Recently in Indiana General Assembly Category

August 10, 2013

National Criminal History Background Checks for Child Care Workers

Child care worker.jpgLast session, the Indiana General Assembly passed, and Governor Pence signed, House Enrolled Act 1494, amending Indiana Code Title 12, Article 17.2 by establishing new requirements for national criminal history background checks for employees and volunteers of regulated child care providers.

A national criminal history background check involves the submission of an individual's fingerprints to the Federal Bureau of Investigation for comparison to a national database. (Note that there is a separate process for background checks for individuals under 18 years of age.) The new requirement for a national background check replaces a previous requirement for a background check at the state level, but it is in addition to the requirement for substance abuse testing.

This article discusses the new requirement for background checks in broad terms. More detailed information is available from the Bureau of Child Care of the Indiana Family and Social Services Administration. Note also that HEA also creates some other new requirements for some child care providers that are not addressed by this article.

Applicability

The requirement for background checks applies to essentially all individuals who have any contact with children at any type of regulated child care providers, which include

For all types of regulated providers, background checks are required for all individual caregivers, including both employees and volunteers. For child care homes, the requirement also extends to any member of the household who is 18 years of age or older (or, if younger than 18, who has been previously been charged with a crime and waived from juvenile court to adult court), even if he or she will have no contact with children.

Background checks are required when the child care center, home, or ministry applies for a license or registration; when an unlicensed provider applies for certification of eligibility to receive CCDF funding; when a new employee is hired or a new volunteer begins work; and every three years after that. The requirements for new applications and new employees and volunteers (and for child care homes, new household members) took effect on July 1, 2013. Other regulated providers have until July 1, 2014, to comply with the requirements for existing caregivers and household members.

Prohibitions

The purpose of the background check is to identify individuals who are prohibited from being child care provider, an employee or volunteer of a child care provider, or a member of the household at a child care home. An application for a license, registration, or CCDF certification may be denied if the provider, a caregiver, or (for child care homes) a household member has been convicted of certain types of felonies or misdemeanors or if the individual has been charged of such a crime while the application is pending. Note that only convictions or pending charges count; previous charges that were dismissed or resulted in an acquittal do not disqualify an individual.

Continue reading "National Criminal History Background Checks for Child Care Workers" »

July 30, 2013

Positive Change in Indiana LLC Laws - Part Two: Even More Flexibility in Management Structure

100_3698.JPGEarlier this year the General Assembly passed HEA 1394 which made several changes to the Indiana Business Flexibility Act, the statute that governs limited liability companies. We have already looked at some changes to the Act that enhance the use of Indiana LLCs for estate planning purposes. This article discusses new alternatives for LLC management structure.

The Indiana Business Flexibility Act already provided for a great deal of flexibility for management structure. One of the key steps in designing the management structure of a limited liability company is to establish who has the apparent authority to bind the company, for example by signing contracts on behalf of the LLC. Prior to the changes there were essentially two choices. In a member-managed LLC, the members have that authority. In a manager-managed LLC, the members appoint managers (who may or may not also be members) who have that authority.

HEA 1394 provides a third choice -- officers, who may or may not be members. At first blush, there may seem to be little difference between officers and managers because, like the managers in a manager-managed LLC, officers have the apparent authority to bind the LLC to third party agreements. But there is at least one important difference: In a manager-managed LLC, only the managers, and not the members, have the apparent authority to bind the company. The new revisions allow the members of an LLC to establish officers who have the apparent authority to bind the company, while also retaining that authority themselves. In fact, a manager-managed LLC can also have officers. In that case, both the managers and the officers, but not the members, have apparent authority to bind the LLC.

HEA 1394 includes other changes to the statute that enhance the alternatives for LLC governance. For example, the Act now permits the operating agreement to make certain significant decisions, including mergers, dissolutions, and amendments to the operating agreement, subject to the approval of a third party who need not be a member.

One context in which such provisions may prove useful is in estate planning. Imagine the founder of a business, held by a limited liability company, with multiple heirs, who wants the business to remain in the family. Although the operating agreement may create significant restrictions on transfers of membership interests and admission of new members, the heirs could later agree to amend the operating agreement to remove those restrictions. The Act now allows the operating agreement to name a trusted outside party who must approve any amendments to the operating agreement, thus increasing the likelihood that the founder's desires will be honored.

Continue reading "Positive Change in Indiana LLC Laws - Part Two: Even More Flexibility in Management Structure" »

July 1, 2013

Positive Changes to Indiana LLC Law - Part One: Estate Planning

100_3698.JPGEarlier this year the Indiana General Assembly passed House Enrolled Act 1394, which takes effect today, July 1, and makes several amendments to the Indiana LLC statute, officially known as the Indiana Business Flexibility Act. This is the first of two articles discussing those changes. This first article addresses some amendments that should enhance the use of LLCs for estate planning purposes, and the second will discuss changes that expressly address the use of officers in the management of limited liability companies.

Permissible Purposes for LLCs
With the new amendments, Section 6 of the Indiana Business Flexibility Act now explicitly states that LLCs may be used not only for business purposes but also for personal and nonprofit purposes. For an example of a personal purpose, a married couple who own a vacation cabin and want it to remain in the family after they are gone might place the cabin in a limited liability company and then, by gift, by will, or by other means, transfer the ownership of the LLC to their children or grandchildren. Because the cabin is not used to generate income, the purpose of the LLC is personal, not business.

Although the circumstances in which the IRS will grant an LLC recognition of tax-exempt status under Section 501(c)(3) are limited, the change to the Indiana Business Flexibility Act confirms that Indiana LLCs may be used for those purposes.

It is debatable whether the amendment actually expands the purposes for which an LLC may be used because the prior language was in fact quite broad; however the new language reduces the uncertainty behind permissible purposes by expressly authorizing personal and nonprofit purposes.

Transferring LLC Interests to Heirs
There are two other changes that should increase the use of LLCs for estate planning, both to Section 10 of the Indiana Business Flexibility Act. One of the changes expressly permits LLC interests to be held in what is known as "joint tenancy with right of survivorship" or simply a "joint tenancy." A joint tenancy involves two or more people who both own property but with one key difference from other forms of common ownership: the right, upon death of one of the tenants, for the remaining tenant(s) to take the entire property as an undivided whole. In a simple scenario, two spouses own a home as joint tenants - when one dies, the other takes title to the entire home -- without going through the sometimes costly probate process.

The other change expressly permits LLC interests to be held as Transfer-upon-death property. This simply means that upon the holder's death the member interest can pass to one or more named beneficiaries, again without having to go through probate. However, unlike joint tenancy, the beneficiary does not own any interest in the property until the death of the original owner.

Estate Planning with the New Amendments
Historically, a corporation was the standard entity of choice for businesses, and limited partnerships have been one of the frequently used tools of estate ploanning. In recent years, however, LLC's have overtaken corporations in popularity for businesses. With changes such as the ones to the Indiana Business Flexibility Act, LLCs may also replace limited partnerships in popularity for estate plans.

Continue reading "Positive Changes to Indiana LLC Law - Part One: Estate Planning" »

March 17, 2013

Indiana Smoking Ban

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The "Indiana Smoke Free Air Law," which was passed last year by the Indiana General Assembly and took effect on July 1, 2012, bans smoking in most Indiana businesses and nonprofit organizations. We thought the General Assembly might reconsider some of the details this year, but that hasn't happened. Based on our non-scientific observations, it seems that Indiana businesses and nonprofits have not been very diligent about implementing the law, particularly those regarding signs. So we think it's a good time to review the requirements, or at least some of them.

"Does the smoking ban affect my business?"

Smoking is now prohibited by law in "public places" and "places of employment," as well as the area within 8 feet of public entrances to either of them. "Public places" and "places of employment" sound as if they encompass a lot, and they do. A public place includes any enclosed area of a structure in which the public is permitted or invited, and a place of employment includes any enclosed area of a structure (excluding a private vehicle) that is a place of employment. Lest we forget, there's one other category -- smoking is also banned in government vehicles being used for governmental purposes.

There are some exceptions, but the bottom line is that the smoking ban affects most businesses and nonprofit organizations in Indiana.

"Okay, my office is covered. What do I have to do?"

  • Not surprisingly, you must inform your employees and prospective employees that smoking is prohibited.
  • You must post conspicuous signs that read "Smoking is Prohibited by State Law," or something to that effect. The law has a specific requirement that restaurants must have a conspicuous sign at each entrance informing the public that smoking is prohibited in the restaurant.
  • You must also post signs at each entrance (logically, the sign should be outside or at least visible from the outside) stating "State Law Prohibits Smoking Within 8 Feet of this Entrance" or something similar.
  • If someone smokes on the premises anyway, you must ask him or her to refrain, and if he or she refuses to stop, you must have him or her removed from the premises. (Note: Don't try to do it yourself! In the unlikely event it becomes necessary, call the police.)

"I own a bar. Does the smoking ban REALLY apply to my business?"

It depends. There are some exceptions to the smoking ban, and one of them is for bars and taverns, but you have to meet certain requirements. For example, you may not have any employees under 18, and you must exclude anyone else under 21. There are more exceptions for several other types of places of employment and public places, each subject to particular qualifications or additional requirements.

"Does the law apply to our nonprofit organization?"

Probably. There is an exception that covers some social clubs and fraternal organizations or lodges that are tax exempt under Internal Revenue Code Sections 501(c)(7), (c)(8), or (c)(10), and it's possible that some other types of nonprofits fit into an exception, but most nonprofits are subject to the smoking ban.

"I have a home office. Is smoking banned there, too?"

Again, it depends. The ban does not apply to a business located in the business owner's residence, but only if all the people who work there live in the residence. Let's assume that only you (the owner) and your spouse work in your office. In that case, you're allowed to smoke, but if you have any employees who don't live in your home, smoking is prohibited.

"Are there other exceptions?"

Yes. For a complete list see Ind. Code 7.1-5-1-5.

"My facility falls within an exception to the smoking ban, so I'm home free. Right?"

Well, not entirely. There are some other requirements that apply to public places and places of employment in which smoking is permitted. Here's an interesting one -- you have to post signs that state "WARNING: Smoking is allowed in this establishment." You must also certify to the Indiana Alcohol and Tobacco Commission that your bar qualifies for the exception.

Moreover, even if most of your facility or building is exempted from the ban, smoking is prohibited in halls, elevators, and common areas where people under 18 are permitted or in rooms intended for use by people under 18.

And don't forget that even if the state law does not ban smoking in your business, it may be prohibited by local no-smoking laws -- such as the Indianapolis Ordinance -- which are allowed to be more restrictive than the state law.

Other resources

NOTE: This is not a comprehensive analysis of the Indiana Smoke Free Air Law. There are other exceptions and other requirements that may apply to your business or nonprofit (even if it is exempt from the ban itself) that we have not discussed. Here are some other resources:


  • The full text of the statute can be found at Ind. Code 7.1-5-1.

  • The Indiana State Excise Police have published a list of frequently asked questions.

  • And signs that comply with the state law are readily available from a number of suppliers.

Continue reading "Indiana Smoking Ban" »

February 8, 2013

Proposed Changes to Indiana LLC Statute Part 2: Charging Order Protection

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UPDATE, February 19, 2013.
Yesterday, the House Judiciary Committee amended HB1394 to remove the language discussed in this blog post -- the changes to IC 23-18-6-7 that would have expressly provided that a charging order is the only right that the creditor of an LLC member has with respect to the LLC. It appears that Indiana will remain in the fourth category of states listed in the article -- those in which there is no reverse veil piercing for multi-member LLCs, with the issue remaining unsettled with respect to single member LLCs. The most recent version of the bill is available here.


In my last post, I discussed HB 1394, a bill pending in the Indiana General Assembly that would make several amendments to the statute that governs Indiana limited liability companies. One of the most important changes is to strengthen the so-called "charging order" protection, which I'll describe shortly after a brief review of some attributes of LLCs and corporations.

Recall that corporations and LLCs both have liability shields that protect the owners of the company (for a corporation, the shareholders; for a limited liability company, the members) from being personally liable for the company's obligations. That liability shield (whether it's for a corporation or LLC) is sometimes called a corporate veil, and in some circumstances courts will ignore the shield, or pierce the corporate veil, to allow creditors of the business to reach the personal assets of the owners. I've previously discussed precautions that LLC members can take to keep that from happening.

When a court allows a creditor of the business to reach the personal assets of the owners, it's sometimes called "inside-out veil piercing," which implies there might be something else called "outside-in veil piercing." And there is.

Consider what happens when a shareholder of a corporation owes money to a creditor. The shareholder's stock is just like any other asset, like a bank account, a house, or a car. And just like any other asset (well, most other assets), the stock is subject to foreclosure, which effectively means the creditor takes over ownership. The creditor, now the new shareholder, receives all the rights associated with the stock, including the economic rights (i.e., the right to receive dividends, if there are any) and the non-economic rights (including the right to vote in elections of the board of directors). That's called "outside-in veil piercing" or sometimes "reverse veil piercing." If the creditor takes over enough shares of stock, he or she can gain control of the company. Even if the creditor does not gain control of the company, the other shareholders may suddenly find themselves co-owners with someone they don't even know, maybe even with someone they despise. For large, publicly traded companies with millions of shareholders, that's no big deal. For family businesses or other businesses with only a few shareholders, it can be a very big deal.

The area of reverse veil piercing is one in which LLCs differ tremendously from corporations, at least in some states, and it is one of the reasons that I advise clients to set up LLC's far more often than I advise them to set up corporations. When it comes to the rights of a member's creditors, many states, including Indiana, treat the member's economic rights and non-economic rights separately. For example, IC 23-18-6-7 allows a court to issue an order requiring a limited liability company to pay to a member's creditors anything that the LLC would otherwise be required to pay to the member. That's called a charging order, and it's something like an order for the garnishment of wages, applied to a member's right to receive LLC distributions.

The question is whether a charging order is the only remedy a creditor has against the member's rights. If so, there is no reverse veil piercing, and a member's creditors cannot take over control of the business or gain a seat at the table with the other members. I believe there are currently five categories of states:

  1. Those in which reverse veil piercing is not allowed for LLCs.
  2. Those in which reverse veil piercing is allowed for single-member LLCs but not for multi-member LLCs.
  3. Those in which reverse veil piercing is allowed for both single-member LLCs and multi-member LLCs (essentially treating LLCs the same as corporations).
  4. Those in which there is no reverse veil piercing for multi-member LLCs but for which the law is unresolved for single-member LLCs.
  5. Those in which the law is unresolved for reverse veil piercing both single-member and multi-member LLCs.

Until fairly recently, Indiana was in the fourth group of states. As I've discussed elsewhere, a 2005 decision of the Indiana Court of Appeals, Brant v. Krilich, held that there is no reverse veil-piercing for multi-member LLCs, but apparently leaving the question open for single-member LLCs.

HB 1394 would add a provision to IC 23-18-6-7 expressly stating that a charging order is the exclusive remedy for a judgment creditor of a member and that the creditor has no right to foreclose on the member's interest. Because the bill makes no distinction between single-member and multi-member LLCs, it appears that HB 1394 would place Indiana in the first category of states -- those for which reverse veil piercing is not allowed for either single-member or multi-member LLCs.

Continue reading "Proposed Changes to Indiana LLC Statute Part 2: Charging Order Protection" »

January 29, 2013

Proposed Changes to Indiana LLC Statute

100_3698.JPGStatutes governing limited liability companies, or LLCs, vary considerably from state to state. In our opinion, Indiana's statute is already among the best in the country, and a bill introduced in the 2013 session of the Indiana General Assembly proposes several changes that would make it even better for small business owners, particularly family-owned businesses. Among other things, HB 1394, introduced by Rep. Greg Steuerwald (R Avon) would:

Later posts will discuss these proposed changes in more detail, including a few suggestions for possible revisions to the bill that would make it even better. In the meantime, however, small business owners in Indiana may want to contact their state representatives and senators urging them to support HB 1394.

Continue reading "Proposed Changes to Indiana LLC Statute" »

February 2, 2011

Indiana General Assembly Report: L3C Bill Introduced

In the next few days, I'll get back toThumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for 100_3697.JPG the discussion of the basics of limited liability companies, but first I want to mention a bill that has been introduced in the Indiana General Assembly that takes on an advanced, cutting-edge topic: the low-profit, limited liability company or "L3C." The bill is Senate Bill 501, authored by Sen. Brandt Hershman (R-Lafayette).

The L3C is a new variation on a limited liability company. The primary purpose of the L3C is to pursue a charitable mission, with the generation of a profit being a secondary purpose. The L3C is not, itself, a tax exempt organization. Instead, it is intended to be a vehicle that can attract both private capital and philanthropic investments to address issues such as low income housing.

Why? Primarily because the L3C is designed to be eligible for program related investments from private foundations. A program related investment is an alternative to a traditional philanthropic grant. An example of the use of program related investments in Indiana is the support of charter schools by the Annie E. Casey Foundation.

You can read more about L3C's from Americans for Community Development.

Continue reading "Indiana General Assembly Report: L3C Bill Introduced" »

January 27, 2011

Indiana General Assembly Report: Small Business Assistance Team Proposed

Thumbnail image for Thumbnail image for Thumbnail image for 100_3697.JPGSenate 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.


The team will include members appointed by the lieutenant governor, the secretary of state, and the commissioners of several state agencies, along with the state Small Business Ombudsman and a designee of Purdue's technology assistance program.

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" »

January 20, 2011

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

Thumbnail image for Thumbnail image for Thumbnail image for 100_3697.JPGAs 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" »

January 14, 2011

Indiana General Assembly Report: Proposed Changes to Limited Liability Company Statute

Thumbnail image for 100_3697.JPGA 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" »