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Using Buy-Sell Agreements to Prevent Shareholder Lawsuits

November 10, 2015 by Scot Putzig Leave a Comment

Running a business is risky. One way to mitigate this risk for private companies is a Buy-Sell Agreement among the owners (also commonly called a Shareholder Agreement). Private companies often use Buy-Sell Agreements to protect owners’ interests in the company in the event of death, disability, retirement, or sale. These agreements are also often a cornerstone of any succession plan. However, many Michigan companies are unaware that Buy-Sell Agreements may also be used to avoid shareholder lawsuits.

Minority oppression lawsuits can be destructive to private companies, family businesses, and small businesses. Both the Michigan Business Corporation Act, MCL 540.1489, and the Michigan Limited Liability Company Act, MCL 450.4515, allow for lawsuits by owners of private companies against other shareholders, members, directors, officers, or others in control for illegal, fraudulent, or willfully unfair and oppressive conduct when the continuing course of conduct or significant action or series of actions substantially interferes with the interests of the owners as a shareholder or member of the company. Minority oppression claims regularly arise during intra-corporate disputes such as when firing or modifying an owner’s employment or benefits package, altering voting rights, self-dealing, capital calls or distributions, and freeze-outs or sale of a stock or membership interest. Michigan courts have powerful discretionary powers to fashion remedies for minority oppression claims.

Unbeknownst to many Michigan private companies, family businesses, and small businesses, their already existing Buy-Sell Agreements and other corporate documents can be expertly modified to mitigate and avoid the risk of minority oppression lawsuits. Actions specifically authorized by the Articles of Incorporation, Operating Agreement, and other written agreements may limit the basis for a minority oppression action. Therefore, if a company does not have an Operating Agreement, Buy-Sell Agreement, or Shareholder Agreement, the company should create a carefully crafted and tailored document to meet its needs. If a company does have these documents, they should be reviewed and updated to add further protection.

This article is by no means an exhaustive explanation of the advantages of Buy-Sell Agreements, but a carefully crafted agreement can protect private companies and their owners from lawsuits regarding these minority oppression claims which are expensive and disruptive. As always, please contact the expert business attorneys at Shinners & Cook with any questions or need for legal advice regarding your Michigan private company, family business, or small business.

Filed Under: Blog

New Periodic Garnishment Legislation

June 17, 2015 by Scot Putzig Leave a Comment

Governor Rick Snyder recently signed into law Public Act 14 of 2015 with important changes to Michigan periodic garnishments, effective immediately. Periodic garnishments now remain in effect until the judgment balance is satisfied, rather than expiring every six months. Fees to employers increase from $6 to $35 per periodic garnishment. In addition, every six months plaintiffs must provide a statement of remaining balance, interest, and costs for the periodic garnishment and must issue a written release of garnishment after the judgment balance is satisfied.

Significantly, the new legislation creates employer limited liability in the event of a default. A “default” means that the employer fails to file a disclosure, fails to withhold the required amount of wages, or fails to perform any other act required by Michigan law. Prior to the legislature’s changes, an employer who defaulted on a periodic garnishment was liable for the entire remaining judgment balance, costs, interest, and reasonable attorney fees. Recognizing that administrative oversights happen, the new legislation creates several new layers of protection for Michigan employers.

Now, if an employer fails to file the required periodic garnishment disclosure within 14 days of receipt, or fails to perform any required act under Michigan law, the plaintiff must serve the employer a written notice of failure. The employer has 28 days to respond to the notice of failure, remedy the mistake, and mail notice to all parties. Even if a court enters a default judgment, employers may now motion the court within 21 days of the entry of a default and seek limited liability and a reduced default judgment.

Clearly, the new legislation signed by Governor Snyder and passed by the Michigan Legislature is welcome news for Michigan employers. Periodic and non-periodic garnishments appear to be simple and routine forms, but in reality, failing to comply with periodic and non-periodic garnishments can lead to problems costing serious money for employers. Contact an attorney at Shinners & Cook with any questions regarding compliance with periodic and non-periodic garnishments or other business or employment law issues.

Filed Under: Blog

Using Website Terms and Conditions to Protect Your Business

August 21, 2014 by Scot Putzig Leave a Comment

Terms and conditions for a website are an important legal document for any business. The terms and conditions constitute a license agreement spelling out the rights and obligations in connection with any person’s use of your business website.

Despite the fact that terms and conditions are an important and binding legal agreement, many businesses simply copy and paste terms and conditions from other websites. However, many of the terms and conditions available on the internet are not drafted by an attorney and therefore often do not properly comply with legal requirements or grant your business full liability protection.

In our modern era of online and mobile commerce, the existence of a website may expose your business to lawsuits throughout the country and therefore one of the primary aims of any business website’s terms and conditions should be limiting your liability. Terms and conditions can determine jurisdiction and venue for any suit, limit statute of limitation claims, provide for warranty limitations and indemnification, and determine title and risk of loss for shipping goods. As with any agreement, the terms and conditions should be clear and unambiguous and users of your website should be able to clearly understand their rights and obligations.

An attorney can assist in developing the “rules” for your website, determine what clauses to include and tailor the agreement to your individual business needs. In addition, an attorney can properly advise you how to incorporate the terms and conditions throughout your website. Our Firm has assisted businesses large and small in developing, reviewing, and amending their terms and conditions. In addition, our Firm has developed terms and conditions which may be tailored for your business website, whether it be retail, manufacturing, distribution, or service-oriented. To contact me about your company’s terms & conditions, please click here.

Filed Under: Blog

Michigan Real Estate Law: Should I Appeal My Property Tax Assessment?

February 18, 2014 by Scot Putzig

Time is of the Essence:

Now is the time to decide whether to appeal your current residential or industrial/commercial property tax assessment. When you receive your assessment notice for your home or business, should you discuss it with a real estate attorney?

If you own industrial/commercial property, the deadline for filing an appeal with the Michigan Tax Tribunal is during the summer. However, if you own residential property, your first step is the local taxing authority’s board of review held annually in March. In addition, appeal assessments in Grand Rapids or Detroit require you to participate in an assessor’s review prior to appealing to your local board of review. It is important to plan ahead to avoid running afoul of these time limits.

Is My Assessment Worth Appealing?

For state tax purposes, your property’s assessed value is 50% of your property’s fair market value as of December 31st. The local tax authority then calculates the property’s taxable value by multiplying the last year’s taxable value by 5% or the Consumer Price Index (CPI), whichever is less. Your property’s taxable value is always equal to, or less, than your property’s assessed value. Therefore, your assessment may be worth appealing when you believe your property’s taxable value is more than half of your property’s fair market value. If you do decide to meet with a real estate attorney to discuss an appeal, you should compile:

1) a property description (including square footage, the current use, and amenities)

2) the new property assessment

3) past property assessments

4) any documents indicating the current fair market value of the property (such as appraisals, insurance policies, or a list of similar recently sold properties in your immediate area)

The Danger of “Uncapping” the Property’s Taxable Value:

If you are considering whether to buy, sell, or transfer an ownership interest in real estate you should speak with a real estate attorney on how to transfer the property and still keep the tax benefits under Proposal A. Under Proposal A, your property’s taxable value growth is “capped” at 5% or the Consumer Price Index (CPI), whichever is less if there is no transfer of ownership during the tax year. However, when a piece of property is sold or the ownership interest is transferred, the property’s taxable value becomes the assessed value in the next taxable year. Therefore, Proposal A “caps” real property taxes from increasing rapidly as long as there is no transfer of ownership during the tax year.

Under Michigan law, a transfer of ownership is “the conveyance of title to or a present interest in property, including the beneficial use of property, the value of which is substantially equal to the value of the fee interest.” MCL 211.27a(6). There are several exclusions from the definition of transfer of ownership under Michigan law that you may be able to take advantage of. For instance, it may be worthwhile to speak with a real estate attorney for real estate transfers involving:

– husbands and wives

– life estates or life leases

– foreclosure or a deed in lieu of foreclosure

– trusts and trustees

– divorce proceedings

– real estate with multiple owners

– parent-child corporations

– agricultural property

– forest property

– conservation easements

In addition, the Michigan Legislature has recently amended Michigan Real Estate Law to extend tax benefits to owners of residential homes. Beginning December 31, 2013, transfers of residential real property between family members may get preferential tax treatment. Therefore, it may also be worthwhile to contact a real estate attorney when transferring real property within your family. As always, you can contact Shinners & Cook at 989.799.5000 with any questions regarding your property taxes or any other legal questions.

 
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Filed Under: Blog

Northwestern College Football Players File Suit for Unionization Rights

February 13, 2014 by Scot Putzig

Although Seattle won the Super Bowl and Florida State is the new college football national champion, the college football players at Northwestern University continue playing, but this time on a different field – the courtroom. On Tuesday, January 28, 2014, with support from the Steelworkers Union, a majority of Northwestern college football players appealed to the National Labor Relations Board (NLRB) for unionization rights as “employees” of Northwestern University. The players claim that Northwestern University, and the N.C.A.A. as a whole, have used the concepts of amateurism and the “student-athlete” to avoid having to share revenues from ever-increasing TV contracts. Players seek to compel universities to provide long-term medical care and four-year guaranteed athletic scholarships in the event that a player is no longer able to continue playing because of injury or other medical reasons.

The players filed their appeal with the NLRB in the Chicago NLRB regional office, which will hold a hearing to decide the employment status of Northwestern football players. In the event that the NLRB determines that Northwestern has misclassified the college football players as non-employees, the decision would be a watershed moment for college athletics. Significantly, any NLRB decision applies across the board to all other scholarship athletes at private universities.

If successful, private scholarship college athletes would be considered “employees” under federal labor and employment law. These athletes could vote to form a union and collectively bargain for any terms and conditions of employment like any other workplace union. In addition, as an “employee” of the university, these athletes would participate in state worker’s compensation and state unemployment insurance systems. Such a decision would bring into question the role of amateurism in college sports in general. It is well known that most university athletic budgets run at a deficit and, generally, only men’s college basketball and college football provide any significant revenue. Potential unionization for college athletes in other sports that do not provide significant revenue could put the continued existence of those collegiate sports at issue.

The foundational issue of the Northwestern litigation rests on whether or not private college football and men’s basketball players are “employees” for legal purposes. The National Labor Relations Act protects only “employees” and specifically excludes “any individual having the status of an independent contractor,” including volunteers. 29 USC 152(3). Under federal law, an “employee” is defined as “an individual employed by an employer. . .” 42 USC 2000e(f). More specifically, whether someone is “employed” is determined by the common law of agency. Ware v United States, 67 F3d 574, 576 (6th Cir. 1995). The Supreme Court established several factors to be considered when determining the agency relationship:

We consider the hiring party’s right to control the manner and means by which the product is accomplished. Other factors include the skill required; the source of the tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party. Nationwide Mut Ins Co. v Darden, 503 US 318, 323-24; 112 S Ct 1344; 117 L Ed 2d 581 (1992).

Several of these factors, when applied to the typical college football or basketball player, lend credence to the players’ argument that they are “employees.” Universities maintain near total control over the manner and means by which players operate in their respective sports. Often, universities require these athletes to participate in near 40-hour work weeks during their seasons. In addition, college football players have succeeded with this argument at least once before. In 1953, the Colorado Supreme Court held that football players with the University of Denver were common-law employees of the university and were therefore entitled to worker’s compensation for injuries incurred while playing college football. University of Denver v Nemeth, 257 P2d 423 (Colo. 1953). As a Notre Dame and Michigan graduate, I, along with the rest of college sports fans, will continue to watch this case as it moves forward.

 
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Filed Under: Blog

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