KEYTLaw » LLCs & Corporations

Bankruptcy Court Sells Debtor’s Arizona Limited Partnership Interest

Richard Keyt — Tue, 17 Aug 2010 16:30:03 +0000

In July of 2010, the U.S. Bankruptcy Court for Arizona ordered the sale of a debtor’s limited partnership interest in an Arizona limited partnership in disregard of Arizona Revised Statues Section 29-655. This Arizona statute that says that the sole remedy of a creditor who gets a judgment against a partner of an Arizona limited partnership is a charging order. A charging order is a court order served on the limited partnership that orders the limited partnership to make any payments of money or distributions of property intended for the judgment debtor to the creditor. When served with a charging order, the limited partnership usually ceases making payments and distributions to the partner who is the judgment debtor, which means the creditor gets nothing from the limited partnership.

In re Michael L. Gauvin, the United States Bankruptcy Court ordered the sale of the debtor’s fifty percent interest as a limited partner of an Arizona limited partnership called “Draco Enterprises II, an Arizona limited partnership.” See the Notice of Sale.

Here is the text of Arizona’s charging order statute applicable to Arizona limited partnerships:

29-655. Rights of judgment creditors of a member

A. On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member’s interest in the limited liability company with payment of the unsatisfied amount of the judgment plus interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member’s interest.

B. This chapter does not deprive any member of the benefit of any exemption laws applicable to his interest in the limited liability company.

C. This section provides the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the judgment debtor’s interest in the limited liability company.

Arizona Revised Statutes Section 29-655 is the equivalent law for Arizona limited liability companies. This statute states:

29-655. Rights of judgment creditors of a member

A. On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member’s interest in the limited liability company with payment of the unsatisfied amount of the judgment plus interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member’s interest.

B. This chapter does not deprive any member of the benefit of any exemption laws applicable to his interest in the limited liability company.

C. This section provides the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the judgment debtor’s interest in the limited liability company.

Bottom line: Despite these two Arizona statutes that state that the charging order is the exclusive remedy of a creditor that gets a judgment against a partner of an Arizona limited partnership or a member of an Arizona limited liability company, if the partner or member is a debtor in bankruptcy, the bankruptcy court can and probably will sell the interest and give the proceeds to creditors unless the interest is worthless.

Burying Small Businesses in Paperwork

On the Net — Tue, 17 Aug 2010 15:28:06 +0000

The Daily Caller: “One provision in the new health care law will be yet another costly distraction for small business owners. In order to raise revenue to pay for the $1 trillion new health care program, the law includes a provision requiring businesses to file a 1099 form with the IRS for each supplier or service provider they pay more than $600 to in a year.”

Congressional Research Service Issues Guidelines for New Obamacare Form 1099 Reporting Requirements

On the Net — Thu, 12 Aug 2010 14:25:42 +0000

The Congressional Research Service published “Form 1099 Information Reporting Requirements as Modified by the Patient Protection and Affordable Care Act.” It is a report to Congress about the new Obamacare 1099 rules that require businesses to issue an IRS Form 1099 to all people and companies from which the business purchases $600 or more of goods or services during any year beginning in 2012. Here is the summary of the report:

Under § 6041, persons engaged in a trade or business who make payments totaling at least $600 to another person in a single year are required to file an information return (typically a Form 1099) with the IRS and to provide the payee with a copy. For payments made after December 31, 2011, § 9006 of P.L. 111- 148, the Patient Protection and Affordable Care Act (PPACA), expanded the information reporting requirements contained in I.R.C. § 6041. Under the amended provision, most payments to corporations will no longer be exempt from reporting and the types of payments that can trigger the reporting requirement will include gross proceeds and amounts received by a payee in consideration for property.

A payer’s failure to file a timely and accurate information return with the IRS can result in monetary fines; criminal sanctions may be applicable where such failure is willful. Payers may also be penalized for failing to provide a timely and accurate copy of an information return to their payees.

In the 111th Congress, several bills and amendments have been introduced that would repeal the modifications made to I.R.C. § 6041 by PPACA § 9006. Both versions of the Small Business Paperwork Mandate Elimination Act, S. 3578 and H.R. 5141, would repeal PPACA § 9006 entirely. Similar provisions have also been proposed in Senate amendments to H.R. 5297 and in § 1 of H.R. 5982.

Legislation has also been proposed to require landlords to file information returns for payments made with respect to their rental properties and to increase the penalties for failing to file an information return. The House passed such a provision in H.R. 4849. A provision with similar language was passed by the Senate in its consideration of a different bill, H.R. 4213. However, this language was ultimately struck by a House amendment in the nature of a substitute while resolving differences with the Senate.

How Can I Legally Omit My Name as a Member of an Arizona LLC?

Richard Keyt — Thu, 08 Jul 2010 06:12:30 +0000

Question: I want to form an Arizona limited liability company. I understand that Arizona law requires that the names and addresses of all members of an Arizona member managed LLC must be disclosed in the Articles of Organization, which is a public record on the internet. How can I form an Arizona LLC and avoid having my name and address appear on the Arizona Corporation Commission’s public records?

Answer: There is a simple and relatively inexpensive way to comply with Arizona law, but not disclose your name in the Articles of Organization filed with the Arizona Corporation Commission to form an Arizona LLC. For the answer to this question, see my article called “How to Form an Arizona LLC without Disclosing Its Ultimate Owner(s).”

Sometimes an LLC’s Signature on a Contract Can Result in a Member’s Personal Liability

On the Net — Fri, 18 Jun 2010 13:51:37 +0000

LLC Law Monitor: “Most business people know that if they want to avoid personal liability when they sign a contract on behalf of an LLC, they should use the name of the LLC and their title. . . . But what’s the result if language in the contract states that the signing member is personally liable? . . . the Washington Court of Appeals recently ruled that the language in the contract can overrule the form of signature.”

The ESOP Exit Strategy

On the Net — Thu, 17 Jun 2010 13:43:28 +0000

The Journal of Accountancy: “Explore the advantages of this popular tool for succession planning. . . . This article examines why ESOPs are more appealing to both selling shareholders and ESOP participants now than in years past, defines issues that must be fully considered before installing an ESOP, and highlights common attributes of successful installations.”

Ten Estate Planning Advantages of Limited Liability Companies

Found on the Internet — Wed, 16 Jun 2010 14:20:49 +0000

Professor Paul L. Caron of the University of Cincinnati College of Law has written an excellent article entitled “Ten Estate Planning Advantages of Limited Liability Companies.” Here’s the abstract:

In the eight years since the Service blessed the Wyoming limited liability company (LLC) statute, there has been an explosion of interest in LLCs, which are now available in 48 states and the District of Columbia (with Hawaii and Vermont the lone holdouts). See Bruce P. Ely, “The LLC Scoreboard,” Tax Notes, Dec. 25, 1995, p. 1661. Although much has been written of the uses of LLCs in tax and business planning, comparatively little commentary has focused on the role of LLCs in estate planning. The LLC treatises generally devote little attention to estate planning issues, and there have only been a few estate planning articles that discuss the advantages of LLCs compared to S corporations, limited partnerships, and trusts. (A listing of these treatises and articles appears at the end of this article.) After a brief introduction, this article discusses 10 estate planning advantages of LLCs compared to the other forms of organization.

The Big Tax Increase Facing Small Businesses

On the Net — Sat, 12 Jun 2010 15:33:51 +0000

Forbes: “Hedge fund taxes get all the attention. Congress is about to raise billions in taxes on some doctors, accountants and architects. . . . Congress is also creating a tax mess for small-business owners in the form of an $11 billion tax hike over the next 10 years. The tax increase was included in H.R. 4213, a peddler’s wagon of legislation (new spending, physicians’ reimbursement, extensions of expired tax breaks, etc.) that was passed by the House in a narrow vote just before Memorial Day and is now being considered by the Senate. The Democratic-backed Senate version of the bill includes the same tax on small business. The tax hit affects the owners of small S corporations (a common way many small businesses are organized) in “professional service businesses”–doctors, lawyers, accountants, engineers, architects and so on.”

IRS won’t Require 1099s on Payments of More than $600 for Credit Card Payments

On the Net — Fri, 11 Jun 2010 15:19:19 +0000

Phoenix Business Journal: “Internal Revenue Commissioner Douglas Shulman said the IRS will provide small businesses with at least partial relief from a new paperwork burden created by health care reform. Under the new law, businesses in 2013 will be required to file separate reports with the IRS for every corporation that was paid more than $600 for goods and services.”

IRA LLC Law Website

Richard Keyt — Tue, 08 Jun 2010 02:46:28 +0000

I am an Arizona LLC attorney who has formed over 2,400 Arizona limited liability companies since 2001 when I started keeping track. Many of the LLCs I have formed include at least one member that is an IRA, which I call an IRA LLC. People form IRA LLCs because they want to invest their IRA funds in nontraditional investments. Because of the large number of inquiries I have had about the legalities of forming and operating IRA LLCs, I created a website called “IRA LLC Law.” If you want to learn more about this special type of LLC used to make self directed IRA investments, go to the website.