Ive 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 members capital contribution, plus its share of the companys 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 Ohios 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 cants 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 firstname.lastname@example.org, (440) 333-5700, or via her Web site www.clevelandlaw.net. Submit questions for Legal Jargon to SBN at email@example.com.
Q:What can I do to protect my companys trademarks?
A: A trademark is typically a slogan, name, image or logo that is linked to a companys goods or services. Two types of protection exist for a trademark federal protection and common law protection.
Federal protection is obtained by registering your trademark with the U.S. Patent and Trademark Office in Arlington, Va. The filing fee is $245 per mark. The process takes about 12 months, but once your mark is registered, you have certain ownership presumptions, including placing a symbol next the mark.
Dont assume, though, that simply because youve registered your mark with the USPTO that it is immune to infringement or cancellation lawsuits from third parties. It isnt. So watch out.
Common law protection is obtained merely by using the trademark in any public dealings. Some companies place TM (for trademark) or SM (service mark) next to the trademark to let the public know the company claims ownership rights. Common law trademarks do not have the same ownership presumptions as those registered with the USPTO.
Q: My company sold some equipment to a customer five months ago. The customer still has not paid the bill. Can we repossess the equipment without going to court?
A: You can repossess the equipment if you obtained a security agreement from your customer and only if you can repossess peacefully. If you did not obtain such an agreement, your best avenue may be to file a lawsuit and repossess the equipment through the courts.
If you have a security agreement and the equipment is locked up or located in a hostile environment, you may file a replevin with the court and repossess the equipment by court order.
Q: One of my customers paid his invoice with a check. It came back marked NSF. What can I do?
A: Your customer may now owe you three times the amount of the check. In Ohio, passing bad checks is considered a civil theft offense. The offender may be liable for three times the amount of the check if the check is for more than $200. If the check is for less than $5,000, collection costs and reasonable attorneys fees may also be included.
However, Ohio law states that you must send a letter to your client by certified mail, and it must contain specific language and warnings before you file any lawsuits. Pass your letter by an attorney to ensure it contains the proper language and meets Ohios requirements.
Q: I executed a contract with a customer which states that my customer shall pay me $1,000 per month for three years. However, the contract doesnt state that upon default, all future payments come due. How could this affect me?
A: If your customer defaults, you could go to court and ask for all the payments currently due. But without the language stating that all of the future payments come due upon default, you can only obtain a judgment for the amount due at that time. You will have to go back to court every few months or so and ask for the payments due to be reduced through further judgments.
Q: If I sue another business for breach of contract, can I collect attorneys fees?
A: It depends. If your claims are for breach of contract, you most likely cannot collect attorneys fees unless the contract specifically states that attorneys fees can be awarded upon a breach. Attorneys fees have also been awarded in cases involving fraud, misrepresentation and contempt. In any event, courts will not award attorneys fees unless the fees are reasonable.
The 12th District Court of Appeals addressed this issue in a 1998 case. Generally, a property owner implicitly warrants the accuracy of plans and specifications if the owner requires the contractor to follow them. The contractor therefore is not liable for defects if the contractor follows the plans and specifications. This doctrine of law is called the Spearin Doctrine.
However, a contractor can be liable, despite the Spearin Doctrine, if the contractor had knowledge that plans and specifications were flawed, or if the plans and specifications had an obvious flaw.
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 that you are terminally ill or permanently unconscious, and must agree 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 else to make health care decisions for you. It is effective only if you are unable to make these 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 in a permanently unconscious condition.
What is the proper way to sign a contract on behalf of a corporation so that I will not be held personally liable on the contract?
Generally, corporate officers or agents of a corporation are not personally liable upon contracts that they sign on behalf of the corporation, as long as they properly disclose their relationship with the corporation. The key is to make third persons aware that they are not dealing with an individual, but a corporation.
For example, the best way to sign a contract on behalf of ABC Corp. is like this:
Your name would be signed on the By line, and your position or representative capacity with the corporation on the Its line, i.e. ABC Corp., By John Smith (signature), Its President.
Mary Beth Ciocco is an attorney practicing law in Rocky River. She can be reached at her firm, Mary Beth Ciocco LLC, at (440) 333-5700, or via her Web site, www.clevelandlaw.net. Submit questions for Legal Jargon to SBN at firstname.lastname@example.org.