Change is Good . . . You Go First!

change-architect-sign1If you are a member or manager of a Utah limited liability company (“LLC”) that was formed on or before December 31, 2013, changes are headed your way.  In 2013 Utah enacted the Revised Utah Limited Liability Company Act effective January 1, 2014.  However, LLC’s organized before the effective date remain subject to the old LLC Act unless they elected to be governed by new New Act.  That is, until January 1, 2016.  This coming January 1st all LLC’s in Utah will be subject to the new New Act.  Following is a brief explanation of some of the most important changes:

  1. Duty of Loyalty.  Under the Old Act it was unclear if Members and Managers of an LLC owed each other a duty of loyalty.  The duty of loyalty provides that owners or managers of a company owe a duty not to take for themselves opportunities that the company would reasonably take advantage of.  The New Act expressly provides that Members and Managers of a Utah LLC owe each other the duty of loyalty.
  2. Oral Operating Agreements.  The Old Act did not provide for oral operating agreements.  Consequently, if an LLC did not have a written operating agreement, the LLC was governed by statutory defaults that often lead to unintended ownership interests.  The New Act allows for oral and implied operating agreements with the aim of reflecting the intentions of the Members even in the absence of a written operating agreement.  Of course, recognition of oral or implied operating agreements introduces more uncertainty in the LLC’s operation.  Therefore, it is best for all LLC’s to adopt a written operating agreement.
  3. Indemnification.  The New Act provides default indemnification to Members and Managers from liability for acts or payments made on behalf of the LLC so long as they not acting outside their duty of care, loyalty, and good faith.  Under the Old Act indemnification was optional.
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Don’t be Disregarded

imagesLimited liability companies (“LLC’s”) have become a popular business entity, providing liability protection to its members, nearly identical to that of a corporation, while at the same time providing more flexibility and less formality than typically exists in the corporate form.

One thing that many LLC owners are not aware of is that, for tax purposes, the IRS default is to treat multi-member LLC’s as a partnership.  However, if the LLC has only a single member there is no partner, and therefore no partnership.  In such cases the IRS treats the LLC as a “disregarded entity” and the income from the LLC is treated as self employment income and is reported on the members personal tax return as such.  Being treated as a disregarded entity can create negative income tax implication because self employment income is subject to self employment tax in addition to income tax.

As an alternative, the LLC can elect to be taxed as a corporation.  The advantage of electing corporate tax treatment is that the LLC can pay it’s member a reasonable wage.  The wage is subject to the equivalent of self employment tax, but any remaining profits would not be considered self-employment income, and therefore not be subject to self employment tax.

An LLC can elect corporate tax treatment by filing IRS From 8832.  If you desire to be treated as an S Corporation, you will also need to timely file IRS Form 2553.  If you own a single member LLC, talk to your legal counsel to determine if electing corporate tax treatment is appropriate in your circumstances.

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To Trust or Not to Trust

TrustA Trust is an arrangement in which a Trustee is given legal title to property for the benefit of designated beneficiaries.  Trusts can be useful estate planning tools and are increasingly being used even in estates of moderate size.

While determining if a Trust will be beneficial in a person’s estate plan requires a detailed review of the person’s assets, liabilities, family situation, and estate planning goals, here are some of the typical advantages of using a Trust:

  1. Avoid Probate.  Probate is the judicial process of proving that a will is legitimate and distributing a persons assets accordingly.  Probate can be expensive and time consuming.  Assets placed in a Trust during a person’s lifetime are not considered part of a person’s estate when she dies, and therefore, are not subject to probate.
  2. Privacy.  Probate proceedings are generally a matter of public record while Trusts are private arrangements between the grantor, the trustee, and the beneficiaries.  By using a Trust a person can maintain privacy regarding their assets and who they are distributed to.
  3. Flexibility.  A Trust can be specifically tailored to a person’s wishes, so long as they are not illegal or against public policy.  As such, Trusts can accommodate unique or difficult family dynamics.  Additionally, Trusts can establish charitable foundations that can last for extended periods of time.
  4. Tax Savings.  For estates larger than $5.25M, Trusts may provide a tax savings function.
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Five Things Every Tenant Should Know

ForRentMost landlord/tenant relationships are in writing.  However, many times tenant’s find themselves asking “can my landlord really do that?”  There are some things a landlord cannot do, even if the lease says they can.  If you rent real estate in Utah, either residential or commercial, here are five important things you should know:

  1. 24 Hour Notice.  Every tenant has the right to quietly enjoy the property.  This means the landlord cannot barge in any time she wants.  In Utah a landlord must give a tenant at least 24 hours notice before entering the property, otherwise they are considered a trespasser.
  2. No Lockout.  Even if a tenant’s rent is overdue, a landlord cannot change the locks, remove the tenant’s belongings, or physically prevent the tenant from entering the property.  Eviction can only occur following a prescribed judicial process.
  3. Abandonment.  The one exception to the “No Lockout” rule arises in cases where the tenant has abandoned the property.  Abandonment is defined by Utah law, and can occur even if the tenant did not intend to abandon the property.  Any tenant who will be away from the property for an extended period should notify the landlord IN WRITING and make sure the rent is paid on time.
  4. Bad Housing.  Every residential rental property must meet certain minimum standards to be considered fit for human habitation.  This generally includes functioning heat, plumbing, electricity, and freedom from unsafe conditions.  A tenant who believes the property is bad should notify the landlord IN WRITING and request repairs.  DO NOT STOP PAYING RENT!
  5. Discrimination.  In Utah, as in most states, a landlord cannot refuse to rent due to a tenant’s race, gender, sexual orientation, religion, income or family status.  A tenant who believes they have been discriminated against can file a complaint with the Utah Anti-discrimination & Labor Division.
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Man Sentenced for Capturing Rainwater

rainOk . . . it didn’t really happen, but theoretically it could.  As water resources grow scarce due to drought, population growth, or other factors, many enterprising people have devised ways to capture rainwater that falls on their property for later use.

Be careful!  In most states capturing rainwater is either prohibited or regulated.  This may seem absurd at first, but the ideas is that rainfall is public property and must be allowed to return naturally to the water table for the public good.

In Utah it is against the law to capture rainwater unless you have registered the use with the Utah Division of Water Rights.  Even with proper registration, Utah law restricts the aggregate capacity of all capture containers to 2,500 gallons.  There is, however, an exception to registration for small volume collection.  A person “may collect and store precipitation, without registering . . . in no more than two covered storage containers if neither covered storage container has a maximum storage capacity of greater than 100 gallons.” Utah Code Ann. § 73-3-1.5(4).

Registration is free and can be completed quickly online here.

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