When is a corporation really just a partnership?

Two guys opened a store as “handshake” partners. The business worked so well that they purchased a store building plus some other real estate and equipment. Instead of showing that the business made the purchases, they deeded the real estate directly into their joint personal names and the equipment was held personally by one or the other. While the business was growing they incorporated without making any mention as to the contribution of the equipment or the disposition of the real estate.  When one divorced, the spouse insisted the business be split.  The spouse claimed that since everything was in “partnership” it could always be split but the other guy claimed that since everything was really in “corporation” the most she could get was the value of shares. A court decided the answer in Baker v Gaul 2013-Ohio-4287. Looking at tax returns and intentions, this court said it was all corporate property.  However, this decision was based on facts elicited at trial and the next trial could go differently. A simple corporate buy-sell agreement between the two guys might have avoided a nasty court battle precipitated by a divorcing spouse. The CPA might give you a simple incorporation but the lawyer can advise about rights between business associates, corporate asset disposition and asset protection. 

Non-traditional families need planning to protect children’s rights

More children are currently being raised in nontraditional families than ever before. The term non-traditional family refers to any non-married couple raising children as a family including lesbian or gay parents. Although children in non-traditional families may have two parental figures, sometimes the law only recognizes one as having parental rights. If so, the child may have:

·        No right to inherit or receive Social Security benefits from the non-recognized parent;

·        No right to be added to the health insurance benefits of that parent and no right to have the non-recognized parent consent to emergency medical treatment or visit the child in hospital.

Estate planning questions for non-traditional families with children include:

·        How to provide for children if only one parent is legally recognized;

·        How to protect the parenting rights of the non-recognized parent;

·        How to name the surviving partner as the children’s guardian if there is no adoption;

·        How to provide for the children if the state does not recognize them as a family.

Lawyers schooled in the rights of parents and children of traditional nuclear families need also to be sensitive to the rights of couples and children living in non-traditional families.  

Corporate formalities build a wall against those who would pierce the corporate veil

“Piercing the corporate veil” is the judicial act of imposing personal liability on otherwise immune corporation officers, directors, or shareholders for the corporation’s wrongful acts. A piercing happened on July 2013 in the case of Springfield v Palco, 2013-Ohio-2348.   What happened:  After a city obtained judgment against a corporation that was owned by a single shareholder, the company transferred all of its real estate out the corporation’s name and into the sole shareholder’s name. The court explained that the corporate form normally creates a division between shareholders and their business. It preserves limited liability by distinguishing between corporate debts & property compared to individual debts & assets. But in certain circumstances, the corporate form may be disregarded allowing bill collectors to reach the personal assets of shareholders. The corporate veil may be pierced if a court finds: (1) Control by shareholders was so complete that the company has no separate mind; (2) Control enabled an unlawful or illegal act, or fraud against the one seeking to collect the debt; and (3) The result of the act was an injury or unjust loss. Bottom line: In determining whether the shareholders of a corporation can be reached for debt collection, courts consider: (1) If corporate formalities were observed; (2) If corporate records were kept; (3) If corporate funds were kept separate from the shareholder’s personal accounts; (4) If corporate property was used for personal purposes; (5) If the company is grossly under-capitalized.  Reminder:  After incorporating or forming an LLC, business owners should continue to attend to corporate formalities including annual meetings and record keeping.  

Entrepreneurial or start-up companies must keep a pioneering spirit

A 1723 edition of a French dictionary first included the term, “entrepreneur” and that was nearly 300 years ago! About two centuries later, economist Joseph Schumpeter redefined the term in a 1934 speech by saying that entrepreneurs are “innovators who use a process of shattering the status quo of the existing products and services, to set up new products, new services.”  Then, in 1985, Professor W.B. Gartner added that an entrepreneur was “a person who started a new business where there was none before.” But in the last decade of the 20^th century we started to use a new term to describe entrepreneurial companies and that term is “start-ups.” Originally, “start-up companies” only described “dot coms” or other rapid growth enterprises but today the term “start-up” is used to describe any new entrepreneurial company no matter if its leader uses the title: Proprietor, president, owner, manager, CEO, or entrepreneur. The common thread is the pioneering spirit of the founders. However, unlike the pioneers who settled this land, we now live in a regulated environment that makes lawyers necessary. This means that one of the tasks that each modern entrepreneur faces as part of growing an enterprise is that of finding a lawyer who will guide the company through governmental regulation while at the same time preserving the pioneering spirit that fuels the growth and wealth of the company. 

Is Your Internet Name or Brand Protected? Unguarded Intellectual Property Risks Loss.

Since unguarded intellectual property is exposed to risk of loss, do not fall into the trap of thinking that the great business idea - be it a trademark, slogan or tagline is yours just because you conceived it. Business names and brand names - your intellectual property  - can be a vital and lucrative part of your business but only if it has value and only if it is something that the law protects.  Before investing in a slogan or publicizing a brand, invest in making it exclusive. To keep others from using it, consider three things:

1.                Just naming an Internet site does not mean that the URL granted any rights to trademark. Don’t just rely on a domain name search alone. Just because a domain name is available doesn’t mean the trademark is. Ensure your trademark can be protected.  If someone else has already registered that trademark – or one very similar – you may not be able legally make use of it. 

2.                Marketing a line of umbrellas using the trademark “Umbrellas” won’t work because you can’t use a generic name as your trademark. Pick a unique and distinctive name and then run a comprehensive search. This will involve more than checking with the U.S. Patent and Trademark Office because their database only covers applications filed and registered with them. Plus, a search should look for any trademarks that are similar because an application can be rejected it if is to close to something already registered. 

3.                Avoid losing your rights by being diligent about protecting your intellectual property from infringement. Monitor the market for anyone infringing on your trademark and take a proactive strategy to protect your brand from anyone trying to claim it as their own.  When combating infringement, use a lawyer to help draw a hard line.

IRS leads federal government in extending recognition of marriage to same-sex to couples.

Same-sex couples lawfully married in one state are now considered married for federal tax purposes regardless of residence.  IRS Revenue Ruling 2013–17 follows the Federal District Court in Obergefell v Kasich (SD Ohio, July 22, 2013) 2103 US Dist Lexis 102077.  In the federal case: Same-sex Ohio residents flew to Maryland, got married, and flew home. The federal court held that they were married under state law because Ohio generally recognizes foreign state marriages. The IRS ruling first recognizes gay marriages implying that couples from states that don’t recognize same-sex marriage can come to a state that permits nonresidents to marry - get married, go home, and be considered married for federal tax purposes but then the IRS questions civil unions. Today's IRS position appears to be that the term “marriage” doesn't include registered domestic partners and civil unions or other formal similar relationships that aren't denominated as a marriage under state law. Impact: Changes in federal tax and benefits status for couples in non-traditional or LBGT relationships may also impact the structure of some future business relationships as well.

Welcome to the Blog, My Business Is Your Business

The mission of this Blog is to publish information helpful to the growth of small business and the protection of small business or start-up business owners and their families.