Business Law

Published on: January 18, 2017

Business Partnerships: Taxes and Other Considerations

A partnership is an unincorporated association of two or more people who act as co-owners of a business for profit. Under New Jersey business law, a partnership may be created even when there is no written partnership agreement between the parties (this is known as “defacto partnership.” However, just like any other business venture, a partnership is required to register their business with the State of New Jersey Secretary of State and obtain an employer identification number for tax purposes.

While a partnership agreement under New Jersey partnership law is not necessary, in the event that there is no partnership agreement, the default rules for partnerships will govern a partnership. Every partnership which has either income or loss from sources within the State of New Jersey, or in which any partner resides in New Jersey must file tax forms with the State of New Jersey. Beginning on January 1, 2015, the New Jersey Division of Taxation discontinued the use of tax Form PART-100 (which was previously used to report the gross income tax filing fee and the corporation business tax) and created two new partnership tax forms (Forms NJ-1065 and NJ-CBT-1065.)

For tax purposes, each partner received profits and losses just as though it were personal income, but set forth on a Schedule K-1. (This is different from a corporation which is separately and additionally subjected to taxes on the business’s earnings.) A partnership with more than 2 owners must pay a filing fee per owner. The fee is currently $150 per partner. The fee is applicable to any owner notwithstanding the fact that the owner may only be a partner for part of the year.

Published on: December 28, 2016

The Consequences of “Liars Loans”

by Maurice W. McLaughlin

keys-1317391__340-300x279 Our transactional attorneys handle many types of commercial and real estate transactions, from closings on homes, office buildings, factories, to commercial transactions including the sale of all or part of a business. The overwhelming majority of these transactions require the purchaser to take out a loan to finance the purchase. Whether a buyer qualifies for the loan is one of the main contingencies in the transactions.

In many instances the purchasers will have already obtained financing before they talk to us about the transaction. However, once we are involved in the transaction one of the things we stress most, based on long experience, is that the application for the loan must be one hundred percent honest. Anything less than perfect honesty with the bank is a crime. The days when “Liars Loans” was acceptable are now over – in fact, that day existed only in fiction. Our transactional attorneys’ extensive experience in New Jersey real estate and business transactions has convinced us that honesty with the bank is the only way to go.

Federal law makes it a felony to “execute a scheme… to defraud a financial institution.” More particularly, the federal statute states that:

Published on: December 8, 2016

Solid Waste Registration

by Maurice W. McLaughlin

hauler Businesses wishing to transport solid waste in New Jersey are required to strictly comply with the registration process governed by the New Jersey Department of Environmental Protection. Our attorneys help solid waste haulers in complying with these requirements, and obtaining approval to haul solid waste in New Jersey.

This is a brief overview of the solid waste registration and application process with the NJDEP.

Is it “Solid Waste?”

Published on: December 1, 2016

New Jersey Formation: Choosing the Optimal Structure: LLC or S Corporation?

by Jennifer C. Meusel

head-1825517__340 It is important to consider certain essential factors when choosing which type of business entity for your new business. In order to reach your goals and find the best fit for your company, you should consider protection from liability, taxation mechanisms, ease of formation, and your future requirements for raising capital. The two primary options for small businesses are the limited liability company (“LLC”) and the S Corporation (“S-Corp.”). The LLC is the structure most commonly used by small business owners, but it is important to review the S-Corp. before making your decision and forming your entity. Once you understand the similarities and differences between the two structures, you can review your business goals and needs to make an informed decision as to which type of entity you should form.

The Limited Liability Company

Under the New Jersey business law, the LLC provides liability protection similar to that of a corporation while retaining the taxation structure of a partnership. For tax purposes an LLC is a “disregarded entity”, the LLC issues a K-1 form to each member at the end of the tax year showing the distributions made to each member. This K-1 is used to prepare each member’s individual income tax returns. An LLC is quite flexible as to the forms of management which are permitted. It can be member-managed in that the members (owners) manage the business of the LLC; or manager-managed, in that an outside manager is hired to manage the business affairs of the LLC; or some combination of the two models. Additional flexibility is found in the LLC because profits and losses can be allocated in any way desired by the members, it does not have to be based on the amount of capital contributions contributed by each member. The operating agreement is the controlling document and it can be drafted to reflect the agreement of the members. The operating agreement can also reflect different voting rights among the various members and it can relax the strict recordkeeping rules of a corporation.

Published on: May 3, 2016

Bulk Sales Provisions

by Pauline M.K. Young

accounting-761599__180 The Bulk Sales Act was enacted in 2007, expanding upon the prior bulk sales law previously codified in 1995. This law requires the parties in a transaction to notify the New Jersey Division of Taxation regarding certain transfers of property so that the Division can determine if there are any outstanding tax liabilities which can be obtained as part of the sale of the property.

The bulk sales notice requirements generally apply to real property (land and/or buildings) which is owned by a business or which are income-producing. For example, the following types of transactions are subject to Bulk Sales requirements: the sale of real estate used in any trade or business, full-time rental property, real estate owned by a business, transactions where a deed in lieu of foreclosure is being provided (where a lender is taking back income-producing, mortgaged property from a delinquent borrower), auction sales, and business assets such as patents, copyrights, equipment, leases, merchandise, or other inventory not being transferred in the normal course of business. Generally, all transactions transferring business assets (other than in the regular course of business) are included. A typical residential real estate transfer is not subject to Bulk Sales requirements.

When there is a Bulk Sales transfer, the buyer must advise the Division of Taxation of the scheduled transfer at least 10 days prior to the scheduled closing date with the submission of a C-9600 form. The buyer completes this form because the buyer bears the risk of liability – meaning that if there are outstanding tax liabilities owed by the seller of the property, and no notice is provided to the Division regarding the sale, the buyer may become responsible for the amount owed. As a result the Division of Taxation may institute a judgment or levy against the buyer’s property or seize the buyer’s assets.

Published on: April 15, 2014

New Jersey Make Major Revisions to Its Limited Liability Company Law

by Maurice W. McLaughlin

The Legislature has recently made important changes to the laws governing New Jersey limited liability companies, which were effective March 1, 2014. The new revisions make drastic changes to the way New Jersey law treats limited liability companies. The law still allows the owners of a limited liability company to change the way they want their business to be run if they do not want it run in accordance with the law’s acts default provisions. However, when the LLC operating agreement is silent, the new Revised Uniform Limited Liability Company Act will govern.

Because these changes drastically alter the way LLCs are operated, profits are distributed, and decisions are made, it is essential to have your operating agreement reviewed by an experienced business attorney knowledgeable in the new Revised Uniform Limited Liability Company Act. Our attorneys are experienced in these areas and we have formed and crafted operating agreements to run hundreds limited liability companies. Please call us to have your LLC’s operating agreement reviewed by one of our business attorneys.

The following are some of the important changes.

Distributions. Under the old law, members of an LLC received distributions or profits and losses according to their ownership interest. Therefore, if two owners own the company 75 percent and 25 percent, they would receive profits and distributions of 75 and 25 percent, respectively. The new LLC law, however, requires that profits and losses be shared equally. Thus in that same company, rather than splitting the losses 75 and 25, each member would received half the profits, despite their unequal shares. Of course, this can be changed in the operating agreement, which can provide that distributions be made in proportion to ownership percentages, or based on any other reasonable formula.

Fiduciary Duties. The new LLC law creates an express fiduciary duty of loyalty for all members. Members cannot compete with their limited liability company or engage in self dealing. Thus, leasing property to the LLC or lending it money can be construed as self dealing. But again, this can be changed in the operating agreement.
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Published on: February 10, 2014

Enforceability of Letters of Intent

by Pauline M.K. Young

A letter of intent is a document executed generally by businesses to outline the basic terms of a commercial transaction, whether that be a complicated sale of goods or services or a real estate transaction. A letter of intent is entered into in the early stages of negotiation, when major obligations and expectations have been agreed upon, but specific details have not yet been determined. Letters of intent are useful in negotiating complex commercial transactions since they can provide a basic foundation of the understandings between the parties prior to taking part in lengthy and expensive research, investigations, financial review, environmental inspections, or other due diligence that must be conducted prior to the execution of a formal contract.

Perhaps the most important concern in drafting a letter of intent is whether the parties intend for that letter, or any sections of it to be binding. If the letter of intent resembles a contract too closely, under New Jersey contract law it could be considered an enforceable contract when the parties have actually yet to finalize the details of their agreement. That result could potentially leave one party unable to avoid a transaction that, following further negotiations or due diligence, proves to be unexpectedly disadvantageous. However, if the parties want the letter of intent to be binding, it is important to ensure that this intent is clearly set forth and agreed upon in the language of the document.

In many cases, letters of intent include both non-binding and binding terms which should be clearly delineated in the document itself. Certain sections of a letter of intent, such as a confidentiality or non-disclosure clause, will generally be considered binding because they are immediately applicable at the start of the negotiations. For instance, if the parties need to exchange information during the negotiations which is private, includes trade secrets, or is otherwise confidential in nature, it only makes sense that the confidentiality clause in the letter of intent be immediately binding upon the parties. Likewise, provisions such as those which promise exclusive rights to negotiate are also more likely to be binding since they too are immediately applicable while negotiations are continuing.
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Published on: January 28, 2014

UCC Liens and Securing Creditors’ Rights

by Pauline M.K. Young

A lien is a legal claim on property based upon a debt owed to the lien holder or creditor. It allows a creditor to use the debtor’s property as security when a debtor fails to repay a debt. It provides excellent protection for collection of a bad debt. For instance, while a debt may be discharged in bankruptcy, a creditor can still seize and sell collateral secured by a UCC lien. There are many ways to create a lien. For example, tax liens are imposed when someone forgets to pay their taxes; mortgages create liens in real estate; a judgment in a lawsuit creates a lien for the judgment amount awarded.

A UCC lien is obtained when a debtor, such as a borrower, and a creditor, such as a bank agree to ensure the repayment of the debtor’s debt with the security interest of a lien on personal property under the Uniform Commercial Code . The debtor still owns the personal property and retains possession of it, but the creditor also has an interest in it as well.

The Uniform Commercial Code (“UCC”) is a group of laws created to standardize the laws across the United States related to commercial transaction. Most states have adopted a significant portion of, if not all of, the UCC’s proposed laws. A UCC lien is a lien which has been obtained through the execution and filing of a UCC-1 financing statement, generally with the state’s Secretary of State. In New Jersey, this UCC-1 form must be filed with the New Jersey Division of Revenue and Enterprise Services. UCC liens may generally be placed on any property that is agreed to, such as equipment or vehicles.
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Published on: December 5, 2013

Internet Gambling in New Jersey

by Pauline M.K. Young

Gambling is one of the many activities that are regulated primarily by state laws (as opposed to federal laws). On February 26, 2013, New Jersey Governor Christie signed into law legislation allowing internet gambling, making New Jersey only the third state to allow internet gambling (after Nevada and Delaware). While there is a federal law called the Unlawful Internet Gambling Enforcement Act, which does, to a certain extent, restrict online gambling, that law allows individual states to permit and regulate internet gambling if the state so desires.

Atlantic City, New Jersey has always been a hot spot for gamblers from all over the world since the late 1970s and early 1980s. However, over the past several years, Atlantic City has been struggling financially with the increase of gambling in neighboring states. Therefore, New Jersey decided to combat this struggle by allowing online gambling. Six already established brick and mortar casinos were able to obtain internet gaming permits: Borgata, Trump Plaza, Trump Taj Mahal, Bally’s, Caesars, and the Golden Nugget. The first five of these permit holders were given approval to participate in a five day test run or “soft” start, of the internet gaming beginning at 6 p.m. on Thursday, November 21, 2013 (the Golden Nugget had not met all requirements in time to receive approval), with 13 websites approved for the online gambling.
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Published on: October 28, 2013

New Jersey’s Administrative Law Courts

by Boris Peyner

As our society has grown more complex, the government has been forced to take on more responsibilities. It created administrative agencies in the executive department, including for example, the Department of Environmental Protection, the Board of Public Utilities, the Merit System Board, the Department of Community Affairs, the Casino Control Commission, and Health and Senior Services. These agencies regulate in their respective areas, investigate and prosecute violations, and make decisions and issue penalties. These agencies are known as the “fourth branch” because they combine the functions of all three government branches.

The New Jersey Office of Administrative Law (“OAL”) is an independent state agency that provides independent and neutral hearings over these agency’s actions and rulemaking procedures. Administrative Law Judges (“ALJs”) hold trials to determine facts and make recommended decisions when individuals dispute agency actions. The agency itself then makes final decisions based on the ALJ’s opinion, which can be appealed to the Appellate Division of New Jersey’s Superior Court, and then to the New Jersey Supreme Court.

What To Expect At An OAL Hearing

A request for a hearing should be sent to the appropriate state agency making a decision. That agency will then send the case to the OAL for a hearing. In “contested cases” an ALJ will be assigned, and hold a trial. The ALJ makes a recommended decision which it sends to the agency that sent the case to the OAL. The head of that agency will review the opinion and has the right to adopt, reject, or modify the opinion. That agency’s head is the final decision maker. An appeal of the final decision is available to the Appellate Division of the Superior Court within forty-five days of the date of the final decision.

Notice of Filing

When a case is sent to the OAL a Notice of Filing or a Notice of Filing and Hearing is mailed to all the parties. The notice will identify the agency that sent the request and will generally contain information that can help a party prepare for a hearing, including the issues that will be discussed at the hearing.
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