Business Law

• Changes to Indiana Business Flexibility Act Likely to Impact LLCs Significantly. Guest post by Bose McKinney and Evans, LLP. Valeo Financial Advisors

Around the World

• A global map that shows the location of publicly traded stocks. The “Atlas of Public Stocks”
• Follow the flow of private and public debt in nearly 50 countries since 1990. The Wall Street Journal
• China manufacturing swings to contraction MarketWatch
• Best, worst, greatest, smallest, etc of various economic, business, personal finance & other topics Bloomberg

U.S. Housing

• Median sales price for new home in U.S. in April was $271,600, a record high Chart: FRED
• Household credit improves; what’s the role of house price changes? St. Louis Federal Reserve
• U.S. Federal Reserve Chairman, Ben Bernanke, discusses the future of the current easy monetary policy CNBC

Authored by John Millspaugh, Attorney, and Alan Becker, Attorney, Bose McKinney and Evans, LLP.

The Indiana General Assembly recently approved changes to the Indiana Business Flexibility Act that appear likely to have a significant impact on LLCs, especially related to estate planning for LLC members and fiduciary relationships between LLC members.

House Enrolled Act (HEA) 1394 (the “Act”) was signed into law by Governor Pence on April 9, 2013.  The revisions become effective July 1, 2013.  All together, the Act impacts Indiana corporations, partnerships, LLCs, nonprofit corporations and limited partnerships, although the biggest changes affect Indiana LLCs.

These seem to be the most important developments for LLC owners and we lawyers who serve them:

• Nonprofit LLCs – The Act now explicitly permits LLCs to have a specified business, personal or nonprofit purpose.  The addition of personal or nonprofit purposes likely clarifies what was previously allowed (but was not explicit), and also forecloses potential disagreements over whether an LLC must maximize profits or member returns (if a different purpose is specified).  I.C. 23-18-2-1.

• LLC Officers – Management structure flexibility serves as a big selling point for the LLC over other entity types.  The Indiana law previously spoke in terms of member-managed or manager-managed companies exclusively, although many an LLC boasts a superimposed pseudo-corporate management structure with more traditional director and officer titles created solely by the operating agreement.  The Act embraces this pseudo-corporate structure and allows creation of “officers” in the operating agreement.  As defined in the Act, these officers will have the duties and powers specified in the operating agreement, will be agents of the LLC, may bind the LLC through acts within the officer’s apparent authority, and notice of business matters provided to an officer will be deemed notice to the LLC.  However, authority to manage the LLC was not granted to officers by the Act; this power is still reserved to members or managers unless passed down to an officer in the operating agreement.  In many cases, officers will already be designated as managers in the operating agreement or will already be members with management authority, so actual authority will not be a question (except as and if limited in the operating agreement).  But if officers are not designated as managers or are not managing members, it will be important to address the scope of officers’ management authority in the operating agreement.  I.C. 23-18-3-2.5 and I.C. 23-18-4-4.

• Contractual Limitation or Elimination of Fiduciary Duties.  Indiana common law imposes fiduciary duties on members of LLCs similar to those imposed on shareholders in close corporations.  Unlike in some other states, in Indiana the extent to which members could modify or eliminate those fiduciary duties by contract was unclear.  The Act settles this issue by allowing members to “modify, increase, decrease, limit or eliminate the duties (including fiduciary duties) . . . of a member or manager” in the operating agreement.  I.C. 23-18-4-4.

• Agreement of the Members is Paramount.  The Act includes a broad statement that Indiana policy “is to give the maximum effect to the principle of freedom of contract and to the enforceability of operating agreements of limited liability companies.”  This gives LLC members authority to create enforceable business arrangements in their operating agreements even if the law is silent about whether they are permitted.  I.C. 23-17-4-13.

• Estate Planning – In order to facilitate estate planning by LLC owners, the Act amended Indiana law to permit LLC interests to be held by two or more persons as joint tenants with right of survivorship, and to permit LLC interests to be designated as “transfer on death property” with a designated beneficiary of the interest on the death of the member.  In both instances, the survivor/beneficiary following the death of a member automatically receives the interest of the deceased member (without probate), and the survivor is treated as an assignee of the interest (meaning, essentially, they have an economic interest but no voting or management authority in the LLC) unless and until the survivor is admitted as a full member of the LLC by the other members.  (That is, except in the case where the surviving joint tenant was admitted as a member before the death of the deceased joint tenant, in which case the survivor continues as a member.)  More than one joint tenant may be admitted as a full member with respect to the interest held in the joint tenancy.  The Act also clarifies that all transfer restrictions, redemption provisions and the like contained in an LLC’s operating agreement will likewise apply to the interest held by the survivor/beneficiary.  I.C. 23-18-6-2.5.

• Unanimous Approval of LLC Dissolution – The Act fixes what this author viewed as a flaw in current Indiana law, which required dissolution of LLCs upon approval of 2/3rds in interest of the members (or 2/3rds in interest of each class of members if more than one class) but did not allow modification of the dissolution approval threshold by agreement.  This yielded a unique and immutable statutory pressure point reserved (somewhat arbitrarily) for the benefit of significant (2/3rds or greater) majority owners.  The Act now defaults to a rule that protects minority owners but also provides contractual flexibility:  unanimous member approval of dissolution is now mandatory for LLCs formed after June 30, 2013, unless a lower approval threshold is specified in the operating agreement.  This is a positive development, but it will also be a trap for the unwary operating agreement drafter whose client owns more than 2/3rds of a new LLC, yet fails to recognize that unanimous approval of dissolution is now the default rule.  I.C. 23-18-9-1.1.

John Millspaugh and Alan Becker are partners in the Business Services Group at Bose McKinney Evans, LLP. http://www.boselaw.com/services.cfm?practice_group_id=2

Original article: http://corporateblog.boselaw.com/2013/05/17/changes-to-indiana-business-flexibility-act-likely-to-significantly-impact-llcs/

Europe

• At the end of 2012 15 of 22 European national economies were smaller than they were in early 2008. Chart: Valeo Financial Advisors

U.S. Economy

• U.S. consumer confidence has risen to the highest level since mid 2007 Bloomberg
• U.S. households reduced debt during the first quarter by 1 percent to the lowest level since 2006 Bloomberg
• Last month unemployment fell in 40 US states and rose in 3 AP

Markets

• Dow, S&P 500 end week with more record highs USA Today
• Tax implications of international investing Financial Planning
• The U.S. dollar index is at the highest level since mid-2010. Chart: FRED

As a number of countries in Europe wade through yet another recession it is remarkable that, for many nations, the size of the economy is still smaller than it was prior to the Great Recession that began in 2008.

The chart below compares the size of each nation’s economy relative to the size it was during the first quarter of 2008. For example, at the end of last year Poland’s economy was 113.7% the size it was during the first quarter of 2008. Portugal’s economy, however was only 91.8% the size it was at the end of 2012.

The first chart includes all Organization for Economic Co-Operation and Development,(OECD) members located in Europe except Greece. It also contains the United States for comparison purposes.

At the conclusion of 2012, 15 of the 22 European nation economies listed below were still smaller than they were five years ago. Another three were hardly larger; Austria, Belgium, Germany and Luxembourg.

The struggle for for many European nations to rebound since 2008 is in direct contrast to how quickly many grew during the decade prior to the 2008-2009 recession. The most extreme example of growth is Ireland. The Irish economy doubled in size from the beginning of 1997 to early 2008. Economic growth in Iceland, Spain, the United Kingdom was also quite strong and up until 2008 growth in France, Portugal, Germany and Italy was steady.

Data Source: Organisation for Economic Co-Operation and Development
GDP data is seasonally adjusted and in fixed PPPs 

College

• Employment in the U.S. for people with a bachelor’s or higher is at an all-time high. The number of unemployment for this group remains elevated. Valeo Financial Advisors
• Those with savings designated for college are twice as likely to be on course for college completion as compared to those without  St. Louis Federal Reserve

Investing

• “How Retirement Fees Cost You” from Frontline
• “What Do Negative Interest Rates Mean and Why Does Someone Invest At Negative Rates?” Skyrm

Around the Globe

• U.S. housing (2001-2006) v. Chinese housing (2007-2012) Chart: St. Louis Federal Reserve
• Map: More than half of humanity lives within this circle The Washington Post
• U.S. initial jobless claims unexpectedly fall to five-year low Bloomberg

Etcetera

• Who owns the Federal Reserve? Some FAQs: Federal Reserve System

Last month nearly 32 percent of all people in the United States over the age of 25 held at least a bachelor’s degree, setting a record in the U.S. This is dramatically different from twenty years ago when only 22% of the U.S. population had obtained a bachelor’s degree or higher.

Today, in the U.S., over 65 million individuals over the age of 25 have, at a minimum, obtained a bachelors degree. Of this total approximately:

• 15.9 million are not employed and not seeking employment and therefore not considered to be a part of the workforce
• 47.5 million are employed
• 1.9 million are unemployed and seeking employment

Each category broken down by employment status:

The number of people with a bachelor’s degree and higher that are not employed and NOT seeking employment has more than doubled in the past twenty years. This steady incline is likely to be, in part, due to members of  the baby boom generation choosing to retire and a possible increase in the number of discouraged workers.

The number of people with a bachelor’s degree and higher that are employed continues to rise, however, from 2008 to 2010 the number was fairly steady as the country was in the midst of a major recession.

The number of people with a bachelor’s degree and higher that were unemployed and seeking employment peaked during the fall of 2010. It has since fallen, but remains well above levels from the past twenty-one years.

Data Source: U.S. Department of Labor: Bureau of Labor Statistics

U.S. Economy

• Corporate profits after tax relative to the size of the U.S. economy hit a 65 year high at the end of last year. Chart: Valeo Financial Advisors
• U.S. consumer confidence jumps to 68.1 in April on better outlook for hiring and expectations for higher pay. CNBC
• The Case-Shiller home-price index up 9.3% from a year ago year over year growth is highest since 2006 MarketWatch

Unemployment

• Payrolls in U.S. rise 165,000 as unemployment drops to 7.5%, the lowest rate since December 2008 Bloomberg
• Spring 2010 unemployment rates in U.S. & the euro zone were nearly the same at about 10%. Now U.S.=7.5% Europe=12.1% The Economist
• Euro-area jobless rate rises to record 12.1% in March | Bloomberg

Etcetera

• What food could you buy with $5 in different countries? The Economist
• Video provides more information about what the redesigned $100 note will look like and when it will begin circulating: The U.S. Federal Reserve

During the final quarter of 2012 U.S. corporate profits after tax reached a post World War II record of an annualized $1.773 trillion. This was not the only record achieved. U.S. corporate profits after tax relative to the total size of the U.S. economy (GDP) was 11.2%. This ratio has been well above average for nearly a decade, with one exception, the last quarter of 2008 during the middle of the Great Recession.

Looking at only the nonfinancial corporate business profits after tax, the ratio was 6.0%. While it is currently above the 65 year average , it is not as high as the first quarter of 2006 or from 1947 to 1950.

Data Source: U.S. Department of Commerce: Bureau of Economic Analysis

U.S. Economy

• Comparing the only two times (since 1948) that unemployment rose to 10%. (1982 & 2009) Valeo Financial Advisors
• New housing starts increased in March to the highest level since 2008 USA Today

Around the Globe

• The IMF has revised down its growth forecast for the world economy to 3.3% in 2013 The Economist

Taxes

• “Your 2012 Federal Taxpayer Receipt”  The White House
• Check your US tax rate for 2012—and every year since 1913 Quartz
• How Taxing Is Your State? – Most & Least Taxing States 2013 Bloomberg

Etcetera

• Around 2/3 of U.S. $100 bills are held outside of the U.S. Planet Money
• America’s Truly Densest Metros The Atlantic Cities

Since 1948, the unemployment rate in the United States of America has only ascended to 10% twice. The first was at the end of 1982. The second the fall of 2009.

Period 1: December 1982 to December 1988

Peak unemployment during the first period, beginning in December 1982, was 10.8%. Nineteen months later, June 1984, the unemployment rate stood at 7.2%. After this fairly rapid descent, the unemployment rate was not consistently below 7% for an additional two and a half years as it stalled. By the end of 1986, however, it once again began to steadily decline.

Period 2: October 2009 to March 2013 and Beyond

More recently, peak unemployment occurred during October 2009, when it stood at 10.0%. For over a year there was not much progress in the decline in the unemployment rate as it, for all but one month, was greater than 9.5%. Finally, beginning in December 2010 it began to fall. The rate has generally declined since then, though at a relatively leisurely pace.

Data Source: U.S. Department of Labor: Bureau of Labor Statistics