NRAI Compliance Updates - October, 2003

Greetings,

Please find below NRAI's monthly collection of Business Entity, SEC updates and alerts. Please follow the links to additional information where applicable.

Court Decisions


New York

Last Thursday, October 16, 2003, the New York Supreme Court Appellate Division handed down a decision overturning the previous ruling in the case of Barklee Realty Company LLC, et al v. George E. Pataki.

As you may recall, the initial decision found the publication requirement under section 206 of the New York Limited Liability Company Law to be unconstitutional.

This new ruling overturns that and finds the requirement to be constitutional and hence required.

A full copy of the decision may downloaded at http://secure.nrai.com/html_research/Newark_723039_v1.pdf

New Legislation


California

S. B. 523, Chaptered by the Secretary of State as Chapter 477 Statutes of 2003 on September 22, 2003

An act to add Sections 2207 and 17655 to the Corporations Code, relating to corporations.

S. B. 523, Escutia. Corporate liability.

Existing law provides for the regulation of corporations and limited liability companies. Existing law requires corporations and limited liability companies to pay specified penalties for neglecting, failing, or refusing to keep, or causing to be kept or maintained, certain records relating to the corporation or limited liability company.

This bill would make a corporation and a limited liability company liable for civil penalties up to $1,000,000 in an action brought by the Attorney General, a district attorney, or city attorney if the corporation or limited liability company has knowledge of certain acts and fails to notify the Attorney General or the appropriate government agency and shareholders or investors.

Full text at http://www.leginfo.ca.gov/pub/bill/sen/sb_0501-0550/sb_523_bill_20030922_chaptered.html

S. B. 1008 Chaptered by Secretary of State. Chapter 632, Statutes of 2003

S. B. 1008, Machado. Veterans: contracts: disabled veteran business enterprises.

Under existing law, any state governmental entity that awards contracts for professional bond services and for construction and certain related purposes has annual statewide participation goals of not less than 3% for disabled veteran business enterprises, as defined. For purposes of these provisions, existing law defines a "disabled veteran" as a veteran, as specified, with a service-connected disability who is a resident of the state. This bill would specify that a limited liability company may be certified as a disabled veteran business enterprise for these purposes, if that company is wholly owned by one or more disabled veterans.

This bill would deem any disabled veteran business enterprise that rents equipment to an awarding department to be an equipment broker, as defined, unless one or more certified disabled veterans has 51% ownership of the equipment and evidence is submitted in support of that fact. It would also prohibit state funds expended for equipment rented from equipment brokers, as specified, from being credited toward the 3% goal.

This bill would require a disabled veteran business enterprise that is a broker, as defined, and that obtains a contract under these provisions to make certain disclosures to the awarding department. The bill would also require a disabled veteran business enterprise and its owners to submit copies of the enterprise's federal income tax returns, as specified, or be subject to certain penalties for noncompliance.

Existing law requires the administering agency and the awarding department to establish methods of monitoring adherence to the participation goals.

This bill would additionally prohibit an awarding department from relying on the administering agency's certification of a disabled veteran business enterprise if that department knows that the disabled veteran business enterprise does not maintain the certification requirements. The bill would also prohibit state funds expended on a contract with a disabled veteran business enterprise that does not meet and maintain the certification requirements from being credited toward the 3% goal.

Existing law imposes a civil penalty with respect to, among other things, fraudulently obtaining certification as a disabled veteran business enterprise.

This bill would provide, among other things, that it is unlawful to knowingly and with intent to defraud, fraudulently represent participation of a disabled veteran business enterprise in order to obtain or retain a bid preference or a state contract. It would make it unlawful to establish, or knowingly aid in the establishment of, or exercise control over, a firm found to have violated the foregoing prohibitions. It would also make it unlawful to willfully and knowingly make or prepare any statement or document that is fraudulent or false as to any material matter. The bill would, in addition to civil penalties, make it a misdemeanor to violate all of the foregoing prohibitions, thereby imposing a state-mandated local program.

The bill would also require a defendant to pay all of the plaintiff's costs and attorneys' fees in a civil action brought for violations of these provisions.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

For full text go to http://www.leginfo.ca.gov/pub/bill/sen/sb_1001-1050/sb_1008_bill_20030930_chaptered.html


S. B. 103, Alpert. Sales and use taxes Chaptered by Secretary of State. Chapter 655, Statutes of 2003.

TITLE : An act to amend Section 24871 of the Revenue and Taxation Code, relating to taxation.

The Corporation Tax Law imposes taxes measured by income and, in the case of a business with income derived from or attributable to sources both within and without this state, the business income is apportioned between this state and other jurisdictions for tax purposes in accordance with a specified formula based on the property, payroll, and sales of the business within and without this state. The existing Corporation Tax Law generally conforms with the federal income tax treatment of regulated investment companies (RIC) that allow a RIC to pass ordinary income on to the shareholders without incurring any tax liability to the RIC.

This bill would clarify that dividends received by a California corporate shareholder from a RIC are generally not excludable from the income of that corporate shareholder. It would declare that this clarification is operative for taxable years beginning on or after January 1, 2003.

Full Text at http://www.leginfo.ca.gov/pub/bill/sen/sb_0101-0150/sb_103_bill_20031002_chaptered.html


New York

S. B. 04454, Signed into law on September 17, 2003 as Chapter 532

Amends requirements for incorporation of stock or mutual insurance companies; reduces the required number of directors from 13 to 9 and provides that only one such director shall be required to be a resident of this state.

Bill Text at http://assembly.state.ny.us/leg/?bn=S04454&sh=t


Michigan

Public Act of 2003 An act relating to controlled share acquisition of a public company AN ACT to amend 1972 PA 284, entitled "An act to provide for the organization and regulation of corporations; to prescribe their duties, rights, powers, immunities and liabilities; to provide for the authorization of foreign corporations within this state; to prescribe the functions of the administrator of this act; to prescribe penalties for violations of this act; and to repeal certain acts and parts of acts," by amending section 791 (MCL 450.1791), as amended by 1993 PA 91, and by adding section 798a. 

The People of the State of Michigan enact:

Sec. 791.
(1) As used in this chapter, "control share acquisition" means the acquisition, directly or indirectly, by any person of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares. 
(2) For purposes of this section, shares or the power to direct the exercise of voting power acquired within a 90-day period, or shares or the power to direct the exercise of voting power acquired pursuant to a plan to make a control share acquisition, are considered to have been acquired in the same acquisition. 
(3) For purposes of this section, a person who acquires shares in the ordinary course of business for the benefit of others in good faith and not for the purpose of circumventing this chapter has voting power only of shares in respect of which that person would be able to exercise or direct the exercise of votes without further instruction from others. 
(4) For purposes of this section, the acquisition of any shares of an issuing public corporation does not constitute a control share acquisition if the acquisition is consummated in any of the following circumstances: 
(a) Before January 1, 1988. 
(b) Pursuant to a contract existing before January 1, 1988. 
(c) By gift, testamentary disposition, marital settlement, descent and distribution, or otherwise without consideration. 
(d) Pursuant to the satisfaction of a pledge or other security interest created in good faith and not for the purpose of circumventing this chapter. 
(e) Pursuant to a merger or share exchange effected in compliance with sections 701 to 735 if the issuing public corporation is a party to the agreement of merger or share exchange. 
(f) By a governmental official acting in an official or fiduciary capacity. 
(5) For purposes of this section, the acquisition of shares of an issuing public corporation in good faith and not for the purpose of circumventing this chapter by any person whose voting rights previously had been authorized by shareholders in compliance with this chapter, or whose previous acquisition of shares of an issuing public corporation would have constituted a control share acquisition but for subsection (4), does not constitute a control share acquisition, unless the acquisition entitles a person, directly or indirectly, alone or as part of a group, to exercise or direct the exercise of voting power of the corporation in the election of directors in excess of the range of the voting power which the acquiring person was entitled to exercise or direct prior to such acquisition. 
(6) For purposes of this section, the formation of a group does not constitute a control share acquisition of shares of an issuing public corporation held by members of the group. 

Sec. 798a. Shares without voting rights because the formation of a group after April 1, 1988 was deemed to be a control share acquisition shall have the same voting rights as were accorded the shares before the formation of the group. 

Further information at http://www.michiganlegislature.org/mileg.asp?page=getObject&objName=2003-HB-4764


Wisconsin

Beginning in January 2004, LLC's will have a report filing date based upon the quarter of the year of organization. Annual reports will be mailed to the registered agent at the registered office address as listed with the Department. The reports will be distributed by the Department on the first month of each quarter. As an example, a Limited Liability Company which organized in the months of January, February, or March would be required to file a report with a due date of March 31st; LLC's organized in April, May, or June would be required to file a report with a due date of June 30th; LLC's organized in July, August or September would be required to file a report with a due date of September 30th; LLC's organized in October, November, or December would be required to file a report with a due date of December 31st. 

The report will include the following information: 

* The name of the Limited Liability Company and Principal Office address. 
* The name of the Registered agent and registered office address. 
* The Nature of business. 
* If the Limited Liability Company is vested in managers, a listing of their names and business addresses. 

The report will be available to file online or in paper form. The filing fee for the report is $25.00


Pending Legislation


Illinois

S. B. 0710 amending the Limited Liability Act concerning service of process, currently in Rules Committee.  Click here for more information 


Massachusetts

The Massachusetts Senate currently has under consideration a bill relating to a change in the procedure for written consent of stockholders. Currently Senate Bill 39 can be accessed and reviewed at: http://www.state.ma.us/legis/bills/st00039.htm


Tax News


The Internal Revenue Service and the tax departments of 40 states and the District of Columbia signed a Memorandum of Understanding on September 16, 2003 regarding the sharing of information of abusive tax practices and abusive tax avoidance transactions. The goal of this memorandum is to foster cooperation in the sharing of information and avoiding duplication of effort in investigations.

Full text of this memorandum may be accessed at: http://www.irs.gov/newsroom/article/0,,id=112870,00.html


Alabama

Beginning on October 1, 2003, Alabama has switched to a mandatory paperless sales-use tax return. The reference is Ala. Admin. Code Section 810-1-6.12. The official state language is below and the regulation may be accessed in full at: http://www.ador.state.al.us/salestax/Rules/1612.html 

NOTICE: ALABAMA BUSINESS TAXPAYERS REQUIRED TO FILE "PAPERLESS" RETURNS STARTING OCTOBER 1, 2003

Starting October 1, 2003, certain state and local business tax returns are required to be filed electronically. Beginning with the October 2003 returns that are due by November 20, 2003, business taxpayers will no longer file "paper" returns, but will file their returns electronically using the NEW Alabama Paperless Filing & Payment System. Alabama Department of Revenue ("ADOR") has replaced its paper-based system with two electronic filing options: filing via the Internet or using the department's new telephone filing system accessed by a 1-800 number. New coupon booklets for the 2003 - 2004 fiscal year will not be mailed to taxpayers. Instead, detailed instructions will be mailed in September to each tax account holder. The instructions will also provide the Access Codes and Sign On Ids needed to register and begin filing paperless returns.

Alabama's Paperless Filing and Payment System was designed to be FAST: Free, Accurate, Secure and Timely. Filing electronically is FREE to all taxpayers, and there's no pre-registration required for taxpayers that have established tax account numbers. There are no filing or transaction fees that must be paid before a return is electronically filed, and since the telephone-based filing system is accessed by a 1-800 telephone number, no long-distance service charges apply to filers who prefer the telephone system over the Internet-based filing system. 

New Rule 810-1-6-.12 entitled Taxes Required to be Filed Electronically mandates electronic filing of the following taxes: state and local sales, consumers use, sellers use, rental and lodgings (forms 2100 / 2105, 2610, 2620, 2410, 2320 / 2310, and 9501, respectively). More tax types will be available to be filed paperless in the near future.


Securities and Exchange Commission Developments


Rule 34-48626, proposed October 14, 2003 contains new rules that would, under certain circumstances, require companies to include in their proxy materials security holder nominees for election as director.

Full text of this proposed rule may be accessed at http://www.sec.gov/rules/proposed/34-48626.htm


Previous issues of the NRAI Newsletter may be found at: http://secure.nrai.com/dynamic_frame.asp?page=research 

National Registered Agents, Inc. (NRAI) is a professional Registered Agent for new and established business entities. NRAI is fully licensed to maintain Registered Office and receive legal process for companies throughout the United States and around the globe.

The NRAI Network encompasses 23 operating affiliates, with more than 400 associates, and 36 offices nationwide. The Network is focused on providing comprehensive corporate and public record information, research, retrieval, filing, and corporate services for both law firms and corporate legal departments.

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