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Minnesota LLCs subject to new law.

Thursday, August 17, 2017 @ 11:08 AM
Author: Peter Brehm

Beginning January 1, 2018 all limited liability companies formed prior to August 1, 2015 will be subject to new law passed by the 2015 Legislature.


The most significant changes will be to the governance structure of LLCs. The new act says that Minnesota LLCs can be managed by its members, a board of governors, or managers. The new default is that the LLC will be member managed.  This change allows LLCs to avoid multiple layers of governance and will let LLC members operate more as business partners.  Other changes include:

  1. The operating agreement can be oral or even implied. This means that any oral or written communication among the members could fall within the definition of operating agreement and would be enforceable.
  2. Unless the operating agreement provides otherwise, each member has equal voting rights in the management and operations of the LLC.
  3. Under new 322C, unless the operating agreement provides otherwise, distributions prior to termination of an LLC are to be made on a “per capita” basis, or in equal shares among members.
  4. The new statute does not provide to dissenter’s rights.
  5. The members of an LLC will also be able to limit or eliminate certain fiduciary duties, including: duties of care, loyalty, and good faith and fair dealing.

Actions to take place before January 1, 2018

All owners of an interest in an LLC should consult with a business attorney, and review the governing documents of the LLC to determine whether any adjustments are necessary.


Should you take advantage of a deferred compensation plan?

Monday, July 3, 2017 @ 11:07 AM
Author: Peter Brehm

Deferred compensation plans are a way for highly paid employees to save more money than their 401(k)’s typically allow for.  By deferring earned income, the employee is able to defer taxes until after retirement, when the employee’s tax bracket is more favorable.   This allows for individuals to supplement their income after retirement. The plan, however, comes with risks. While 401(k)’s are protected if the company faces financial struggles, nonqualified deferment plans are not.  If the employer goes bankrupt, the employee becomes an unsecured creditor of the company. Less than 50% of employees enter into this type of deferment plan. Each employer and employee must consider the risks and benefits carefully before establishing a deferred compensation plan.


Increased Estate Tax Exemption

Thursday, June 1, 2017 @ 06:06 PM
Author: Peter Brehm

The new state budget has increased the estate tax exemption from $1.8 million to $2.1 million retroactive to January 1stof this year. This increase will continue to $2.4 million in 2018, $2.7 million in 2019, and $3 million for 2020 and later. The wealthiest 1,000 estates in Minnesota will see a significant tax cut over the next few years.  Call Peter Brehm at Business Law Center (952-943-3904) to discuss estate tax law changes.


Proposed IRS Regulations May Eliminate Valuation Discounts for Gifts of Family Ownership

Sunday, September 18, 2016 @ 10:09 AM
Author: Peter Brehm

On August 4, 2016, the IRS published in the Federal Register a set of proposed new regulations under Chapter 14, Section 2704 of the Internal Revenue Code. These proposed regulations would have a significant impact on the valuation of private business entity interests for transfer tax (estate, gift, and generation-skipping) purposes.  Currently, business appraisers will examine real world restrictions on ownership interests (such as limitations of voting rights, control, etc.), and will often apply significant discounts to stock that is gifted to family members.  The discounts are intended to reflect the reality that potential buyers will pay less for stock that is restricted than it will for stock that is not restricted.
Under the proposed regulations, appraisers would be required to conduct valuations assuming hypothetical circumstances that often do not coincide with market conditions.  In other words, appraisers would be expected to assume that restrictions of the stock being transferred do not exist. This would cause them to determine a fair market value that ignores otherwise applicable valuation discounts, resulting in a value determination that may not match what the market would actually pay.
If these regulations are enacted in December 2017 as planned, valuation discounts for transfer interests will essentially be eliminated.  This will redefine how these interests are valued and most likely limit the financial benefits of these transfers.  The proposed changes would affect anyone who plans to transfer equity interests to family members. It is essential to approach this process in the company of a seasoned business valuation expert who is adept at navigating the complex authorities in action during these transfers.