THE ROMANOFF CASE–A NY VALUATION CASE IN WHICH VALUATION OF GOODWILL IS KEY

By , July 29, 2016 4:13 pm

In the discussion of goodwill valuation under the link below, Peter Mahler provides an excellent discussion of goodwill valuation that is central of the above case.  The case is a NY case, but the doctrine on which it is based applies also in many other jurisdictions.

Here is the link:

http://www.nybusinessdivorce.com/2016/06/articles/limited-liability-partnerships/avoid-bad-blood-goodwill-professional-partnership-valuations/

TAX COURT CASE ABOUT VALUING MINORITY INTEREST HELD BY A DECEDENT IN A PARTNERSHIP FOR ESTATE PLANNING PURPOSES

By , July 28, 2016 2:53 pm

Under the link below is an excellent summary by Lou Vlahos of the FarrellFritz law firm about a recent Tax Court case on how to value a minority interest held by a decedent in a partnership for estate tax purposes.

Here’s the link:

http://www.taxlawforchb.com/2016/06/what-is-it-worth-it-depends/?utm_source=Tax+Law+for+the+Closely-Held+Business&utm_campaign=5699724e6f-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_4d5d267118-5699724e6f-73367009

NEW AMENDMENTS TO THE DELAWARE LLC AND PARTNERSHIP ACTS

By , July 27, 2016 4:47 pm

The Delaware Limited Liability Company Act is by far the most prominent and influential U.S. LLC Act  Every LLC lawyer should be familiar with it and should know when it to use instead of the lawyer’s home state act.  The Delaware law firm of Richards Layton & Finger provides an excellent summary of the several amendments to the Delaware Limited Liability Company Act and the Delaware general and limited partnership acts that the Delaware Legislature has just enacted.

You can read their summary at http://richardslaytonnews.com/rv/ff00287695adfaaa5408fcfecb47af456b182550.

RULLCA

By , July 25, 2016 3:22 pm

The link below provides basic information and section-by-section comments on the terms of the Revised Uniform LLC Act (“RULLCA”).  Other information about RULLCA can be found elsewhere in the Uniform Laws website.  16 states have adopted RULLCA, and three have pending bills that would adopt it.    The 16 states that have adopted it are, in alphabetical order:

  1. Alabama
  2. California
  3. Connecticut
  4. District of Columbia
  5. Florida
  6. Idaho
  7. Iowa
  8. Minnesota
  9. Nebraska
  10. New Jersey
  11. North Dakota
  12. South Dakota,
  13. Utah
  14. Vermont
  15. Washington
  16. Wyoming

Here’s the link with the above comments:  http://www.uniformlaws.org/shared/docs/limited%20liability%20company/ullca_final_06rev.pdf

BRIEF ARTICLE ABOUT THE OPPRESSION OF LLC MEMBERS

By , July 22, 2016 5:52 pm

Whenever you assist clients in drafting LLC operating agreements, whether you represent majority members or minority members, you should be thinking about LLC minority oppression issues and how to address them in the agreement.  The article under the link below is brief, but it is an excellent overview of these issues.

Here’s the link:  http://lawprofessors.typepad.com/business_law/2016/06/minority-oppression-in-the-llc.html

PETER MAHLER/CHRIS MERCER PODCAST ABOUT VALUATION DISCOUNTS

By , July 20, 2016 5:42 pm

For those of you who are interested in understanding marketability discounts in depth, here is the link to the above podcast:

http://www.nybusinessdivorce.com/2016/06/articles/valuation-discounts/chris-mercer-marketability-discount-part-2-podcast-interview/

THE DANGER OF USING LEGALZOOM

By , July 19, 2016 8:42 pm

A current client of mine e-mailed me a link from a LegalZoom web page stating that S corporations are better than LLCs for statutory asset protection purposes.  The LegalZoom web page is totally wrong.  It is based on the belief that S corporation is a legal term.  It’s not.  LLCs are business entities.  S corporations are tax entities.

It amazes me that LegalZoom could be so stupid as to refer to LLCs as “limited liability corporations.”

The link below illustrates the dangers of forming entities through LegalZoom.  One of these days, LegalZoom is going to face a huge lawsuit because of advice like the advice under the link below.

Here’s the link and the client quote:  “I found this other link that makes it look like s-corporations are better for liability reasons (not sure about this, only asking the question)?”

DICTA ABOUT THE NATURE OF LLCS AND LLC MANAGEMENT STRUCTURE IN DEL. SUPREME COURT RULING IN OBEID V. HOGAN

By , July 13, 2016 2:11 pm

By statute or under their operating agreements under most or all U.S. LLC acts, multi-member LLCs can have any of three main management structures:

  • Management by the members (akin to the general partnership management structure);
  • Management by one or more managers (akin to the limited partnership management structure); and
  • Management by a board of directors and by officers (akin to the classic state-law corporate management structure).

One June 10, 2015, the Delaware Court of Chancery issued its memorandum opinion in a case called Obeid v. Hogan (C.A. No. 11900-VCL).  The facts, legal issues and rulings in the case are set forth in the post under the link below, but they not relevant to most LLC formations.  However, in dicta, the court also stated its views about two issues that are of great significance in LLC formation issues in drafting operating agreements  not only under  the Delaware Limited Liability Company Act (the “Delaware Act”) but under most or all other LLC acts.

  1. First, the court noted that when the members of an LLC choose one of the above management structures, they may also be choosing, whether they know it or not, to be subject to a broad range of statutory business organization law rules not imposed by the Delaware Act, but rather, in the case of the above three management structures, by, respectively, Delaware general partnership, limited partnership or corporate statutory law.
  2. The court noted that while contractual freedom is key under the Delaware Act, it is wrong to say that Delaware LLCs are “purely” contractual entities.  As the court explained, many key rules governing Delaware LLCs are statutory rules that result from the fact that Delaware LLCs are a product of the Delaware legislature.  Not only in Delaware but also in all other states, lawyers in drafting operating agreements must be aware of these key LLC non-contractual rules.

If you’d like to know about the facts, issues and rulings in Obeid v. Hogan, click here:  http://www.rlf.com/Publications/6517

NORTH DAKOTA ADOPTS RULLCA

By , July 12, 2016 3:46 pm

As noted in the link below, North Dakota has recently adopted the Revised Uniform LLC Act as its LLC act.  There are now roughly 10 states that have adopted RULLCA.  My view of RULLCA is that it has many excellent provisions, but also two significant flaws—the absence of a default rule governing allocations of profits and losses; and the non-use of the very helpful statutory phrase “unless the operating agreement provides otherwise.”

Here is the link:  http://www.lexology.com/library/detail.aspx?g=9bf063f0-fe04-4ebc-8597-2942d5205cae&l=7RVSTU5

NEW PUBLICATION BY IRS ON LLC TAXATION

By , July 11, 2016 8:00 pm

Every LLC formation lawyer should have at least a basic understanding of the federal and state taxation of LLCs and their members.  The IRS has just issued a new publication, designated Publication 3402, entitled “Taxation of limited liability companies.”  There are a number of key LLC federal tax issues that this publication does not address in any detail—e.g., how to determine whether the Self-Employment Tax applies to members of multi-member LLCs taxable as partnerships.  However, it is still a very useful—and, of course—authoritative—overview of its subject matters—for example, with respect to the tricky issues concerning LLC tax IDs (“employer identification numbers”).

Here is the link to Publication 3402:

http://pdfs.taxnotes.com/2016/2016-13490-1.pdf?_ga=1.104220224.1724263812.1459339813