Indiana Business Law Blog

[This is the third post in a seven-part series discussing the characteristics of limited liability companies and comparing them to the characteristics of corporations, general partnerships, and sole proprietorships. Here's the entire list.

Part 1. Background on sole proprietorships.
Part 2. Background on partnerships.
Part 3. Background on corporations.
Part 4. LLCs are distinct legal entities, separate from their owners.
Part 5. A limited liability company's owners are not liable for the LLC's obligations.
Part 6. Options for an LLC's management structure.
Part 7. Options for an LLC's tax treatment.]

Let's get back to our trek toward a discussion of the basics of limited liability companies. The first two types of business structures we've looked at -- sole proprietorships and partnerships -- have two significant features in common. First, the owner or owners are liable for the obligations of the business. Second, the business itself does not pay taxes. Instead, the income and other tax items are "passed through" to the owner or owners, who pay tax on the income. Things change with corporations, the third type of business structure.

Although corporations are not as old as sole proprietorships or partnerships, business organizations with at least some of the characteristics of corporations have been around for centuries. For example, the oldest corporation in North America, Hudson's Bay Company, was incorporated in 1670.

Perhaps the most important feature of a corporation is that the owners of the corporation -- called stockholders or shareholders -- are NOT liable for the obligations of the business. And that's very good news for people who owned stock in Lehman Brothers, which melted down into the largest bankruptcy in American history. Or, going back a little further to previous record holders, people who owned stock in Enron and Worldcom. Even though the people who owned stock in those corporations may have lost everything they invested, they were not liable to the corporations' creditors, and they did not get pulled into the corporate bankruptcies. That protection against shareholders being held liable for the corporation's obligations is sometimes called a liability shield or a corporate veil, and it doesn't exist for sole proprietorships or general partnerships.

Continue reading "Just what IS a limited liability company? Part 3. It's not a corporation." »

Most employers know (or should know) to be very careful about taking adverse action against an employee who has filed a claim of employment discrimination. The need for vigilance is even more important following last week's decision of the United States Supreme Court , holding that Title VII of the Civil Rights Act includes "third-party reprisal" claims. Now, an employee may have a successful retaliation claim if he or she was fired because another employee filed a discrimination complaint.

In Thompson v. North American Stainless, LP, a man was fired after his fiancée filed a sexual discrimination charge against their mutual employer. He, in turn, brought a lawsuit against the company claiming the termination of his employment was in retaliation for his fiancée's discrimination complaint. The Supreme Court agreed that the man could raise the claim, reversing the decisions of two lower courts that had held that he could not. The Supreme Court held that the man had a right to sue because of his "close relationship" with the woman who filed the original discrimination complaint.

The result may be surprising to some people, perhaps more so because the eight Supreme Court Justices who participated (recently appointed Justice Kagan did not) were unanimous. In reacting to the decision of the Court written by Justice Scalia, Jacquelyn A. Berrien, chair of the Equal Employment Opportunity Commission, expressed approval, stating that the decision "reaffirms the importance of preventing retaliation against those seeking to protect their civil rights." Read the entire EEOC press release here. As Justice Ginsburg noted in her concurring opinion (in which Justice Breyer joined), the Court's decision is consistent with the EEOC's long-standing position.

One of the questions that a business should consider when thinking about firing an employee (or taking any other adverse action) is whether that employee has lodged any discrimination complaints and might later claim that the action was taken in retaliation for the complaint. But until now, many employers were probably concerned only with complaints filed by that particular employee. Now, the employer must also consider complaints that may have been filed by some other person with a close relationship. But what qualifies as a "close relationship?" Unfortunately, the Supreme Court did not completely answer the question, saying only that "firing a close family member will almost always" meet the standard. Because of the facts of the Thompson case, we also know that the relationship between two engaged employees is close enough, but would a dating relationship count? What about a pair of really close friends? Or second cousins, once removed? For now, we can only speculate.

Continue reading "Indiana Employers Should be Aware of Recent Supreme Court Decision" »

Senate Bill 348, introduced earlier this month by Senators Lindel Hume (D-Princeton, IN) and Lonnie Randolph (D-East Chicago, IN), would create a Small Business Assistance Team charged with, among other things:

• Coordinating and streamlining Indiana's efforts to encourage the creation and growth of small businesses.


• Assisting small businesses to gain access to capital.


• Working with state agencies to streamline permitting processes.


• Serving as a one-stop point of contact between small businesses and the state.


• Assist in identifying and publicizing grants, loans, and the like that are designed to assist small businesses.


• Assist small businesses in identifying state procurement opportunities.


• Establish a web site that will provide one-stop access to state-level information and resources for small businesses.

Several other senators have signed on to the bill, including Senators Arnold, Breaux, Lanane, Mrvan, Rogers, Simpson, Skinner, Tallian, Taylor, and R. Young.

Continue reading "Indiana General Assembly Report: Small Business Assistance Team Proposed" »

Earlier this week, Friendly Family Productions, LLC, the company that produced the television series Little House on the Prairie settled its lawsuit against a nonprofit corporation that operates a small museum outside Independence, Kansas. The museum is located at the site of the original house that Laura Ingalls Wilder wrote about in her book of the same title. Friendly Family Productions alleged that the museum infringed the trademark LITTLE HOUSE ON THE PRAIRIE. According to complaint filed in U.S. District Court in Los Angeles, the predecessor to Friendly Family Productions acquired rights to that trademark from the author's descendants in 1974.

What got Friendly Family Productions all riled up (to use a term that Ms. Wilder would have been comfortable with) was the use of the trademark on merchandise that the museum sold, including the merchandise that it sold through a website with the domain name www.littlehouseontheprairie.com. Friendly Family Productions acknowledged that it had no quarrel with the museum using the words "little house on the prairie" to describe the homesite or the museum, because a purely descriptive use like that does not infringe a trademark. On the other hand, Friendly Family Productions had considerable quarrel with the museum putting those words on merchandise (caps, T-shirts, magnets, note cards, key chains, and other items typical of promotional merchandise) and selling them over the internet. Friendly Family Productions claimed that the use of those words implied that the merchandise came from the owner of the trademark, when it did not. That is, in a nutshell, the reason trademarks exist -- to identify the source of the goods that bear the mark.

According to an article in the Wichita Eagle and other sources, Friendly Family Productions originally offered to pay the museum $40,000 if it would stop using the trademark. The museum refused the offer, choosing instead to fight the lawsuit. The terms of the settlement agreement are confidential, but we know that the nonprofit corporation has changed its name from Little House on the Prairie, Inc. to the more descriptive Little House on the Prairie Museum, Inc., and www.littlehouseontheprairie.com is no longer active.

There's no way to know how much the two-year litigation cost the parties.

Continue reading "Nonprofit Organization Settles Trademark Lawsuit: Little House on the Prairie" »

Last October the U.S. Environmental Protection Agency announced that twenty-three communities around the country had been selected to receive grants to develop area-wide plans for putting brownfield properties back into use. (Brownfield properties are areas with environmental contamination, or at least potential contamination, that discourages prospective buyers or developers. They are often abandoned industrial sites.) One of those communities, the only one in Indiana to receive a grant, was Goshen, which had submitted a proposal to redevelop brownfield areas in its Ninth Street Corridor.

Goshen, in turn, solicited proposals for putting the $175,000 grant into action. On Monday, the City's Board of Public Works and Safety opened thirteen proposals from companies and their partners from ten states, including Indiana businesses from Fishers, Zionsville, Indianapolis, Munster, Elkhart, South Bend, Mishawaka, Fort Wayne, and, of course, Goshen. More details are available in this article from the Goshen News.

The grant arises from the Partnership for Sustainable Communities, a cooperative effort started in 2009 between the EPA and the U.S. Department of Housing and Urban Development. However, Goshen began its work much, much earlier.

In 2004, Goshen published its Comprehensive Plan that established its visions and goals for the next ten years, including plans for revitalization and redevelopment. One of the specific areas targeted for redevelopment was the Ninth Street Corridor, an industrial area with at least 61 brownfield properties, surrounded by residential areas and schools. As a direct result of Goshen's advance planning and the Sustainable Communities grant, the community, the state, and probably some Hoosier businesses will likely benefit.

Continue reading "Indiana Businesses Submit Proposals for Goshen's Brownfield Project" »

[This is the second post in a seven-part series discussing the characteristics of limited liability companies and comparing them to the characteristics of corporations, general partnerships, and sole proprietorships. Here's the entire list.

Part 1. Background on sole proprietorships.
Part 2. Background on partnerships.
Part 3. Background on corporations.
Part 4. LLCs are distinct legal entities, separate from their owners.
Part 5. A limited liability company's owners are not liable for the LLC's obligations.
Part 6. Options for an LLC's management structure.
Part 7. Options for an LLC's tax treatment.]

In the last entry, I began a discussion of the basics of limited liability companies. To start that discussion, I began by describing the first of three other types of business structures: sole proprietorships. This entry is about partnerships, and the next will describe corporations.

In a sense, a general partnership is like a sole proprietorship, but with multiple proprietors. Each partner is liable for all of the obligations of the partnership. In other words, a creditor of the partnership can sue any or all of the partners to collect what the partnership owes. Income taxes are also similar, but things get a little more complicated with multiple owners.

For tax purposes, a general partnership is a "pass-through entity." Unlike a sole proprietorship, a partnership has to file a tax return, called Form 1065. However, the partnership itself does not have to pay taxes. Form 1065 is used to calculate the partnership's profits or losses and other "tax items," which are allocated to the partners, most often in proportion to their ownership interests. In other words, the tax items are "passed through" to the partners, and each partner receives a report from the partnership called a Schedule K-1 that tells the partner how much income, etc. to report on his or her own personal tax return. Then the partner pays income tax as an individual.

One more point worth noting about taxes. If the partner is actively involved in the operation of the partnership -- in essence, if the partner is "employed" by the partnership -- he or she is considered to be self-employed and must pay self-employment tax on his or her share of the partnership's income. Again, being a partner is very much like being a sole proprietor, except for the "sole" part.

The general partnership is an old form of business association. For instance, in Dickens's A Christmas Carol, Ebenezer Scrooge and Jacob Marley were partners. "The firm was known as Scrooge and Marley. Sometimes people new to the business called Scrooge Scrooge, and sometimes Marley, but he answered to both names. It was all the same to him." Id. at p. 3. Of course, I'm not holding out Scrooge and Marley as a typical partnership or as a model of customer service. The example came to mind only because last month our family attended the Indiana Repertory Theater's annual production of A Christmas Carol, and I've always liked that line.

In the next entry, I'll describe corporations, and then (finally!) get around to discussing limited liability companies.

Continue reading "Just what IS a limited liability company? Part 2. It's not a partnership." »

[This begins a seven-part series of posts discussing the characteristics of limited liability companies and comparing them to the characteristics of corporations, general partnerships, and sole proprietorships. Here's the entire list.

Part 1. Background on sole proprietorships.
Part 2. Background on partnerships.
Part 3. Background on corporations.
Part 4. LLCs are distinct legal entities, separate from their owners.
Part 5. A limited liability company's owners are not liable for the LLC's obligations.
Part 6. Options for an LLC's management structure.
Part 7. Options for an LLC's tax treatment.]

Limited liability companies or LLCs, particularly Indiana limited liability companies, will be a frequent topic of posts on this blog. To set the stage, I'd like to start with the most basic question: Exactly what IS a limited liability company? It will take me a few posts to go over the basics, but then I'll move on to more sophisticated topics.

Way back, a long time ago, when I was in school (probably high school, but I'm not sure), I was taught that there are three types of business structures: sole proprietorships, partnerships, and corporations. Even then, that was a bit simplistic because there were other types of businesses, but that covered most of the waterfront. Today, it doesn't come close because the most popular form for new small businesses is a limited liability company. However, the easiest way to understand what a limited liability company IS is to understand first what it is NOT. So let's start with sole proprietorships.

As I learned way back then, a sole proprietorship is the classic one-person business in which the owner and the business are one and the same, even if the business is operated under some other name. I always thought of Drucker's General Store on the television shows Petticoat Junction and Green Acres. (I told you it was a long time ago!) Most likely, Drucker's General Store was a sole proprietorship. Sam Drucker and his store were one and the same. In other words, anything the store owned, Sam owned. On the flip side, anything the the store OWED, Sam owed.

For example, if someone slipped and fell on a pickle from Sam's pickle barrel (I don't remember if Sam had a pickle barrel, but he MUST have had one!) and successfully sued the store, the plaintiff could take money not only from the store's cash register and bank account, but also from Sam's bank account - and maybe even his house. That's a disadvantage of a sole proprietorship. An advantage is that (unlike corporations, as well discuss later), the business itself does not have to pay income taxes. The income from the business goes straight to the owners Form 1040, on Schedule C to be specific, and the owner pays the taxes.

So a limited liability company is not a sole proprietorship. Next we'll discuss partnerships, another type of business structure that differs from an LLC.

Continue reading "Just what IS a limited liability company? Part 1. It's not a sole proprietorship." »

As things stand today, the Indiana "do not call" list maintained by the Consumer Protection Division of the Office of the Attorney General applies only to residential telephone listings. Once a number is placed on the list, the state statute prohibits telephone solicitors from making telephone sales calls to that number.

On January 12, Senator Dennis Kruse (R-Auburn) introduced Senate Bill 436 which would allow business telephones to be included on the "do not call" list. In addition, the "do not call" protection would be extended to certain wireless telephones. If the bill passes, it will take effect with the list published for the quarter beginning October 1, 2011.

Continue reading "Indiana General Assembly Report: Businesses may soon be eligible for the "do not call" list" »

Unlike Indiana, most states require that non-profit organizations register with an agency such as the Attorney General's office before soliciting any charitable donations within the boundaries of that state. In addition to initial registration, those states typically have annual reporting requirements as well. Although Indiana is not one of the 40 states requiring registration, non-profits located in Indiana that solicit contributions outside the state cannot ignore the requirements.

The primary purpose of registration is to protect citizens from potential scams put on by fraudulent charities. To that end, some states, such as Illinois, provide an online index of registered non-profit organizations and encourage their residents to "investigate" before they make any donations. If a non-profit is not listed there, it is likely that a potential donor will decide not to make a contribution.

Because Indiana does not currently require non-profit registration, some non-profit organizations located in Indiana may be unaware of the registration requirements in other states. However, all four states that surround Indiana -- Illinois, Kentucky, Michigan, and Ohio -- require this type of registration for non-profits engaging in fundraising within their borders.

States that require registration insist non-profits register BEFORE conducting any fundraising efforts in their jurisdiction. If your nonprofit organization is not currently registered but has been soliciting charitable donations within a state that requires registration, you should take immediate steps to get in compliance.

Continue reading "Indiana Non-Profit Organizations should be aware of Non-Profit Registration Requirements in Other States" »

Internal Revenue Service Form 1023 is entitled "Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code," which is why most people call it simply "Form 1023." Most types of nonprofit organizations that fall within Section 501(c)(3) must submit Form 1023 within 27 months of their formation, along with a user fee that depends on the amount of revenue that the organization anticipates.

Last year the user fees for Form 1023's increased significantly. For 2011, they remain the same as in they were in 2010. The fees are:

• $400 for organizations with annual gross revenues less than $10,000
• $850 for organizations with annual gross revenues equal to or greater than $10,000

Continue reading "Form 1023 User Fees Remain the Same for 2011" »

A bill has been introduced in the Indiana General Assembly to replace the Indiana Business Flexibility Act, Indiana's statute that governs limited liability companies (LLCs), with the Revised Uniform Limited Liability Company Act (RULLCA). Senate Bill 180 was introduced by Senator Vi Simpson (D-Ellettsville) on January 5. A similar bill may be introduced in the House by Representative Ralph Foley (R-Martinsvlle).

At the moment, it's not clear (at least to me) whether adopting the RULLCA in Indiana would be a good thing or a bad thing. Although uniformity among state laws can be beneficial, in our experience the Indiana Business Flexibility Act works very well. I understand that the Indiana Business Law Survey Commission, a group of experts who advise the General Assembly on business and commercial topics, already planned to review the LLC statute later this year. I think the best course of action would be for the General Assembly to give the Commission time to study the question and to determine the effect on Indiana businesses before making significant changes to the Indiana LLC statute.

About the RULLCA.

The RULLCA is one of the many "uniform laws" that are written and published by the National Conference of Commissioners on Uniform State Laws (NCCUSL). The name uniform "law" is a bit misleading because uniform laws are not really laws at all, and the NCCUSL has no legal authority to create laws. The NCCUSL is a nonprofit, unincorporated organization, and the uniform laws are a set of model statutes that are intended to promote uniformity among state laws, but they have no legal effect until they are adopted by state legislatures, one by one. In 1995, the NCCUSL adopted the Uniform Limited Liability Company Act, but it was not well received, and it was adopted by only a few states. In 2006, the NCCUSL adopted a new version, the RULLCA. In the meantime, the states have gone their own ways, with each having some sort of LLC statute. The statutes are all similar fundamentally, but they vary significantly in the details. A few states have adopted the RULLCA, but it is not yet clear how many will ultimately do so.

Continue reading "Indiana General Assembly Report: Proposed Changes to Limited Liability Company Statute" »

atGeist.com is reporting that Pete Peterson (R) is a candidate for a recently created seat on the Fishers Town Council. Read the story here. (Hmm...the conference room in that photo looks very familiar. Just like one of the conference rooms at Fishers Office Suites, where our Business Law Division is located.)

I have a standard speech that I give to clients who come into my office to discuss starting a business. It goes something like this: "You're smart to be looking for a lawyer to help you, but you need more than just a lawyer. You should also find a good accountant and a good insurance broker. You really need all three. Don't try to get by with only one or two of them. For example, don't expect your accountant to give you legal advice, and don't rely on a lawyer to tell you what insurance policies to buy. And don't try the do-it-yourself approach in any of those areas."

I have to admit that not all of my clients follow that advice. After all, starting up a new business is not for the faint-of-heart, and most people who try it are very self-reliant and accustomed to being jacks-of-all-trades. Last night I was browsing around the website of the Indiana Small Business Development Center (or ISBDC), and I found something that I'm going to use to help me persuade those clients who are skeptical about the need for so many different professional services. The ISBDC's website has a list of frequently asked questions, and my curiosity was piqued by this one: "What professional services do you need?" The answer? Attorneys, accountants, and insurance brokers! Read the entire discussion here. Future entries on this blog will discuss the ways that each profession can help small businesses. You might want to subscribe to our feed so you'll know when they're posted.

Continue reading "Lawyers, Accountants, and Insurance Brokers: Small Businesses Need All Three" »

If you'd like to support your local economy, the folks at The 3/50 Project have a suggestion. Identify three locally owned businesses that you'd hate to see go, then each month spend a total of $50 in the three businesses (all three combined, not each). Or, as they put it, "Pick 3. Spend 50. Save your local economy." It's that simple.

Of course, it's not really that simple because running a small business - whether or not it fits perfectly within the model of locally owned, independent, bricks-and-mortar businesses that are the focus of The 3/50 Project - is never that simple, and there is never a guarantee of success. But that's not really the point, at least not as I see it. I think the folks at The 3/50 Project are doing a favor for those of us who rely on small businesses or simply enjoy shopping at local retail stores or eating at local restaurants. They remind us to be intentional about how and where we spend our hard-earned money, and they remind us that those decisions can and do have a real impact on the communities where we live. In addition, they are doing it in a way that is much more creative, and much more personal, than most other "buy local" campaigns.

The founder of The 3/50 Project, Cinda Baxter, was recently in Hamilton County for a speaking engagement. You can read her interview with the Hamilton County Business Magazine here.

The 3/50 Project maintains a list of independent, locally owned, bricks-and-mortar business and of people (like us) who support those businesses. If you'd like to express your support, go here to register.

As discussed in my post of November 24, businesses and nonprofit organizations face a significant increase in the requirements to issue 1099 forms beginning with payments made after December 31, 2011. However, a lot could change between now and then. Several legislators introduced bills during the previous session of Congress that would have dramatically reduced the new reporting requirements or even repealed them altogether. Although none of them passed, similar bills are being introduced again in the new session.

Representative Dan Lungren (R. California) originally introduced a repeal measure last April, just one month after the original legislation was passed, but was unable to obtain the signatures necessary for a vote on the matter. Rep. Lungren re-introduced his bill to repeal the 1099 tax provision earlier this week and plans to continue fighting against the new tax provisions. The bill, referred to as "The Small Business Paperwork Mandate Elimination Act," has 180 co-sponsors and was one of the first bills to be introduced during the 112th Congressional Session.

Other members of Congress have sought to lighten the impact of the reporting changes without repealing them altogether. Senator Mary Landrieu (D. Louisiana) introduced a bill last September that would increase the reporting threshold from $600 to $5,000. Senator Landrieu has yet to re-introduce the bill, but it is likely that similar efforts will begin to surface in the new Congress.

Many organizations representing small business owners have also shown great concern about these changes, which increases the possibility of amendments or a total repeal before next year. Continue checking back here for updates on the 1099 reporting requirements and how they will affect your small business or non-profit organization.

Continue reading "Important Update on 1099 Form Reporting Changes...Could they be Repealed?" »