; however, in China, the successful registration of a personal name depends on its cultural value as well as its market appeal. In some cases, people associate a given name with values and moral standards, which could eventually frustrate the effort to register with the Chinese Trademark Office, as the Lu Xun case illustrates.brbrThe Lu Xun CasebrLu Xun is a famous writer in China, who was born in Shaoxing, East China’s Zhejiang province on Sept. 25, 1881. Shaoxing is a Chinese geographic location known for its famous yellow wine (#32461;#20852;#40644;#37202;). Some of his literary works are required reading for all Chinese students who attend middle school throughout China. brbrNeedless to say, Lu Xun (as far as I know) never attempted to apply for registration of his personal name as a trademark before he died back in 1936. As a historical note, the first Chinese Trademark Law was enacted under the Qing Dynasty in 1904.brbrIn 2001, Lu Xun s grandson founded a wine company, which he named after his grandfather. He also filed an application to register Lu Xun as a liquor brand on behalf of the family. The application was rejected by the Trademark Office, which also prohibited any commercial activity concerning Lu Xun. The grounds for refusing its registration was the contention that it is improper to use the name of one of modern China s greatest writers for commercial activities. The Trademark Office alleged that as a public figure, Lu Xun s fame is not only owned by his family, but by the whole of society. brbrThe applicants have appealed to the Trademark Review and Adjudication Board. They also successfully registered a trademark using simply the characters for Lu Xun in Japan in October 2001. Also in China, an art school successfully registered Lu Xun as a word mark, but the trademark comprised more Chinese characters than merely those of Lu Xun (#40065;#36805;#33402;#26415;#23398;#38498;)(in English, Lu Xun Art School). We set out the options for Lu Xun s descendants and those wishing to register personal names, in general.brbr1. Options under the Amended Copyright Law of the PRCbrbrPersonality RightsbrAs an author of literary works, Lu Xun was entitled to both personality and property rights. While the latter have a term of protection of 50 years after the author s death, the former are unlimited in time. The economic rights expired a long time ago. brbrAccording to the Regulations for the Implementation of the Copyright Law of the PRC, the inheritance of economic rights contained in copyright shall be executed in accordance with the Law of Inheritance. Chinese morality and social customs suggest that Lu Xun s descendants have the obligation to maintain the reputation of their ancestor, an obligation which with the economic rights having expired- can only be carried out through the enforcement of his personality rights before the courts. But personality rights comprise the right of authorship, alteration of one s work and the right of integrity (protection against distortion and mutilation), which are not pertinent to the present case. brbrAlso, according to Article 9 of the General Principles of Civil Laws, A citizen shall have the capacity for civil rights from birth to death and shall enjoy civil rights and assume civil obligations in accordance with the law . It is clear then, that only a living person can enjoy the right to determine, use, or change his/her personal name; his descendants may only inherit those property rights deriving from the name for the limited period of time stated in the PRC Copyright Law.brbrAuthorshipbrAnother key issue, moreover, is that copyright protection extends only to original works of authorship. Article 3 states clearly the kinds of works that can be protected by copyright. To be protected by copyright, a work must contain at least a certain minimum amount of authorship in the form of original literary, musical, pictorial, or graphic expression. Names, titles, and other short phrases do not meet these requirements and, therefore, are not entitled to copyright protection, even if the name, title, or short phrase is novel, distinctive and/or lends itself to a play on words.brbrBecause the trademark registered by the art school does not refer to any of Lu Xun s works over which to claim authorship, the descendants are defenceless in this respect.brbrThe descendants can claim copyright through neither economic nor personality rights, only through a bare moral and social obligation to respect and defend the reputation of Lu Xun. Authorship is a personality right, and as such is enforceable no matter the time, as opposed to economic rights, which expire 50 years after the author s death. brbr2. Options under the Amended Trademark Law of the PRCbrbrThe Trademark Law of the People s Republic of China, Article 8, provides a definition of what signs may constitute a mark, whether a trade, service, collective or certification mark:brbr Any visible sign capable of distinguishing the goods of a natural person, legal person, or other organization from those of others, including words, graphs, letters, numerals, three-dimensional signs and combinations of colours as well as combinations of foregoing elements .brbrThe Country s Trademark Law has no provisions forbidding the adoption of famous names as trademarks. Practice indicates, however, that the personal name which is to be applied for trademark registration must have a clear connection with the name and with what it represents. In this respect, for instance, any athlete known to the people may register his name as a sportswear brand.brbrAlthough not explicitly included in China s Trademark law when defining what may constitute a trademark, portraits of individuals are also registered as trademarks with the consent of the given person.brbrWhat rights then, if any, exist under the trademark law in terms of protection of personal names?brbrWhen defining what a trademark is, most legal texts will apply to any word, name, symbol, or device, or any combination used or intended to be used, in commerce to identify and distinguish the goods of one manufacturer or seller from goods manufactured or sold by others, and to indicate the source of the goods . brbrAs discussed, in foreign countries, it is common for big celebrities to commercialize their portraits or names, or for companies to use famous names to brand products, such as Napoleon wine and the Churchill cigar, but this is not a common practice in China, especially when it comes to the names of politicians these names cannot be registered as trademarks. brbrA harmful effect for social morality?brArticle 10.8 establishes that any sign which infringes upon the socialist morality or practice or of other harmful effects may not be used nor registered as a trademark .brbrMaking a connection between Lu Xun and alcohol can definitively be claimed as a negative social influence. However, it can be argued that grape-based wine is the only alcohol with proven health benefits and might be considered a health-conscience activity in China, as well as a fashionable trend and a more upper-class activity. The Chinese government is promoting grape-based wines as an alternative to grain-based alcohol, grain that could be used to feed China s massive population.brbrBeatrix Potter, also a deceased famous writer, was registered as a Community Trademark in February 2004 by the publishing company which owned the already expired copyrights for her works. But contrary to the Lu Xun case, the goods to be marketed do keep a relationship with the author s reputation.brbrA possibility for Acquired Distinctiveness?brAnother discussion about personal names within the context of this case is whether or not consumers could come to associate the deceased writer s name with the said goods, and not really about registering personal names at all since the product (wine) is not attached to any actual person seeking to use his or her personal name.brbrArticle 11.3 provides the grounds to refuse registration, as opposed to Article 10.8 which prohibits both use and registration, thus leaving room for the use of the mark in question. Specifically, Article 11.3 prohibits the registration of any sign which is devoid of any distinctive character . Therefore, the sign listed in the paragraph above may be registered as a trademark if it has acquired a distinctive character following the use and is easy to distinguish. brbrThis option would surely leave Lu Xun s reputation vulnerable to tarnish, for if the goods bearing the Lu Xun trademark were of a poor quality, consumers would say Lu Xun wine is so bad, eventually harming the reputation of a name of such a great influence in the PRC. But if the wine so branded started to be successful among consumers, it might in practice- acquire distinctiveness through use. On this basis, it can be concluded that if if Lu Xun s descendants were to operate the wine company and grow its reputation, a trademark registration might be successful. brbrAn example of this is the Lu Xun Art School, founded in 1938 and enjoying an excellent reputation in the educational field. The registration of the#40065;#36805;#33402;#26415;#23398;#38498; trademark can only serve as a way to honor the deceased author. Of course, that school is conducting a commercial activity on its own, like that of selling goods bearing the name, but contrary to Lu Xun s descendants, Lu Xun is only part of the overall trademark. Perhaps, a trademark like#40065;#36805;#23385;#23376;#30340;#37202;#20844;#21496; (Lu Xun s Descendants Wine Co.) could be an alternative.brbrThus, while personal names may be registered as trademarks in China,br1.There must be consent from the person.br2.There must be a clear connection between the name applied and the company or product.br3.It must not infringe the social morality or practice or of other harmful effects.br4.It must be distinctive.brbr3. ConclusionbrbrIf Lu Xun were alive today, he would have probably tried to benefit from the protection conferred by a trademark registration. Could we still see today a famous writer being denied registration of his name because people have come to associate it with moral values? The Amended Trademark Law of the PRC lacks any reference to the registration of personal names or portraits, but if harm to the social morality is not an issue, then the law may not be that different from other legal systems.brbrFrom this study case, we can conclude that, brbr1.Presumably, as long as the personal name is not held in such moral, historical, cultural esteem in China to be considered owned by all of society, one should be able to register that name;br2.As suggested above, if the descendant s wine company were to gain a reputation over time, an eventual trademark registration might be successful; andbr3.If as for the Lu Xun Art School, the trademark application was changed to Lu Xun s Descendants Wine Company, the application might be successful.brbrEstablished in 1992 as one of the first private law firms in China, Lehman, Lee Xu employs a highly-experienced team of over 110 lawyers, patent and trademark agents representing both foreign and Chinese clients throughout China in a variety of enterprises. With branches in various Chinese cities including Beijing, Shanghai, Shenzhen and Hong Kong, Lehman, Lee Xu is considered a leader of the re-established Chinese legal profession. The firm has been recognized by the media and the Chinese Ministry of Justice as one of the best law firms in China. For more information, please visit the firm s website at www.lehmanlaw.com.brbrAbout the Author brbrJordi Llopis hails from Spain and works in the Beijing office of Lehman, Lee Xu. br