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Dwayne B.
Dwayne B., Attorney
Category: Legal
Satisfied Customers: 32323
Experience:  Began practicing law in 1992
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Acme Company wants to contract with a Consultant to help

Customer Question

Acme Company wants to contract with a Consultant to help with marketing. Acme Company is currently a sole proprietorship with a fictitious business name. Acme Company will most likely incorporate during the term of its contract with the Consultant. Here is my question: Will the following successor clause cover the agreement staying in place if the sole proprietorship becomes a corporation?:
"This agreement shall be binding on and inure to the benefit of the parties hereto and their respective heirs, legal or personal representatives, successors, and assigns."
OR....once Acme Company incorporates will they have to have the Consultant sign a new agreement?
Submitted: 5 months ago.
Category: Legal
Expert:  Dwayne B. replied 5 months ago.

Hello and thank you for contacting us. This is Dwayne B. and I’m an expert here and looking forward to assisting you today. If at any point any of my answers aren’t clear please don’t hesitate to ask for clarification. Also, I can only answer the questions you specifically ask and based on the facts that you give so please be sure that you ask the questions you want to ask and provide all necessary facts. Please note: This is general information for educational purposes only and is not legal advice. No specific course of action is proposed herein, and no attorney-client relationship or privilege is formed by speaking to an expert on this site. By continuing, you confirm that you understand and agree to these terms.

That phrase is pretty standard and should work but you may also want to get a lawyer to draft the language for you in "plain English" and saying specifically what you want to say. You have to remember that if something twists off and ends up in a lawsuit then you may be presenting your facts to a jury one day and the simpler and more direct you can make them the better.

If your question has been answered then I'd offer my best wishes to you and ask that you please not forget to leave a Positive Rating so I receive credit for my work.

Of course, please feel free to ask any follow up questions in this thread. I want to be sure that all of your questions are answered. In addition, once you issue your Positive Rating the question will lock open and no longer time out so you can come back to it anytime in the future if you think of any follow ups.

Customer: replied 5 months ago.
just to clarify - does "binding on...successors" specifically cover the maturation of the company from sole proprietorship to either an LLC , S Corp or C Corp? The reason I'm asking this is because the formation of a "corporation" could be seen as an event requiring assignment as opposed to an extension/successor to the sole proprietorship. Please advise.
Customer: replied 5 months ago.
if the agreement needs to be assigned once they become a corporation i need to know that now
Customer: replied 5 months ago.
is moving from sole proprietorship to corporation considered a succession???
Customer: replied 5 months ago.
are you gone????????
Expert:  Dwayne B. replied 5 months ago.

Yes, essentially so. There can be language in the corporate documents that state the corporation is buying the right to all contracts and is a successor. You do point out a fact that you need to keep in mind. A corporation is a separate legal entity and must be treated that way. This clause could cause problems if there are any lawsuits later...

Expert:  Dwayne B. replied 5 months ago.

...I'm still here, I just interrupted the answer to respond.

Please be patient because we are working with more than one person, although not at the same time, plus we need to do a little research occasionally, etc.

I'll be online almost all day and we'll be sure to answer your questions as they come up in the queue.

...

Expert:  Dwayne B. replied 5 months ago.

A I was saying, it could cause problems because you are removing some of its "separateness" by adding that clause.

If you have never created a corporation before be sure that you don't use a kit and hire a lawyer to do it for you. They will explain a lot of issues that can arise and "how to run your corporation like a corporation" so that the corporate shield is maintained intact.

Customer: replied 5 months ago.
Sorry ; ) so then the answer is "no" - succession language does not adequately cover the maturation of the company. How about this approach instead. I could add this clause allowing this contract to be assigned by Acme (sole proprietorship) to Acme, Inc. (corporation) once it is formed. See below:Assignment. This agreement may be assigned by Company to Company successors without consent. Other assignment of Agreement will require mutual consent and such consent will not be unreasonably withheld.
Expert:  Dwayne B. replied 5 months ago.

Not exactly. It will cover the change in the company since that clause gives you the right for another entity to take over so long as they are a successor. To be safe you would want to add in that you have the right to assign the contract to another entity as well.

Those two together then would cover all the bases.

It's funny. I was typing out a section explaining assignments when the second part of your question popped up.

Customer: replied 5 months ago.
see? I know a thing or two..... healthcare consultant - negotiate and write contracts for a living....thanks for your help!
Expert:  Dwayne B. replied 5 months ago.

That was an important part that most people don't know about or, even if they know, don't catch. Well done!

You're very welcome.

Best wishes to you and please don't forget to leave a Positive Rating so I receive credit for my work. The website doesn't credit me until you issue the positive rating.

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