Looking for a lawyer that has ROBS 401K experience

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April 25, 2022

by a searcher from North Carolina State University in Sykesville, MD 21784, USA

Please provide recommendations for lawyers that have dealt with the buy side of a transaction where the buyer is using a 401K ROBS plan to bring the equity to an SBA 7(a) loan. I have a deal under LOI and I need legal due diligence, as well as a purchase agreement, assistance with closing, etc.

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Reply by a searcher
from University of Pennsylvania in Portland, OR, USA
I do not have a lawyer recommendation for you. I do, however, have recent experience buying a business using ROBS for a portion of the equity in an SBA 7(a) loan scenario. Here are a few lessons learned. If you'd like to talk more about it, reach out directly but consult your attorney rather than rely on my anecdotes.

- Setting up the ROBS structure, creating the 401K, and positioning the funds intended for use as equity may take two months. I accomplished most of that before having a deal on the table, which kept the ROBS setup from becoming a critical path item. You're already under LOI, but just know that you can work on the ROBS setup and it will still benefit you in a future deal even if this one doesn't close.

- Guidant Financial was a dissatisfying provider for ROBS setup. They are the most visible and likely the largest, but the team was unfamiliar with handling an acquisition of the size that requires a maxed out SBA 7(a). I think the core client is someone taking less than $100K out of a retirement account and opening a main street business. Also, there was not a dedicated account rep. I was handed off repeatedly as we went through the process and they were difficult to reach. The benefit that Guidant brought (and it was helpful) was their package of vetted legal documents. If you go the route of considering a ROBS provider, I recommend interviewing Benetrends as an alternative.

- The program has worked as desired. We used 401K money for 49% of the equity in order to preserve our family's liquid assets and not tie everything up in the business. 80% of our employees signed up for the 401K and no one exercised their right to buy stock in the company. After successful business operation we've set aside enough cash to buy back the shares. We will execute the buyback in the next 90 days and then convert from C-Corp (required for ROBS) to S-Corp. Having under 50% owned by the 401K was important, because that triggers a discount for lack of control in the value of the shares during the mandatory 3rd party valuation in the buyback process.

Good luck
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Reply by an investor
from Babson College in Boston, MA, USA
Try this lawyer who specializes in ROBS Alex Gardine redacted He works with Guidant but is independent from them - Also for purchase agreement, closing etc. you may want to work with a local attorney who knows the ins and outs of the business acquisition space and will be less expensive
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