Overview of the Professional Entity

In Michigan, persons in a learned profession requiring a license or other legal authorization to practice, including but not limited to, physicians, dentists, attorneys, and certified public accountants, must incorporate as a professional entity rather than a general business entity.  The choice of professional entity will depend on a variety of factors, including tax considerations.  The most popular professional entity choices are the Professional Limited Liability Company (“PLC” or “PLLC”) and the Professional Services Corporation (“PC”).

Unlike general business entities, there are certain restrictions on Professional Entities.  Both Professional Corporations and Professional Limited Liability Companies are required to operate for the specific purpose of providing one or more professional services.

Generally, all shareholders of the Professional Corporation or members or managers of the Professional Limited Liability must be licensed persons in one or more of the professional services the Professional Entity renders. However, persons in certain professions must comply with additional requirements when structuring their professional entity.  For example, all of the members or shareholders of certain health and legal professional entities must hold the same professional license.

A shareholder or member that wants to transfer or sell his or her shares or membership interests cannot do so except to another licensed person who is eligible to be a member of the PC or PLC.

Another important aspect of the professional entity is that it provides protection to its shareholders and members from personal liability for the PLC or PC’s acts, debts or other obligations.  However, the professional shareholder or member may still be personally liable under common law for his or her negligence or malpractice, or the malpractice of others under the member or shareholder’s direct supervision and control.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.

So You Want to Buy a Bar…

If you’re looking to buy a business, there is a lot to know before you actually make an offer.  This is especially true if you’re looking to buy a business that owns a liquor license, such as a bar or restaurant.

Once you’ve found the bar that you want to buy, the first step is to sign a purchase agreement.  The purchase agreement should cover everything that you and the seller have agreed upon – purchase price, payment method (e.g. cash, promissory note, etc.), timing of various steps, all terms and conditions, default provisions, naming rights, etc.  (See our article on Merger Clauses for the importance of including everything in one document).  The purchase agreement should also provide a date for closing, which will not occur until after the liquor license is transferred.

Note that Michigan law requires that all liquor inventories be purchased in cash.  Therefore, if your purchase includes any type of financing (such as a promissory note or loan), the purchase of liquor inventory must be specifically excluded from the purchase agreement and must be done in cash at closing.

The purchase agreement should also include provisions about the liquor license, including the purchase price and a provision covering what will happen if the liquor license cannot be transferred.  This is because the license itself cannot be transferred just through a purchase agreement.  Rather, the purchaser has to apply to the Michigan Liquor Control Commission (“LCC”) to transfer the license.  The purchaser then must undergo a rigorous application process in order to be approved to buy the license.  This process can take months, so purchasers must be patient!

While the liquor license transfer is pending, you should conduct due diligence on the operations of the bar.  If you plan to keep the bar open continuously before and after the closing, you should plan accordingly for a seamless transition.  Once the liquor license transfer has been approved, you can hold a closing and complete the sale.

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

Michigan Leads the Way With a New Corporate Form – The L3C

As of January 2009, Michigan is one of the few states to offer a new form of business entity.  If your business is for profit, but its primary focus is to accomplish socially beneficial acts, you may want to organize as a low profit limited liability, or an L3C.

The L3C is structured like any other limited liability company, with all the flexibility and advantages of a normal limited liability company, including being treated as a “pass through” entity for federal tax purposes.  However, the L3C must satisfy certain criteria to prove that its main goal is not to make a profit.

L3C’s are designed to qualify as a recipient of Program-Related Investments, or PRIs.  PRIs are IRS-sanctioned investments made by private foundations to support a charitable project or activity.  As a result of their charitable purpose, PRIs receive special treatment under federal tax law.

Historically, foundations have been reluctant to invest in for-profit businesses through the use of PRIs because of complex and costly IRS requirements to do so.  The L3C removes many of these hurdles and costs.

Hopefully, the L3C will make it easier for foundations to invest in Michigan’s community and economic revitalization.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm. Click here to view her professional resume.

Leaders tout Entrepreneurship | Detroit Free Press

The Detroit Free Press (Freep.com) has been following all of the developments at the National Summit this week in Detroit and posting the latest to their blog (See excerpt below).  This morning the hot topic was the recent rise in entrepreneurship.

It is essential that new businesses have all of their ducks in a row so that they are protected personally from the debts and liabilities of their new ventures, they take the best advantage of tax laws, and so that they are prepared for future success.

We advise contacting an attorney, as opposed to going it alone.  Demorest Law Firm, PLLC provides these services and can help you start your new company, and then help it to grow.

Excerpt from Freep.com Blog

11:42 a.m. | According to several business and academic leaders at the summit this morning, now is the time to start that business you’ve always dreamed about.

“Entrepreneurism is going to be the key to the economic recovery not just in this country but in the world,” James Turley, CEO of Ernst & Young LLP, declared at a town hall this morning.

Nearly a decade after the dot com bust, becoming your own boss is hip again.

Mary Sue Coleman, president of the University of Michigan, boasted to the audience that 15% or 6,000 of the students recently admitted to the school had started a business during high school.

“We’re in the perfect time in the history of this country to encourage this,” she said. “Let them loose.”

U-M now provides 100 courses that are in some way engaged in entrepreneurism, Coleman said.

What exactly does being entrepreneurial mean?

One panelist, Eva Chen, CEO of Internet security firm Trend Micro Inc., had the perfect Twitter-like response: “Using limited resources to create something that you want.”

By Katherine Yung

via Leader: Ford ready to compete | Freep.com | Detroit Free Press.