Ohio Practical Business Lawyer & Attorney : Teri Rasmussen : Lane Alton & Horst Law Firm : Commercial Law, Creditors, Business Formation : Columbus, Central Ohio

Pinch me - the Chicago Cubs REALLY are in the post-season and .... let's all hold our breath....  might even manage to make it to the World Series for the first time since 1945 and after precisely 100 years, could, just maybe, break the billy goat/black cat curse and win the World Series! . 

Of course, most or all of these games will be played at night.  And it was twenty years ago today,,, well almost (August 8, 1988 to be precise)... that lights came to Wrigley Field.  So I thought it might be a good time to revsit the part of the story about events along the way to Wrigley Field FINALLY getting lights, years after every other Major League baseball team.  Especially since the part I want to explore involves an unsuccessful effort to get night baseball at Wrigley and illustrates one way to apply the "business judgment rule" I've just been teaching to my Capital University students.  And the irony of talking about getting electric lights just after power has finally been restored to me after doing without for five days due to the incredible windstorm from Ike's remnants which whipped through Central Ohio last Sunday also seems oddly appropriate. 

Young Lawyer Takes on Mr. Wrigley.  I am of course talking about the celebrated case of Shlensky v. Wrigley et al., 95 Ill. App. 2d 173, 237 N.E.2d 776 (1968).  In this case, William Shlensky was a minority shareholder of Chicago National League Baseball Cub (inc.) ("Cubs Corporation"), the corporation which owned the Chicago Cubs and operated Wrigley Field.  After several years of disappointing  financial results, Shlensky became convinced that this trend would continue unless the Cubs "got with the program" and installed lights to play night baseball - just like every single other Major League team had been doing for years.  For the short version of the essence of the case, check out this limerick from ContractsProf Blog:  

As Wrigley explained to the court,

Pro-ball is a daytime sport,

Night ball you can see

Down at Comiskey

Where the teams out for profit cavort.

So Shlensky, being a red-blooded American sued majority controlling shareholder Phillip K. Wrigley (who held 80% of the shares and was also President) in his capacity as a director of the  Cubs Corporation,as well as other directors and the Cubs Corporation itself.  The suit was a shareholder derivative action against the directors for negligence and mismanagement. and sought an order requiring the installation of lights at Wrigley Field.  Shlensky argued:

• While the weekend attendance of the White Sox and the Cubs was about the same, weekday attendance at night games played by the White Sox was much higher than that of the Cubs.
• Installation of lights is readily able to get financing and will quickly pay for itself through anticipated greater attendance.
• Wrigley was refusing to install lights not because of any concern for the welfare of the Cubs Corporation, but rather because he believed that baseball is inherently a "daytime sport."
• The other directors allowed Wrigley to dominate the board and acquiesed in the refusal to install lights even though they knew he wasn't acting in a good faith concern for the best interests of Cubs Corporation, but rather out of an entrenched personal opinion.

Business Judgment Rule in Action.  Shlensky contended that these facts demonstrated arbitrary and capricious acts on the part of the directors constituting negligence on their part in failing to exercise reasonable care and prudence in the mangement of corporate affairs of Cubs Corporation.  The trial court was not impressed and dismissed the amended Complaint apparently rather summarily without permitting any testiimony.

On appeal, the Illinois Court of Appeals affirmed, concluding that it had no business second-guessing the Cubs Corporation's board of directors.  After discussing the essence of the "business judgment rule", including another well known "business judgment rule" case involving Henry Ford and his fight with the Dodge brothers (Dodge v. Ford Motor Co., 214 Mich. 459, 170 N.W. 608 (1909), the Court concluded that in the absence of fraud, illegality, or a conflict of interest, a decision by a board of directors should not be disturbed as long as it had some ratinal basis, evenif in hindsight, the decision was wrong.  

In applying the rule to the facts, the Court said:

we are not satisfied that the motives assigned to Phillip K. Wrigley, and through him to the other directors, are contrary to the best interests of the corporation and the stockholders.  For eample, it appears to us that the effect on the neighborhood might well be considered by a director who was considering the patrons who would or would not attend the games if the park were in a poor neighorhood.  Furthermore, the long run interest of the corporation in its property value at Wrigley Field might demand all efforts to keep the neighborhood from deterioprating.  By these thoughts we do not mean to say that the decision of the directors was a correct one.  That is beyond our jurisdiction and ability.  We are merely saying that the decision is one properly before directors and the motives alleged in the amended complaint showed no fraud, illegality or conflict of interest in their making of that decision. 

Then the Court proceeded to dissect Shlensky's other arguments, finding fault with his failure to demonstrate a causal link between night ganes and increased profits or to consider the additional expenses installation of lights and playing of night games might involve. 

The Just One Bad Century website "dedicated to the long suffering fans of Chicago's favorite baseball team" (which may become one of my favorite websites) argues that the relative greater success of the Cubs making the post season since lights were installed shows that the Cubs real problem has been so many day games.  If so, then perhaps the real curse on the Cubs was the deference given to the baseball purists on the Cubs Corporation who refused to allow lights at Wrigley Field forty years ago. 

What If?  Of course now less deference is given to directors so the case might come out differently today.  But suppose Shlensky had commissioned an authoritative consulatant's report demonstrating quantitatively the substantially greater profitability of night baseball.  And that the directors simply ignored this.  Would the Court have given Shlensky more of a hearing and been less of an apologist for the directors?  In some parallel universe, the Cubs have already won the World Series repeatedly.      

The Rest of the Story.... And for those who want to know the rest of the story, check out this timeline of the road to lights at Wrigley Field  which has such gems as....

• Shlensky was a 27 year old lawyer (somehow that figures) who had owned two shares of Cubs Corporation since he was 14.
• In 1941,P.K. Wrigley actually bought lights to be installed at Wrigley Field for 6 PM twilight starts.  However, Pearl Harbor intervened and the steel for the light poles was donated to the war effort.
• In1982, the public was told the choice was lights or the Cubs would move.  A Wrigleyville citizens group named Citizens United for Baseball in the Sunshine (CUBS) was formed to oppose installation of lights.
• The first Wrigley Field game under the lights began on August 8, 1988 against the Phillies, but it was rained out after 3 1/2 innings.
• Restrictions on the number of night games played still exist.

And finally...

Got my power back on Thursday night and while I realize that's nothing compared to what folks in Texas are dealing with, I will tell you that reading by flashlight does not work nearly as well now as when I was a kid.  Also that I apparently spend an awfully lot of time on my laptop in the evenings and need to buy a new battery since the one I have only gives me an houor of juice.  On the plus side, I definitely caught up on my sleep and found out how great it can feel not to be sleep- deprived.  So I suppose the whole experience was useful.

I will be going to Oregon in a few days for a golf trip with friends so I may or may not get a chance to post before i leave.   

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Suppose you’ve decided that you’ve learned all you can from where you work now and want to put it to use by opening your own company.  Or the grass is looking mighty greener at another company in your industry and you’d like to make a move.  Hold on a minute!  Before you turn in your resignation, you need to consider whether you are subject to a noncompetition agreement, and if so, how that will affect your ability to move on.

What Noncompetes Do

Noncompetition agreements, or noncompetes as they are often called, may be a separate agreement, but are frequently part of an employment agreement.  Their purpose is to protect an employer from unfair competition by restricting the ability of an employee to compete with his or her former employer immediately following termination of employment.  Sometimes employees are asked to sign such an agreement after they have already been employed for quite a while.

Essentially, an employee signing a noncompete promises not to start, work in, own, or otherwise be involved with another company competing for the same business for a specified period of time after that employee stops working for the original company.  The idea is that in the course of doing his or her job, an employee learns valuable nonpublic information about how the company operates. In addition, an employer may have invested time and money in training the employee.

General Enforceability

Usually, employees asked to sign a noncompete have little choice but to agree if they want to work or continue to work for the employer.  Not infrequently, the question comes up as to whether this sort of agreement can be enforced.  Perhaps predictably, the answer depends on many things, including what state you are in and how stringent the restrictions are.

A few states such as California, Montana, and Oklahoma tend to view enforcement of noncompetes as against public policy and severely limit their enforceability.  Others have specific statutes governing use of noncompetes. Several states apply a “reasonableness” test, with some making an up or down decision based on the noncompete as written and others modifying the restrictions as they deem necessary.  Wikipedia has a very detailed Non-compete clause entry which focuses specifically on enforceability in California, Massachusetts, Ohio, and Virginia.

In Ohio, so long as the employer hasn’t gotten greedy, noncompetes are generally enforceable, even if they aren’t signed until long after employment originally began.  The Ohio State Bar Association’s News You Can Use feature offers a concise FAQ regarding “Are Noncompetition Agreements Enforceable in Ohio?”    In determining enforceability, Ohio courts look at three main factors enunciated in Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 325 N.E. 2d 544 (1975):

• Whether the restriction is no greater than is necessary to protect the employer’s legitimate interests
• Whether the restrictions impose undue hardship on the former employee
• Whether the restrictions are injurious to the public

How Reasonableness Plays Out

How do these factors work in “real life”?  Of course, every case is different, but there are some general principles. The duration, geographic range, and scope of the prohibition are especially important.  Thus, noncompetes of one year or less are often found enforceable while longer periods become progressively less enforceable. 

Geographic range is related to the nature of the business; if it has a single location and serves only a local clientele, a noncompete prohibiting employment anywhere in the world is unlikely to be enforced.  If there are multiple locations, the prohibited proximity becomes important; restrictions forcing the former employee to work in the next county may be enforceable in these cases.   

Noncompetes which have the effect of preventing any sort of employment by the former employee will generally be found overly broad.  The prohibited activity must be related to the company’s existing or perhaps realistically potential business or industry.

One recent case involving a hairstylist with an eight month noncompete (Charles Penzone, Inc. v. Koster, 2008 Ohio 327 (10th App. Dist.) illustrates how subjective the factors for determining enforceability of noncompetes really are.  It also clearly demonstrates the predominant employer-friendly perspective on the issue which seems to be held by many Ohio courts. 

• The trial court, in part because there was no evidence the hairstylist had done anything other than service former customers who sought her out, refused to enforce the noncompete.  It also felt that forcing the hairstylist to “scrutinize every potential client who walked through the salon door” was an undue hardship and preventing members of the public from utilizing their preferred stylist was injurious to the public.
• The Franklin County Court of Appeals reversed, finding that the hairstylist could easily tell which customers were “off-limits” and that the restriction did not prevent those customers from having other hairstylists service them during the restricted period.  

In another case involving a rival title company hiring away a key employee with a five year noncompete, the United States Sixth Circuit analyzed the issues this way in Chicago Title Ins. Co. v. Magnuson, 487 F.3d 985 ( 2007):

Overall, because Chicago Ttle had critical customer and employee relationships to protect, because these relationships directly affected Chicago Ttle’s ability to compete in the market, because Magnuson could influence the continuity of these relationships, because the [noncompete] Covenant contained appropriate geographic and temporal limits, because Magnuson had other means to support himself (his law degree), and because at least some of Magnuson’s relationships were established or strengthened during his employment with Chicago Title, we find that the district court properly concluded that the Covenant was reasonable for at least two years following Magnuson’s departure from Chicago Title.

So what happens if you violate a noncompete?  Your former employer can sue you for damages which may be lost business because of your actions – this could result in very expensive attorney fees -- and the pending lawsuit will often have the effect of lengthening your noncompete period. 

Clients sometimes ask me whether it matters that they signed the noncompete years ago, apparently in the hope that there is some sort of automatic expiration period.  No it does not matter how long ago or how recently you signed the noncompete.   

What if other people have left and the employer has never really enforced the noncompete before?  Well, maybe you might have something here.  This is, by the way, why you should expect to be sued if you violate a noncompete; failing to come after you might make it more difficult for the employer to enforce the noncompete later against someone else.

What if the company gets sold to a new owner?  Read my post on "Can a New Owner Enforce a Noncompete Made by an Employee with the Prior Owner?"

Drafting Tips for Employers

From an employer perspective, the key is to be realistic about the restrictions placed upon former employees.  A 2006 article in HR Magazine by Stephen L. Richey entitled “Tailor Non-competes to a T: a One-Size-Fits-All Non-compete Agreement Won’t Pass a Judge’s Inspection” provides several helpful hints about what to think about.  Employers can also take some comfort in the fact that Ohio courts will usually modify noncompetes that go too far rather than simply refusing to enforce them at all.  

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 I've often said that I consider TAX a four-letter word.  So I was most pleased when CPA Karen deLaubenfels accepted my invitation to make a guest post on this very subject. 

>>>>>>>>>> So, without further ado, KAREN DELAUBENFELS on TAX:....

A business tax issue that is somewhat neglected is owner tax basis, which is, roughly speaking, the owner’s stake in the business. Tax basis of business ownership is a topic of interest regardless of entity choice because it can affect the amount (and whether)  you may owe the government for taxes.  However, we focus here on the tax basis of a corporate shareholder.   

Many entities aside from actual corporations, such as LLCs, may wish to be taxed as a corporation under the “check-the-box” regulations, which allow the non-corporate entity to choose whether to be taxed as a “flow-through” partnership/sole proprietorship or a C (regular) corporation. The C corporation can then elect to be taxed as a “flow-through” S corporation, as Teri Rasmussen mentions in her article, "Taking the Plunge - How to Choose the Right Business Entity for Your Business." In a “flow-through” entity, the owners are taxed on their share of the company’s income, regardless of whether they receive any actual distributions of cash or property. Many of these non-corporate entities choose to be taxed as S corporations to maintain the flow-through aspect of the business, while avoiding possible ambiguity about whether owners may be treated as employees, allowing for withholding and tax-free fringe benefits available only to employees. Regardless of the entity choice, though, basis is a key player in determining taxability of any distributions to owners.

Each business owner has a tax basis in that ownership, unique to that individual. This basis is often, roughly speaking, the owner’s investment, plus earnings of the business, minus distributions to the owners and losses of the business, although the calculation differs somewhat depending on the type of business entity. We’ll focus on an entity that comprises 61.9% of the total number of corporations in the U.S. according to 2003 IRS statistics: the S corporation.

So what happens when the owner of an S corporation takes a distribution of cash or property? The short answer is that it’s generally not taxable, since the owner has already been taxed on the flow-through income; however, the exceptions to this general situation can have serious tax consequences for the business owner, and deserve a look.

An S corporation has a different set-up than other business entities, and is distinct even from other flow-through entities. The owner’s basis in shares of stock generally begins as just their cost, as with any other corporate shares; however, whereas the C corporation owner’s stock basis doesn’t change, the S corporation shareholder’s basis in the shares is a moving target, changing with corporate earnings and the owner’s contributions and distributions. In addition, if the owner makes any loans to the S corporation, there’s an additional quirk of the S corporation, loan basis. Although loan basis is beyond the scope of this post, it should be noted that it can affect the deductibility of corporate flow-through losses, and is thus worthy of consideration by the S corporation shareholder as well. 

Whether a distribution to the shareholder is taxable or not depends on whether the corporation has sufficient AAA, PTI, AEP, and OAA, and then on whether the shareholder has any tax basis in his/her shares.

This jumble of letters deserves some explanation. 

• AAA (the Accumulated Adjustments Account) tracks the corporation’s contributions, taxable earnings/losses, and distributions. A positive balance in this account represents corporate earnings that have been taxed as flow-through income, but not yet distributed to owners.

• PTI (Previously Taxed Income) is an “old-school” analog of AAA, which is only (possibly) relevant for S corporations that were in existence before 1983.

• AEP (Accumulated Earnings and Profits) is only (possibly) relevant for S corporations that were formerly C corporations. AEP is a topic in itself, and deserves its own separate discussion. For now, let’s note that any distributions from AEP are taxable as corporate dividends.

• Finally, OAA (the Other Adjustments Account) tracks the corporation’s non-taxable items affecting shareholder basis. This would include such items as tax-exempt municipal bond interest and “key person” life insurance proceeds, along with their associated non-deductible expenses.

Every time a cash or property distribution is made to shareholders, it reduces the balances in these accounts, in the order given above. As long as distributions do not use up AAA and PTI, they are not taxable. If AAA and PTI are gone, any distributions are next deemed to come from AEP, and are taxable as regular corporation dividends, subject to lower tax rates at present. When AEP is gone, distributions are deemed to come from OAA, and are again not taxable.

Next, though, we have the situation to watch out for, as it’s generally avoidable with good tax planning: If AAA, PTI, AEP, and OAA are consumed, the distributions are a return of the shareholder’s capital, lowering his basis in his shares. Once basis is used up by distributions, any additional distributions are taxable gain to the shareholder. 

Do you need to know your AAA, PTI, AEP, and OAA?  If your corporation has ever been a C corporation, you need to look at all four. If not, you need at least AAA; if you sell your ownership interest, your taxable gain may be reduced by your share of any positive balance in the AAA account.

Do you need to know your tax basis in your corporate ownership?  Absolutely. How else will you know whether your distributions have crossed the line from tax-free to taxable gain? 

Karen L. deLaubenfels, CPA offers accounting advice, including a full line of tax consulting and preparation service, to clients in Central Ohio.  She also offers Quickbooks consulting and bookeeping services.   For more information, you can visit her website at www.karendcpa.com,  

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In recent years, the concept of having an "advisory board" has grown in popularity.  Should your business have one and, if so, how do you get one set up?

An advisory board is similar to a board of directors in some respects, but there are some important differences.  An advisory board is a small group of hand-picked professsionals offering advice to a privately held business in areas the owners may feel they lack skills or experience.  It differs from a board of directors because members of a board of directors make decisions on behalf of the company while an advisory board simply offers suggestions and ideas which may or may not be acted upon.  In addition, those serving on a board of directors have fiduciary duties to all of the company's owners, and in some cases to creditors and other third parties.  

Usefulness of Advisory Boards.  Advisory boards may be particularly useful for more recently formed companies or companies in transitioning to a larger presence in the marketplace, but more established companies can also benefit.  For small businesses with only one or two owners, advisory boards can be a useful resource giving more structure to decisionmaking.  Among the ways an advisory board can be useful are:

• Strategic Planning.  For companies in transition, having advisory board members who may have "been there, done that" can be helpful in mapping out where a company may want to go next and in providing a reality check as to what may be needed to get there. 
• Practical Advice and Evaluation.  Advisory board members can fill gaps in business knowledge and be a good sounding board in making ordinary business decisions about personnel policies, prospective business partners and opportunities, marketing and pricing strategy and tactics, etc.
• Leverage and Influence.   The knowledge, contacts and experience of advisory board members can sometimes lend credibility and clout to the company in its marketplace.  

Putting an Adviosry Board Together.  So how do you get an advisory board put together?  Various nonprofit groups offer advisory board programs.  For example, the Womens Presidents' Organization offers peer advisory boards for its chapter members  In addition, in Columbus, the Advisory Board Exchange - an initative of Business First - offers an ongoing program open to applicants averaging at least $3 million in revenue annually over the past three years and which are headquartered in Central Ohio. 

Another possible organized advisory board alternative  is the Athena PowerLink program sponsored by the Columbus National Association of Women Business Owners (NAWBO) chapter.  One woman-owned business is selected as a recipient each year and provided a custom-tailored group of advisors for a year.  Applicants must have been in business for at least two years, have at least two employees, and generate annual revenues of at least $250,000 for manfacturing concerns or $100,000 for service companies.

Business owners can also put together an advisory board on their own, perhaps starting by asking an attorney, CPA, or financial advisor to serve on the advisory board.  Retired executives may also be good  prospects.  In addition to having a genuine desire to help a business grow and mature, these professionals enjoy the opportunity to meet and become acquainted with other like-minded professionals. 

  .

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When considering an exit strategy for leaving the ownership of a business, don't forget to factor in the rights and input on the subject to which your fellow owners may be entitled. In many cases, finding a buyer for your equity stake is only part of the process.

Whether it's a closely held corporation or LLC whose equity holders are owner-operators or an investment vehicle LLC with sophisticated equity holders, the Operating Agreement or Close Corporation Agreement is quite likely to contain some restrictions on the manner in which ownership interests can be transferred to nonowners. Often one such restriction will be a "right of first refusal" which requires that one's fellow owners, and/or the company itself, be given an opportunity to purchase the ownership interest before any sale or transfer to a third party is permitted.

The typical "right of first refusal" generally follows the following sort of sequence:

1.  Getting the Purchase Offer in Writing. The equity holder wishing to sell to someone outside the existing ownernship must obtain a WRITTEN bona fide offer from the propsective purchaser setting forth the material terms and conditions of the offer and the amount of consideration offered.

• YES, it really does need to be written. It doesn't necessarily have to be in the form of a formal purchase agreement, but a few notes on the back of an envelope or business card will probably not be adequate. 
• Bona fide just means it needs to be something that the prospective purchaser really will follow through on and there are not any questionable side transactions (e.g., part of the purchase price is immediately refunded to the purchaser) required to support the proposed transaction. 
• Yes, it does need to be specific. If, for example, payment is going to be made over time, that needs to be explicitly stated.

2. Notifying the Remaining Owners. A copy of the written bona fide offer, together with some sort of written notice setting forth the desire to sell, must be provided to all of the remaining equity holders.

• NO, an e-mail to the remaining equity holders from the owner wishing to sell out which summarizes the terms of a verbal offer is probably not good enough. 
• The precise form of the notice required is generally not spelled out in the Operating Agreement. However, nothing more complicated than indicating it is a notice of the desire/intent to sell is necessary. Some Operating Agreements do require the notice to contain a summary of the terms and conditions of the offer.

3. Waiting for a Response. The company and the remaining equity holders are given a period of time to consider whether they wish to "meet" the offer made and buy back the equity interest. Usually, but not always, the company is given the first "right of refusal" with the remaining equity holders being given a chance to purchase if and only if the company decides not to exercise its right of refusal.

• The amount of time given for consideration of the offer varies, although 15, 30, or 60 days are common choices. Generally the length of consideration time is the same for all parties having a rights of first refusal, i.e. both the company and the remaining owners will each be given 30 days.
• The consideration time is usually cumulative, i.e. the company has 30 days to decide and then the remaining owners get 30 more days after that to make their decision.
  o Occasionally, Operating Agreements provide that the presentation of a bona fide offer permits the remaing equity holders to purchase the subject equity interest at predetermined price, perhaps "fair market value", as determined by an agreed upon formula or method.
• The purchase by the company or remaining equity holders in the aggregate must be for the entire portion of ownership interest being offered for sale - no partial purchases are permitted, although it is often possible for the equity interest to be divided among the remaining owners.

4. Exercising the Right of First Refusal. If the parties holding "rights of refusal" wish to exercise them, they must provide the party wishing to sell with written notice of that intent within the time required. The transaction must then be closed within the time specified by the Operating Agreement which can vary considerably from one Operating Agreement to another. Some Operating Agreements may even prevent a closing prior to the expiration of at least some period of time, i.e. 30 or 60 days.

5. Right of First Refusal NOT Exercised. If the parties holding the rights of refusal choose not to exercise them, the party wishing to sell may proceed to consummate the offer under the terms and conditions disclosed. Generally, if the transaction is not consummated within a certain period of time, perhaps as short as 30 or 60 days, the party wishing to sell will have to go through the entire right of first refusal process again.

Make sure you understand the "big picture" once you've decided it's time to move on and want to transfer your ownership interest in a business to ensure you don't lose valuable time.

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Everyone hates insurance companies, especially when they deny individual policyholders coverage for medical treatment.  But does that mean that corporate formalities should be ignored to permit the unfortunate policyholder to bring an action against the parent company of the subsidiary denying coverage on the grounds of a bad faith breach of the insurance policy contract?  Is it enough if the Court finds that "unjust" or "inequitable" acts have occurred even if they don't rise to the level of fraud or illegal action?  On its face, that is what the Ohio Supreme Court is called upon to decide in Dombroski v. Wellpoint, Inc., et al., Case No. 2007-2162 when  it hears oral argument in the case on Wednesday (June 4, 9 AM, third case on the docket) this week.    

Interpreting Belvedere.  However, the Ohio Supreme Court has taken the opprtunity to resolve a conflict among Ohio Courts of Appeal concerning what is required to"pierce the corporate veil" and impose liability upon a corporation's shareholders or upon the parent company of a corporate subsidiary.  In a January 23, 2008 Entry, the Court ordered the parties to brief the following:

Does the second prong of Belvedere Condominium Unit Owners' Assn. v. R.E. Rourke Cos.. Inc. (1993), 67 Ohio St.3d 274, which states that the corporate veil can be pierced when control of the corporation "was exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity" also allow the corporate veil to be pierced in cases where control was exercised to commit unjust or inequitable acts that do not rise to the level of fraud or an illegal act?

The Ohio Supreme Court's Communications Office has prepared a concise summary of the factual and procedural background of the Dombroski case, as well as the specific insurance-related issue presented.  You can see and hear the oral argument from the comfort of your own computer, either live or in the archives as early as close of business on the day of oral argument, through the use of streaming video technology. 

By consulting the Supreme Court's on-line docket, you can also review or download the briefs filed in the case, including an amicus curiae brief filed jointly in support of the appellant-defendant parent company by the Ohio Council of Retail Merchants, Ohio Chamber of Commerce,  the Ohio Chapter of the National Federation of Independent Business, and the Ohio Farm Bureau Federation.  The defendant-appellant's brief has a rather extensive survey of caselaw in Ohio and elsewhere addressing the proper standard for "piercing the corporate veil." 

Deciding What It Takes to "Pierce the Corporate Veil".  The Belvedere decision established a three prong test to be met before a corporate form may be disregarded and shareholders held personally liable for the misdeeds of a corporation, namely:

• Control over the corporation by those to be held liable so complete that the corporation had no separate mind, will or existence of its own.
• Control over the corporation by those to be held liable was exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity.
• Injury or unjust loss resulted to the person seeking to disregard the corporate entity from such control and wrong.   

Some courts, including the Seventh Appellate District Court of Appeals below in the Dombroski case (173 Ohio App.3d 508, 2007-Ohio-5054, 879 N.E.2d 225), have broadly interpreted Belvedere to include situations in which the corporate form was abused to the detriment of the plaintiff, but no illegal act or intent to defraud could be shown.  These cases include:

• Wiencek v. Atcole Co., Inc. (3d Dist. 1996), 109 Ohio App.3d 240, 671 N.E.2d 1339
• State v. Tri-State Group, Inc. 2004-Ohio-4441 (7^th App. Dist.)
• Stypula v. Chandler,  2003-Ohio-6413 (11^th App. Dist.)
• Sanderson Farms v, Gasbarro, 2004-Ohio-1460 (10th App. Dist.)
• Dalicandro v. Morrison Rd. Dev. Co., Inc., 2001 Ohio App. LEXIS 1765 (10th  App. Dist.)
• Robert A. Saurber Gen. Contractor v. McAndrews 2004-Ohio-6927 (12th App. Dist.)

• Collum v. Perlman, 1999 Ohio App. LEXIS 1938 (6th App. Dist.)
• Widlar v. Young, 2006-Ohio-868 (6th App. Dist.) 
• Nursing Home Group Rehab. Serv., LLC v. Suncrest Health Care, Inc., 162 Ohio App3d 577, 2005-Ohio-3945
• Siva v. 1138 LLC, 2007-Ohio-4677 (10th App. Dist.)

What Should the Standard Be?  Many of the cases involving "piercing the corporate veil" focus on smaller privately held corporations in which the individuals constituting the shareholders have not adequately capitalized the business enterprise, commingled corporate and personal funds, or otherwise ignored corporate formalities.  In these cases, it is fairly easy to reach the conclusion that the corporate form should be disregarded.

The Domboroski case presents a more difficult situation.  As explained in plaintiff Dombroski's brief:

The facts in Dombroski present the challenge of how the doctrine of piercing the corporate veil is to be applied in the realtiy of today's insurance organizations, which frequently includes a parent corporation that does business through many subsidiaries.... Multi-state insurers, such as WellPoint or "nthem", which run its insurance business through affiliates while utilizing an integrated and centralized web of policies and procedures seek to return to the "good old days" when they were free to refuse or pay claims - for good reasons, for bad reasons, for no reason at all - safe in the knowledge that regardless of the unjust resulta their decisions bring to their insured....

However, I agree with the appellant parent company and amici curiae that encouraging the expansive view of "piercing the corporate veil" advocated by plaintiff Dombroski is likely to result in shareholders, particularly in closely held companies, being added as defendants virtually anytime the company itself is sued.  As the amici curiae  brief puts it:

If the opinion below is upheld by this Court, shareholders of Ohio corporations would face being haled into court and held personally liable whenever a tort claim is asserted against the corporation, or the corporation is alleged to have violated a regulatory statute, or the corporation is portrayed as having engaged in conduct that is characterized by the plaintiff as "unjust or inequitable."  Such a result would have devastating consequences for the concept of limited shareholder liability and for the ability of small business owners to use the corporate form as a successful engine for economic growth, jpb creation, and social progress.   

The defendant-appellant parent company's brief makes the further point that:

Because it jettisons the most salient factor of proper veil-piercing analysis - that the shareholders must misuse the corporate form to perpetrate a fraud or an illegal act - the appellate court's interpretation will make veil piercing more common. That result, in turn, would make it less likely that entrepreneurs will form corporations and that investors, large and small, will invest in those corporations as they conduct business activities and help the economy to grow.

My concern here is that the desire to rein in insurance companies, and what some might perceive as their arrogance, will result in "bad law" being established in this area.  While it might seem attractive under the facts of this case to be less insistent upon requiring a demonstration of fraudulent or illegal intent, the result will certainly give both large and small businesses pause.  If the focus of the "piercing of the corporate veil" analysis shifts from the actions and motivations of the company's owners to the nature of the plaintiff's loss, the utility of the corporate form will become much less for businesses.  Ohio's business climate will be viewed even less favorably.

It will be interesting to see how this case unfolds.   

For more on the piercing the corporate veil concept and Belvedere, read my previous post on Piercing the Corporate Veil- What It Means and How to Avoid It. 

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Suppose you've made an investment in an LLC running, say, a nightclub.  It's a manager-managed LLC so someone else is handling the day to day affairs of the company.  Then, what was once a popular hot spot becomes passe and the business becomes less profitable.  So you start to worry about how things are being done and may even suspect that there has been some financial mismanagement.  You decide to take a look at the company's books yourself, but are surprised to find that the manager of the LLC refuses to give you access.  Can he do that?  

Peter Mahler over at the New York Business Divorce blog (which has a terrific and very appropriate masthead of two hands engage in a tug-of-war) posted last week on divergent results reached in two New York cases concerning the right of non-managing LLC members to inspect the books and records of the company.  He also pointed out that the New York statutes governing access to a company's books and records differed depending upon whether the entity was formed as a corporation or a limited liability company.  

What LLC Members Have to Do to Get Information.   Because the pertinent Ohio statute (Ohio Rev. Code 1705.22) is similar to the New York statute, I became interested.  Like New York, Ohio law provides LLC members  with a right of access to certain specified types of information, including financial information "upon reasonable demand for any purpose reasonably related to [the member's] membership interest in the company".  In both states, one of the categories of information includes a catch-all "other information regarding the affairs of the company that is just and reasonable".  And what does that mean?

Peter describes two recent New York cases reaching opposite results, with one holding that the member was entitled to the documents sought and the other concluding that the request was too vague.  To be fair, in the case denying the member access to LLC records, there was already litigation pending and the member was refusing to pay for the expense of copying.  In dicta, however, the court said that the desire to obtain documents to determine if the LLC manager had engaged in fraud or other wrongdoing went "well beyond the scope of the type of documents detailed in the Limited Liability Company Law." 

In the other case described by Peter, the LLC members seeking access wanted to determine if the LLC manager had caused the LLC to improperly enter into a management contract with a certain third party in violation of Department of Health regulations.  The court determined that access to the books and records sought was required.  In contrast to the first case, the court chose to interpret the statute broadly, placing the burden on the company to justify the restrictions rather than on the member to justify inspection rights:

Respondent's assertion that petitioners must demonstrate a need to review the records before such records are made available is without merit.  The only statutotry requirements for obtaining full access to the records is that the person demanding access is a member at the time the demand is made and that the demand is reasonably related to the member's interest.

I didn't find any Ohio caselaw interpreting its version of the statute.  Ohio law in the analogous situation of shareholders seeking access to corporate books and records has been to place the burden on the company to demonstrate the sound basis for any restrictions.  However, to be certain access to company records is at the level desired, it is best to spell it out in the Operating Agreement.  

Comparison with Access to Books and Records of Corporation or Partnership.  Which brings me to Peter's other interesting point - namely, the statutes governing access to a company's books and records are not identical to one another, regardless of whether the entity has been formed as an LLC, corporation. or partnership.  In New York, there is apparently a statute that makes obtaining access to the books and records of a corporation a bit more complicated to obtain than in the LLC context.  Ohio doesn't have this sort of procedure, but Ohio Rev. Code 1701.37(C) does seem to establish a slightly different standard for shareholders seeking access to the corporation's books and records.  Here, the shareholder "upon written demand stating the specific purpose thereof" may have access "at any reasonable time and for any reasonable and proper purpose."  

Limited partners in Ohio are entitled pursuant to Ohio Rev. Code 1782.21 to access to partnership books and records "upon reasonable demand for any purpose reasonably related to the limited partner's interest as a limited partner."  This is quite similar to the LLC statute's language.  However, unless prohibited by the partnership agreement, the general partner does have the right under Ohio law

... to keep confidential from limited partners, for the period of time that the general partner considers reasonable, any information... which the general partner in good faith believes is not in the best intersts of the limited partnership or could damage the limited partnership or its business...

There is no similar provision with respect to LLCs.

Do these language differences mean anything?  Francis Pileggi of the Delaware Corporate and Commercial Litigation blog also recently noted a difference in the access to records in Delaware statutes governing LLCs and corporations.  He describes a recent Delaware case involving an LLC in which the Delaware Chancery Court chose to turn to caselaw regarding the question in the context of corporations.

Whether access to the books and records of a company is given to equity holders will undoubtedly be determined on a case by case basis.  However, to me, it makes little sense to distinguish among types of entities regarding the level of access equity holders should have to the books and records of the company.  Why should an equity holder in a 3 person manager-managed LLC have different rights than the shareholder in a close corporation with three shareholders? 

  On the other hand I can see logic in distinguishing between entities depending on the sopistication of the company and number of equity holders.  In the case of "closely held" entities with only a few owners, the presumption ought to favor the equity holder.  As the entity grows larger, and is perhaps even a public company, the burden on the company and the possiblity of abuse of the right by dissident equity holders seems greater.  So here I would tend to support placing more of a burden on the equity holder to justify the need and purpose for seeking access.   

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Mentoring matters - and is important and rewarding - to both the person being mentoring and the person doing the mentoring.  It's not something that can really be successfully institutionalized in any company, but when it happens "for real", it's a crucial and life-changing experience for both people.  And we all ought to look for ways to nurture the environment and circumstances which actually DO make it happen spontaneously.   

Last week I had cocktails with a woman with whom I suppose I have a kinda mentoring relationship.  She works for a different firm than me - a larger, perhaps objectively, more prestigious firm than my current firm - but I feel lots of pride and satisfaction that I helped her get the interview with that firm.  I know she had to "win" the interview and that her standing and success at that firm now are all hers, but it makes me feel good that she has done so well and that I can still give her useful advice about how to maximize her success.

My Mentors.  In about a year and a month, I will turn the big 5-0.  So I suppose it makes sense that I've been in a "taking stock" mood lately and thinking, among other topics, about the whole mentoring thing.  As I talk with other lawyers, both contemporaries and younger attorneys, I've begun to realize EXACTLY how fortunate I've been in my career when it comes to having always had people along the way who were both willing and able to show me how to become the "right" sort of lawyer.

As I've moved along in my own career, I've become especially appreciative of the "non-billable" intangible aspects of being that certain kind of lawyer which today I am truly proud of being every day.  These exceptional individuals taught me every day in both their word and deed what I really wanted to be, and should be, when I finally became a "grown-up" lawyer.

And it's so many years later that some of these mentors in my professional life perhaps do not, and may not ever, know or really understand how important they have been in how I approach and do so many things today.  Perhaps just importantly, I doubt that either of us realized how significant they would later be in making sure my "mentee(s)" will grow into the sort of ethical, intelligent, pragmatic lawyer we all want to see.

I still remember the lawyer (then a fairly experienced associate on the brink of becoming a partner) who came by my office my very first week as an employed attorney.  He explained the "nuts and bolts" of recording time (the thing that will always MOST matter to any lawyer in private practice), as well as many other practical aspects of being a lawyer they just don't teach you in law school. 

It was a small, perhaps even selfish, act since he was going to be the one billing much of my time (or at least the one reviewing bills which included time I spent working on matters).  Yet it opened the door for a personal - yet professional - relationship between us which made it O.K. for me to ask the "stupid" questions about how to do things that young lawyers really DO need to know answers to.  It also helped me connect more to the firm because he was also the person I could go to when something about the "goings on" at the firm puzzled or concerned me.

Then there was the other relatively experienced partner who taught me much of what I know today about the substantive aspects of my practice area.  But what he really did - which I might not have gotten from anyone else - was teach me about "being" a "worthwhile"  lawyer.  Sure he taught me about being an ethical attorney, both generally as a concept and more specifically as issues arose in our day-to-day practice.  However, as crucially important as that was and is, what has and will continue to resonate with me is how he helped me understand about what it really takes to be an effective lawyer and what I should strive to be.

And later, there were the name partners in a much smaller firm with whom I spent a decade of my life.  One was sorta like my "big brother" who both challenged me and insisted that I continue to mature as a lawyer.  The other one "got" who I was and what I needed to do to become the best lawyer I could ever be.  In different ways, both of these individuals - as well as my previous mentors - helped me understand my potential and path to becoming a better attorney (and person).

My Mentees.  Back to my mentee.  I became involved with her when, as a first year law student (for whom law jobs are sometime tough to get), she was sufficently  persistent (without being annoying or unreasonable) that I finally gave her a job as a law clerk; she was FANTISTIC!!  When we got together last week (almost four years after we met one another), she told me that she is getting married - and I am thrilled for her.  We spent most of our time together talking about her - and her upcoming nuptials, career path, and current situation.  And while I have to admit, I often spend as much time talking as listening, it felt VERY O.K. to hear all about her this time and where's she at and what she wants to do, personally and professionally.

There is also another  attorney I know who is a little further along the prescribed career for sucessful lawyers.  She's just made a change in moving to a new law firm.  Since I've actually done this a couple of times, I could give her useful information based on my experiences.  Being able to help her make this transition in the most sucessful way possible mattered to me and made me feel good about myself and what I stand for as an attorney.            

The Fruits of Mentoring. Today, it doesn't really even enter into my mind NOT to try to help younger folks.  It's the way I was "brought up" as a lawyer and I can't even imagine behaving any other way.  My point in sharing this is that it REALLY does matter what you or I do (or, tragically, fail to do) with the younger and/or less experienced folks in our organization (whether it's a law firm or some other sort of business) - AND that it might be a LOT of years before you ever find out (if you ever do) - how much it matters.  Really matters to that person and to the individuals that person later interacts with.... and the individuals they later interact with.... and, well you get the picture....

Click here and here for some other "testimonials" about the power and importance of mentoring.  I'd link to more, but my Google search turned up disappointing results - search for "billable hour" and you'll get lots of hits; search for "mentoring" or some variation thereof and there's just not that much out there.  I'd like to think that's because of how deeply personal and meaningful these relationships are and that we don't quite know how to talk about them.  Or maybe it's because if you've been lucky enough to have this valuable experience, you tend to take it for granted and think it's a normal part of everyone's career path; and if you haven't been so fortunate, you're not really certain what the "big deal" about this is anyway.  So, anyone, other stories???   

Many companies try to "assign" mentors to new hires.  I know they mean well, but I honestly don't believe that these sort of relationships can happen this way.  Nor can you just go up to someone and say, hey, would you be my mentor or, on the other side of the relationship, can you force yourself on a younger colleague as "the" person who can show him or her the way.  Mentors are just drawn to one another and do the "choosing", if you can call it that, themselves - mostly without really being aware it's happening.

The most we can do is create an environment which facilitates and is conducive to making these relationships happen.  It needs to be a fundamental part of a company's culture that never occurs to anyone to question.  A few years ago it was popular to say that "it takes a village to raise a child" - well, it also takes a village to bring  a lawyer, accountant, banker, or business person to maturity.     

In today's bustling world of commerce in which everything seems to go faster and faster and profit margins sometimes seem to be getting smaller and smaller, it might be easy to overlook this aspect of professional business life. However, if we want a better world or a better profession, it really is up to us experienced types not to let that happen. 

To me, it's not that different from growing up as a human.  There really are just some things which parents (or law partners or senior executive members of a company or organization) do need to instill in their offspring (or proteges).  I am willing to take on that responsibilty.  How 'bout YOU????      

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Over the past few months, I have become much better acquainted with the ins and outs of state taxes in Ohio, as well as the consequences of a failure to pay when due,  than I would have thought likely.  So let me impart a bit of the knowledge I've gained mostly from hard work and experience. 

Unemployment Contributions.  I've become convinced that the absolute worst state  tax obligation in Ohio to fail to pay has got to be the unemployment contributions required to be paid to the Ohio Department of Job and Family Services (ODJFS) pursuant to Ohio Rev. Code §§4141.23 and 4141.27.  Why?  Well, mostly because the interest and penalties charged on these obligations is by far and away the most substantial of any unpaid state tax obligation in Ohio.  In addition, officers and others charged with responsibility for payment of unemployment contributions can be held personally liable for these amounts. 

Interest alone accrues at the rate of 14% per annum on the unpaid amounts required.  Moreover, unlike even the strictest lender, ODJFS charges interest on accrued interest, thus making it entirely possible that the interest and penalties on unpaid unemployment contributions will dwarf the actual amount originally due. 

On the brighter side, unlike many other state tax obligations, the State of Ohio is required to actually file a lawsuit and obtain judgment before moving on to the particularly intrusive collection activities such as bank account garnishment.  However, the assessment is presumed to be valid which considerably limits the options of the delinquent taxpayer and consequently shortens the litigation process.    

Sales, Withholding, and Use Tax.  In the case of Ohio state sales (Ohio Rev. Code §5739.13), withholding (Ohio Rev. Code §5747.13(C)), and use tax (Ohio Rev. Code §5741.14),  if the taxpayer fails to pay in a timely manner, the State of Ohio has the right to file a lien immediately without first filing a lawsuit.  This lien will then have the same effect as a judgment lien.  This means that the delinquent taxpayer may unexpectedly find bank accounts cleaned out through garnishment.  In addition, other post-judgment collection activities such as judgment debtor examinations and enforcement of the lien through foreclosure are a definite reality. 

To make matters worse, various penalties and interest add up quickly.  First  there is a "late" penalty for failing to file the required return in a timely manner in an amount equal to 10% of the amount assessed by the Ohio Department of Taxation.  In addition,  for failing to pay the required tax when due, there is another penalty  in the amount of the greater of $50 or 50% of the amount due.  There are also a variety of other charges and penalties levied upon the delinquent taxpayer.  And none of these are negotiable.  On top of everything else, interest will be assessed on the amount of the obligation.     

As further inducement to pay sales and withholding tax, the company's vendor license and/or liquor license may be suspended or revoked if this obligation is ignored.  During the period of suspension or revocation, no sales of items for which the license is required may be made.  There is also a charge to get the applicable license reinstated.   

In addition, sales, withholding, and use tax are all "trust fund" taxes.  This means that officers, employees, or other representatives of the delinquent taxpayer may find themselves subject to personal liability if they are a "responsible party" charged by the company with ensuring these amounts were properly paid in a timely manner. 

For more detailed information about the scope of sales and use tax, the Ohio Department of Taxation has a helpful Sales Tax FAQ on its website. 

Workers Compensation Premium Contributions.  Like state sales, withholding, and use taxes,  the workers compensation premium contributions required to be paid to the Ohio Bureau of Workers Compensation pursuant to Ohio Rev. Code §4123.35 are post-judgment type obligations.  Thus a failure to pay these amounts can result in unfavorable collection activities against the delinquent taxpayer relatively quickly as spelled out in Ohio Rev. Code §4123.37.  In addition, in some cases, liquor licenses can be suspended for failure to pay workers' compensation premiums when do.   

Income Tax.  If  business or personal state income tax is not paid promptly when required, a lien can be filed immediately against the taxpayer in a similar manner and with similar consequences as when state sales, withholding, or use tax is not paid.  In addition, any subsequent state income tax refunds due to the taxpayer will be rerouted to the State of Ohio. 

Corporate Franchise Tax.  Corporate franchise tax is being phased out and replaced by the corporate activities tax.  Until that transition is complete, corporate franchise tax works much the same way as state sales tax except that there is no personal liability for failure to pay.  However, if the corporation is in existence for even part of the year, it must pay at least the minimum tax of $50.00.   

Going Out of Business.  If you have ceased doing business, it is important to notify the State of Ohio IN WRITING of this fact so you do not continue to be assessed taxes and penalties.  To be certain it takes, you should consult the website for the applicable taxing authorities and follow the instructions concerning any forms or other procedures for providing notification that you are no longer in business.  In many cases, if you fail to make proper notification, you will still be required to pay penalties and other charges even though you weren't doing any business.   

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Joel Labiva has written a useful post over at the Small Business Trends blog, complete with links, about a variety of free tools for business folk available on the Small Business Administration's website. They include information on:

• Small Business Planner (with information about what it means to be an entreprenuer anyway and including resources to help you write a business plan)
• Starting Your Business (including practical, legal, and financial issues)
• Managing Your Business (conceptual and practical advice about a variety of issues you're likely to face on a day-to-day basis)
• Exit Strategies (useful information about getting out of the business both when it has been successful and when it has not)
• Other Tools (audio, video, and written materials covering a wide array of issues)

There's also links to local SBA offices across the country, including Central Ohio, which contain information about local programming, resources, and success stories.

In addition, a related Business.gov website also published by SBA is worth a click.  Anita Campbell of Small Business Trends blog wrote about "Ten Ways Business.gov Helps Your Business" several months ago. 

I wholeheartedly agree with Anita's assessment of this website.  It has a tremendous amount of well organized information about governmental regulation and resources, as well as general information about a variety of concerns business owners may have.  In addition, one thing I thought was especially useful was the available links to state and local governmental regulation and resources.  See what there is for Ohio.  There's even a link to the Ohio Business Gateway which does a good job of aggregating information about conducting a business in Ohio in an accessible manner.

As Joel suggests, the SBA website (and the information available there), as well as Business.gov, are much improved from even a few years ago.  Check out all that these websites now have to offer.

N.B. - For those of you who think you saw this post before and then it was gone and now it's back, you're right.  I had a really bad day with the blog yesterday in which I accidentally managed inextricably to delete my biographical information, three draft posts (including a nearly complete one about franchising which is next up), and this post.  So basically I had to rewrite this entire post.   

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A statutory agent is the "official" representative of a corporation or LLC.  In conjunction with filing the appropriate paperwork with the Ohio Secretary of State to form a corporation or limited liability company,  the new business entity must appoint a "statutory agent".  Sometimes, this person is the attorney assisting in the formation of the business.  Other times, one of the principals of the business is named.  Occasionally, a company offers this service for a fee.  So what does it mean to be a statutory agent?  What are the responsibilities?

The statutory agent may be an individual who is an Ohio resident, a business entity organized or formed in Ohio, or a foreign corporation qualified to do business in Ohio which has an Ohio business address.  The statutory agent appointed must sign the appointment before it is filed with the Ohio Secretary of State and the appointment must contain an Ohio address.

Statutory agents are required in Ohio and every other State to ensure that individuals or companies with a claim against a business entity have someplace where those alleged claims can be presented.  Thus the primary obligation of a statutory agent is simply to act as a "contact person" for the business.  The statutory agent accepts "service" of legal pleadings, as well as other correspondence and documentation being directed to the company. In addition, the statutory agent is expected to pass what they have received on behalf of the company on to the company for it to handle.

The statutory agent has no personal liability for any claim being asserted against the company simply by virtue of being the statutory agent.  Nor does the statutory agent have any responsibilty to ensure that the company on whose behalf he or she has accepted service does in fact do anything to respond.  Once the statutory agent gives the company's representative the materials received on behalf of the company, his or her job is complete. 

The company can choose to replace the statutory agent with another at any time.  All that is required is that the company file the new appointment with the Secretary of State using the very simple form prescribed by the Secretary of State.  The filing fee is $25.00.  There is no need for the prior agent to resign or to consent to the appointment of the subsequent statutory agent.

A statutory agent can likewise make a unilateral decision to resign at anytime by completing and filing the requisite form with the Ohio Secretary of State.  There is no need to obtain the consent of the company.  The filing fee is $25.00.  The resignation takes effect sixty days after the form is filed with the Ohio Secretary of State.  Thus, individuals who were once principals of a company but are now no longer affiliated with the business should take the time to resign as a statutory agent in an abundance of caution.   

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Today I thought I would try to summarize some of the networking and other resources especially (although not necessarily exclusively) available to women who own their own business.  Because I have been active in  several of these organizations in Central Ohio, I want to particularly highlight some opportunties available locally.  If you know of others that should be included, please comment to this post. 

Women's Presidents' Organization (WPO) - a national organization with two local chapters in Central Ohio.  Membership is limited to companies with annual revenues of at least $2 million (or $1 million in the case of service-based businesses).  Chapter membership is limited in number and chapter members enjoy the benefits of an unofficial advisory board composed of other chapter members and a facilitator.

National Association of Women Business Owners (NAWBO) - a national organization with a local Columbus chapter luncheon meeting on the second Thursday of each month.  Membership is open to any woman having at least a 5% ownership stake in a company.  Each July, NAWBO presents its Visionary Awards to local women exemplifying business success.  (Click here for information about past winners.)  In addition, the Athena PowerLink program provides one recipient each year with a volunteer advisory board consisting of professionals such as lawyers and CPAs.

Women for Economic and Leadership Development (WELD) - Columbus-based organization entering its fifth year of existence which is dedicated to providing women with the tools and opportunities for growth and development economically and in the leadership of civic, community, and business organizations.  Meets monthly for breakfast or dinner on the second Wednesday of every month.  Distributes a Women You Should Know calendar annually highlighting women in the Central Ohio area who have demonstrated leadership qualities, but are not as well known as their achievements should warrant.  Annual keynote event featuring a national speaker each May.

Business and Professional Women (BPW) - a national organization with a local Columbus chapter meeting on the second Thursday of each month.  Mission is to achieve equity for women in the workplace through advocacy, education, and information.

eWomen Network - national networking organization for women with a local Columbus chapter.  I haven't been to any meetings of this group, but I've heard good reports. 

Women's Business Enterprise National Council (WBENC) - National organization offering the opportunity for qualified women-owned businesses to be certified as a WBE (Woman's Business Enterprise) by completing a lengthy application.  WBE certification is probably most useful for companies wishing to contract with major national companies with diversity initiatives.  

Women's Initiative for Successful Enterprising (WISE Women) - local educational series offered by Columbus State and the Ohio Small Business Development Centers dedicated to empowering and strengthening the business growth efforts of all women business owners by meeting them at their growth level need.

And finally, mainly because it's a lot of fun in addition to being a helpful resource for gaining a skill useful in the business world.....

Executive Women's Golf Association (EWGA) - Consists of more than 20,000 members in 120 local chapters across the United States and Canada dedicated to providing opportunities for women to learn, play, and enjoy the game of golf for business and for life.  The Columbus Chapter holds its opening Kickoff event of the season on Wednesday, March 12, 2008 beginning at 6 PM at the Dublin Marriott near Tuttle Crossing Mall.   The organization has activities for golfers of all skill levels, from beginners to advanced competitition.  If you've ever thought about trying golf out for business or just for fun, come to the free Kickoff reception and see what it's all about. 

>> Various industries may also have various networking groups available to women.  And there may certainly be other organizations of which I am not aware.  But these are the ones I've tried and found useful.   

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The most fundamental decision to be made in buying or selling a business is whether the transaction should be done as an asset acquisition or a stock deal.  (Of course, with an LLC, it would be a "membership interest" deal instead of stock, but the concept is basically the same.) 

• In an asset acquisition, the seller is the company and the buyer is another entity, often one created by the buyer for the express purpose of acquiring the tangible and intangible real and personal property of the selling company such as machinery, equipment, intellectual property, vehicles, customer lists, and even contracts. 

• In a stock deal, the seller is the company's shareholders and the buyer is buying the right to control the company's assets rather than directly purchasing the assets themselves.

In the case of privately held businesses, sellers are typically counseled to prefer stock deals while buyers are generally strongly encouraged to structure transactions as asset acquisitions.  Why?  What are the advantages and disadvantages to each?

Stock Deals.  Sellers generally prefer stock deals because gains from the sale of the business will be taxed at the more favorable capital gains rate.  Buyers, however, will find that they cannot write off the purchase price as quickly as they could in an asset acqusition and may want to lower the amount they are willing to pay as a consequence. 

One way to bridge the tax treatment gap between buyers and sellers in a stock deal is to allocate a portion of the purchase price to an "employment" or "consulting" agreement with the selling shareholders.  Although the selling shareholder(s) will have to pay ordinary income tax on the amounts received under these agreements, the buyer can claim the amounts as a deduction which may offset other tax disadvantages of structuring the transaction as a stock deal. 

Structuring a transaction as a stock deal is deceptively easy.  All that is necessary is the conveyance of the shareholder's stock certificate to the new owner.  Unlike an asset acquisition, there is no need to re-title vehicles or real property in the name of the new owner.  In addition, there is no need to specifically assign contracts, permits,  licenses, patents, and other intellectual property to the new owner.  Nor must any consents be obtained from any third parties to the transaction unless other agreements such as loan agreements require it.. 

However, from the buyer's standpoint, due diligence in understanding the nature of the financial and business affairs of the company being purchased is especially crucial when doing the deal as a stock purchase.  Because all of the company's liabilities will follow the new owner in a stock deal, such liabilities as employee benefits, tax, environmental and product warranties can inadvertently add considerably to the actual acquisition purchase price in the form of unanticipated expenses after the sale if not fully understood.

Asset Acquisitions.  The main reason buyers should insist upon an asset acquisition in most cases is that it avoids accidentally acquiring unwanted (and perhaps undisclosed or even unknown) liabilities of the selling company.  Suppose, for example that someone has been hurt by a product manufactured by the selling company the day before the transaction closes or perhaps the seller has neglected to mention a vendor or other creditor is owed money.  If the transaction is structured as a stock deal, all of these obligations automatically follow the new owner.  If done as an asset acquisition, the buyer's risk is substantially reduced, if not eliminated.  If the parties wish to have the purchaser of the business assume certain obligations, then those can be specified in the Purchase and Sale Agreement governing the transaction.  

Structuring the transaction as an asset acquisition also generally has beneficial tax benefits for buyers not available in a stock deal.  Assets can be "marked up" to the purchase price and the new owner can enjoy the benefits of depreciation.   If the assets involved include real estate, the adverse tax consequences to sellers  of an asset acquisition may be lessened.

Another useful aspect of an asset acquisition is that certain assets can be excluded from the sale.  This can be helpful in owner-operated businesses in which there may be emotional attachments to certain property.  It can also allow a buyer to avoid paying for items duplicative of property already owned or of little value to the ongoing operation of the company as the buyer intends it.

Documenting the Deal.  While the Purchase and Sale Agreement (sometimes called the PSA) is fairly similar regardless of the method chosen, there are some key distinctions.  If structured as an asset acquisition, the company sells the tangible and intangible personal and real property to another entity, often one created by the prospective purchaser for the particular purpose of buying those assets.  Although, technically, shareholders are not parties in an asset acquisition, they are often required to sign the PSA anyway to stand behind the