NON-PROFITS AND SINGLE-MEMBER LLCS

By , March 7, 2018 8:37 pm

Below in italics are the citation, title and author’s synopsis of a new law journal article about the use of single-member LLCs by non-profits.

52 Real Prop. Tr. & Est. L.J. 153

Real Property, Trust and Estate Law Journal

Fall, 2017

Ellen P. Aprill

Copyright © 2017 by American Bar Association; Ellen P. Aprill

SECTION 501(C)(3) ORGANIZATIONS, SINGLE MEMBER LIMITEDLIABILITYCOMPANIES, AND FIDUCIARY DUTIES

Author’s Synopsis: Tax-exempt organizations, including section 501(c)(3) organizations and their donors, use single member limited liability companies (SMLLCs) for a variety of purposes. Exempt section 501(c)(3) nonprofit organizations–to be referred to as charities–that have a number of facilities, such as schools, hospitals, or real estate investments, may form a separate SMLLC for each of them, primarily to protect other assets from liability. Charities may wish to place an activity with a high risk of environmental or tort liability, such as an overnight summer camp, in its own SMLLC. SMLLCs may be used to isolate unrelated business activities from related activities or risky investments from more traditional ones. They may also be used to isolate risky investments from more conservative ones.

An SMLLC leads a schizophrenic existence. Although an entity under state law, it is disregarded for most purposes under federal tax law. Furthermore, the leading theoretical approaches to LLCs and to nonprofit organizations stand in sharp contrast to each other, particularly regarding the ability to rely on contract. These very different sets of applicable law and theory allow for regulatory arbitrage, which involves taking advantage of inconsistencies between the applicable rules.

LLCs, including SMLLCs, have the choice of being member-managed or manager-managed. To ensure the greatest liability protection, the member of an SMLCC may choose for it to be manager-managed. Some LLC statutes, most importantly Delaware’s statute, permit the SMLCC to waive fiduciary duties. Charities, however, cannot waive fiduciary duties. This divergence in applicable rules regarding fiduciary duties could lead to conflict between the member charity and its SMLCC, such as pursuing activities inconsistent with the charity’s exempt purpose or engaging in campaign intervention. To avoid such conflict, this Article recommends that the IRS issue *154 guidance requiring control of the SMLCC by the charity, as it has done in the context of charitable contributions to a charity’s SMLCC.

RECENT LLC BUSINESS DIVORCE CASES

By , March 5, 2018 3:03 pm

Peter Mahler’s post, under the link below, discusses five recent business divorce cases, four of which involve LLCs and all of which contain useful lessons both with respect to the litigation of LLC internal disputes and with respect to the drafting of operating agreements to avoid these disputes.

Here’s the link:

https://www.nybusinessdivorce.com/2018/01/articles/uncategorized/winter-case-notes-llc-deadlock-recent-decisions-interest/

CHANGES IN THE US FOREIGN TAX RULES UNDER THE TCAJ ACT

By , February 28, 2018 4:30 pm

For those of you for whom changes in the above rules are relevant or at least interesting, these changes have been skillfully summarized by Lou Vlahos of the FarrellFritz firm in the post under the following link:  https://www.taxlawforchb.com/2018/01/u-s-taxation-of-foreign-income-after-tax-reform/

POST BY LOU VLAHOS ABOUT IMPACT OF TAX CUTS AND JOBS ACT ON ESTATE TAX

By , February 22, 2018 2:08 pm

Here is a link to an excellent post by Lou Vlahos about the impact of the Tax Cuts and Jobs Act on the federal estate tax:

https://www.taxlawforchb.com/2018/01/the-federal-estate-tax-lives-on-but-where-o-death-is-your-sting/

LLC BANKRUPTCIES

By , February 20, 2018 4:23 pm

Below are the title and first paragraph of a new law journal article about operating agreement restrictions on LLC bankruptcy filings.

36-DEC Am. Bankr. Inst. J. 26
American Bankruptcy Institute Journal
December, 2017
Feature
Cecily A. Dumas
Pillsbury Winthrop Shaw Pittman LLP
San Francisco
David S. Forsh
Pillsbury Winthrop Shaw Pittman LLP
New York
Copyright © 2017 by American Bankruptcy Institute; Cecily A. Dumas, David S. Forsh

CONSIDERATIONS IN EVALUATING LLC OPERATING AGREEMENT CONSTRAINTS ON VOLUNTARY FILINGS

Corporate entities may voluntarily commence bankruptcy only with valid authorization as determined by applicable state law. Bankruptcy-remote entities (special-purpose entities (SPEs) or special-purpose vehicles) are specifically structured to isolate credit risk to the SPE assets and minimize bankruptcy risk. The limited liability company (LLC) is a form of organization that is often used to deter bankruptcy filings through provisions in the operating agreement such as the requirement for unanimous votes. While recent decisions have invalidated certain such constraints on federal public policy grounds when implemented at a creditor’s request, future decisions could view the various policy considerations differently and reach other conclusions, particularly with other transaction structures.

POST FROM PETER MAHLER ABOUT VALUATION AND INSOLVENCY

By , February 13, 2018 6:13 pm

The link to Peter’s post is below.  Here is Peter’s introduction to the post:

“Delaware Chancery Court Rulings Address Valuation and Insolvency Disputes

By Peter Mahler on Jan 15, 2018 06:11 am

If you’re a business appraisal aficionado, you won’t want to miss this week’s New York Business Divorce featuring two recent decisions by the Delaware Chancery Court involving fair value and insolvency determinations.”

The link:  https://www.nybusinessdivorce.com/2018/01/articles/valuation/delaware-chancery-court-rulings-address-valuation-insolvency-disputes/

LLC RIGHTS OF ESTATE OF INDIVIDUAL DELAWARE LLC MEMBER UPON THE MEMBER’S DEATH

By , February 9, 2018 8:42 pm

The post by Peter Mahler under the link below addresses the above issue.  It is a key issue in any LLC operating agreement or LLC agreement for a multi-member LLC, whether the LLC is a Delaware or a non-Delaware LLC.  The basic lesson:  How the agreement addresses the issue trumps the governing LLC act (especially in Delaware but very probably under all other LLC acts).

Here’s the link:

https://www.nybusinessdivorce.com/2017/12/articles/delaware/delaware-contractarian-principles-prevail-appeal-deceased-ace-hotel-founders-llc-interest/

ARTICLE ABOUT UNWRITTEN OPERATING AGREEMENTS

By , February 6, 2018 12:40 pm

The article cited below about the above topic is by a leading LLC scholar.  It merits careful study.

Here’s the cite:

Business Law Today
September, 2017
Department
Daniel S. Kleinberger
Copyright © 2017 by the American Bar Association; Daniel S. Kleinberger

FROM THE UNIFORM LAW COMMISSION: LIKE GREAT BRITAIN, A LIMITED LIABILITY COMPANY MAY HAVE AN UNWRITTEN CONSTITUTION

Under Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 291 (Del. 1999), the operating agreement is indubitably the “cornerstone” of a limited liability company. This column examines the problems arising when that cornerstone is unwritten.

ILLINOIS LLC ACT

By , January 25, 2018 5:45 pm

Below are the citation and first paragraph of a law journal article about real estate transactions under the new Illinois LLC Act.  The concepts in the article are likely to be important not only in Illinois but also in many other states.

30 DCBA Brief 20
DCBA Brief
December, 2017
Article
Article Editor Brian Dougherty
Ken Clingen, Tom Sisul
Copyright © 2017 by DCBA; Ken Clingen, Tom Sisul

MEMBER AND MANAGER AUTHORITY AFTER THE 2017 ILLINOIS LIMITED LIABILITY COMPANY ACT AND ITS EFFECT ON REAL ESTATE TRANSACTIONS

Illinois substantially amended its Limited Liability Act effective July 1, 2017. A recent DCBA Brief article summarized the major changes wrought by the 2017 Act. This article adopts a narrower focus by exploring the ways in which the 2017 Act changed the prior “member managed and “manager managed” regime and how that affects the authority of LLC members and managers to act on behalf of the LLC, particularly with respect to real estate transactions. We also include insight from Richard Bales of Chicago Title on how these changes affect real estate title and diligence issues.

 

 

NEW HAMPSHIRE BUSINESS TAXES

By , January 23, 2018 5:37 pm

For New Hampshire business lawyers and accountants and others who may be interested:

The New Hampshire Department of Revenue Administration has confirmed that for tax periods ending on or after December 31, 2018, the business profits tax rate is decreased to 7.9% (previously 8.2%) and the business enterprise tax rate is decreased to 0.675% (previously 0.72%). These decreases were contingent upon state revenue collections reaching a specified threshold by June 30, 2017. The Legislative Budget Assistant has now confirmed the threshold was met.

Please note that 2017 New Hampshire legislation added two further rate reductions for tax periods ending on or after December 31, 2019 and for tax periods ending on or after December 31, 2021.

See Technical Information Release TIR #2018-001, New Hampshire Department of Revenue Administration, January 5, 2018.