Missouri Finally Has a New Statute Governing Receivers and Receiverships

As most commercial attorneys in Missouri know, the previous Missouri statute governing receiverships, which was enacted in 1939 and consisted primarily of one sentence, provided very little guidance to attorneys, judges, or the parties involved.  Missouri’s new receivership statute solves that problem.  Effective August 28, 2016, and consisting of some 34 sections, the Missouri Commercial Receivership Act now provides guidance regarding the appointment of a receiver, the powers of a receiver, the rights and duties of the parties, and claim and distribution procedures.

A petition to appoint a receiver is now an independent cause of action.  It does not need to be merely an “add on” request to some other claim the creditor has against the debtor.  Receiverships can be instituted in order to dissolve an entity, enforce a lien, enforce a judgment, and other specific purposes, as well as any other situations in which the court may find a receivership appropriate.

Commencing a receivership is also a useful new way to resolve an ownership dispute or allow a majority shareholder to challenge a misbehaving management without destroying the business.

One of the most important improvements in Missouri’s receivership process is the requirement of notice to debtors.  Continue reading »

Your Restaurant is Failing – Now What?

Restaurants fail for a variety of reasons, from failure to watch costs to failure to develop the right menu to a nearby construction project eliminating most of your on-street parking.  If you followed the tips in my previous article, you should have some money to rely on going forward.

If your financial problems are operational or managerial, one of the things you can do at this late stage is to hire a consultant to help you tweak your menu, streamline your operations, or take any of a number of additional steps to bring you back to profitability.  This is the time to be humble, rather than arrogant – ask for help!  You should also consult with a bankruptcy lawyer at this point.  That does not mean you are necessarily going to file bankruptcy, but an attorney knowledgeable in this area can tell you what to expect if different scenarios unfold. Unanswered ‘end-game’ questions will add to your stress and divert you from your primary mission of saving your restaurant. You can learn a lot of useful information for not a lot of money, and gain some peace of mind as well.

A bankruptcy attorney also can help with your current problems. For instance, the attorney can negotiate with the landlord, either to reduce the rent or give back some space.  He can negotiate with your lender and your suppliers to negotiate better terms, or a temporary break in your monthly payments. Continue reading »

Opening a Restaurant: Plan for Success – and Failure, Too

Failure is a topic most restaurateurs would prefer to avoid when setting up a new venture, when their heads are full with visions of success. However, the restaurant business is tough, and problems can arise due to circumstances both within and outside of your control.

A great time to protect yourself from potentially devastating problems is now, while you are setting up your business and you can plan calmly.

In this post, I will discuss several of the initial legal steps you can take to prepare for a potential failure.  In my next post, I will turn to the ramifications of failure and what actions you can take at that time.

First, consult an attorney to prepare your initial legal documents.  There are many issues of which you may be unaware, or that you may not know how to resolve. You need to choose an appropriate legal structure and learn about human resource issues. Especially if you have a partner, you will want to deal with buyout issues, succession issues and how to handle deadlocks if multiple owners are unable to reach decisions on major issues.  As they say, an ounce of prevention is worth a pound of cure. Continue reading »

Inherited IRAs – Once Protected – Now Possibly Fair Game for Creditors

You should read this article if  –

1. You expect to transfer funds to your descendants through an individual retirement account (IRA); or
2. You have inherited an IRA from a relative.

The U.S. Supreme Court has ruled in Clark v. Rameker that the money in an inherited IRA does not qualify for the protection from creditors as provided in the Federal Bankruptcy Code.[1]

The Court concluded that funds in an IRA which was inherited from someone else are not really retirement funds.  It gave three reasons for this conclusion.  The holder of an inherited IRA:

1. Can never invest additional money into the account.
2. Is required to withdraw money from the account, no matter how far away retirement may be.
3. May withdraw the entire balance of the account at any time – and use it for any purpose – without penalty. Continue reading »

False Economy: Why Saving a Few Dollars on Legal Fees Now Can Cost You Big Later

• You’re about to sign a lease for your company’s new premises. Should you have a lawyer review it, or save the money?
• You’re about to sign an employment agreement with your new employer. Should you have a lawyer review it, or save the money?
• You and your best friend are going to start a new business. Should you have a lawyer advise you, or get the forms off the internet and save the money?

Both in jest and with some seriousness, business people, especially entrepreneurs, tend to view lawyers skeptically. Their perception is that lawyers run up fees, make simple transactions complicated, and sometimes cause deals to fall apart completely with all of their questions.

This is a short-sighted view of how attorneys can help you and your business. Experienced business minds understand that lawyers, when properly used at the beginning of a transaction rather than later after problems have developed, can be problem avoiders. And a problem avoided can be big money saved.

In the lease situation above, for example, your lawyer would be sure that you signed the lease in such a way that only your company, not you personally, would be liable. She might negotiate a provision that you don’t pay any rent while the space is being readied for your occupancy or for reduced rent if the landlord doesn’t provide promised services. An experienced attorney has seen a lot of leases, and knows the traps they often contain.

Lawyers aren’t deal breakers. Their job is to point out the potential risks in a transaction so you, the client, can decide whether those risks are worth the potential benefits of proceeding. If the risk/reward ratio isn’t to your liking, then YOU break the deal. If the risk is acceptable, then you proceed. In either event, you have made the decision in an informed and practical manner. You are in control; your lawyer, like all of your professional service providers, works for you. Your attorney’s role is to provide advice, share wisdom and insight, and help you make the business decisions. Continue reading »

Two-year, Non-solicitation Activity Covenant Upheld in Illinois for Seasonal Tax Employee

An Illinois appellate court recently upheld a two-year, non-solicitation activity covenant and one-year anti-raiding covenant between a tax preparation service and its employee, despite the employee’s seasonal employment of just three months. Zabaneh Franchises, LLC v. Walker, 972 N.E. 2d 344 (Ill. App. 2012).

In July of 2010, Zabaneh Franchises, LLC, an income tax preparation service based in Quincy, Ill., purchased an existing H&R Block, Inc. franchise. The sale included an assignment of employment agreements with H&R Block’s employees, including that with Terri Walker. Walker had signed an employment agreement in November 2009, as she did annually beginning in 2003. Pursuant to this agreement, Walker agreed to work during the 2010 “tax season,” from January 2 through April 15, 2010. Walker completed this tax season employment without incident.

In February 2011, Zabaneh filed suit against Walker alleging that within a few months of leaving Zabaneh in April 2010, Walker started her own tax preparation business, solicited clients, and hired employees of H&R Block in violation of her employment agreement. Zabaneh’s complaint sought a temporary restraining order against Walker to bar her from engaging further in such activities. The trial court found Walker’s employment agreement to constitute a “contract of adhesion” (a “take it or leave it” imbalanced agreement favoring one party) and denied Zabaneh’s request for a temporary restraining order. The case was subsequently dismissed with prejudice.

On appeal, the appellate court was asked to consider whether Walker’s employment agreement was reasonable and enforceable. In doing so, the court noted that the Illinois Supreme Court had recently addressed the proper standard for analyzing the enforceability of restricted covenants in an employment agreement in Reliable Fire Equipment Co. v. Arredondo, 965 N.E.2d 393 (Ill. 2012). Continue reading »

The Facebook Folly: Why Browsing an Applicant’s Facebook Profile Could Present Problems for Missouri Employers

Within the past few months more and more news outlets have reported stories of employers asking job applicants for their Facebook login information. While many applicants understandably feel uncomfortable with the idea of their potential employer delving through their private lives, applicants are typically not in the position to decline.

This new trend has sparked an inevitable inquiry: is it legal? At this time, the answer is uncertain. Like many issues arising from the fast-paced and ever-changing world of the Internet and social media, the law has not caught up with the question. There does not appear to be a statute, regulation or court decision directly on point – either at the federal or state level. Consequently, experts on both sides of the issue have begun considering and arguing whether any statutes, regulations, or court decisions indirectly apply to the issue.

Missouri statute does not appear to directly prohibit such a practice; however, this does not mean it is wise for employers to engage in it. The reason has little to do with the actual practice of asking for the login information, but rather concerns what may be potentially discovered by such practice. No, I am not referring to finding rants about past employers or photos of bad decisions and misdemeanors. Employers should be concerned about finding family or pregnancy photos, photos of the applicant in the hospital, and/or religious views.

Continue reading »

Importance of Maintaining Formalities with Your LLC: It Will Affect Your Deductions

Many individuals establish LLCs and then operate a business as if it was an extension of themselves, commingling funds and not following proper formalities. A recent Tax Court decision provides a sobering realization for individuals who fail to properly title their assets and follow the required formalities. In this case, the court found that a taxpayer’s purchase of an RV did not increase the amount he had at-risk in the LLC because he could not show the LLC owned or used the RV. As a result, deductions he had taken based upon that amount at-risk were disallowed by the IRS.

In Estate of Roberts v. CIR, the taxpayer had established an LLC to lease equipment to his S corporation. He lent money to the LLC, which issued him a promissory note in that amount. With the proceeds of the loan, the LLC purchased an RV. However, there were several issues with the RV’s ownership and use. Even though the RV was titled in the name of CTI Leasing, it was not titled in the name “CTI Leasing, LLC,” the company’s legal name. The EIN on the car title belonged to his S corporation. The RV was not on the LLC’s depreciation schedule. The taxpayer used the RV for his own purposes. Lastly, there was no record that the LLC ever used the RV, because there was no written lease between the LLC and the S corporation concerning the RV.

As a result, the IRS concluded, and the Tax Court confirmed, there was no evidence that the LLC owned the RV or used it. Because the taxpayer could not show that the LLC owned or used the RV, the taxpayer was unable to claim tax deductions based upon the LLC’s capital at-risk in connection with the RV.

There are a few items to take away from this case:

1. You should always properly title your corporate assets and use the corporate title LLC, Corp., or Inc., as the case may be.
2. If you have multiple business entities, you must keep assets of each entity separate from other assets. If you lease an asset among entities, you must have a proper lease in writing executed by both entities.
3. It would be much cheaper for the taxpayer to seek the guidance of an accountant or attorney when completing these transactions than suing the IRS in Tax Court for the disallowed tax deductions.

These days, with Legal Zoom and other ready-to-order LLCs, people are buying assets and operating businesses without knowing the consequences of their actions. Before you enter into large transactions, it is important to understand the formalities that must be followed in order to receive the intended tax consequences.

Misclassification of Workers as Independent Contractors: How to Take Advantage of IRS’s New Voluntary Classification Settlement Program

Both the IRS and the Department of Labor have indicated their intent to target misclassification of workers as independent contractors rather than employees. In the proposed budget for fiscal year 2012, $240 million is allocated for initiatives specifically related to enforcing this misclassification.

Employers who have misclassified workers in the past may want to consider taking part in a new program that will allow them to voluntarily correct their misclassification of workers at a relatively low cost. As part of its “fresh start initiative”, the IRS recently announced a new Voluntarily Classification Settlement Program (VCSP).

Under this program, eligible employers will only pay an amount that equals just over one percent of the wages paid to the misclassified workers in the past year, if they prospectively treat these workers as employees. The IRS will not audit employers on payroll taxes related to these workers for past years, and employers will not be subject to interest or penalties for past misclassifications.

In order to be eligible for the program the employer must:

1. consistently have treated the workers in the past as non-employees,
2. have filed all required Forms 1099 for the workers for the previous three years, and
3. not currently be under audit by the IRS, the Department of Labor, or a state agency concerning the classification of these workers.

To apply for the program, an employer must file Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before it wants to commence treating the workers as employees.

Employers participating in the program will be subject to a six-year statute of limitations for the first three years under the program, rather than the three-year statute of limitations that generally applies to payroll taxes.

Information about the VCSP is contained in IRS Announcement 2011-64.

Posted by Attorney Marcia S. Orgill. Orgill concentrates her practice in the area of business and personal taxation—especially complex domestic and international tax strategies.

It’s a Great Time to Become an Urban Business Dweller

With downtown St. Louis office vacancy now at 19%, landlords are being forced to compete aggressively and find creative ways to market their office properties.

Landlords have found they also have to create major incentives for tenants: everything from rent concessions to significant tenant improvement allowances.

If you are looking at moving your business, or if you are opening a new office, your best bet may be a move to downtown St. Louis.

Now may be a good time to be looking! Read more in this article from the St. Louis Business Journal.