Do I Really Need to Create Corporate Minutes?

Posted by: Hilger Hammond On: 6th September 2017 | no responses.

By Ben Hammond

From time to time I get asked this question from small business owners. My response is typically a question along these lines, “How attached are you to your boat?”

This might sound like a strange response, and it certainly does not apply in all circumstances, but the point is that the failure to follow corporate formalities could result in losing the corporate shield of liability – resulting in personal liability for a claim – and thus a sudden decrease in ownership of personal toys, or worse.

Generally speaking, shareholders are not liable for corporate obligations. MCL 450.1317(4). Over time the phrase “piercing the corporate veil” has evolved to mean that this corporate shield from liability can be erased.

Typically, the courts focus on five factors to determine if a shareholder should be held personally liable for a claim. These factors are:

(1) a failure to follow sufficient corporate formalities beyond the initial filing of the articles of incorporation;

(2) severe undercapitalization;

(3) the corporate entity was used as a device to achieve fraud;

(4) a pervasive failure to document transactions between the owners as individuals and the corporation; and

(5) a general failure to keep financial records of the corporation separate from those of the individual shareholders.

Keeping proper corporate records is not just a good idea to prevent liability, it is also required under the law. The Michigan Business Corporation Act requires corporations to keep:

(1) books and records of account and

(2) minutes of the proceedings of its shareholders, board (and executive committee if your company has one).

Corporate record-keeping is typically on the bottom of the list when facing the demands of any given day. However, it is important to note that maintaining corporate records is a factor the court considers when determining if you will be personally liable for company debts, and is required by Michigan law.

For assistance with your corporate records, contact Hilger Hammond at (616) 458-3600.

 

Changes Make Michigan Garnishment Law More Forgiving to Employers

Posted by: Hilger Hammond On: 4th January 2016 | no responses.

checkBy Suzanne Sutherland

Technical rules governing garnishments were a bit tricky and often tripped up companies that received garnishment demands. Recent changes that took effect in September, 2015 are more forgiving. Note that garnishments come in two varieties: non-periodic and periodic. Non-periodic garnishments are most commonly sent to banks—and grab whatever funds are in the account for the creditor. A debtor’s paycheck is a common example of a periodic garnishment. The changes in the law only affected periodic garnishments. What do the changes mean for an employer who might receive a garnishment of their employee’s wages?

Certain procedures of the garnishment process changed. The new law requires a more formal process for sending garnishment demands, reducing the likelihood that garnishments are misplaced or mishandled. A garnishment continues until the judgment amount is paid in full. The creditor will send both the employer and the debtor a statement every six months showing the remaining balance. When the judgment is paid in full, the creditor must send a release of the garnishment to the employer.

Most importantly, the employer is less likely to become liable for the employee’s debt. Under the prior law, an employer could become fully liable for the debt if it failed to respond to a garnishment within just two weeks. The new timeline for responding is more flexible.

Before an employer can be liable for the debt, the law requires more notice to the employer. A creditor can still request a default judgment if the employer is unresponsive. At any time before entry of the default judgment against the employer, the employer can avoid liability by submitting a disclosure or by withholding the wages. Even if a creditor succeeds in obtaining a judgment against an employer, the employer has the opportunity to set aside the default judgment due to a good faith mistake or other reason that prevented the employer from responding.

As a last resort, the employer can recover against the employee’s future wages for any debt it paid on the employee’s behalf. However, the employer must comply with rules that require proper notice to the employee. Employers should not ignore garnishments believing that they will collect from the employee later.

Even though the new law provides more time and notice before an employer can be liable for an employee’s debt, it is still possible. Employers are wise to implement a plan to handle garnishments before they receive one.

An Overview of Private Placements

Posted by: Hilger Hammond On: 19th October 2011 | no responses.

By: Mark Rysberg

Many business owners and venture capitalists rely on private placements to raise capital. In simplest terms, a private placement is a non-public offering of securities such as stock, partnership interests, or membership interests. These offerings are subject to the Securities Act of 1933 (“Act”), but do not require registration with the Securities and Exchange Commission (“SEC”) if certain exemptions are satisfied.

A private placement may be exempt from registration with the SEC if the conditions under Regulation D of the Act are followed. Whether a private placement qualifies for Regulation D exemption is generally determined by the monetary value of the offering and whether the investors are accredited or non-accredited. Investor accreditation is determined on an investor by investor basis by considering each investors net worth and investing sophistication. The specific criteria for investor accreditation are identified in Rules 501-503 of the Act. (Here).

The first limitation for exemption under Rules 504-506 of Regulation D is the value of the offering. Rule 504 applies to offerings valued at less than $1,000,000, Rule 505 applies to offerings less than $5,000,000, and no limit exists for Rule 506 offerings. The second limitation is whether an investor is accredited. Under Rule 504, an unlimited number of accredited and non-accredited investors may participate. Rules 505-506 limit the number of non-accredited investors to 35, but allow an unlimited number of accredited investors.

Private placements can be a valuable tool for raising capital for investments or existing businesses, but need to be tailored to each venture. This article is intended to provide a background of private placements. How private placements can act as a valuable tool for business owners will be discussed in Part II of this Article.