COVID-19 - Reopening Businesses

The Covid-19 virus has dramaticallychanged the way we relate to each other and the way we do business.  As I write this, a million Americans havecontracted the disease, sixty-thousand people have died and 30 million havebeen thrown out of work in under a month. On March 22 the Director of the Ohio Department of Health issued a “Stayat Home” order requiring non-essential businesses to close.  “Social Distancing” was ordered andgatherings of more than 10 people prohibited. Thousands of small shops, schools, universities, malls, factories,non-profits, travel and leisure operations, music venues and sports events hadto close-up shop.

These steps were instituted so thatour healthcare system would not be overwhelmed. In Ohio it seems to have worked.  TheDirector allowed manufacturing and construction to open May 4^th andconsumer and retail shops May 12^th.

If you are a business owner, you are in a difficultspot.  You must ask, “How do I keep myemployees safe?”  “How do I keep mycustomers safe?” and “How do I show the public my efforts?”

You receive conflicting directions from thegovernmental entities, which have had to develop policies in a haphazard way asour understanding of the virus changes. For instance, it was crazy to tell us first not to bother wearing masksand then two weeks later say, “Well, yes, you should wear them now.”  Of course, this was done so healthcareworkers had first crack at limited supply, but this was confusing to the public.

The psychological damage of quicklyflipping from a time of high prosperity to Depression levels of unemployment,coupled with the effect of forcing folks into prolonged confinement is causingserious problems.  Children are notgetting educated, and are bored, desperate to go outside and play with theirfriends.  Parents are fit to be tied,having to home-school their kids, worry about their elderly parents, and bearconcerns about job security.  My wife andI have not been able to hold our new grandson for two months or help with therigors of daily life with an eight-year-old….

On the one hand, shutting us offfrom one another has slowed the virus, and prevented cases from spiking.  On the other, a prolonged stoppage mayeventually wreck the economy, at possibly greater human cost. Yes, there ishope out there such as several promising drugs like Remdesivir that may lessenthe severity of the disease.  And theysay we will have a vaccine within several years.  Hope, however, is not a policy.  As pressure grows to fully open up, what isthe proper balance for the business owner? This webinar will address legal issues you need to think about. 

As business owners we owe separateduties to our staffs and to our clients and customers.  Let’s think about our responsibility to thepublic first. 

You can be sued under negligencelaw if you violate a duty to take reasonable care to avoid causing injury orloss to others where it can be foreseen that a given action or inaction mayharm them.  “Foreseeability” suggestssomething an ordinary person of common sense would expect to happen.  Similarly, “reasonable care” means taking“ordinary” precautions.  Of course, thegreater potential harm, the greater an “ordinary” precaution must be.

For example, if I drive drunk down acrowded, narrow street filled with cars and pedestrians, it is foreseeable Imight well injure someone.  Similarly, ifI am a contractor hired to build a building and I cheat and use substandardmaterials, it is foreseeable the structure may collapse.  If there is a collision with my car, or thebuilding falls down, a jury is going to be easily persuaded it was my fault,because I breached an obvious duty of care.

Let’s think about things a bit moresubtly…

You and I are not entitled to anopinion about how to properly design a bridge. A government agency with the resources and expertise must do that job onour behalf.  So, let’s say the governmentsets a standard that a bridge must be designed for a 50-year life and theconstruction company builds it to those specs. If 75 years from now the municipality that owns the bridge has donelittle maintenance and it collapses, should the bridge company be on the hook?

What if 10 years after the bridgewas constructed a new superior metal is invented and the regulations changerequiring it to be used in all new bridges? Should the bridge company have to rebuild the bridge, if it was properlyconstructed according to the regulations that existed at the time it wasconstructed?

Let’s now think about things fromthe perspective of the people who drive across the bridge.  Maybe, it is really old, but it is the onlybridge for 50 miles….  Maybe the economyis bad, and the motorist/taxpayers don’t want to pay the taxes needed to builda new bridge.  Maybe they are willing totake the risk of driving across it for a few more years…. Who is at fault ifthe bridge falls down?  The driver of theunhappy car that fell in the river?  Thetaxpayers?  The municipality?  The engineer?

These examples suggest risk must beassessed from many perspectives.  I mightbe willing to take a risk you would never consider.  It depends on our needs and motivations….

People in their lives constantlyperform cost/benefit analyses without thinking. They agree to accept certain risks all the time.  Naturally, if I never want to get in a carwreck, I should never get in a car. However,  the country could hardlyfunction without motor transportation—yet hundreds of thousands of people havebeen killed in car crashes.  Yes,everything we do carries some sort of risk and most of these we can assessusing simple common sense. 

If you know about a risk and canreasonably evaluate it, you may well decide to accept it if the benefits arehigh enough.  Indeed, the law employs theconcept of “assumption of the risk.”  Ifsomeone knowingly undertakes something risky and is injured, it is his/her ownfault.  So, if I go skiing, cross myskis, and break a leg, that’s on me.…

However, you cannot “accept” a riskyou do not know about, or one that you are not qualified to assess…. To size upsome risks, common sense is inadequate. You need help from experts and this is the case with Covid-19.

Thus, as a business owner thinkingabout operating in the time of Covid, I need to consider all this and ask:

• What is the Covid risk to clientsand customers?
• If I have no expertise in this area,have I adequately informed myself of the opinions of the experts?
• What am I doing to mitigate exposureto the virus?
• Are the steps I am taking in linewith the recommendations of the experts?
• If there is not perfect guidance,does what I am doing make common sense?
• How do I communicate the protectivesteps I am taking to clients and customers so they can feel safe doing businesswith me?

As suggested, I must ask myself ifmy company’s precautions are in line with any standard of care that hasbeen established for similar businesses. This is understandably problematic since we are dealing with a newphenomenon that is not fully understood. However, standards of care are being worked out as our understanding ofthe virus increases.  Remember, thegreater the threat perceived, the greater the duty of care….

So, what are the Ohio and federalexperts at the Center for Disease Control and OSHA telling us about thepandemic and how might this affect current standards of care? 

• Covid-19 is highly infectious,apparently much more so than influenza. 
• It likely is at least several timesas deadly as the flu and maybe much worse.
• Paradoxically, a large percentage ofpeople, particularly younger ones, are asymptomatic, or have only mildsymptoms.
• People may have been spreading thedisease up to a week before they show symptoms.
• It is spread mostly bydroplets.  As people sneeze and cough,they shed the virus, which others then breathe in, allowing the virus to attackthe lungs.
• Wearing a mask both limits theinfected from spreading the virus and protects the healthy from breathing itin.  N-95 masks are best, but any mask isbetter than none.
• It may be spread on surfaces whereit may remain active from hours to days, depending on the surface and otherconditions.
• Frequent hand washing limitsspreading, as does avoiding touching the face.
• People should keep at least six feetapart.
• Fresh air and sunshine seem to limitspreading.
• The elderly are at far greater riskthan children and young adults.
• Immuno-compromised people, andpeople suffering from diabetes, breathing issues and other co-morbidities areat high risk.
• The virus may be less active inwarmer, more humid weather, but this is not clear.

As a businessperson, with thisknowledge, what concrete steps should I take immediately to protect peopledoing business with me as much as reasonably possible?  Remember, liability flows from the breach ofa duty which directly causes damages.  Aduty flows from foreseeability and violation of standards of care.  If I take reasonable precautions in line withestablished standard of care, it will be harder for a customer getting sick topoint to my business as the source of infection and sue me.

Listening to the experts in Ohio andat the Center for Disease Control and the Occupational Safety and HealthAdministration, and using common sense it would seem:

Store/office owners should:

• require staff—particularly olderstaff—to wear masks and gloves where there is any close contact with people,
• train workers in hygiene practices,
• sanitize premises regularly,
• require frequent hand washing,
• clean bathrooms frequently,
• provide readily available handsanitizer to staff and customers,
• offer the option of curbsidedelivery where possible,
• provide separate operating hours forthe vulnerable, including the elderly,
• carefully document all of the above.

Manufacturers would seem wise to:

• space workers at the six-footminimum where possible,
• require masks and gloves for thosein close proximity and provide the same at no cost,
• clean and disinfect between everyshift,
• clean bathrooms frequently,
• discourage sharing of tools andequipment, if possible,
• give special protections to olderworkers.

All businesses should:

• educate employees about best healthpractices,
• allow flexible work practices,allowing work from home and considering staggered shifts,
• try to protect the most vulnerableworkers, particularly older ones,
• require staff with a cough or feverto stay home for the quarantine period,
• clean and disinfect workspacesfrequently,
• clean rest rooms and commonlytouched surfaces frequently,
• make free masks and glovesavailable,
• make hand sanitizer readily availableacross the workspace,
• provide tissues, and no-touch trashcans,
• when temperature guns becomeavailable, institute their use,
• let fresh air in,
• consider the need for employeetravel,
• place posters in the workplacepromoting the above,
• talk with vendors andsub-contractors about their health practices,
• if an employee becomes sick, followCDC guidelines for disinfecting,
• name a workplace coordinator toimplement the above,
• consider reasonable leave policiesfor workers who must care for children or sick family members,
• encourage workers to report safetyand health concerns.
• Document all of the above.

Employees who are sick should begiven paid time off.  It has beenwidely related that half of Americans only have $400 or less to get through anemergency.  A boss does not want aninfected person incentivized to stay on the job where he/she might be spreadinginfection.

Obviously, there has not been enoughpersonal protective gear for general use, since masks and gloves must first goto healthcare workers.  Similarly, therestill are not enough test kits to require every employee to be tested beforecoming to work.  However, as testingbecomes available, its use may well become the standard of care. 

Now let us talk in more detail aboutdealing with employees.  Over a hundredyears ago an injured worker was required to show her employer had donesomething negligent that caused her injury before she was compensated.  It was a tough, expensive and unequal burdento place on an employee.  Thus, duringthe Progressive period in the early 20^th century safeguards werepassed for workers, notably the Workers Compensation insurance system.  An injured worker now receives a certain andspeedy financial award, without having to show an employer’s negligence.

From the employer’s view thetrade-off is a company that pays into the Workers Compensation system in normalcircumstances may not be separately sued for injuries, death or occupationaldisease suffered by its workers.  Therehave, however, been negligence suits filed over the years by workers claimingthat the particular action of the employer resulting in injury was so egregiousthat the company should be liable over and above the compensationprovided by Workers Compensation.  To besuccessful a claimant has to show the employer committed the wrongful act withthe intent to injure or with the belief that the injury was “substantially certainto occur.”  This is an extremelydifficult bar for a plaintiff to clear…. However, as the body of evidenceconcerning the infectiousness and lethality of the virus continues to grow, itwould seem that such claims may occur where an employer does little or nothing toprotect employees. 

Be aware: Ohio R.C. 4101.12 doesprovide “[n]o employer shall require, permit, or suffer any employee to go orbe in any employment or place of employment which is not safe” and that “[n]oemployer shall fail to do every other thing reasonably necessary to protect thelife, health, safety, and welfare of such employees.”

Other novel claims may be made.  Recently, a plaintiff in Cuyahoga County,Ohio was fired from her job as an event coordinator where she had worked for 12years. She requested permission to work from home, but was denied. She alsorequested to use accrued vacation time, which was also denied.

She then retained a lawyer who wrotea letter to her company stating that requiring her to come to work was aviolation of the Ohio stay at home order. The letter emphasized that she waswilling to work remotely but would not report to work until the companycomplied with the safety order.  Afterthe letter, the company complied, allowed her to use accrued time while theydiscussed a method for the remote employment. Less than a week later, she wasterminated due to what the company called a “reallocation of resources.”  Plaintiff has now brought a claim of wrongfultermination in violation of public policy. 

To summarize:  If a business suffers an outbreak among itsstaff, it wants to demonstrate it followed reasonable protocols to protect itspeople, as just described.  Similarly, itwants to put itself in a position that, bearing in mind the severity ofCovid-19, it has taken reasonable, well-thought-out safety measures to protectthe public.  Again, “reasonableness” ismost easily proven by being able to show the company was using guidelines putforth by the state or federal government. Best practices information for specific industries is on the websites ofthe Ohio Department of Health, the Center for Disease Control in Atlanta andOSHA.

Business Succession Planning

I have previously written about the need for succession planning for asmall firm, such as an insurance agency, small shop or professionalpractice. Today, let’s discuss planning for transitions in largeroperations. Regardless of the product or service provided, CEOs and keyemployees of both family companies and public ones retire, take otherjobs and sometimes die in the saddle. Plans should be in place thatencompass each of these possibilities.

A succession plan is part of a company’s overall strategic plan,which addresses a firm’s vision, values, markets and growthopportunities. Bringing about both is the responsibility of the CEO. If abusiness does not have the right people to facilitate strategic andsuccession planning, a consultant should be retained. (It is often saidthat a consultant is someone that tells you what you already know youshould do, but for which you do not want to take responsibility.)

Good governance suggests a planning process with realistic timelinesset forth in the bylaws, vesting responsibility in an appropriatecommittee, guided by proven procedures.Strategic plan in hand, it shouldbe asked if current executives are up to its implementation. Inconsidering the personnel pipeline, one must ask what will be theeffects of retirement, death or job-poaching by competitors? Areadditional people needed now or will they be in the future? Isadditional training needed for employees with potential? Annualperformance reviews are invaluable for this process. Talented mangersshould be identified, encouraged and incentivized to remain and competefor the high positions. Others should be informed what skill developmentneeds to be undertaken to allow them to advance as far as possible.

A harder question is what to do with employee-relatives of a founderwho typically have expectations of taking over some day. Let’s say CEODad wants his son to take the reins in a few years and Junior isn’t upto it. Many years of practicing estate planning and business law havemade it clear to me a company should be run to achieve the greatestfinancial return for its owners – period!

Only a small fraction of family companies survives through the secondgeneration, let alone a third and there is a reason for this. (I takesome pride in that our law firm is now on generation four.)

Family companies have certain advantages. Owners, as opposed tooperators, are more likely to be good stewards of both assets andbeneficial values, plus, they tend to think more long term. But talentcan skip a generation. If there are two children in a business and theyounger one is the ball of fire, it does nobody any good to let theeldest take over and run things into the ground. Using a consultant canhelp deal with this sticky problem by letting skills assessments andrecommendations come from outside. The goal is to keep the family and,therefore the business, united and contributing for the good of all.

A second challenge in succession planning is taking over from afounder. Entrepreneurs who start firms are hard-charging and hate togive up control. Depending on the age and vigor of the founder, it isessential to have reasonable procedures and timelines for retirement (ora reduction in responsibilities), rather than to leave things vague tothe frustration of younger executives who may jump ship.

Every business has a natural growth and decline curve. Successfulcompanies – family ones or not – must have the capacity to reinventthemselves. When growth hits the wall, one must diversify into new areasand sometimes it takes fresh blood to make this transition. A wellthought out succession plan increases the likelihood that a businesswill adapt and make it beyond generation one.

Qualified Opportunity Zones

After a 10-year U.S. economic expansion, taxpayers hold trillions of dollars in unrealized capital gains.

To encourage investment in economically depressed areas, the U.S. TaxCut and Jobs Act of 2017 created a program that allows investors toessentially “roll” what would otherwise be taxable capital gains intoinvestments into Opportunity Zones (OZ).

These zones were nominated by state governors in low-income areasdetermined from community census tracts and there are now about 8,700around the country.

The Mahoning Valley contains 15, about which The Business Journal hasalready written. New U.S Treasury Department regulations have clarifieda number of issues concerning Opportunity Zones.

An investment in an OZ must be made through a Qualified Opportunity Fund (QOF).

A QOF is an investment vehicle (partnership, corporation or LLC), 90% of whose assets hold OZ property, which can be:
• An equity interest in an OZ business.
• A real estate investment.
• An interest in an OZ business property, which is:
– Tangible property used in the business.
– Acquired after Dec. 13, 2017.
– Substantially all of which is used in the OZ.

After passage of the Tax Cut and Jobs Act, a large number of “blindpool” funds were raised geared toward making real estate investments,although single purpose funds seem to be becoming more popular.

With real estate, investment is seen both in new development and in rehabilitation projects.

With a rehab project, QOF funds must be spent within 30 months on a “substantial improvement.”

A commitment to a project is not enough. There must be a real plan and actual expenditures.

Almost any business can be conducted in the OZ, except “sinful” ones.

Thus, a massage parlor or liquor store may not work, while a restaurant serving liquor certainly would.

Investors have 180 days to roll their capital gains into a Qualified Opportunity Fund.

Unlike the requirements for tax deferral of real estate gains underCode Section 1031, there is no requirement that an investor work througha qualified intermediary or look for a “like-kind” investment.

Gain on the sale of any capital asset is eligible to roll into a Qualified Opportunity Fund.

Here are the tax incentives:
• The temporary deferral of capitalgains invested into a QOF until the earlier of a sale of the QOFinvestment, or Dec. 31, 2026.
• A step-up in tax basis as follows:
– If the taxpayer holds less than five years, no more than 90% of capital gains is included in income.
– If the taxpayer holds more than seven years, no more than 85% included in income.
– If taxpayer holds more than 10 years, all gains accrued on the Qualified Opportunity Fund investment are tax-free.
Other points to consider:
• Code Section 1231 gains are netted.
• Gains are determined as of Dec. 31 and the 180-day period begins to run then.
• Single-member LLCs are not eligible.
• Only capital gains qualify (there is no ordinary income deferral).
• “Pass-through” entities such as Sub-S corporations, partnership or LLCs can be used.
• Property can be contributed to a QOF, instead of cash.
• Transfers on death of a QOF do not cause tax recognition.
• Transfers to a revocable trust do not cause recognition.
• One cannot buy raw land and qualify, unless there is a bona fide plan to develop it.
• Leases can qualify, but there are special rules for related party transactions.
• A Qualified Opportunity Fund business must earn at least 50% of its gross income from activities within the zone.

In sum, some would say that the economic expansion is getting long in the tooth.

A taxpayer, for instance, with substantial long-term stock marketgains may consider selling and locking in gains and then investingwithin 180 days in a Qualified Opportunity Fund or Funds.

This will postpone tax recognition until the fund is sold or 2026(the earlier) and may afford a 10% or 15% reduction in the ultimate taxrate.

Public Records Requests in Ohio

National publications like the Washington Post and the Wall StreetJournal have recently considered news of The Vindicator’s closing, andsuggest generally that local democracies will go only as far as theirlocal papers will carry them.  These articles assume that if the localnews dies, so does an informed citizenry.  

Local news organizations unearth and disseminate truths thatunorganized groups simply cannot. Having bright, articulate, experiencedand credentialed journalists on staff give them a natural advantage;they know where to look. 

However, there’s something to be said for a curious citizen with asmartphone, a pen, a pad of paper, and a Twitter account.  By leveragingthe provisions of Ohio’s public records laws with the wealth of publicinformation already available on the internet, democracy just might havea chance. 

Ohio’s Public Records Laws

Section 149.43 of the Ohio Revised Code authorizes any person, at allreasonable times during regular business hours, to inspect publicrecords. 

As defined therein, public records include “records kept by anypublic office, including, but not limited to, state, county, city,village, township and school district units.”  

However, this same law specifically lists items that are NOT publicrecords subject to review, such as medical records, informationregarding children under protective custody, law enforcementinvestigatory records, and the like.   

Moreover, the same law provides that if a person is aggrieved by thefailure of a public office to promptly prepare and make available thepublic record, that person may commence a court action in which they maybe rewarded monetary damages (up to a maximum of $1,000) and attorney’sfees.  

Notably, the above requests can be made by any person, and need notbe made in any particular form.  But in my own experience, writtenrequests are almost always more quickly fulfilled than those madeverbally, especially if the written request is sent directly to theperson who has access to the documents in question.  

Consider calling the office first to determine if they even possessthe information you need, and then taking note of the person or personsresponsible for those records.  And of course, be respectful, and bepatient. 

Pounding the table and threatening a lawsuit will not likely motivate the clerk to fulfill your request more quickly.   

In sum, the importance of investigative journalism cannot beoverstated. But that responsibility should not fall unilaterally onlocal news outlets, especially in light of the economic challenges theyface.  

And even if you do not have a political axe to grind, you might justfind that your local government (or a state agency) has data that couldbe valuable to your business. 

The good news is you are specifically authorized by law to access it. They may even want to help you.  

So pick up the phone and jump-start your journalism career.  Let us know how we can help.

Selling Your Business

Baby boomers are leaving the workforce in droves. But a businessowner who wants to retire cannot simply turn off the lights and head tothe beach. Selling a company and getting fair value generally takesseveral years and careful planning.

Step One: Polish the apple.

Do not conduct a “Get me the heck out of here” sale. A buyer will notpay full value if it appears a seller is desperate. The seller shouldhave a story that conveys a sensible reason for selling. Additionally:

•  A business history should be prepared; financials and corporate books should be in perfect order.
•  Three years of tax returns should be gathered.
•  Documentation for IP, licenses and employment agreements should be made available.

•  Computer systems should be modern and upgraded.
•  Relatives or children not being productively employed should be let go.
•  Work out lease extension options well in advance of the year in which the business is to be sold.
•  Environmental issues are deal killers. Fix them!
•  Dispose of dead inventory.
•  Buyers want to see growth, so sellers should consider increasing advertising and promotion to boost revenues.

Step Two: Determine a reasonable price.

A crazy price hurts a seller’s credibility regarding his otherrepresentations about the business. Setting too high a price may slowthe deal and cause a seller to miss the window of opportunity forselling in our cyclical economy. The price a buyer pays reflects adetermination of discounted future earnings. To value a business wherethe owner is actively involved, one must determine what a potentialbuyer would have to pay someone to do the job of the owner. Thus, if anowner takes $100,000 out of a company annually and it would cost $75,000to hire someone to do the owner’s job, then a buyer is purchasing a$25,000 stream of income (not $100,000) and his offer will flow fromthat number. With a realistic number in hand, to come up with an askingprice:

• Apply any rule-of-thumb metrics used in the seller’s industry, such as a multiple of sales or cash flow.
• Look for comparable sales of similar businesses.
• Run a capitalization of income calculation, applying the appropriate cap rate for your industry.
• A third-party valuation may provide comfort and be worth the cost.

A seller should know how much seller-financing he is willing toprovide. However, an all-cash deal at a lower price is usually betterthan being the bank. A buyer wants to ensure a smooth transition withcustomers, so a seller should steel himself to work in the business for12 to 18 months. The shorter the time, the better.

Step Three: Determine logical potential buyers.

Determine potential buyers, such as competitors, key employees and private equity. With believable narrative in hand, reach out.

Step Four: Consider using a broker.

Business brokers not only have a book of possible buyers, butsometimes have banking connections. Thus, their 5% to 10% commission canbe worth it. Do not be seduced by a broker claiming he can get you anunrealistic price. Interview several brokers before you hire one.

Step Five: Size up the buyer.

Determine the likelihood of the buyer securing financing before the deal is signed.

Finally, let an experienced business lawyer handle the purchase and sale agreement, not the broker.

Estate Plans for the Foreign-born

My namesake and great grandfather, Nils P. Johnson, was a Swedishimmigrant who settled on “Swede hill” at the top of the Market Streetbridge in 1905. He was a wholesale grocer and must have been an affableman. Foreign accent and all, he eventually was elected to the OhioSenate.

Times were simpler then both for immigrants and business people. Whengreat granddad came to town, immigration laws were lax and there wasneither an inheritance tax nor an income tax – the latter arriving withthe 16th amendment in 1913 and the former coming a few years later in1916.

These days immigration issues are much in the news in all theircomplexity. For instance, with the unemployment rate at nearly historiclows, businesses in need of highly-skilled employees are pushing for theexpansion of the H1B visa program that gives preference to suchimmigrants.

For that reason, attorneys must have at least some knowledge aboutimmigration issues if they represent business clients. Furthermore, ifthey do estate planning, an attorney must also understand the taximplications of being foreign born.

Let’s consider how gift and inheritance taxes affect the foreign born.

First, a review of the rules for U.S. citizens:

• Each person has a tax credit that permits passing $11.2 million during life or at death to a non-spouse tax-free.
• In addition, a person can gift $15,000 annually (“annual exclusion”exemption) to an unlimited number of people. Spouses together can pass$30,000.
• The new Trump tax law allows the estate of a surviving spouse toemploy the unused portion of the tax credit of the first spouse to die.This means a husband and wife, both citizens, can transfer $22.4 milliontax-free to the next generation.
• A spouse can inherit an unlimited amount of money from the other spouse, using the so-called “marital deduction.”
• A large gift across generations triggers a second tax, the “Generation Skipping Transfer Tax,” on amounts above $11.2 million.
• In 2026, the Trump law sunsets and the amount of a tax-free estate returns to $3 million.

The rules are significantly different for U.S. residents holdingGreen Cards, domiciled in the United States at the time of death:

• One is subject to a gift/estate tax on the value of transferred assets worldwide.
• Each spouse enjoys the individual $11.2 million exemption.
• One can use the $15,000 annual exclusion.
• A surviving spouse is not entitled to use the unused portion of the tax credit of the first spouse to die.
• A surviving Green Card-holding spouse, himself/herself does not get the marital deduction.
• If a special trust (“Qualified Domestic Trust”) is used, the taxthat would otherwise be triggered by the lack of a marital deduction canbe postponed.
• One spouse can gift the other $149,000, without using up any of the $11.2 million exemption.

A nonresident alien (someone in the U.S. lacking a Green Card) istaxed only on property held in the United States. However, his estatetax exemption drops from $11.2 million to $60,000.

It is important that an estate planning attorney always ask clientsabout their nationalities, even if they don’t have an apparent foreignaccent. (Yesterday I met with a woman who spoke American Englishperfectly, but who turned out to be a German citizen holding a GreenCard.)

The time of benign taxation from great granddad’s days are long gone.The estate plan of a Green Card holder, or nonresident alien, willdiffer significantly from that of a U.S. citizen.

How Lawyers Help New Businesses

It can be feverishly tempting to set up a new business without first consulting an attorney.

With 24/7 online business registration from the Ohio Secretary ofState, a new legal entity can be formed in a matter of minutes, day ornight. Why then, does our law office receive so many frantic phone callsfrom individuals who did it themselves?

Self-help like this often results in picking the wrong legal entityfor the new business – partnership, S-corporation, C-corp., LLC, etc.,as well as ending up without an appropriate operating agreement thatstates how the entity will be managed.  (A previous article discussedthe need to have effective buy-sell agreements in place as part of theoperating agreement to deal with the possibility of a partner dying,going bankrupt or getting divorced. Go toBusinessJournalDaily.com/legal-strategies.)

Another pivotal shortcoming of going it alone is complicating accessto the court system. In our litigious society, businesses may becomeembroiled in civil litigation at some point during their operation. Butunder Ohio law, a corporation or other similar entity representingitself in court subjects itself to unauthorized practice of law claims.

To the self-starter, this may be maddening. However, this rule isrooted in the longstanding principle that corporations and limitedliability companies are separate legal persons than their owners orshareholders.

Therefore, when an owner or officer of an entity represents thatentity in court, they are attempting to legally represent another“person.”

In 2005, the Ohio Supreme Court created a limited exception to theabove rule in Cleveland Bar Assn. V. Pearlman. The defendant, Mr.Pearlman, was a 99% owner of two businesses and represented both of themin 13 different cases seeking money damages from tenants or formertenants in the Cleveland Heights Municipal Court.

The Cleveland Bar Association sued Mr. Pearlman for the unauthorizedpractice of law. Surprisingly, the Supreme Court held that Mr. Pearlmanwas not engaging in the unauthorized practice of law.

Specifically, the court cited Ohio Revised Code Section 1925.17, which states:

“Any bona fide officer or salaried employee of a corporation mayrepresent or defend the company’s claim in a small claims divisionarising from a claim based on a contract to which the corporation is anoriginal party or any other claim to which the corporation is anoriginal claimant, provided such corporation does not, in the absence ofrepresentation by an attorney at law, engage in cross-examination,argument, or other acts of advocacy.”

This narrow holding allows Ohio businesses to represent themselves only in small claims court.

With a limited jurisdictional limit (i.e. $3,000), small claimscourts may not be able to award litigants the full extent of theirdamages.

However, certain business entities like those operating rentalproperties may still avail themselves of the small claims court systemfor evictions and collections below the $3,000 limit, subject of courseto the restriction on cross-examination.

If the litigant desires more than $3,000 as damages or anticipatesthe need for cross-examination, they will require legal representationfrom a licensed attorney.

In our complex society filled with rules, regulations and legalpitfalls at all levels, forming a relationship with an attorney on theground floor of the new business will free the business owner to do thethings she is best suited for – running and growing a new company.

Corporate Culture

Corporate culture is one of those terms that seems like it belongs ina psychology handbook. It’s something that we may not always be awareof, but it really defines our entire work experience.

Similar to investing in a quality mattress because, as they say, “Youspend half of your life on it,” the prudent businesswoman occasionallyexamines their corporate culture because they spend the majority of herwaking hours at the office.

Of course, part of the corporate culture involves legal preparations:making sure that the business has the appropriate policies in place.These take the form of employee handbooks, antidiscrimination policies,sexual harassment policies and the like. Generally, these are used byeither human resources departments in hiring and firing or legaldepartments in navigating a crisis.

Of course, we frequently take calls from clients who wish that theypreviously had these policies in place. Sometimes because a lawsuitalleged that they didn’t exist, other times because a clear procedure tofollow in navigating a crisis would have been helpful. You may want toinstitute your own policies and procedures. As per anything in life, theimportance of being prepared cannot be overstated.

On the other side of the equation is employee satisfaction. Happy employees can mean a happy life for a business owner.

With respect to the physical health of employees, we are seeing morecompanies include gym memberships as part of their benefit package. Thisis helpful to the corporation as healthy employees generally results infewer sick days. It also allows the employees to tap into a new socialnetwork and potentially make important business connections.

We are also seeing an increase in companies attempting to improvetheir employee’s mental health. This takes the form of telecommutingoptions, extended maternity leave, flexible hours or even yoga retreats.

Finally, there is also a wonderful movement of corporate giving thatis continuing to grow. It has become popular for Fortune 500 companiesand small businesses alike to match their employees’ charitablecontributions.

On the Fortune 500 side of things, General Electric and BritishPetroleum made headlines for their policy of matching charitablecontributions on a 1:1 basis up to $5,000 per employee. ExxonMobilmatches on a 3:1 basis up to $22,500, according toDoubleTheDonation.com. Of course this easily can be, and frequently is,implemented at a smaller level.

Similar to a 401(k) employer match, the corporation sets the ratioand the maximum limit. The corporation may decide upon a list of itsfavorite charitable organizations or allow the employees to choose theirown. In order to qualify for tax deductions, both the corporation’sstructure and the structure of the charity must be considered. While thefinancial benefits are certainly valuable, the knowledge that thecorporation is genuinely invested in helping others and making the worlda better place is certainly one that would improve corporate culture.

With respect to corporate culture, a prudent businesswoman evaluatesher employee happiness and policies and procedures regularly.Preparation and job satisfaction will pay off in spades.