LLC Law Blog

House of Representatives Wants to Create a New Small Business Burden

To crack down on terrorists, drug dealers and human traffickers the House Financial Services Committee in June of 2019 passed the Corporate Transparency Act. The bill would require all limited liability companies and corporations that have less than $5 million of revenue or twenty employees to disclose to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) personal information about the entity’s owners.

Each entity subject to this law must report to FinCEN the social security number, drivers license information, address, birth date and name of all owners of the entity. The penalty for not complying is a $10,000 fine and up to three years in jail.

The Wall St. Journal said “The reality is that the law would hit small businesses with another compliance burden, their confidential information would become less secure, and real criminals are unlikely to be deterred.”

The National Federation of Independent Business (NFIB) said the law is a “threat to more than 5 million small businesses in America.”

Richard Keyt2019-07-19T07:13:04-07:00July 19th, 2019|Miscellaneous|0 Comments

Triggering Event	Purpose
1. Any event the members desire	A Buy Sell Agreement can include any triggering events that are important to the members. For example, the members could agree that if the New York Yankees win the World Series, member 1 must sell to member 2 for $100.
2. Operating Agreement default	If a member defaults under the Operating Agreement signed by all of the members the LLC has an option to buy out the defaulting member.
3. Member fails to contribute money or property	This provision encourages a member to satisfy the member's obligation in a written document to pay money or assign property to the company because if the member fails to satisfy that obligation the LLC will have an option to buy out the defaulting member.
4. Death of a member	The LLC or surviving members have an option to purchase the interest of a deceased member. The Buy Sell Agreement can also require the LLC to buy-out a deceased member. These types of buy outs can be funded with life insure on the lives of members.
5. Member is convicted of a felony	Many LLC members do not want to have another member who has been convicted of a felony.
6. Divorce of a member	Prevents the wrong spouse from acquiring an interest in the LLC if two members own their interest as community property and they get divorced and the wrong spouse becomes the sole owner of all or a portion of the membership interest.
7. Member files for bankruptcy	If a member loses the member's interest in the LLC because of filing for bankruptcy, the company and other members should be able to buy the interest from the creditor who acquires it out of the bankruptcy.
8. Member transfers all or part of the member's membership interest without the approval of the other members	The Buy Sell Agreement provides that a member may not transfer or encumber all or any interest in the member's interest in the company without the approval of the members and compliance with the terms and conditions of the Operating Agreement and/or the Buy Sell Agreement. If a member violates the no transfer/encumbrance provisions, the LLC should have an option to acquire the interest of the defaulting member, perhaps at an amount less than the fair market value of the interest.
9. Termination of employment of a member	Applies only to a member who is employed full time by the LLC. Especially important when the employee is a minority member and should only own an interest while employed.
10. Member loses his or her professional license	Commonly used for LLC's that are owned by members who must be licensed in a particular area. For example, the Buy Sell Agreement of an LLC owned by physicians might give the LLC and other members an option to acquire the interest of a physician/member who loses his or her license to practice medicine.
11. Majority member sells membership interest	"Drag Along" provision: Majority member has the option to require minority members to sell their interests in the LLC if the majority member sells. The sale of the minority members' interests are on the same terms and conditions as the sale of the majority member's interest.
12. Majority member sells membership interest	"Tag Along" provision: Minority members have the option to require the majority member to include the sale of the minority members' interests in the LLC if the majority member intends to sell. The sale of the minority members' interests must be on the same terms and conditions as the sale of the majority member's interest.
13. Member is disabled	Used to acquire the interest of a member who become permanently disabled and unable to provide needed services for the LLC.
14. Member retires	Members sometimes want to retire, but without a Buy Sell Agreement that provides for a retirement purchase, it probably will not happen.
15. Member is incompetent	Applies if a member loses his or her mental capacity and a court appoints a conservator to manage the members financial affair.
16. Member files a false document with the ACC	If a member causes a false document to be filed with the Arizona Corporation Commission it is a triggering event that can cause a buy out,
17. Member causes somebody to be added or removed from the LLC's bank account	If a member causes a signer to be added or removed on the company's bank account without the approval of the members per the operating agreement it is a triggering event that can cause a buy out.

Other Important Provisions in My Buy Sell Agreement