Michigan Corporation and LLC Information Update Forms

Each year, limited liability companies (LLC) and corporations must file an Information Update with the State of Michigan.  The State sends the necessary form each year to the registered address of the business.   The form asks for some basic information about the company, and a small fee is required to file it.  If an LLC or corporation does not file its annual information update for two consecutive years, the company will be automatically dissolved in the third year.

If your company has been automatically dissolved, it can be reinstated by filing the delinquent annual Information Update forms.   While additional fees will be owed because of late filing of the forms, the reinstatement of the company to good standing will be retroactive.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Revised I-9 Form and Employer Guide

The Department of Homeland Security has released a revised I-9 Form (Click for a PDF version).  The I-9 is the form used to verify the eligibility of an employee based upon citizenship.  The most significant change is that expired documents will no longer be accepted.  For example, an out of date drivers license will no longer be acceptable.   A few new forms of identification are also available; the most widely used is the U.S. Passport Card.

Along with the new form the Department of Homeland Security has also released an accompanying Handbook for Employers (Click for a PDF version).  It is important that a business be thorough and accurate when obtaining and reviewing I-9 Forms.  There can be significant penalties for non-compliance.  If you own or operate a business it is important that you review the new Handbook.

This article is provided free of charge by the expert employment law attorneys of Demorest Law Firm, PLLC.

Merger Clauses –What Happens When You Forget to Include Something in the Contract?

When entering into a contract on behalf of yourself or your business, it is crucial to make sure everything that you negotiated has actually been put in writing in the contract.  If something gets left out of the contract, there is a good chance that you won’t be able to enforce or rely on that particular item.  This is because most contracts include a “merger clause.”

A merger clause is a contract provision that indicates that everything that the parties agreed upon has been written in the contract, and consequently, no other documents or statements could be used in court to prove that the contract was intended to say something else, or that something was left out.  If a contract contains a merger clause, the only enforceable way to change something in the contract is to write an amendment to the contract, which must be signed by all parties to the original contract.

The following is a typical merger clause:

A. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the matters to which it pertains and supersedes all negotiations, agreements, representations, warranties or commitments, whether in writing or oral, relating to such matters, except as may be set forth in writing and signed by the parties.  No subsequent agreements, representations, warranties or commitments shall be binding upon the parties unless set forth in writing and signed by each of the parties.

For example, a company entered into a contract with a resort for a convention.[1] The company claimed that the resort promised to use union labor, but this was not included in the written contract (which contained a merger clause).  A couple months later, the resort was sold and all the union employees were let go.  The company canceled the contract based on the union provision, and the resort sued.  The resort prevailed because of the merger clause, which prevented the company from introducing any evidence regarding the union labor requirement.  The union labor agreement was outside the “four corners” of the contract and therefore inadmissible as evidence.

How can you protect yourself or your business against the potential negative effects of a merger clause?  First, keep a detailed list of all points that are negotiated and should go into the contract.  Prior to signing, review the contract to make sure all important points are included.  Second, pay attention to whether the contract includes a merger clause (something similar to the example provided above – look for the words “entire agreement” or “merger”).  Third, if a contract does include a merger clause, but you didn’t realize until after signing that a particular point was left out, contact an attorney or the other party to the contract as soon as possible.  It still may be possible to amend the contract in writing to include the omitted provision.

This article was written by Melissa L. Demorest, Associate at Demorest Law Firm.

P.A. 222 of 2008: Nonprofit Corporations need Three Directors

Public Act 222 of 2008, provides that  Nonprofit Corporations need Three Directors.   It is important that Nonprofit Corporations make the necessary changes in order to be in compliance with this new regulation.

Recently mailed 2009 Corporare Information forms for Nonprofits were mailed with a News Release from the state of Michigan stating:

Public Act 222 of 2008, effective July 16, 2008, amended the Nonprofit Corporation Act to require that the board of directors of all Michigan nonprofit corporations in existence on July 16, 2008, consist of three or more directors by January 16, 2009. The board of any new nonprofit corporation formed after July 16, 2008, is required to consist of three or more directors

Nonprofit corporations are also required to file an annual report by October 1 each year and report the names and addresses of officers and directors. Corporations existing on December 31, 2007, must file their 2008 annual report by October 1, 2008. Corporations formed in 2008 must file their first annual report October 1, 2009, and are required to report three or more directors on their board. A nonprofit corporation is automatically dissolved if it fails to file the annual report or pay the annual fee within the two years of the due date of the report.

The law has also been amended to define and require a “charitable purpose corporation” to provide notice of its dissolution to the Michigan Office of Attorney General within 60 days of an automatic dissolution for failure to file the annual report or pay the annual fee. The corporation is also prohibited from disposing of any assets without written approval from the Attorney General.

Read the full release here.

No Worker Left Behind Providing Training for Laid-Off Michigan Workers

The State of Michigan has a program for those laid off and looking for a fresh start.  According to a recent Detroit Free Press Article:

Two years after Michigan launched its No Worker Left Behind initiative, one thing’s for certain: Laid-off workers can’t get enough of the popular job-training program.

State economic development officials are likely to exceed their goal of training 100,000 residents in three years. At the end of June, 81,217 Michiganders had enrolled in the program, and nearly 8,000 were on a waiting list to attend either orientation sessions or their first classes.

The response has been so high that workforce officials expect the state to continue offering No Worker Left Behind beyond mid-2010, when the program is supposed to end.

Read the Free Press Article by clicking here.

No Worker Left Behind Website (State of Michigan)

No Worker Left Behind Fact Sheet PDF (State of Michigan)

The Joint Tax Return Ratchet

Stephen J. Dunn, a specialist in tax and estate planning issues at Demorest Law Firm, PLLC, recently wrote an article entitled “The Troublesome Joint Tax Return”, which we posted previously here.  The article was published in the March/April 2009 issue of the EA Journal (National Association of Enrolled Agents).  He has since updated the article, it is now titled “The Joint Tax Return Ratchet”.

The full article is now available for download in PDF format by clicking the link below.

DOWNLOAD A FULL COLOR PDF

This article was written by Stephen J. Dunn, Of Counsel to Demorest Law Firm. Click here to view his professional resume.

The Insurance Problem of Vacant Buildings

In the current economy, many recently-occupied houses and commercial and industrial buildings are now vacant, due to foreclosure, lack of tenants, business closure, and other reasons.  Obviously, vacant buildings are a concern from social and economic standpoints.  What many owners don’t realize, however, is that a vacant building can also be a problem from an insurance standpoint.

Most insurance policies exclude coverage for a claim when a property has been “vacant” or “unoccupied” for a specified period of time prior to the “loss” (i.e. a fire, flood, or other problem for which an insurance claim has been filed).  Often this time period is as short as 30 days, although it may be longer in some insurance policies.
Let’s say you own a commercial building and your only tenant in the building closed its business on May 31.  After a few weeks, you have not been able to find a new tenant.  On July 10, you visit the building, only to discover that a pipe has burst and flooded the whole place.  Your insurance policy on the building provides that if the building has been vacant for more than 30 days, the insurance company will not provide coverage for any loss.  Because your old tenant moved out on May 31, the building has been vacant for 40 days, and the insurance company likely will not cover the flood damage.  This means that you’ll probably have to pay out-of-pocket to repair the damage and make the building rentable again.

It is important to note that even buildings that are occasionally used – such as a cottage or a warehouse – could be considered vacant if they aren’t used on a sufficiently regular basis.  Also, a building that is being renovated may be considered vacant (although depending on the work being done, it may be eligible for a special construction policy).

If you own a vacant building, you should talk to your insurance agent as soon as possible to find out if there’s any way to maintain coverage on the building. You should also work as quickly as possible to locate a new tenant for the building, even if it is a temporary tenant.

This article was written by Melissa L. Demorest, Associate at Demorest Law Firm. Click here to view her professional resume.

Sorry for the delay in postings…

We are still here, it has been very busy with the long holiday weekend.  Expect to see regular posts again later this week.  Thanks for your patience!

The Sixth Circuit Tightens Up the Rules on the Discharge of Debts When the Debt Arose in a Fiduciary Capacity

Some companies have strategically entered into contracts knowing that bankruptcy was on the horizon and expecting that any debt or a resulting judgment would be discharged by the Bankruptcy Court.   However, creditors are fighting back by using the “trust” exception to discharge to maintain claims against both companies and individuals who breached fiduciary duties to the creditor.

On May 12, 2009, the Sixth Circuit Court of Appeals ruled that debts that arise from a fiduciary relationship are not dischargeable in a bankruptcy proceeding.    In the matter of Patel v Shamrock Floorcovering Services, Inc., affirming the decision of U.S. District Court Nancy Edmunds, the Court of Appeals expounded on the fact that if debts arise from the embezzlement, misappropriation, or failure to account by a fiduciary, while acting in a fiduciary capacity,   then those debts are not dischargeable in bankruptcy.  The exception to discharging this type of debt comes from Congress’ desire to protect trust relationships.

When the bankrupt individual or company is a trustee and the creditor a trust beneficiary, the Bankruptcy Code imposes higher standards of loyalty and care on trustees.  A pre-existing fiduciary relationship is required for a creditor’s debt not to be discharged. The “fiduciary capacity” requirement of the exception is only satisfied if the trust is an express or technical trust.   A “constructive trust” would not meet the criteria because the debtor has to be a trustee before the wrong was committed, and not as a result of the wrong.

Establishing an “express” trust is basic.  The creditor must demonstrate an intent to create a trust, a trustee, a trust asset, and a definite beneficiary.  This does not often happen in the business context.

In Patel, the Court held that there was a “technical trust” between the parties, based on a law designed to protect the beneficiary.    For example, when a contract is made between a general contractor and a sub-contractor, a fiduciary relationship is automatically created between the parties as a result of the Michigan Builder’s Trust Fund Statute.    The general contractor is a fiduciary for funds paid to it on the project, and is obligated to pay sub-contractors before the general contractor uses the money for other purposes.   Liability also extends to the corporate officers of the general contractor who control the funds.  Thus, as a result of the statute, a debt owing from a contractor to a subcontractor would not be dischargeable in bankruptcy by either the company or the responsible officers because of the trust imposed by statutes when the parties executed their contract.

In this economy, as corporate bankruptcies become more prevalent, subcontractors and other trust beneficiaries have more protections from bankruptcy.

Click here to download a PDF of the Opinion from the Courts Website.

This article was written by Michael R. Dorfman, Senior Associate at Demorest Law Firm. Click here to view his professional resume.

When Your E-Mail Becomes “Exhibit A”

Correspondence via e-mail has become a very common form of communication for many people, both professionally and personally. The fact that it is instantaneous has allowed e-mail to surpass faxing and mail as the primary way we communicate. While e-mail has made businesses more efficient by streamlining how and where information is sent, e-mail also has brought about new risks to the sender, and possibly the sender’s business. Carelessness, misinterpretation of the message, and sending without review are some of the many pitfalls that have arisen in the electronic age. This article will focus on the ways you can protect yourself and your organization from the common errors of e-mail correspondence, and teach you how to use e-mail in a beneficial and persuasive manner.

Is E-Mail Your Best Option?

The first question you need to ask yourself before you compose and/or send your e-mail is whether e-mail is the best manner in which to convey your message. Would a telephone call or one-on-one meeting be a safer and more effective way to communicate the message? E-mail is forever. It can be stored, forwarded and printed forever. Your words will be forever immortalized not only by the recipient, but also by whomever the recipient decides to share the message. While correspondence sent via fax and the postal service may also be chronicled, communications via e-mail are more dangerous, because they are ofthen sent hastily, with errors, and are most open to misinterpretation by the recipient.

Think Before You Click?

It has been my experience that senders of e-mail do not treat it like they would a typewritten or word-processed correspondence on their company’s letterhead. Correspondence on company letterhead would be typically proofread at least once for grammatical and syntax errors, tone, and choice of language before being mailed to the recipient. It might even be reviewed by another set of eyes before being sent. Additionally, the fact that the letter would have to be mailed or faxed slows down our thoughts and gives the sender time to reflect on whether the letter effectively conveys the writer’s thoughts and the appropriate tone.

Messages sent via e-mail are equally a reflection of ourselves and our company, yet most of us receive on a daily basis an inordinate amount of business correspondence from others which are rife with spelling errors, either too informal or too cute and just plain sloppy. The instantaneous nature of e-mail should in no way lessen the attention the sender gives to accuracy, prudence, and content. While the abbreviations and acronyms now associated with e-mail and text-messaging have crept into business communications, i.e. LOL (Laugh Out Loud) or IMHO (In My Humble Opinion) you would not want to see them re-printed as Exhibit A.

When My E-Mail Becomes Exhibit A

Some individuals treat an incoming e-mail like a hot potato. They feel the need to immediately respond to the question or allegation posed by the sender, without forethought as to what is being stated in the response. Remember, e-mail is still a form of written communication that can be printed and used in any manner that a typewritten or word-processed letter can. Before rushing to answer allegations or a complaint from another business, a customer or government entity via e-mail, review the content of your response. Print out your unsent version and let it sit for a while before sending it. This will alleviate angry or hot-headed responses. Use a red pen to edit the response, maintaining the formality of a regular letter. Make sure you are making no admissions, especially if you are in a transactional or legal dispute. Your admission will be used as “Exhibit A” at the time of trial. Ask yourself this question before you hit send: Would I want a judge or the public to read what I have written? If your answer is no, it is time to edit the e-mail before sending it. A hastily composed response chock full of spelling errors can also be embarrassing as well. If you are not sure whether a topic or admission or statement is appropriate, then you should consult your attorney.

Conclusion

E-mail is highly effective if used properly and with a modicum of restraint. It requires the same efforts as those correspondences we would place on the company letterhead. Print out a draft and edit it before sending. A hastily-sent e-mail message might not reflect the tone or the intent of the communication which could lead to misinterpretation. Also, beware of using e-mail for mea culpas and admissions during conflicts with other businesses or government entities, it could become Exhibit A.