BizLawBuz …. The Power of Know

While the changes are mainly technical in nature, some are substantive and worth noting. Changes to the Michigan Limited Liability Company Act (”LLCA”) took effect on December 16, 2010.

The LLCA now:

• Enables corporations to easily convert into limited liability companies (”LLCs”) and vice versa. This represents one of the most important changes to the LLCA. Prior to the amendment, it was necessary to go through a formal merger of a corporation and an LLC to make the conversion. There are several reasons, such as tax implications and corporate governance, that may make it desirable to change the form of an existing business entity, and this process will make such a change much simpler.
• Clarifies how a person is admitted to an LLC as a member. Previously, the LLCA indicated that a person could only become a member of an LLC at the time of formation if the person signed the initial operating agreement, but LLCs are not required to have operating agreements. Now, a person will be admitted as a member if he or she signs an operating agreement, or if the person’s status as a member is reflected in the LLC’s records. Additionally, a person can be admitted by the other members in any other writing.
• Provides processes and guidelines for the approval of transactions with interested managers or agents (i.e., the transaction was fair, material facts of transaction were disclosed, and disinterested managers/members approved the transaction);
• Explicitly authorizes LLCs to provide broad indemnification of members, managers, and others, subject to some exceptions. The former LLCA seemed to some to only permit indemnification of managers, not members and agents.
• Explicitly authorizes LLCs to purchase errors and omissions (D&O) insurance for members, managers, and others. Like indemnification matters discussed above, the former LLCA was interpreted to prohibit LLCs from purchasing errors and omissions insurance on behalf of any person other than a manager.
• Limits the rights of an LLC member’s creditor. As a result of the amendments, a creditor cannot take the member’s membership interest in the LLC and either sell it or become a member itself; creditors receive only a charging order and the right to distributions that would be payable to the member. Under the prior version of the LLCA, creditors were attempting to go beyond attaching the economic rights of their debtors and attempting to participate in management of the LLC or sell the membership interest.
• Clarifies that members and managers of LLCs may be entities rather than natural persons.

For additional information regarding changes to the LLCA and how they affect your business, please contact an attorney at Wright Penning & Beamer.

Julie Pfitzenmaier

Over the last several years, Michigan has experienced extraordinary job loss. One fruit of those job losses has been an unusual number of business start-ups. All over the state, laid off workers have “reinvented” themselves, sometimes going back to school to pursue a different or more advanced degree, and sometimes going into business for themselves doing either the kind of work they have always done or something entirely new.

Online Resources
The federal government continues to develop online resources for the benefit of business owners. Among the recent resources posted by the Internal Revenue Service is a virtual small-business tax workshop that you can access at http://www.tax.gov/virtualworkshop. The virtual workshop consists of a series of nine videos covering a number of topics of interest to small business owners, particularly those who are just getting started. Lessons cover topics such as how to set up and run your business, how to file and pay your taxes using your computer, how to set up a home office or a retirement plan and how to manage payroll.

Taking Advantage of SBA Loan Programs
The U.S. Small Business Administration also has a number of online resources for small business owners. Several videos and podcasts can be accessed at http://www.sba.gov/training. Among the topics covered by the SBA are how to develop a business plan, how to survive in a down economy, and how to take advantage of SBA loan programs and federal government contracting opportunities.

The Need for Tax or Legal Counsel
These online tools don’t replace the need for tax or legal counsel, but they can help you make better and more efficient use of both your time and our office, which in turn can save you money. If you are considering a new business venture or you need our assistance with a legal matter affecting your ongoing business, please contact any of the attorneys at Wright Penning & Beamer. We would be pleased to help you!

LeClair L. Flaherty

It has long been said that the only things certain in life are death and taxes. While most Americans pay any number of local, state and federal taxes while living, depending upon the extent of one’s property and the estate planning techniques used, additional taxes may be owed at death. According to the IRS website, “The Estate Tax is a tax on your right to transfer property at your death.” While the federal estate tax, therefore, has an impact on estate planning, the extent of that impact is currently in a state of flux. While death remains a certainty that all will face, the amount of federal estate tax is not.

In 2001, the Economic Growth and Tax Relief Act of 2001 (the “2001 Act”) was signed into law, significantly changing key provisions of the Internal Revenue Code dealing with the federal estate tax. Changes included an incremental increase in the estate tax unified credit exclusion from the pre-2001 amount of $650,000.00 per person, to $3.5 million per person in 2009, with no federal estate tax at all in 2010. In addition, the top estate tax rate declined from 55% to 45%. However, the 2001 Act contains a sunset provision and is set to expire on December 31, 2010. At that time the federal estate tax exclusion is scheduled to revert to $1 million per person and the maximum tax rate of 55% will be restored.

At 2009 rates, only inheritances above $3.5 million for an individual and $7 million per married couple were subject to the federal estate tax, at a tax rate of 45%. While it was estimated that only 1% of all inheritances would exceed those thresholds (encompassing an estimated 6,000 estates), Congress expected the federal estate tax to generate upwards of $25 billion in taxes in 2009.

Although there is no federal estate tax in 2010, the 2001 Act replaces the federal estate tax with a 15% capital gains tax on property inherited in 2010. Prior to 2010, beneficiaries of appreciated assets received those assets at their fair market value at the time of the decedent’s death (”stepped-up basis.”) Under stepped-up basis rules, the difference in the value of the asset from the time it was acquired by the decedent (the decedent’s “basis”) and the value of the asset at the time of the decedent’s death (the “gain” or “appreciation”) was not taxed as capital gains to the beneficiaries. This total exclusion no longer applies in 2010. While the capital gains scenario for 2010 is complicated and has its own system of exemptions, experts agree that many who thought that the elimination of the federal estate tax in 2010 would amount to a windfall may be in for a surprise.

The new capital gains treatment in 2010 notwithstanding, it is uniformly acknowledged that Republicans and Democrats alike are not going to accept the total elimination of the federal estate tax in 2010. In fact, on December 3, 2009, the House passed the Permanent Estate Tax Relief for Families, Farmers and Small Business Act of 2009, making permanent the $3.5 million per person exclusion, the 45% top tax rate, and stepped-up basis rules. However, the Senate, while focused on healthcare reform in the closing weeks of 2009, did not address the federal estate tax. As a result, the 2001 Act remains controlling — at least for now. Some Democratic Senators have vowed to reconvene early in January in order to pass an act that will be retroactive to January 1. As of this writing, the only thing that is certain is uncertainty.

We at Wright Penning & Beamer will continue to monitor this situation and the impact of future federal legislation on the estate planning needs of our clients. Stay tuned.

Duane L. Reynolds

Business Succession Planning

Lawyers specializing in business succession planning services

Business Succession Planning Services Offered: We help privately-owned businesses and the individuals who own them develop exit or succession strategies for the transfer of ownership to family members, to employees and to third parties.

The best indicator of our attorneys’ skills in transferring business ownership among family members is that we represent several businesses that have been successfully transferred to a second generation of ownership and six business clients who have successfully transferred ownership from a second generation to a third. Given the fact that fewer than 20% of businesses survive generational transfers, we offer the unique perspective and practical solutions that come from continued success in the field of business succession planning.

Benefiting from our business succession planning experience
If a sale to a third party is the best way to maximize the value of your business, our experience with hundreds of successful third-party transactions will be invaluable. Learn what Wright Penning & Beamer attorneys can offer you with their business succession planning services.

Wright Penning & Beamer is a participating sponsor of the Family Business Council of Southeastern Michigan and a member of the Family Firm Institute.