[March 3, 2018. The General Assembly amended some of the provisions created the Business Entity Harmonization Bill, as discussed in a Postscript to this series.]
This is the last in four-part series. The first three parts are here: here, here, and here.
This Part IV describes some flaws of Senate Enrolled Act 443 that we ran across while writing the first three parts. We hope the General Assembly will address them, either in the 2018 session or another.
[March 3, 2018. The General Assembly amended some of the provisions created the Business Entity Harmonization Bill, as discussed in a Postscript to this series.]
This is the third of a four-part series discussing the Business Entity Harmonization Bill passed by the Indiana General Assembly in 2017. The first two parts are here and here.
Senate Enrolled Act 443 creates, effective as of January 1, 2018, a new Article 0.6, the Uniform Business Organization Transactions Code, in Title 23 of the Indiana Code. In previous versions of the statute, provisions dealing with mergers, conversions, and domestications of business corporations, limited liability companies (LLCs), limited partnerships (LPs), limited liability partnerships (LLPs), and nonprofit corporations were scattered across several articles of Title 23. The Uniform Business Organization Transactions Code gathers most of them into one article that, in general, applies at least as broadly as each corresponding provision of the former statute, and in some cases more broadly. In addition, the new article provides for the acquisition of ownership interest (i.e., stock in a corporation or interest in a partnership or LLC) by another entity.
[March 3, 2018. The General Assembly amended some of the provisions created the Business Entity Harmonization Bill, as discussed in a Postscript to this series.]
This is the second of a four-part series discussing the Business Entity Harmonization Bill passed by the Indiana General Assembly in 2017. An overview of the bill is provided in Part I.
Senate Enrolled Act 443 creates, effective as of January 1, 2018, a new Article 0.5 in Title 23 of the Indiana Code, the Uniform Business Organizations Code, that includes a number of provisions that apply to Indiana business corporations (including professional corporations and benefit corporations, but excluding insurance companies), limited liability companies (LLCs, including series LLCs), limited partnerships (LPs), limited liability partnerships (LLPs), and nonprofit corporations, eliminating a number of inconsistencies between similar provisions for different types of entities. The following discussion is a brief description of some of the more important provisions, drawing attention to new or substantially changed provisions.
[March 3, 2018. The General Assembly amended some of the provisions created the Business Entity Harmonization Bill, as discussed in a Postscript to this series.]
Indiana law provides for several types of business and nonprofit entities, each of which is governed by one or more articles of Title 23 of the Indiana Code, all of which require similar filings with the Indiana Secretary of State, and all of which are capable of undergoing transactions such as mergers and conversions into other types of entities. The types of entities and the governing portions of Title 23 are:
Part I of this two-part series addressed requirements for maintaining an Indiana limited liability company, including the preservation of the corporate veil, that are imposed by statute or that may be imposed through the LLC’s operating agreement. Part II addresses recommended practices for maintaining Indiana LLCs that will help preserve the corporate veil (the liability shield that protects the assets of owners, or the assets of other related entities, from the LLC’s creditors) and are simply good business practices. Although the failure to follow one or more of the following recommendations will not necessary subject your LLC to veil-piercing, the following characteristics and practices are common to most well operated and maintained LLCs.
Compared with corporations, limited liability companies are generally low maintenance, but not entirely maintenance free. A few requirements are imposed by statute, and the operating agreement may or may not create some additional formalities that must be observed. In addition, there are good practices that, in addition to observing the required formalities, help preserve the liability shield that protects the owners’ assets from creditors of the LLCs (or the “corporate veil”). Part I addresses the statutory requirements and the types of requirements that are sometimes found in operating agreements; Part II will address some best practices.
NOTE: This post and Part II address only the requirements and best practices related to “corporate” governance, particularly those that are relevant to preserving the corporate veil. For any particular LLC, there may be a myriad of other legal requirements and best practices related to other areas, such as employer-employee relationships and permits or licenses that are necessary to conduct the LLC’s business, that are not addressed here.
Statutory Formalities
If you’re not aware that Congress is working on a major revision to federal tax law, you’ve not been paying much attention to the news. The House of Representatives passed its version of the Tax Cuts and Jobs Act, then the Senate passed a similar, but not identical, bill. The bill went to conference committee to work out the differences between the House and Senate versions of the bill, and last week the conference committee issued its report. It currently appears that the conference committee’s recommendations will be approved and become law.
If you have the patience and desire to read the committee report, I suggest you skip to the Joint Explanatory Statement of the Committee of Conference that begins page 191 of the report (which is page 205 of the PDF file) . The pages preceding that set forth language to be inserted into the Senate version of the bill, but not the full text of the final bill. On the other hand, you’re looking for a more concise summary of some of the changes that will affect individuals and small businesses, I refer you to a side-by-side comparison of the current law and the law as it is expected to pass, written by Paul Bogdanoff of Bogdanoff Dages & Co. PC, a CPA and my friend of many years.
While the new law does not take effect until the 2018 tax year, some of its provisions may affect decisions you make in 2017. For example, the increase in the standard deduction (from $6,350 to $1200 for a single person, and from $12,700 to $24,000 for a married couple filing jointly) means that many people who are accustomed to itemizing deductions will no longer do so. As a result, those people will no longer receive a tax benefit from charitable contributions or other itemized deductions. Individuals in that category may want to accelerate charitable contributions and other deductible expenditures that are planned for 2018 by making them before the end of 2017.
Although the tax reform bill just passed by the U.S. House of Representatives retains the income tax deduction for individuals who make contributions to charitable organizations (i.e., organizations that are tax exempt under Section 501(c)(3) of the Internal Revenue Code), it may nonetheless have significant effects on the amount of charitable giving by Americans. The reason lies in the increase in the standard tax deduction for individuals and the elimination of other deductions.
Increasing the Standard Deduction
The tax code provides several types of deductions that reduce the amount of tax owed by individual taxpayers, including deductions for home mortgage interest and contributions to charitable organizations. However, the tax code also provides a minimum “standard deduction” for taxpayers who have less than that amount in itemized deductions. Taxpayers who itemize deductions receive a tax benefit by making a charitable contribution, but not those who take the standard deduction. For example, the after-tax cost of a $100 contribution by most itemizing taxpayers in the 25% tax bracket is only $75. For taxpayers who take the standard deduction, the cost of a $100 contribution is $100 in both before- and after-tax dollars.
I’ve written before about the need for the owners of small businesses to have at least three professionals: a business lawyer, a tax accountant, and an insurance broker. Because it has been a while, and because the advice is so important, I decided to write about it again. Thinking about a group of three professionals led me to consider analogies to other groups of three people.
The first thing that came to mind was the traditional English nursery rhyme:
Rub a dub dub,
Earlier this month, the Seventh Circuit Court of Appeals decided Doermer v. Callen, No. 15-3734 (7th Cir. Feb. 1, 2017). In a previous post, we reviewed the facts and explored what the case had to say about the board of directors and directors’ terms. Today we’ll inch closer to the issue at the center of the case: whether a non-member director of an Indiana nonprofit corporation has standing to bring derivative claims on behalf of the corporation.
But before getting to derivative claims, let’s consider what it means to be a member of a nonprofit corporation. Perhaps you’ve made a donation to a nonprofit in your community and been recognized as an “annual member” for your contribution. Generally it is okay for an organization to refer to its donors and other people who support the organization as members. However, these types of donor membership programs usually do not grant the donor legal or statutory membership in an organization.
Under the Indiana Nonprofit Corporation Act of 1991 (the “Act”), a “member” is “a person who, on more than one (1) occasion, has the right to vote for the election of a director under a corporation’s articles of incorporation or bylaws.” Ind. Code § 23-17-2-17(a). Chapter 7 of the Act discusses membership in more detail (including admission criteria, liability, rights, and duties), but the key is that a member is a person who, once he or she is admitted or meets the admission criteria, has the right to vote for a director.
Indiana Business Law Blog