NRAI Compliance Updates - November, 2004

NRAI Compliance Updates - November, 2004

Greetings,

The legislative season is off to a busy start, although not a lot of bills to report yet. Look for continued State Legislature responses to the corporate accounting debacles with FannieMae set to report a big loss. I had been hopeful that the U. S. Congress would revise Sarbanes-Oxley to make it more practical, lowering the cost of compliance. However, as long as the disclosures continue to surface, the public will remain inflamed and elected officials will want to be seen as active on the issue.

There is an interesting case out of New York below calling into question the practice of assigning intangible assets to Delaware Holding Companies and taking advantage of Delaware’s no tax treatment of such assets.

Happy Thanksgiving.

Robert K. Rowell
General Counsel

End of the year message from the Corporate Administrator for the State of Delaware

The following email was received from Robert Mathers, the Corporate Administrator in Delaware:

Dear Customers,

As the end of this calendar year draws near we are focusing on the expected increase in volume of work. In our continual efforts to provide the best possible customer service during this very busy time, we would like to take this opportunity to bring to your attention to the sections of the code that allow for an effective date within a document. Please note: 8 DEL.C.§103(d), 6 DEL.C.§15105(h), §17201(b) and §18201(b) for references to future effective dates. Our request to you to assist in minimizing the huge volume at the end of the year is to consider submitting your filings early with effective dates when it is feasible. Please help us spread the word to all of your customers that may not be aware of this excellent approach to beat the end of year rush. Thank you in advance for your consideration of this request as we strive for continued improvement and excellence here at the Delaware Division of Corporations.

Court Cases

Matter of Sherwin- Williams Co. v Tax Appeals Trib. of Dept. of Taxation & Fin. of State of New York, 2004 NYSlipOp 07737, Decided October 28, 2004

Sherwin-Williams attempt at avoiding New York State franchise tax apportioned out of New York on intangible trademarks found not to be valid and taxes to New York due and payable. Trademarks had been assigned to Delaware Holding Companies to take advantage of Delaware’s policy of not taxing such assets.

Full Text at: http://www.courts.state.ny.us/reporter/3dseries/2004/2004_07737.htm

Clemmer v. Cullinane 62 Mass. App. Ct. 904, October 5, 2004

The Massachusetts Appeals Court held that a minority shareholder in a closely held Delaware corporation may be entitled to relief in the event of a “freezeout” by the majority shareholders.

The plaintiff claimed that the defendants holding 55% of the corporation’s stock “breached their duty of good faith and fair dealings to the plaintiff and wrongfully froze the plaintiff out of his position as an employee.” The trial judge dismissed the claim and held that while the Delaware courts had not definitively ruled on the freezeout issue, they had generally declined to impose a fiduciary duty on the shareholders of closely held corporations unless they organized as a “close corporation” under Delaware law.

Here the Appeals Court noted that the Delaware courts had imposed an entire fairness test where the freezeout resulted in gains for the majority shareholders and declined to dismiss the plaintiff’s complaint.

Full Text available at: http://www.masslaw.com/signup/gtwFulltext.cfm?page=ma/opin/coa/1121504.htm

Pending and Passed Legislation

Michigan

SB 1456

Single business tax; credit; incentives for venture capital investment in certain companies; provide for. A bill to amend 1975 PA 228, entitled "Single business tax act," (MCL 208.1 to 208.145) by adding section 35c.

Full Text available at: http://www.michiganlegislature.org/documents/2003-2004/billintroduced/senate/pdf/2004-SIB-1456.pdf

Current Bill Status: November 3, 2004 Referred to Committee on Economic Development, Small Business and Regulatory Reform

New Jersey

HB 3395

Allows a corporation business taxpayer recognizing income, gain or loss pursuant to a plan of complete liquidation to deduct its net operating loss carryovers notwithstanding the limitations on such deductions during the 2002-2005 tax years.

Full Text available at: http://www.njleg.state.nj.us/2004/Bills/A3500/3395_I1.PDF

Current Bill Status: October 18, 2004 introduced and referred to Assembly Appropriations Committee

HB 3402

Allows corporation business tax credit for value of supplies and equipment donated to public schools.

Full Text available at: http://www.njleg.state.nj.us/2004/Bills/A3500/3402_I1.PDF

Current Bill Status: October 18, 2004 introduced and referred to Assembly Education Committee

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

International Corporate Services

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About NRAI

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.

For more information regarding NRAI services, please contact us at 800.550.6724 or info@nrai.com