DECEMBER NEWSLETTER
Vol. I, Issue. 2 December, 2006
THE LLC,
THE NEW WAVE IN BUSINESS ORGANIZATIONS
The LLC or Limited Liability Company has become the entity of choice for most new business startups. The LLC combines the flexibility of a partnership with the limited liability characteristics of a corporation. Properly set up, LLC's offer significant advantages over a standard corporation.
LLC's offer better asset protection for both the company and its members than a corporation. Creditors of an LLC should not be able to reach the assets of an LLC member with a couple of exceptions. This protection is identical to that of a corporation. However, a creditor of a member of an LLC also cannot reach the member’s interest in the LLC as they could a stockholder’s interest in a corporation. The Oklahoma statute is drafted in such a way as to allow only a charging order against the income from an LLC member’s interest and not the interest itself. Consequently, the members of the LLC do not have to worry that a single member’s indebtedness will result in a new and unwanted business association with the creditor or his assignee.
LLC's also offer significant tax advantages. LLC's are essentially pass through entities. There is no taxation at the entity level and the members are treated as partners for tax purposes. Single-member LLC's are treated as sole proprietorships. The members may also elect to allow the LLC to be treated as a corporation if that tax treatment is more favorable. A subchapter S election is allowed. There can also be marked tax advantages in transactions involving real estate. The LLC's flexibility allows it to take advantage of almost all tax breaks.
However, the LLC is a relatively new business entity. There is very little case law in Oklahoma to guide judges in business disputes concerning LLC's and the Oklahoma LLC statutes follow neither the model statutes nor the Delaware code which are frequently used by attorneys and judges as instructive authority. Consequently, any litigation could be literally breaking new ground in the law which can be time consuming and expensive. This does not favor small businessman who cannot afford costly, complicated litigation.
Further, asset division in a corporation can be easier than in an LLC if problems develop. Almost all small businesses encounter some sort of a personal crisis between the participants or their families and they are often bloody and heartbreaking. The stock in a corporation can be easily divided and distributed in case of a divorce or a dispute between business associates in a manner that everyone understands and leaves little room for argument.
The LLC is without a doubt the preferred entity for sophisticated businessmen who have the means to take advantage of its flexibility and tax advantages. However, the Subchapter S corporation or S-Corp is still a very viable vehicle for small businessman and may be the preferred vehicle where simplicity, stability and predictability are more important than flexibility and tax breaks.
EMPLOYMENT LAW DEVELOPMENTS
The Oklahoma court of civil appeals recently issued three decisions that may be of interest to small-business employers:
The fact that an employee is required to do some manual labor or menial tasks as a part of his overall job duties does not in and of itself disqualify that employee from being classified as exempt under the fair labor standards act. In this case, the employee was required to spend approximately 25% of his workday performing manual labor. The court reasoned that because the other 75% of the employee's duties met exempt standards, the employee was not entitled to overtime pay. The case is: Brad Harber v. Hebco, Inc. 2006 OK CIV APP 133.
Be careful when you offer an employee a ride to work because the court may find th
at the employee is on the job from the moment she leaves her doorstep. In this case, the employer offered to pick up key employees at their residence during icy weather. The court ruled that employee’s injury due to slip and fall on ice while walking to the employers vehicle at her residence was sufficiently work-related to trigger a worker’s compensation claim. The case is: Love v. Bipo, Inc. 2006 OK CIV APP 136.
The fact that an employee has inquired about the employers workman's comp coverage and voiced an intention to injure himself on the job is not sufficient evidence to deny that employees subsequent claim. In overturning the three-judge panel of the workers compensation court, the court of civil appeals ruled that while the employees inquiries and statements gave rise to suspicion about his claim, they were not sufficient in and of themselves to deny it without further evidence. The case is: Phouc Pham v. Wuu Jau Company, Inc. 2006 OK CIV APP 139.
FEEDBACK CONCERNING MEDICAID ELIGIBILITY AND LIVING TRUSTS
I received some interesting feedback from a CPA friend on last month's article concerning Medicaid eligibility and living trusts. He brought to my attention an area attorney/CPA's article in an accounting journal describing his practice in medicaid eligibility planning for senior citizens. It was the position of the article that even fairly wealthy individuals could be Medicaid qualified through proper estate planning.
I have no doubt that every word of this article is true. Through careful planning and financial manipulation even a wealthy person can sufficiently impoverish themselves on paper to qualify for Medicaid and other benefits for that matter. But, the question remains whether or not that is the best option for the client. It is my position and will continue to be be that if the client can afford long term care insurance, it is a much better option than Medicaid. Having observed clients under both care plans, I can tell you from personal experience that the hotel-like "senior care facilities" available to senior citizens with a good long term care policy are in every way prefereable to the nursing homes that cater to Medcaid clients.
LEGAL WIT
Things Not To Say To Your Attorney
The following are reported to be actual statements made to Oklahoma attorneys by their clients or prospective clients:
"Are you a real lawyer or just a public defender?" (Also legal aid lawyer or pro-bono service attorney.)
"I've already called all of the good lawyers in town and none of them will take my case."
"I thought I would see what you have to say before I spend my money on a real lawyer."
"My “real” attorney says my case is a slam-dunk but can't take the case right now. Will you take it?"
"I have a friend who knows a lawyer and I asked him if what you told me was true and his lawyer friend says you are wrong."
"My friend who is a paralegal told me you were wrong."
"How well do you know the judge?"
"My Mommy said all lawyers are liars and only want to take your money."
"What do you mean how do I plan to pay my attorney fees? I’m not supposed to pay YOU. You’re re supposed to get your fee from the other side."
"I don't have any money for an attorney, I gave it all to the bondsman."
"I can’t pay you this month. I just spent my money on a new stereo."
"I can't pay my bill this month because I am taking my family to Hawaii." "Do you have malpractice insurance?"
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A sidebar in this month's Oklahoma Bar Journal recounts the story of an Oklahoma attorney who was disbarred for alleging that an Oklahoma court accepted bribes. When it was later proven that some members of the court had accepted bribes the attorney was allowed to reapply for his privileges but only after he had been censured on the grounds that some of the judges had not accepted the bribes!
Note: This newsletter is not intended to provide legal advice and the author takes no responsibility for reliance upon information provided herein. You should always consult an attorney in your state and jurisdiction with any legal questions or before taking any legal action.