Browse recent news and blog posts related to corporate governance below. If you need business legal services or wish to browse our attorneys visit our Utah business law practice page.
President Obama decided to pursue Immigration Reform through Executive Orders. May hear something after November 5, 2014.
July 2014
Starting July 1, 2014, small charities may be eligible to apply for tax exempt status by filing the
Internal Revenue Service’s new Form 1023-EZ.
Until recently, all non-profit organizations seeking tax-exempt status under 501(c)(3) were required to: pay the $850 filing fee; complete the 26 page IRS Form 1023; and provide the IRS with a detail summary of charitable activities, governing documents and financials.
Now the Internal Revenue Service has simplified the application for small charities. Most organizations that have assets valued less than $250,000 and annual gross receipts of $50,000 or less will qualify to use the new Form 1023-EZ. That form is only 3 pages and the application fee is $400. The new Form 1023-EZ must be filed online.
If you are planning formation a non-profit charity, you may want to consider filing the new Form 1023-EZ. The eligibility requirement are contained in the new Form1023-EZ’s instructions.
INSTRUCTIONS
http://www.irs.gov/pub/irs-pdf/i1023ez.pdf
NEW APPLICATION FORM
http://www.irs.gov/pub/irs-pdf/f1023ez.pdf
This is good news for tax planning for family foundations, athletic clubs, and charitable groups. Call Greg Steed, Chair of the Trusts and Estates Practice Group at RBMN, at 801.531.2000 if you have any questions.
For many years the limited liability company (“LLC”) has been the entity of choice for entrepreneurs and small businesses. However, in the intermountain region the Wyoming and Nevada LLCs have been widely regarded as being more business friendly and having better asset protection characteristics than the Utah LLC. With the enactment of the Utah Revised Uniform Limited Liability Company Act1 (the “Act”), which went into effect on January 1, 2014, members of Utah LLCs now have access to similar protections and opportunities which were previously unavailable in Utah.
Utah LLCs formed after January 1, 2014 must follow the Act while preexisting Utah LLCs are given until January 1, 2016 to become compliant. However, because of the opportunities that exist under the Act most existing LLCs will want to opt-in to the new Act much sooner than 2016. This article identifies several of the most significant changes of which business owners should be aware.
Under the Act some of the most obvious changes apply to duration and formation. Under the Act Utah LLCs can now exist with no specific termination deadline,2 and formation of a LLC is now done by filing a Certificate of Organization.3 Existing LLCs will want to file an amendment to its Articles of Organization with a new Certificate of Organization. One benefit now available is that the identity of company managers is no longer required to be disclosed in the Certificate of Organization. Like members, managers of a LLC can now remain anonymous.
A major change under the Act is that LLC operating agreements can now be established orally or based on the conduct or habits of the members and mangers of the company.4 At first blush this may seem like a cost saving opportunity for the LLC. However, the practical effect is sure to cause headaches for the unwary. In the absence of a formal operating agreement, the actions of the members and managers of a LLC, including casual conversations regarding operations, can be construed to be the actual policy of the company and therefore bind the members to actions or results that were never intended. A history of company members not enforcing traditional business management principles can be construed as an implied agreement by the members allowing relaxed duties of management. With such an operating agreement, if a manager engages in practices that are detrimental to the company, but which go unchecked by the members over of period of time, despite a negative outcome to the company by the managers’ bad acts, the manager may have no liability (and subsequently the members will have no recourse) for the bad acts of the manager. Therefore the importance of a well thought out and properly drafted operating agreement is even greater than before. Similarly problematic will be the inclusion of new members. In the absence of a formal operating agreement (or ascension by a new member to an existing operating agreement) new members to a LLC will be construed as having adopted the existing oral, implied or written operating agreement without having signed or orally accepted the specific terms. If a company has less than a complete operating agreement now is the time to get one.
Under the new Act a “statement of authority” or “certificate of incumbency” can be filed, thereby providing documented evidence of authority to act on behalf of and bind a company with regard to transactions and transfers of real property.5 This can be useful to better define which manager or member(s) has the specific authority over certain duties or types of transactions.
Members of LLCs will be happy to learn that they now have the ability to be on equal footing with all other non-member creditors.6 Unfortunately, most existing operating agreements mimic the prior statute language, thereby listing the members as subordinate creditors to the company. Therefore it is recommended that companies amend existing operating agreements to provide members this benefit.
Under the Act manager fiduciary duties can be itemized and in some cases can even be limited. In the absence of such a limitation or itemization of fiduciary duties the whole panoply of fiduciary duties will apply.7 For closely held companies, the ability to limit fiduciary duties will be attractive to managing members. Of similar importance to LLC members is the improvement in the Act of the “charging order: as the exclusive remedy available to judgment creditors of LLC members.8 With this improvement, LLC members now have greater asset protection because their creditors have less ability to force the company to take certain actions or to make distributions contrary to the interests of the members.
Other beneficial changes under the Act involve provisions related to mergers, interest exchanges and conversions, and the improved ability to dissociate or even expel troublesome members.9 It is recommended that existing companies opt-in to the new statute with a new Certificate of Organization as soon as possible. A totally amended and restated operating agreement should likewise be adopted with an affirmative declaration to adopt the new Act, as well as to address the changes in the Act in a manner most favorable to the members. Such an agreement will better protect members from an implied agreement based on casual actions or conversations.
Taking the time to prepare a comprehensive operating agreement will not only allow a LLC to take advantage of the Act, but will help the members to address other relevant issues, such as enacting a comprehensive business succession plan, proper tax structure, accurately maintained capital accounts, whether the company should continue to operate as a LLC, and of course what impact the Affordable Care Act (“Obamacare”), with its 3.8% net investment income tax, will have on the company and its members. By taking advantage of the Act and addressing all relevant issues a company will be well prepared to succeed for years to come.
Click here to contact the Business Law Attorneys at Richards Brandt in Salt Lake City.
1 Utah Code Annotated § 48-3a-101 et seq. 2 Utah Code Annotated § 48-3a-104. 3 Utah Code Annotated § 48-3a-201. 4 Utah Code Annotated § 48-3a-102(16), 113. 5 Utah Code Annotated § 48-3a-302. 6 Utah Code Annotated § 48-3a-404(4). 7 Utah Code Annotated § 48-3a-112(4)(a)-(c). 8 Utah Code Annotated § 48-3a-503. 9 Utah Code Annotated § 48-3a-601.
January 2013
The beginning of a calendar year is a good time for employers to review their document retention status. All employers should establish and maintain a clear record retention policy identifying the location of records, a reasonable schedule of retention and destruction, and a records administrator.
Documents related to employee recruitment and selection, such as job advertisements, resumes, job inquiries and records of refusal to hire should generally be retained for one year. 29 U.S.C. § 626; 29 C.F.R. § 1627.3 (Age Discrimination in Employment Act). Once an employee is hired, EEOC regulations require employers to keep all personnel or employment records for one year. If an employee is involuntarily terminated, his/her personnel records must be retained for one year from the date of termination. 42 U.S.C. §2000e-8(c); 29 C.F.R. §1602.14 (Title VII of the Civil Rights Act of 1964). Separate personnel files should be maintained for each employee.
Employers must maintain pay and promotion records for a period of three years, and must keep all records that would explain the basis for employee wages for a period of two years. (EEOC Recordkeeping Requirements). Additionally, employers must keep a copy of all employee benefit plans and merit systems while in effect and for at least one year after termination of the plan.
Documents related to employee leaves of absence under the Family Medical Leave Act (FMLA) should be retained for three years. 29 U.S.C. § 2626; 29 C.F.R. § 825.500. Remember to keep medical records confidential and separate from the employee’s personnel file. I-9 Employment Eligibility Verification forms should be retained for three years from the date the record was made or a personnel action was taken, whichever is later. 8 U.S.C. §1324a(b)(3) (Immigration and Nationality Act). I-9 forms should also be stored securely and separately from the employee’s personnel file.
This touches on a few, but not all, federal statutes governing document retention. These are general guidelines only, and exceptions may apply. Once an employer is aware of a potential lawsuit or charge of discrimination, employers cannot destroy records related to the subject matter of the complaint for any reason until complete resolution of the matter has been reached, including any appeals.
Contact Mark McCarty or Kallie Smith if you need more information on employee record retention and destruction policies and practices.
February 2013
Over the last year, the national news has been populated with headlines addressing the fierce debate over immigration reform. Many may not realize that even before the 2012 presidential election, federal law enforcement agencies had begun paying increased attention to businesses’ compliance with immigration laws and regulations. In 2011 alone there were approximately 2,500 immigration-related audits of employee records, resulting in well over $6 million in administrative fines, and the number of audits performed each year is steadily increasing. The main targets for compliance auditing are the proper completion and storage of Form I-9s for every employee and the proper use of E-Verify to check employees’ immigration status. This article will discuss how the potential fines and disruption of company operations resulting from an audit can be greatly mitigated by conducting an independent I-9 audit before you are audited by the government.
The nation’s immigration laws and regulations apply to every U.S. employer, regardless of whether the employer employs immigrants or not, and the fines and penalties for violation of these laws will be assessed regardless of whether an employer employs immigrants. Every U.S. employer is prohibited from knowingly hiring an immigrant who is unauthorized to work or continuing to employ an immigrant once the employer discovers the immigrant is not authorized or is no longer authorized to work. The government only needs to establish the “knowing” element by a preponderance of the evidence, the easiest legal standard to meet, and knowledge will be inferred by notice of certain facts. An employer’s violation of immigration laws and regulations triggers substantial fines and penalties: between $375 and $3,200 for every incident of “knowingly” employing an immigrant not authorized to work (the fine increases for repeat offenders), between $110 and $1,100 for every failure to properly retain and present a Form I-9 for audit, debarment from federal contracts, and in some cases, criminal charges.
The Immigration and Customs Enforcement Agency (“ICE”) begins an I-9 audit of a company by presenting a “Notice of Intent” to inspect the company documents, which gives the employer 72 hours to gather the necessary documents and prepare for the audit. When ICE returns to the company after 72 hours, its officers demand production of Form I-9s for all current and terminated employees, a list of all current and terminated employees with hire and termination dates, copies of all quarterly wage and hour reports and/or payroll information for all current and terminated employees for the period of inspection, quarterly tax information, business information (valid licenses, etc.), proof of enrollment in E-Verify, and any communications with the Social Security Administration regarding mismatched identification numbers. Any delay in production of the above documents beyond the 72-hour period constitutes a violation of the retention requirements for Form I-9s.
ICE pursues companies regardless of size, industry, or geographic location. Oftentimes, these audits are triggered by a former or disgruntled employee who alerts ICE to possible infractions of the law. The availability of U visas, which grant legal status to immigrants who aid law enforcement and report crimes, also creates an incentive for some former employees to report possible violations of immigration law and regulation. Audits are taxing and expensive for a company that is not prepared to handle the audit expeditiously.
Because of the costs associated with government audits, measured in both potential fines and disruption of company operations, an independent audit conducted in preparation of a potential government audit has significant benefits. The purpose of an independent I-9 audit is to discover any evidence that could be used to fine the employer for “knowingly” hiring or continuing to employ an immigrant unauthorized to work; to recommend how to mitigate potential violations and keep current on best compliance practices; to check the efficiency of an employer’s re-verification system for I-9s; and to determine whether there is substantial evidence of an employer’s good faith efforts to comply with the verification system. An independent audit not only provides peace of mind for an employer, but also acts as a significant mitigating factor should a government audit reveal a mistake or inconsistency in documentation.
Please contact us for an internal review of your company’s immigration compliance or to address any other immigration or employment concerns.
