Summer 2008 Edition

NEW N.C. NOTARY PUBLIC LAW NOW IN EFFECT

The new North Carolina Notary Public Act became effective On December 1, 2005. For the most part, the new law codifies many existing requirements and practices. There are some new requirements that current notaries should know.

One of the most significant provisions in the new law is the requirement that the person signing must be personally known to the notary or identified through satisfactory evidence. While this has been the law, the new act strengthens the enforcement language of the law.

The new law sets out a penalty for performing a notarial act without the principal personally appearing before the notary — the notary would be guilty of a Class 1 misdemeanor and lose the notarial commission. If the notarial act is performed without the personal appearance of the principal with the intent to commit fraud, the notary would be guilty of a Class 1 felony.

Before performing electronic notarial acts, a notary will be required to complete three hours of instruction and pass a written exam, in addition to the general education requirements for notary applicants.

The N. C. Secretary of State ‘s office has included an expanded Frequently Asked Questions list on its website: http:// www.secretary.state.nc. us/Notary/FAQ.aspx.

JHVGG Welcomes P. Devan Culbreth

We are pleased to announce the association of Phyllis Devan Culbreth with our firm. Ms. Culbreth is a graduate, cum laude, of Wake Forest University, with Honors in Psychology. She is a graduate of the Wake Forest University School of Law where she was a member of the Intellectual Property Journal editorial staff. She participated in a course of study at Emmanuel College, Cambridge University. Ms. Culbreth also holds a Masters of Arts, Psychology, from the University of North Carolina at Wilmington. She was admitted to the North Carolina Bar in September 2005.

Ms. Culbreth will concentrate her practice with our firm in the areas of business and corporate law, business succession planning and estate planning.

The addition of Ms. Culbreth as an associate attorney with our firm is an example of our commitment to the delivery of quality legal services to our clients.

Business Tax Law - Understanding The IRS “Responsible Person Penalty”

By F. Stephen Glass

Under IRC §6672(a), if an employer fails to properly pay over its payroll taxes, the IRS can seek to collect the taxes from a responsible person _ i.e., a person who is responsible to collect, account for, and pay over taxes and who willfully fails to perform his responsibility. The term "person" (as defined in IRC §6671(b)) includes an officer or employee of a corporation or a member or employee of a partnership, who, as an officer, employee, or member of the corporation or partnership, is under a duty to collect, account for, or pay over the tax. A responsible person could be a director, an accountant, a comptroller, or even a payroll manager. A responsible person is subject to a penalty equal to the total amount of tax evaded or not collected, or not accounted for and paid over. The penalty is a personal one and the IRS need not attempt to collect from the corporation or partnership before making an assessment against the responsible person.

Courts review the facts and circumstances of each case before issuing rulings on the responsible person penalty. Courts often look at whether a person: (1) served as an officer of the company or as a member of its board of directors; (2) controlled the company's payroll; (3) determined which creditors to pay and when to pay them; (4) participated in the day-to-day management of the corporation; (5) possessed the power to write checks; and (6) had the ability to hire and fire employees.

Notice of Bankruptcy - What Employers Should Do

By Jean Winborne Boyles

Do not put that notice of bankruptcy in the trash can. You must decide whether it is cost effective to ignore the notice or to monitor the bankruptcy. To make this decision, you should: (1) Check and see how much money the Debtor owes you; (2) Check and see what amounts you have been paid by the Debtor within the 90 days prior to the filing of the bankruptcy (these sums could be preferences which you will owe back to the Debtor); and (3) Determine if you have any current contracts with the Debtor because these are subject to being rejected by the Court.

If the amount that you are owed or the amount which is a potential preference is a sum that you are willing lose, throw that piece of paper in the trash can and forget it. If these dollars are amounts that you are not willing to let go of, it is imperative to monitor the bankruptcy from its early stages. If you have a contract such as a lease or a contract for personal services, it is important to follow the bankruptcy because your rights can change quickly. The decision to monitor and participate in the bankruptcy is strictly a business decision for you to make.

Become pro-active. Consult with a bankruptcy attorney. Usually you can arrange an initial reasonable fee to review the bankruptcy petition and to project what may incur and what costs will be. Most bankruptcy attorneys would be able to give you a synopsis of what your exposure is in the bankruptcy. Do not throw good money after bad money but do not consider that a notice of bankruptcy is an automatic notice of loss of all funds you are owed or have been paid. Protect your financial interests if it is cost effective.

Table Comparing the Different Forms of Business

By F. Stephen Glass

Type of Business	Sole Partnership	General Partnerships	Limited Partnerships	C Corp	S Corp	Limited Liability Corp
Definition	A business owned and operated by one person for profit	Two or more people who jointly own or operate a business for profit	One or more partners have limited liability and no rights of management	An entity formed under state or federal law. An artificial entity separate from the owners	An entity structed like a corporate but taxed like a partnership.	A business entity created by statute. The owners are called members. It is taxed like a partnership or an S corp; may elect to be taxed as a C corp. It has limited liability like corporations.
Ease of Formation	Easiest form of business to set up. If necessary, acquire, licenses and permits, register fictitious name, and obtain taxpayer identification	Easy to set up and operate. A written partnership agreement is highly recommended. Must acquire an Employer ID number. If necessary, register fictitious name with register of deeds in each county where in business.	File a Certificate of Limited Partnership with the Secretary of State. Name must show that a business is a limited partnership. Must have written agreement, and must keep certain records.	Files articles of incorporation and other required reports with the Secretary of State. Prepare bylaws and follow corporate formalities.	Must meet all criteria to file as an S corp. Must file timely election with the IRS (within 2½ months of first taxable year) to be taxed as S corp.	File articles of organization with the Secretary of State. Adopt operating agreement, and file necessary reports with Secretary of State. The name must show it is an LLC.
Period of Existence	Terminates at will or on the death of the owner	Terminates by agreement, or by death or withdrawal of partner, unless there is a partnership agreement to the contrary.		Continues until formal dissolution. Most stable form of business. Not affected by death or disaffiliation of shareholder.		May terminate by agreement, or withdrawal of a member, depending upon operating agreement.
Taxes	Profits are taxes once. Profit and loss are reported on the owner's individual state and federal income tax returns.	"Flow-through" taxation: profits are taxed once - at partner level. Each partner reports his or her share of the profit and loss on his or her individual state and federal income tax returns. Partnership files an information return but does not pay income taxes.		Profits are subject to double taxation, once at the corporate level and again at the shareholder level.	Profits are taxed once. Each shareholder reports his or her share of profit and loss on individual income tax returns. S corp does not pay tax, with some exceptions	If the LLC is structured properly, each member reports his or her share of the profit and loss on his or her individual income tax returns. It is taxed like a partnership or an S corp. If the LLC is not structured properly, or it so elects, it is taxed as a C corp.
Liability	The owner's personal assets are at risk.	Each partner's personal assets are at risk.	General partners' assets are at risk. A limited partner is liable only to the extent of his or her investment.	Limited to corporate assets, except: 1. Personally guaranteed business debts; 2. Personal negligence or fault; or 3. Corporate form is found to be a sham.		Similar to rules for corporations.
Dissolution	Easiest form of business to dissolve. Pay debts, taxes and claims against business.	Pay debts, taxes and claims against business. Settle partnership accounts.	Pay debts, taxes and claims against business. Settle partnership accounts. File cancellation of certificate with the Secretary of State.	Obtain shareholder approval to dissolve. File statement of intent to dissolve with the Secretary of State. Pay debts, taxes and claims against business. Distribute corporate assets to shareholders.		Pay debts, taxes and claims against business. Distribute remaining assets to members. File articles of dissolution with the Secretary of State.
				Gain on distribution of assets is subject to double taxation.	Gain on distribution of assets is taxed once, with some exceptions

Immigration Law Issues In the Workplace

By F. Stephen Glass

An increasing number of workers who are subject to the Immigration and Nationality Act (“INA”) have come to North Carolina to find employment. As an employer or prospective employer of an alien worker, there are some things you should know about the INA. The INA employment eligibility verification as well as its nondiscrimination provisions apply to all employers. Employers may legally hire alien workers only if they are authorized to work in the United States. For some aliens (students, nurses, specialty occupations, fashion models) employers must comply with attestation procedures through the Department of Labor. The INA requires that alien workers show proof of their employment eligibility, by requiring completion of the I_9 form. Employers must keep the I_9 forms on file for at least 3 years (or one year after the employment ends, whichever is greater). See the INS Home Page at http://www.ins.usdoj.gov/graphics/index.htm for more information and the INS Form I-9 (as well as other INS forms).

Caution: Employers who fail to complete and/or retain the I_9 forms are subject to civil fines of up to $1,000 per alien worker.

The INA also protects alien workers authorized to accept employment in the U.S., from discrimination in hiring or discharge on the basis of national origin and citizenship status.

 

About our authors:

F. Stephen Glass is the author of numerous publications on business and business entities as well as estate planning. He is a frequent presenter for the National Business Institute. His practice is concentrated in the areas of business and corporate law, business succession planning and estate planning. He serves on the Cary board of Capital Bank. Mr. Glass has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell. He serves on the American Bar Association Business Law Committee on Corporate Governance.

Jean Winborne Boyles concentrates her practice in health law, corporate law, bankruptcy and creditors’ rights, commercial leasing, antitrust and state administrative law.

DISCLAIMER: Johnson, Hearn, Vinegar, Gee & Glass, PLLC, provides this newsletter for general information only. The materials contained herein may not reflect the most current legal developments. Such material does not constitute legal advice, and no person should act or refrain from acting on the basis of any information contained In this newsletter without seeking appropriate legal or other professional advice on their particular circumstances. Johnson, Hearn, Vinegar, Gee & Glass, PLLC and all contributing authors expressly disclaim all liability to any person with respect to the contents of this newsletter, and with respect to any act or failure to act made in reliance on any material contained herein. Distribution of this newsletter does not create or constitute an attorney-client relationship between the firm and any reader or user of such information.