BAR NEWSLETTER ARTICLE RE NEW MINNESOTA LLC ACT

By , March 5, 2015 2:08 pm

Minnesota LLC lawyers and lawyers interested in new developments in LLC statutory law may find it useful to read the above article.  The cite is:

Larson and Nelson, “Minnesota’s LLC Makeover,” 72-FEB Bench & B. Minn. 20 (February 2015)

ENFORCEABILITY OF ORAL OPERATING AGREEMENTS

By , March 4, 2015 5:05 pm

The very recent decision of the Delaware Court of Chancery in Pulieri v. Boardwalk Properties, LLC, C.A. No. 9886-CB (Del. Ch. Feb. 18, 2015) illustrates how important it is that LLCs with significant financial stakes have written (not oral) operating agreements.  Click here for a cite of the case and for a transcript and excellent summary of it:

http://www.delawarelitigation.com/2015/02/articles/chancery-court-updates/chancery-rejects-request-for-specific-performance-of-oral-agreement/.

LLCS AND VEIL-PIERCING: THE “LACK OF FORMALITIES” ISSUE

By , March 3, 2015 7:22 pm

LLC statutes impose far fewer statutory formalities on LLCs than corporate statutes do on state-law business corporations.  However, LLCs can nevertheless be liable for veil-piercing for failure to maintain statutory formalities.  For a discussion of this issue, click here:  http://www.nybusinessdivorce.com/2015/03/articles/llcs/llc-formalities-that-matter-guest-post-by-professor-daniel-kleinberger/#more-13264.

LAW JOURNAL NOTE ABOUT ARKANSAS LLC CASE RE IMPLIED COVENANT

By , March 2, 2015 11:02 pm

The implied contractual covenant of good faith and fair dealing is central in drafting operating agreements for multi-member LLCs under any LLC act.  Below is a cite to an insightful law student note about the covenant in the most recent issue of law review of the Law School of the University of Arkansas (Little Rock).  The note is relevant not only to Arkansas LLC lawyers but to LLC lawyers nationwide.

Here’s the cite:

Kathleen Lestage, “Contract Law – No Faith in Arkansas’s Approach to the Implied Contractual Covenant of Good Faith—Arkansas Research Medical Testing, LLC v. Osborne, 2011 Arkansas 158, 2011 WestLaw 1423993,” 36 U. Arkansas Little Rock L. Rev. 653 (Summer 2014).

NONDISCLOSURE PROVIONS IN LLC OPERATING AGREEMENTS

By , February 27, 2015 5:37 pm

The blog post under the DLA Piper law firm under the link below deals with nondisclosure agreements as such, but the excellent discussion in the post applies equally to nondisclosure and confidentiality provisions in LLC operating agreements.  Here’s the link:

http://www.lexology.com/library/detail.aspx?g=b43a7ecd-9d89-4509-bd8d-ea5cc022268f&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+Federal+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2015-02-25&utm_term=

CHOICE OF ENTITY IN REAL ESTATE TRANSACTIONS

By , February 27, 2015 4:56 pm

Here is a link to a useful blog post by the Fox Rothschild law firm on the above subject:  http://realestatecounsel.net/2015/02/23/real-estate-private-equity-choice-of-entity-considerations/.

LLC SALES OF REAL ESTATE–ORDINARY INCOME OR CAPITAL GAINS?

By , February 26, 2015 4:29 pm

When you help your clients form LLCs to purchase and sell real estate, you should advise them about how to maximize the likelihood that they’ll receive capital gains treatment rather than ordinary income treat on their income from these sales.  The following brief summary of a recent Tax Court case in the CCH Intelliconnect Tracker will provide your clients with solid guidelines:

LLCs’ Real Property Sales Resulted in Ordinary Income; Subject to Self Employment Tax

Sales of real property by three related LLCs produced ordinary income rather than capital gain, could not be reported on the installment method, and were subject to self-employment tax. Two of the three LLCs participated as bidders in tax lien auctions throughout Illinois, obtaining certificates of purchase of tax lien after paying taxes and other costs on tax-delinquent properties. Some certificates were assigned to the non-bidding LLC. If the lien was not redeemed by the property owner, the certificate owner would obtain a tax deed and try to sell the property as quickly as possible. Some properties were sold within one year of acquisition, some within two years, and a few after that. The LLCs reported the sales proceeds under the installment method as capital gain, either long- or short term. The IRS determined that the LLCs held the properties primarily for sale to customers in the ordinary course of a trade or business, so the proceeds were ordinary income.

The Tax Court considered various factors and determined that (1) the sales were made frequently and regularly; (2) the sales were substantial; (3) most of the properties were held for a short time; and (4) numerous people were employed to operate the LLCs’ business, all of which weighed against a finding of the properties being capital assets. The nature of the LLCs’ businesses, the relationship of the real property to those businesses, and the sales of the properties being in furtherance of those businesses also weighed against a finding of capital gain. The court concluded that the properties were not capital assets under Code Sec. 1221(a)(1) and the sales proceeds were ordinary income.

Sales of real property held in the ordinary course of a trade or business are considered “dealer dispositions” under Code Sec. 453(l) and, as such, were not reportable using the installment method. Because the sales proceeds were not capital gains, they were not excluded from the computation of net earnings and were subject to self-employment tax under Code Sec. 1402(a).

SI Boo, LLC, Dec. 60,224(M), TC Memo. 2015-19

TEXAS LLCS

By , February 25, 2015 3:58 pm

Of possible interest to Texas readers of this post (and perhaps to other readers as well):  Two very recent articles in the Texas Law Journal address Texas LLC issues:

  • Ehlert, Jerel, “Texas Limited Liability Company :  Rescission of Management Agreement; Fair Market Value of a Withdrawing Member’s Interest; Joint and Several Liability of Members with the LLC, “46-FALL Texas. J. Business. Law § 18-111 (2014); and
  • Ricks, Val, “The Twisted Veil of Texas LLCs,” 46-FALL Texas. J. Business. L, 67 (2014)

TAX CONSEQUENCES OF SALES OF INTERESTS IN CLOSELY HELD BUSINESSES

By , February 25, 2015 2:30 pm

The blog post under the link below deals with the tax consequences of sales of closely held corporate stock, but many of the general points in the post also apply to sales of LLC interests, and all of the points about sales of Subchapter S stock apply to LLCs taxable as S corporations.

Here is the link:  http://www.taxlawforchb.com/2015/02/shareholder-buy-outs-in-a-closely-held-corp-part-ii/?utm_source=Tax+Law+for+the+Closely-Held+Business&utm_campaign=9400ed56fe-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_4d5d267118-9400ed56fe-73367009

 

LLCS AND VEIL-PIERCING–DECISION BY MARYLAND COURT OF APPEALS IN SCHLOSSBERG V. BELL BUILDERS REMODELING [MD CT APPEALS 2/20/15]

By , February 24, 2015 2:20 pm

Lawyers shouldn’t form LLCs unless they have a solid knowledge of veil-piercing law as applicable to LLCs.  The above decision on that subject in a case called Schlossberg v Bell Builders Remodeling [MD Ct Appeals 2/20/15]  is very well reasoned and is likely to be useful not only to Maryland LLC lawyers but to LLC lawyers nationwide.