RELATIONSHIP AGREEMENTS
Is there a way for non-married individuals to protect themselves where their personal relationships include the sharing or comingling of assets and liabilities/debts?
The law does not provide the same protections to non-married individuals as it does for married individuals. Relationship Agreements which are essentially "non business partnership agreements" will cover this situation.
What events may we include in the agreement ?
You may include provisions for death or physical/mental disability of a party and/or a termination of the relationship.
What terms may the agreement govern?
The agreement may be as simple or as extensive as the parties desire. It may include personal matters, such as who is responsible for household responsibilities as well as what are the terms of the financial relationship. Most importantly, it will govern the manner and procedure of the termination of the relationship, as well as the wrap up of the personal and financial affairs in the event the relationship is terminated.
Will a relationship agreement protect my partner or me against uncooperative family members?
The relationship agreement may include Wills, Powers of Attorney, Healthcare Powers of Attorney, and Living Wills, all of which will enforce the wishes of a party as against the actions of an uncooperative third party family member who may act contrary to the intent of a party or the partnership purpose.
Can one attorney represent both of us?
No. An attorney is required by ethical guidelines to represent only one of you. It is highly recommended that both of you have individual counsel.
What type of information must we disclose to each other in order to make the agreement enforceable?
In order for an agreement to be enforceable, there must be a full and accurate disclosure of each party's respective pre-marital assets and liabilities. I recommend a copy of each other's income tax returns and a balance sheet be provided very early in the process. In addition, these documents should be attached to the agreement as exhibits/
What type of agreements will most likely not be enforced?
Agreements where there is not a full and accurate disclosure, where there is fraud, misrepresentation, undue influence, duress, fraud and/or terms of the agreement are either contrary to law or against public policy. In addition, agreements that are presented on the eve of the marriage are likely not to be enforced.
May we include terms covering the division of marital assets and liabilities, spousal support, child custody and support ?
There is no limitation on what may be included. However, not all terms may be enforceable. It is a good idea to include a severance clause whereby if one or more provisions are determined to be unenforceable the remainder of the terms should be found to be enforceable.
PRENUPTIALS
My fiance and I are planning on getting married in a few months. Is there an agreement which we could have prepared and signed before the wedding which will protect our respective pre-marital assets, as well as govern the terms of a future divorce ? How far in advance of our wedding should we do this?
Yes. Agreements of this nature are called "Prenuptial Agreements." The greater the time between the signing of the contract and the wedding date, the stronger the agreement. You do not want to present an agreement for signature on the eve of the wedding.
Can the same attorney represent both of us?
No. An attorney is required by ethical guidelines to represent only one of you. It is highly recommended that both of you have individual counsel.
What type of information must we disclose to each other in order to make the agreement enforceable?
In order for an agreement to be enforceable, there must be a full and accurate disclosure of each party's respective pre-marital assets and liabilities. I recommend a copy of each other's income tax returns and a balance sheet be provided very early in the process. In addition, these documents should be attached to the agreement as exhibits/
What type of agreements will most likely not be enforced?
Agreements where there is not a full and accurate disclosure, where there is fraud, misrepresentation, undue influence, duress, fraud and/or terms of the agreement are either contrary to law or against public policy. In addition, agreements that are presented on the eve of the marriage are likely not to be enforced.
May we include terms covering the division of marital assets and liabilities, spousal support, child custody and support ?
There is no limitation on what may be included. However, not all terms may be enforceable. It is a good idea to include a severance clause whereby if one or more provisions are determined to be unenforceable the remainder of the terms should be found to be enforceable.
HOW TO AVOID A GUARDIANSHIP
Guardianships are administered and controlled by the Probate Court. Almost all records are public and open for inspection. When someone applies for a Guardianship over an adult that is physically and/or mentally incapacitated, the process requires a Physician's Statement, Court Investigator's Report and other filings. These could create embarrassment for the alleged incompetent and/or family.
With a Guardianship, the Probate process continues indefinitely until the incompetent is restored to competency or dies. Therefore, this process involves continuing Probate expense, possibly bond premiums, fiduciary and attorney fees. And, since this is a public record, all financial details surrounding the incompetent are open to public scrutiny.
This leads to the next question, which is how to avoid a Guardianship. The simple and most effective way is to provide a trusted family member or friend with a Durable Power of Attorney. This is different from a regular Power of Attorney because a regular Power of Attorney ceases to have legal effect upon the individual becoming incapacitated. Therefore it is critical to consider giving the correct type of Power of Attorney. To help minimize or avoid probate it is best to provide someone you trust with a Durable Power of Attorney.
Should a guardianship become necessary, an individual may also nominate a Guardian for themselves in their Power of Attorney.
In addition to having a Durable Power of Attorney in order to help avoid probate, it is essential to consider providing a Durable Power of Attorney for Health care decision making.
Finally, another way to avoid Probate or Guardianship is to have a Living Trust. However, the most common mistake people make with a Living Trust is the failure to fund their Trust. If a Trust is properly funded, it can minimize the risk associated with a Guardianship.
WHY DO I NEED A WILL?
Most people do not appreciate the full importance of a will, especially if they think their estate is too small to justify the time and expense of preparing one. And even people who recognize the need for a will often do not have one, perhaps due to procrastination or a disinclination to broach this sensitive subject with loved ones. The truth is, almost everyone should have a will. Here are the five basic reasons why:
Reason 1. To Choose Beneficiaries
The intestate succession laws of the state in which you live determine how your property will be distributed if you die without a valid will. For example, in most states the property of a married person with children who dies intestate (i.e., without a will) generally will be distributed one-third to the spouse and two-thirds to the children, while the property of an unmarried, childless person who dies intestate generally will be distributed to his or her parents (or siblings, if the parents are deceased).
These distributions may be contrary to what you want. In effect, by not having a will, you are allowing the state to choose your beneficiaries. Further, a will allows you to specify not only who will receive the property, but how much each beneficiary will receive.
Reason 2. To Minimize Taxes
Many people feel they do not need a will because their taxable estate does not exceed the amount allowed to pass free of federal estate tax. These assumptions, however, should be reviewed given the current state of change in the federal estate tax laws. It is important to review and update your will on a regular basis. Most wills were written with the existence of a federal estate tax at a certain level.
Further, your taxable estate may be larger than you think. For example, life insurance, qualified retirement plan benefits, and IRAs typically pass outside of a will or estate administration. But retirement plan benefits and IRAs (and sometimes life insurance) are still part of your federal estate and can cause your estate to go over the threshold amount. Also, in some states, the estate or inheritance tax differs from the federal laws. A properly prepared will is necessary to implement estate tax reduction strategies.
Reason 3. To Appoint a Guardian
If for no other reason, you should prepare a will to name a guardian for minor children in the event of your death without a surviving spouse. While naming a guardian does not bind either the named guardian or the court, it does indicate your wishes, which courts generally try to accommodate.
Reason 4. To Name an Executor
Without a will, you cannot appoint someone you trust to carry out the administration of your estate. If you do not specifically name an executor in a will, a court will appoint someone to handle your estate, perhaps someone you might not have chosen. Obviously, there is peace of mind in selecting an executor you trust.
Reason 5. To Help Establish Domicile
You may wish to firmly establish domicile (permanent legal residence) in a particular state, for tax or other reasons. If you move frequently or own homes in more than one state, each state in which you reside could try to impose death or inheritance taxes at the time of death, possibly subjecting your estate to multiple probate proceedings. To lessen the risk of this, you should execute a will that clearly indicates your intended state of domicile.
WHY MUST THERE BE A MINUTE BOOK?
I. INTRODUCTION
Ohio law requires each corporation to keep (1) correct and complete books and records of account with minutes of the proceedings of its incorporators. shareholders. directors. and (2) records of its shareholders showing their names and addresses and the number and class of shares issued or transferred of record to or by them.
As a result of this rule, it is incumbent upon Ohio corporations to maintain an accurate corporate minute book. The minute book should contain important corporate records such as:
1. Articles of incorporation:
2. Records of statutory agent filings:
3. Minutes of annual meetings:
4. Elections of officers and directors:
5. Corporate transactions:
6. Corporate stock records: and
7. The adoption of regulations and bylaws
While this is not an exhaustive or exclusive list of the items that should he retained in a corporate minute book, it illustrates the types of material that should he included.
A corporation’s duty to maintain corporate records and minutes is not merely a legal obligation: it also provides practical benefits such as helping to prevent piercing of the corporate veil and substantiation of corporate transactions during audits by the IRS or other taxing authorities. Further, corporate records and minutes establish that a corporation acted with the requisite authority if transactions are challenged by a minority shareholder, director, employee, or government agency.
II. CONSEQUENCES OF FAILING TO MAINTAIN MINUTE BOOKS
A. Personal Liability
A fundamental rule of corporate law is that normally shareholders, officers, and directors are not liable for the debts of the corporation because a corporation is a legal entity, separate from the natural person(s) who compose it. As such, it is very rare for a court to impose personal liability upon a shareholder, officer, or director for a corporation’s liability. However, corporations must comply with applicable laws imposing requirements upon those corporations. Otherwise, personal liability may be imposed through an exception to his fundamental rule.
A corporation's failure to maintain complete and correct corporate records could expose its shareholders to personal liability for the corporation's liabilities. An exception to the general rule of corporate liability is that the veil of the corporate entity can be pierced and individual shareholders may be held liable when control over the corporation by those to be held liable is so complete that the corporation has no separate mind, will, or existence of its own. This is commonly known as the “alter ego” doctrine.
Ohio courts have looked at various factors when determining whether a corporation has maintained a separate identity. Two of the key factors in making this determination are I) whether the corporation has failed to observe corporate formalities; and 2) whether the corporation has maintained corporate records. Courts have used the failure to observe formalities and the absence of corporate records to impose personal liability upon corporate shareholders. The Courts have further determined that a failure to produce corporate records demonstrates the absence of those records. In the absence of records the Courts have held shareholders personally liable for the corporate liability.
As you can see, the importance of maintaining corporate records and corporate minute books cannot be overstated. Courts routinely use the absence of records and minute books to find that a corporation is merely an alter ego for a particular shareholder and to impose personal liability upon such shareholders. While other factors are also relevant to such a determination. corporate formalities should he observed and adequate records should be maintained to comply with the law and help prevent the imposition of personal liability upon shareholders.
B. No Record of Decision-Making Process
In Ohio. directors of corporations could potentially be subject to breach of fiduciary duty claims for entering the corporation into certain transactions. It is not uncommon for minority shareholders to raise such claims individually or on behalf of the corporation. While Ohio generally affords directors protection of the business judgment rule (Ohio courts do not usually inquire into the wisdom of actions taken by the director in the absence of fraud, bad faith or abuse of discretion), directors could still be susceptible to these claims and may find themselves in the unfortunate position of defending their actions.
When faced with litigating such a claim, maintenance of accurate corporate records and minute books will prove to be crucial. The law provides that a certified copy of minutes of the proceedings or meetings of the shareholders, directors, or of any committee thereof shall be received in the courts as evidence sufficient to prove the facts stated.
Complete and accurate information about the directors' decision-making process appearing in the corporate minutes will help a director demonstrate due care and good faith. On the other hand. if corporate minutes are incomplete or absent, it will he much more difficult for a director to demonstrate satisfaction of these duties.
C. Disputed Tax Benefits
During the lifespan of a corporation, it is possible that the corporation will he audited by the IRS or other taxing authorities. The Internal Revenue Manual outlines audit techniques for business returns. The Manual specifies that a corporate minute book is among the first items to he obtained and viewed by agents. While the Ohio Department of Taxation does not publish a comparable manual, it is certain that the Department would also request the minute book during audit review of corporate records.
The minute books are scrutinized during an audit for discrepancies between the actions of the corporation and the resolutions adopted by the Shareholders and Board of Directors. It is crucial to maintain accurate corporate records of resolutions approving corporate transactions. Otherwise. these transactions could be challenged and your company could lose tax deductions and benefits if records and minutes are not maintained showing the adoption of resolutions supporting the actions taken ht the corporation.
D. Filings with the Ohio Secretary of State
In Ohio, every corporation is required to have a statutory agent on record with the Ohio Secretary of State. A statutory agent is a person within the state of Ohio designated by the corporation to receive service of process for lawsuits, notices, or other items on behalf of the corporation.
Generally, records of a corporation's statutory agent and related filings with the Secretary of State are maintained in a corporate minute book. Over time, the need often arises for the statutory agent to file updated (possibly due to resignation, death, or relocation of the agent). However, these filings are often overlooked if adequate records are not maintained.
Maintaining current filings and records of such matters is essential. Upon a corporation’s failure to appoint a statutory agent (when needed) or failure to file a statement of an agent's change of address. the corporation's articles could be cancelled. Further, the practical consequence of not maintaining such filings and records is that the corporation potentially will not receive service for lawsuits or important tax notices thereby subjecting the corporation to default judgments or other liabilities.
E. Stock Records
In addition to the records discussed earlier pertaining to the shareholders there are many practical issues that arise with records of stock ownership. Corporate stock records are often relied upon to facilitate the redemption, transfer, or cancellation of stock. However, corporate records of its stock frequently fail to exist or adequately reflect ownership of the company's stock. This results in unnecessary complications when a shareholder dies or desires to transfer shares or when the company wishes to redeem or cancel stock. The practical effect is that stock ownership must be investigated and reconstructed which may reflect inaccurate ownership of the corporation. Maintaining current, accurate records of stock ownership in a corporate minute book prevents such complications.
III. Conclusion
The importance of maintaining corporate minute books and the benefits derived therefrom cannot be overstated. Maintaining accurate and current minute books is required by law and numerous practical benefits will flow from maintenance of minute books. However, failure to keep accurate and current minute hooks could potentially leave the corporation in a precarious position.
In an effort to avoid any negative consequences, minute books should be updated to reflect current corporate ownership, governance, and decision making. Further, the books should be updated and maintained annually. Therefore, a record will exist to substantiate corporate activity and provide information to facilitate change, if and when the need arises.