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New Utah LLC Law

Utah has recently passed a new Limited Liability Company Act, and Mark Astling, of Durham Jones & Pinegar has written an excellent article on it, entitled What CPAs Need to Know About the New LLC Law. It looks like Utah is moving in the same direction that Wyoming has gone. The new Utah Law creates default rules that govern the LLC if members fail to adopt an operating agreement. This means that when you form a company, you really need to give careful thought to the terms of your ownership, because if you don’t, the Utah Act will make them up for you, and that may not work to your advantage. Another interesting development is the limitation on what information is made public about the LLC. In the past, Utah LLCs were required to list the names of all managers and/or members in their articles of organization. Now, much like Wyoming, all that is required is that the articles contain the name of the LLC, the name and address of the registered agent, and the mailing address of the principal office. This is an interesting move, given the current world-wide atmosphere in governmental circles of trying to require that more information be made public. Mr. Astling’s article is a timely, worthwhile read.

The Corporation Transparency Act is Back!

Once again, Senator Carl Levin (D-Mich.) has introduced his Incorporation Transparency Act, as reported on Accounting Today.  As with previous iterations, this act would require states (or registered incorporation agents) to collect and hold for the possible inspection of law enforcement detailed information about the ‘beneficial owners’ of any new corporation or LLC.  And, as with previous iterations, this bill still has many problems.  By ‘beneficial owners’ the government wants to know who really controls a corporation.  However, if the true power behind the curtain isn’t being honest with the incorporator, there is no real way to know.  Additionally, many attorneys (such as myself) create companies on behalf of clients; this bill would require attorneys to provide the identity of their clients to government agencies, thus possibly violating the duty of confidentiality between attorney and client.  Senator Levin has introduced this bill in some form in several previous congresses; his initial co-sponsor was then-Senator Obama.  The article cited above is heavy with praise by law enforcement, but says nothing about the bill’s reception by the various States’ Secretaries of State, Governors’ associations or business association.  And let’s face it, a law such as this would significantly chill business operations and start-ups.  Some take the position that if you have nothing to hide, you have nothing to fear.  But this is always the mantra of those who seek to exert more control than a free society would warrant.

Incorporating in Nevada: Good Business or Shell Game?

Here is a fairly balanced article discussing the monetary side of incorporating in Nevada (i.e., how much money the Nevada Secretary of State makes). There is a lot of potential revenue at stake for the individual states. The article does a good job of pointing out that there are both legitimate businesses and fraudsters taking advantage of favorable incorporation laws. To me, it seems that the incorporation/registered agent industry is much like the ocean: you get sharks as well a tuna. Which one you end up with depends on exercising some discretion and wisdom on your part.

G8 Pushes for International Ownership Registry

One of the advantages of using shell companies, at least internationally, is the possibility of lowing tax liability. I just came across this blog article, which does an excellent job of laying out the motivations of both taxing authorities and tax-avoiders (as opposed to tax-evaders). It is natural, and legal, for a company to take every measure possible to achieve the lowest possible tax liability, so long as they are in full compliance with the applicable laws. There is a fascinating debate as to whether greater corporate transparency will actually result in the hoped-for tax revenue, or if it will simply create greater incentives for companies to find more creative, yet legal, methods of reducing taxes, including through the use of shell companies.

Launderers Anonymous

And, for today, this Economist Article from The Economist. It points out that there are indeed legitimate uses for shell companies. However, this business vehicle is also hughly susceptible to misuse.

10 Rules for Asset Protection

I recently came across this excellent article, published by Forbes, which provides some excellent guidelines when considering asset protection. A good asset protection plan is something that you don’t need to be ashamed of. While there are certainly many legitimate reasons for seeking greater privacy, asset protection is not necessarily one of them. If you make your plans early, keep them simple enough to explain and don’t engage in what a court or creditors might think of as suspicious behavior, you are on your way. Even though the article is a couple of years old, the suggestions remain timely.

Single Member LLCs Should Take Care

I just noticed this excellent article on the erosion of the charging order protection for single member LLCs. The author, attorney Lee R. Phillips, notes several instances where courts have permitted creditors of the single member of an LLC to avoid the protection of a charging order, thus giving them access to the LLCs assets in order to satisfy a judgment. As the article points out, this does not eliminate the corporate shield which protects owners of an LLC from the company’s liabilities; it only permits creditors of the owner to seize assets of an LLC to satisfy the owner’s debt. Mr. Phillips suggests that in forming an asset protection plan, folks should seriously consider the virtue of multi-member LLCs, for which this protection has not been eroded. My own take is that a person seeking asset protection should carefully consider not only the use of a multi-member LLC, but should also consult an attorney to determine if the state where the LLC is located has suffered the erosion of protection that is addressed in this article.

The Annual War on Shell Companies

As evidenced by this article in the New York Times, there is constant pressure on the United States to change the way it regulates the formation of businesses. This article makes a couple of good points. First, it emphasizes that the U.S. is interested in sharing company ownership information with law enforcement. Second, it indicates that increased regulation would be expensive, increase bureaucracy, and discourage business. I like both these points. Certainly, something needs to be done to ensure that businesses are not abused, or being used for illegal motives; but doing too much would stifle business. The idea of law enforcement being able to readily access corporate information (with the appropriate due process) seems to be a good middle ground.

Things Not to Use Your Shell Company For

USA Today recently published this article, SEC Raging War Against Empty Shell Companies, detailing the efforts of the SEC to get rid of publicly listed shell companies that are being used for pump-and-dump scams.  While there are certainly legitimate business uses for shell companies, this is not one of them.  People who abuse the corporate form are really just making it harder for law-abiding companies to conduct business.

Shell Company Research

This artice, Terrorists Inc., published in the BYU Today magazine in the Spring 2013 issue was just brought to my attention. While I am not a fan of current legislative proposals to deal with the abuse of shell companies, the problem does need to be addressed, especially before over-reactions result in laws the unduly interfere with the legitimate uses of shell companies and privacy. The best way to be sure that your business model or structure doesn’t look like a criminal enterprise is to consult an attorney, and to be sure that someone (be it the attorney, registered agent or the state) has access to information about the beneficial owners.