The Employment Law Department here at Antheil Maslow & MacMinn wishes a Happy New Year to all of our clients.  In the interest of making this year the best it can be, we offer the following New Year’s resolutions for employers:

1. Resolve to document:

Document everything: employee successes, employee’s failures to meet expectations, attendance, complaints, suggestions, and anything that may be of significance to the employee or the workplace.  This is good risk management for employers.  For employees, it is a fundamental aspect of workplace fairness, and prevents the situation where an employee may be caught off guard by a particular decision of the employer. 

A corollary to this resolution is to make documentation easy.  For example, managers can use email, which will include a date and time stamp, be maintained on company servers, and creates an electronic paper trail. Managers are more likely to comply with a simple system.

2. Resolve to retain key employees:

We spend much of our day talking about restrictive covenants – agreements not to compete or solicit customers and employees after the termination of employment.  We draft them, read them, counsel employees and employers about them.  While these agreements are important to protect the employer, they will not help employers keep their stars.  Instead, employers should ensure a positive workplace, where key employees know that they are appreciated.  Some ways to accomplish this:  fair compensation and benefit programs; attainable equity or bonus programs; realistic work-life balance policies; and recognition of employee successes.  It is also worthwhile to recognize that “stars” exist at every level in an organization:  the top salesperson and the reliable receptionist both contribute to the success of the business. 

3. Resolve to cultivate the culture:

This resolution will help with resolution 2, but is important in its own right.  How are managers communicating with employees?  Are they fair, professional and clear?  Are you looking the other way on unprofessional or inappropriate conduct?  Do you ever say “That’s just (insert name here)” about a particular manager? 

What we learned in 2017 is that it is folly to look the other way on a toxic workplace culture:  it wastes time, pulls focus from work, results in bad press and litigation, and chases away good employees. 
 
A focus on these three resolutions will help lower risk and ensure a compliance workplace.  Feel free to contact us to help accomplish these resolutions.

Although parents may be paying tuition, covering children under their health insurance, and even claiming them as dependents on their tax return, without a Power of Attorney that parent may be helpless to aid their adult aged child (over 18 years of age) with medical or financial matters.  Their doctors, hospitals, and even the college they attend, are limited in the information they are able to share with parents or other adults.  A Power of Attorney for medical and financial matters allows a college student, or any adult, to appoint someone to handle these matters for them if they are unable or unavailable to handle it themselves.

While they are home between semesters, you might want to consider speaking to an estate planning attorney who can help plan and put the proper documents in place to allow your young adult to appoint the person or persons they trust to handle financial and medical matters for them. If they have a serious illness or accident, having these documents in place can save the family time and significant costs by avoiding the immediate need to seek a court appointed guardian. If they are traveling abroad and need assistance with matters at home, the Power of Attorney will allow their agent to handle banking transactions, sign tax returns and many other types of matters for them.

Taking the time to be sure these documents are in place before they become necessary can save the family, and the young adult, time if an emergency arises and it becomes necessary to use them. 

For more information about Powers of Attorney, estate planning or Stephanie M. Shortall, Please visit us at ammlaw.com.

Although parents may be paying tuition, covering children under their health insurance, and even claiming them as dependents on their tax return, without a Power of Attorney that parent may be helpless to aid their adult aged child (over 18 years of age) with medical or financial matters.  Their doctors, hospitals, and even the college they attend, are limited in the information they are able to share with parents or other adults.  A Power of Attorney for medical and financial matters allows a college student, or any adult, to appoint someone to handle these matters for them if they are unable or unavailable to handle it themselves.

While they are home between semesters, you might want to consider speaking to an estate planning attorney who can help plan and put the proper documents in place to allow your young adult to appoint the person or persons they trust to handle financial and medical matters for them. If they have a serious illness or accident, having these documents in place can save the family time and significant costs by avoiding the immediate need to seek a court appointed guardian. If they are traveling abroad and need assistance with matters at home, the Power of Attorney will allow their agent to handle banking transactions, sign tax returns and many other types of matters for them.

Taking the time to be sure these documents are in place before they become necessary can save the family, and the young adult, time if an emergency arises and it becomes necessary to use them. 

For more information about Powers of Attorney, our Estate Planning services, or Stephanie Shortall, Please visit us at ammlaw.com.

On December 22nd, President Trump signed into law the Tax Cuts and Jobs Act, which will take effect on January 1st.  This legislation will have far reaching implications for both individual and corporate taxpayers.  The attached analysis and charts provide an overview of some of the key changes made by the new Act, along with some planning considerations between now and year-end.

Tax Cuts and Jobs Act

According to the National Center for Charitable Statistics (NCCS), more than 1.5 million nonprofit organizations are registered in the U.S.   We are proud to represent many such nonprofit organizations operating in the greater Delaware Valley.
These organizations serve the communities in which we live with steadfast passion and dedication.  The focus on community improvement, volunteerism and charity is remarkable.  We are pleased to play our small part in furtherance of their lofty goals.

Unfortunately, not everyone involved in the nonprofit industry shares the same altruistic philosophy.  Invariably, we read newspaper stories about the nonprofit treasurer who diverted funds destined for an ambulance squad or the director that diverted hundreds of thousands from youth athletics programs.  The question becomes, what is a nonprofit to do when defalcation is discovered? 

Generally, the law imposes no duty upon an individual or organization that discovers a financial defalcation to report the facts discovered to the authorities.  Only with respect to certain crimes, mostly involving abuse or child pornography, does a duty to report criminal activity arise.  Under current statutory law, no such duty exists upon the discovery of a theft or diversion of nonprofit funds.    

Many nonprofits are reluctant to report the defalcation.  The negative publicity which follows a public disclosure can be devastating to the credibility of an organization that is already competing for donor dollars.  Based on such pressures, for-profit organizations often choose to forego even the private exercise of confronting the accused in an effort to seek recovery preferring instead to simply take steps to ensure the same kind of breach of trust could not be repeated.  In the nonprofit world, such private decision making is in sharp contrast to fiduciary duties owed to the organization and the moral, if not legal, duties which are founded in the donor/donee relationship.   Moreover, the public nature of nonprofit tax filings may render disclosure inevitable,  such that the desired privacy cannot be maintained. 

Large nonprofits must file an Internal Revenue Service Form 990 each year.  The form summarizes the financial performance of the nonprofit.  In turn, every Form 990 that is filed is publicly available with just a few key strokes.  The Form 990 requires that the organization report to the IRS whether the organization “became aware of a significant diversion of the organization’s assets” in the current year.  Thus, the IRS requires the organization disclose defalcations which amount to a “significant diversion”. 

Despite potential negative publicity associated with disclosure of malfeasance in nonprofit administration, the inevitability of disclosure weighs in favor of a more transparent approach.  Best practices suggest that the entity’s Form 990 be reviewed by the board of directors prior to submission to the IRS, in fact,  the redesigned form asks whether the tax return was furnished  to the board for review prior to filing.  An astute donor – particularly a business savvy donor - is likely to read the 990 with a critical eye.  The worst scenario is that a director or donor becomes aware of the defalcation and subsequently questions the adequacy of management response, potentially a death knell to contributions, and the tenure of the secretive executive director. 

In addition, the nonprofit’s auditor, while not required to disclose every fraud in a footnote to the financials, would need to consider whether the theft had a financial impact on the statements.  If the dollar amount warranted it, it might have to be reported directly on the statements – either as a line item-loss from fraud or a receivable for repayment of stolen funds. 

Further, the question of the directors’ fiduciary duties to the organization in such circumstances has not yet been addressed.  Certainly, the directors of a nonprofit, having been placed in a position of trust by the organization, and bear some responsibility for effective management and control.   To date, no court has imposed liability upon the directors of a nonprofit for failing to investigate potential recovery, failing to report defalcation, or failing to seek recovery of proceeds unlawfully diverted.   While that is certainly not what the volunteer directors sign up for, we can see that case coming. 

Navigating the potential exposure requires a complete understanding of financial controls and information, reporting requirements and the composition of the board of directors.  Generally, the best advice is to conduct a complete investigation, proactively adopt whatever policies are necessary to prevent a re-occurrence, and report the bad actor to the relevant authorities.  Such actions would certainly satisfy any duty to the organization. 

In the many years I have been working as outside counsel to closely held businesses, one of the frequent pitfalls leading to costly litigation and operational conflicts is the failure of shareholders to adequately document and formalize their expectations, especially as it relates to minority shareholders.  The first question I ask when contacted by a business owner who is dealing with shareholder conflicts is “What does your shareholders’ agreement say?”  Unfortunately, too often, the answer is “What shareholders’ agreement?”   

Many small businesses are formed by a group of people who share a collective belief at the time of formation.  There are often unwritten understandings as to the division of roles within the business.  Almost universally, the expectation is that all of these founding shareholders will devote ongoing resources to the business.  Conflicts arise when those expectations diverge, when one shareholder fails to perform within the business, or even when a shareholder exits the company.   
 
When conflict does arise, mechanisms for resolution can be limited, complex and expensive.  Certainly a transfer of a non-performing shareholder’s stock seems like a simple straightforward course of action.  However,   in the absence of an agreement providing for transfer upon specified events, the business has no absolute right to remove a shareholder or force a transfer of the share ownership interest.  Even a shareholder who has ceased to be actively involved in the business continues to enjoy all of the rights attendant to the ownership of the shares: the shareholder need not come to work, need not contribute capital, need not pursue business opportunity in the name of the company.  Employment may end, but the right to enjoy distribution of profits does not, as long as share ownership persists.  As most small businesses are organized as subchapter “s” corporations, profits must be distributed in accordance with share percentage. 

Ownership of stock gives rise to all of the rights provided by statute.  Minority shareholders enjoy the right to obtain information about the performance of the company, attend and vote at shareholders’ meetings, and receive distributions of profits derived from corporate operations.  Minority shareholders can be an impediment to stock transfers, anchors against change and obstacles to capital expenditures. Such situations are a constant bone of contention among owners of small businesses. 
 
Of course, the best solution is an agreement that accurately reflects the understandings of the shareholders at the time the shares are assigned, or the company is formed.  Such agreements can provide clearly defined roles within the business, mandatory transfer upon termination of employment, death or disability, valuation mechanisms and provisions restricting transfer.  Adopting an agreement, at minimum, provides a foundation for the business relationship, and may provide a roadmap in the event of disagreement.    

In the absence of an agreement, a dispute with a minority shareholder requires careful management. The majority must take care to avoid vesting a minority shareholder with breach of fiduciary duty claims or shareholder oppression.   Compliance with corporate formalities is imperative. While there is no guaranty of continuing employment for a minority shareholder (with exceptions), distributions or profits in accordance with ownership percentages is required if the company has elected “s” corporation treatment.  Certainly, majority and employed shareholders may receive compensation for services rendered, but an artificial manipulation of corporate profits would certainly be relevant to a minority shareholder oppression claim.  

Pennsylvania Business Corporations Law provides little relief to a majority shareholder who continues to run a profitable business without the assistance of his or her minority shareholders. The statute provides no right to extract a non-performing shareholder against his/her will at any price, and provides no absolute right of liquidation. Even the nuclear option of judicial corporate liquidation requires that the complaining shareholder allege irreparable harm to the company; an allegation which may be impossible if the business is successful as a result of the majority’s efforts.

Formation of an appropriate and workable shareholders’ agreement requires legal representation; as does management of divergent goals between shareholders.  Owners of s corporations with minority shareholders would be wise to review their governing documents and take proactive steps to safeguard the future value of their shares, and avoid crippling and costly litigation. Antheil Maslow and MacMinn business attorneys are highly experienced in such matters and leverage a team of professionals in differing disciplines to navigate these complex waters.