LLC or S Corp.?

I’ve heard that a limited liability company has more flexibility in its structure than a corporation that elects to be taxed as an S Corp. Is this true?

Yes. For example, there are no restrictions on the number of persons having member interests in an LLC. In an S Corporation, the number of shareholders is limited to 75 individuals.

A limited liability company may have an unlimited number of member interests or classes of interests. An S corporation may only have one class of stock. Further, losses incurred by an LLC can be passed-through to the extent of a member’s capital contribution, plus its share of the company’s debt.

However, debt is allowed as a basis for an S Corp. shareholder. LLCs can also have greater flexibility with regard to the allocation of profits, losses, income and deductions.

Nevertheless, an S Corp. does have certain tax advantages over a limited liability and may still be the right choice of entity for you. Always consult with your tax adviser before deciding upon an entity type for your business.

A particular corporation is indebted to my company in the amount of $120,000. I recently found out that this corporation transferred some of the real estate it owned as a corporation to some of its officers. Now the corporation has few or no assets. Can they do this?

They can do it, but it may constitute fraud under Ohio’s version of the Uniform Fraudulent Transfer Act, enacted in 1992. The Court of Appeals in Summit County ruled on this issue in June 1998.

According to Ohio law, a transfer made by a debtor is fraudulent as to a creditor, regardless if the debt was incurred before or after the transfer, if 1) The transfer was made to hurt the creditor; or 2) If the transfer was made without receiving anything of equal value in exchange, and if the transfer left the debtor with few or no assets, or if the debtor intended to incur debts beyond its ability to pay them.

In your scenario, the transfer may be fraudulent if the officers received the property without paying for it (i.e. if the property was quitclaimed to the officers for little or no consideration), and if the transfer indeed left the corporation without assets.

However, many other factors need to be considered before you can tell if you have a good case for fraudulent transfer. Discuss this with your attorney.

What is “employment at will”?

Generally, employment at will is the legal presumption that, without a contract stating that employment shall last for a specific time period, an employee may be terminated at any time, for any reason.

However, as we all know, employees have successfully sued their employers for wrongful discharge. The courts have applied exceptions to the employment at will doctrine in three major areas: contract exceptions, public policy exceptions and abusive discharge exceptions. The federal government has also made exceptions to this doctrine by enacting the Civil Rights Act, the National Labor Relations Act, the Age Discrimination Act, the Americans with Disabilities Act and the Fair Labor Standards Act.

Ohio has enacted its own civil rights act and the Whistleblower Act. Employment at will still exists, but is severely limited by our courts and legislatures. Before hiring employees, consult with your attorney so that you may better understand the cans and can’ts of hiring and firing.

What is the difference between a living will and a durable health care power of attorney?

A living will allows you to make decisions in advance about what life-sustaining measures you will receive should you be in a permanently unconscious condition or terminally ill.

Through a living will, you may refuse artificial nutrition and hydration should you become permanently unconscious. Two physicians must agree you are terminally ill or permanently unconscious and that nutrition or hydration will no longer comfort you or alleviate your pain.

A living will will not prevent you from receiving “comfort care.”

A durable health care power of attorney allows you to appoint someone to make health care decisions for you. It is effective only if you are unable to make decisions yourself. If you desire, the person you appoint may have the power to refuse life-sustaining treatment or artificial nutrition or hydration if you are terminally ill or are in a permanently unconscious condition.

What are punitive damages?

Punitive damages are awarded in noncriminal cases involving fraud, misrepresentation, contempt charges, and more extreme wrongdoing. The idea is that the wrongdoer should have to pay extra because of his misconduct. Punitive damages may also include jail time.

Mary Beth Ciocco is an attorney practicing law in Rocky River, Ohio. She can be reached at her firm, Mary Beth Ciocco LLC at [email protected], (440) 333-5700, or via her Web site — www.clevelandlaw.net. Submit questions for Legal Jargon to SBN at [email protected].