UBE LAW: LOFTIUM UNWITTINGLY FORMS PARTNERSHIPS WITH HOMEBUYERS

By , December 7, 2017 11:22 am

Non-tax choice of entity (i.e., choosing on non-tax grounds between LLCs and non-LLC entities as the best business entities for one’s entity formation clients) is often a key step in the LLC formation process.  In order to be competent in non-tax choice of entity, you need a fairly detailed knowledge of all of the key business organization law features of each relevant type of entity and how these features compare with the corresponding features of the other relevant types.  The post below provides perhaps the best—and most sophisticated—discussion I’ve ever seen about how a business arrangement—here, something vaguely like a loan—can actually be a general partnership.

Loftium Unwittingly Forms Partnerships with Homebuyers

PETER MAHLER’S LATEST BLOG

By , December 5, 2017 10:06 am

As I think all of you know, I view Peter Mahler’s blog on business divorce to be among the best of all blawgs, and indispensable for LLC lawyers.  His latest post, under the link below, provides his reflections on the tenth anniversary of the launch of his blawg.  It’s fascinating in itself but also for people like me, who have our own specialized blawgs; and it will be fascinating for you if you are considering launching a blawg of your own.

Here’s the link:  https://www.nybusinessdivorce.com/2017/12/articles/uncategorized/reflections-ten-years-blogging/

DEBT VS. EQUITY IN CLOSELY HELD BUSINESSES

By , November 30, 2017 11:02 am

Under the link below is a superb post from FarrellFritz on the issue of when an investor’s transfer of cash to a closely held entity is debt and when it is equity for federal tax purposes.  In my LLC practice, this issue arises often.  Perhaps also in yours.  In any event, you should know the rules and advise your clients about them—they have to characterize these transfers clearly in proper documents and comply with the terms of the documents.

Here’s the link:  http://www.taxlawforchb.com/2017/09/debt-vs-equity-form-substance-matter/

NON-TAX LAWYERS AND THE BBA PARTNERSHIP AUDIT RULES

By , November 28, 2017 12:08 pm

I’ve recently completed an article in which I propose that even if you’re not a tax lawyer, you have a duty to give a warning about the BBA partnership audit rules to your clients that are LLCs taxable as partnerships or members of these LLCs.  As you may know, these rules will become effective for partnership taxable years beginning on January 1, 2018.  A link to the article is below.  If you have any comments on the article, I’ll be very grateful for them.

Here’s the link:  http://www.cunninghamonoperatingagreements.com/wp-content/uploads/Article-for-ABA-or-other-publication-re-non-tax-lawyers-and-the-BBA-PARS-10-23-17.pdf

BBA PARTNERSHIP AUDIT DEVELOPMENTS

By , November 17, 2017 11:17 am

On November 15, Treasury officials made the following important public statements relevant to the BBA partnership audit rules:

  • They said that the development and publication of Treasury regs about the partnership audit rules are the Treasury’s top regulatory priority.
  • They strongly implied that the pending BBA proposed regs will be issued as final regs on a date significantly in advance of the January 1, 2018 BBA effective date for 2018 partnership years.
  • Key BBA issues that the Treasury intends to address soon are the conditions that partnerships must meet in order to elect out of the BBA rules.
  • Treasury also implied that in the relatively near future, it will issue new proposed regs about the BBA rules.

LLC LIQUIDATIONS

By , November 16, 2017 11:47 am

From time to time, LLC lawyers are asked by their clients to handle LLC liquidations.  If the LLCs in question are multi-member LLCs taxable as partnerships, there can be major federal income tax traps in these liquidations.  One such trap is described succinctly but with great clarity in the new by Lou Vlahos of the FarrellFritz law firm under the following link:

http://www.taxlawforchb.com/2017/09/liquidating-a-partnership-interest-beware-the-effects-of-partnership-indebtedness/

SIGNING DOCUMENTS TOO SOON

By , November 9, 2017 11:14 am

The excellent Peter Mahler post under the link below discusses a recent Delaware case in which the parties signed deal documents before final approval by their lawyers.  The result was disastrous.  This issue comes up often in LLC formation practice.  I generally try to persuade my clients to not even file articles of organization, much less launch their business, before they agree with what I propose as the final version of their operating agreement and sign it.

Here’s the link:  http://www.nybusinessdivorce.com/2017/09/articles/delaware/dont-let-deal-get-ahead-documents/

ARBITRATION VS. LITIGATION

By , November 7, 2017 9:44 am

A key issue in negotiating and drafting any LLC operating agreement for multi-member LLCs is whether the dispute resolution provision in the agreement should provide for arbitration or for litigation.  For many years, I’ve leaned toward arbitration, since it is private and informal and often faster than litigation and sometimes less costly.  Thus, arbitration, not litigation, is the default dispute resolution method in the model operating agreements for multi-member LLCs in my LLC book.  However, recent experience has led me to reexamine this issue, and I am now inclined to think that for many multi-member LLCs—perhaps even for most—the best method is litigation, not arbitration, because (1) if you get a bad decision in arbitration, it is very hard to get that decision reversed in litigation under the federal arbitration act; and (2) the benefits of clarity and objectivity that court civil procedure and discovery rules provide are likely to outweigh the disadvantages of these rules.  It’s true that the parties can agree to comply with these rules in their arbitration, but it may be important to have a judge in court rather than an arbitrator in arbitration interpret and apply them.

LAW JOURNAL ARTICLE ABOUT FIDUCIARY DUTIES UNDER THE FLORIDA LLC ACT

By , November 2, 2017 9:09 am

Below are the citation to and the first couple of paragraphs of a law journal article about fiduciary duties under the Florida LLC Act.  The author, Louis Conti, has been a leading LLC lawyer and scholar for many years.

91-OCT Fla. B.J. 32
Florida Bar Journal
September/October, 2017
Column
Business Law
Louis T. M. Conti
Copyright © 2017 by The Florida Bar; Louis T. M. Conti

UN-CABINED FIDUCIARY DUTIES IN FLORIDA LLCS: THE COMMON LAW AND EQUITY OPENS THE DOOR TO EXPANDED LIABILITY AND THE MANIFESTLY UNREASONABLE STANDARD

Limited liability companies (LLCs) have become the predominant form of business entity for private companies in America. The question generally is not whether to use an LLC for most privately held businesses, but rather where to form the entity. The jurisdiction of formation choice is narrowed to either the “home state” where the principal office and activities of the business will be based, or Delaware, the most generally accepted foreign forum. Evaluating the jurisdiction of formation turns on several key concepts that are beyond the scope of this article, but the most important factors are the state LLC statute’s fiduciary duty provisions and caselaw addressing fiduciary duties.

This article describes the fiduciary duty law that applies to Florida LLCs, with a special focus on consequences of the “un-cabining of fiduciary duties” occasioned by the Florida Revised LLC Act, as amended in 2015.

MEETING OF ABA LLC COMMITTEE

By , October 30, 2017 9:50 am

For those interested:  The Committee on LLCs Partnerships and Unincorporated Entities of the Business Section of the American Bar Association will hold its annual meeting in Alexandria, Va. this coming Thursday and Friday.  The subjects to be addressed at the meeting will be as follows: