New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

Virtually all small closely held businesses should have an up-to-date Buy-Sell Agreement. A Buy-Sell Agreement should accomplish a number of important objectives for closely held company, including: (1) providing mechanism for the orderly transfer of the business; (2) establishing a valuation mechanism which avoids disputes between owners as well as possible disputes with the Internal Revenue Service; (3) reducing possible disputes between owners, an owner’s heirs, and possible unwanted business partners to whom an ownership interest in the company may otherwise be transferred; and (4) providing financial security to a deceased or disabled owner’s family.

It is important that company’s Buy-Sell Agreement be reviewed periodically to make certain that it is properly customized to the needs of the specific company and its owners, as well as to make certain the agreement meets the requirements of current tax laws. Two of the most important areas of periodic review are the valuation provisions in the Buy-Sell Agreement and the funding of the buy-sell arrangement set forth in the Buy-Sell Agreement.. Valuation formulas based upon earnings can become obsolete and should be updated periodically based upon changes in a company’s accounting and compensation practices. Funding of the buy-sell arrangement should also be periodically updated to avoid a situation where there is a gap between the value of the company and the available funding.

Another aspect of the Buy-Sell Agreement that should be reviewed periodically is the agreement’s structure. Typically, Buy-Sell Agreements are structured as either a redemption agreement, a cross-purchase agreement, or hybrid agreement. It is important to review the structure of a Buy-Sell Agreement to determine if a different structure would be more beneficial in light of the corporate alternative minimum tax on life insurance proceeds. In addition there are also basis considerations to take into account when reviewing the structure of a Buy-Sell Agreement, in order to avoid serious income tax consequences.

Lastly, a periodic review of a Buy-Sell Agreement should include a careful review of the triggering events which either allow or require a transfer of ownership. While most Buy-Sell Agreements adequately deal with the death of an owner, it is equally as important to make sure that the Buy-Sell Agreement adequately covers other triggering events such as disability, voluntary termination of employment, involuntary termination of employment, bankruptcy of an owner, and the divorce of an owner.

When reviewing a Buy-Sell Agreement, it is important to take into account the unique needs of each company, the existing relationships between owners, as well as the individual functions of each owner. It is also important to do an analysis of the underlying economics of the company when considering an update of Buy-Sell Agreement.

• Print
• Comments
• Trackbacks

This week's New Jersey Legal Update podcast will discuss a recent chapter that was published by Jason Storipan, and Thomas Lewis, of Stark & Stark's Employment Group, for Human Resources 2007: Answers to the Top 25 HR Questions in 2007. The chapter is entitled Attendance Control Issues: Balancing Employee and Employer Rights. This podcast will highlight the major points of the chapter and offer a discussion on the complexities of ensuring equal rights in the workplace.

This week's New Jersey Legal Update podcast is presented by Jason Storipan, member of Stark & Stark's Employment Group.

You can download the New Jersey Legal Update Podcast # 67 here. (6 MB)

• Print
• Comments
• Trackbacks

When selling your home, it is important to be able to convey marketable title.  Marketable title is a title free from encumbrances and any reasonable doubt as to its validity.  Some of the factors which can affect the marketability of title are various statutory liens.  Some of the most common ones include:

    Existing Mortgages.  All recorded  mortgages will act as a lien against the property.  This includes any home-equity loan and lines of credit which are secured by a mortgage in addition to primary mortgages.  Payoff statements can be obtained from the lender prior to closing so that the mortgage lien can be paid off from the closing proceeds.  It is important that home-equity and line of credit accounts be terminated prior to or at closing and representations be made by the borrower that no additional withdrawals have been made beyond the amount indicated in the payoff statement.

    Existing Judgments. State and Federal judgments entered in New Jersey state courts or Federal District Courts of New Jersey will act as liens against the property.  This is because all real estate is liable to be levied upon and sold by executions to be issued on judgments obtained in any court of record of New Jersey for the payment of money when the judgment is properly docketed.  Judgments can be discharged by Court order, filing a warrant of satisfaction with the appropriate county clerk which is signed by the judgment holder or his attorney of record which authorizes the county clerk to satisfy the judgment of record, or by the acknowledgment of satisfaction on the record by the county clerk after the sheriff or other officer returns an execution of judgment issued as satisfied.

    Real Estate Taxes and Assessments.  Municipal real estate taxes, as well as municipal improvement assessments, water charges and sewer charges all act as liens against the property and must be paid off at closing.  In addition to a search for municipal liens, a buyer should also perform a search for prospective assessments.  This is because municipal improvements are not liens against the property until the property is actually assessed.  However, this may be long after the improvement has been completed and the assessment passed.

    State and Federal Tax Liens. Liens can be imposed against a property for various death taxes, i.e., New Jersey Transfer Inheritance Taxes, New Jersey Estate Taxes and Federal Estate Taxes incurred as a result of a homeowners death.  These liens can be discharged upon the payment of the taxes, if any, and the issuance of a tax waiver or discharge of lien from the appropriate taxing authority.

Whether you are a seller concerned about what debts have to be paid at closing or a buyer who is seeking title to a property “free and clear of any liens” it is important to know to what extent such liens affect the marketability of title to your property.

• Print
• Comments
• Trackbacks

Bill Singer, Shareholder of Stark & Stark's Securities Practice Group, authored the article, End the Occupation of Wall Street, for the May 18th edition of the New Jersey Law Journal.

You can read the article here.

• Print
• Comments
• Trackbacks

Thomas Lewis, chair of the Employment group, and Jason Storipan, member of the Employment group, co-authored a chapter of Human Resources 2007: Answers to the Top 25 HR Questions in 2007 Summer Edition, from Thompson Publishing Group. The chapter is entitled Attendance Control Issues: Balancing Employee and Employer Rights.

You can read the full chapter here.

• Print
• Comments
• Trackbacks

It’s not uncommon for an executor or administrator of an Estate to find that the decedent has left a house which needs to be sold by the Estate.  In addition to the normal requirements for selling a house, there are some special issues to consider when the seller of real estate is the estate of a decedent.

Real estate held by a decedent’s estate is subject to liens for the payment of any New Jersey Transfer Inheritance Tax, New Jersey Estate Tax, Federal Estate Tax and debts of the decedent.  

The N.J. Transfer Inheritance Tax is a state tax imposed on the transfer of property  made upon the death of a New Jersey resident and certain non-residents, or made by such a decedent in contemplation of death. N.J.S.A. 54:34-1 et seq.  The Inheritance Tax lien lasts for a period of fifteen years following the date of death. N.J.S.A. 54:35-5.  This lien is discharged when the tax is paid or a bond given to the State.  The N.J. Division of Taxation issues a tax waiver which is then recorded in the county clerk’s office of the county in which the property is situated.  Tax waivers can be obtained before a return has been audited by the State upon submission of the estate’s Inheritance Tax return and payment of an amount deemed sufficient by the Inheritance Tax Bureau of the N.J. Division of Taxation.

New Jersey also imposes an Estate Tax on estates of  resident decedents dying after December 31, 2001  if the gross value of the estate exceeds $675,000 .  N.J.S.A. 54:38-1 et seq.  A New Jersey estate may be subject to the N.J. Estate Tax even if it is not subject to the Federal Estate Tax.  The N.J. Estate Tax also becomes a lien against property.  The N.J. Estate tax lien exists as a lien against the property as of the date of decedent’s death until paid.  N.J.S.A. 54:38-6.  This lien can be discharged in the same manner as the N. J. Transfer Inheritance Tax lien by the issuance of a tax waiver from the N. J. Division of Taxation.

The Federal Estate Tax may be imposed on estates in the amount of $2.0 million for decedents dying in 2007 ($3.5 million commencing 2008). The Federal Estate Tax becomes a lien on the property in the estate for ten years from the date of death. I.R.C. §6324 (a)(1).  To discharge the lien, a Certificate of Release of Estate Tax Lien can be obtained from the IRS and recorded with the County Clerk in the county in which the property is located.

If a tax waiver or release of lien cannot be obtained prior to closing, the buyer’s title company will frequently agree to escrow funds to cover any possible liability and to insure that the selling estate will obtain and record the waiver or release.

Finally, real estate of a decedent is liable for the debts of the decedent for one year after date of death.  N.J.S.A.  3B:22-22.  If the property is being sold within a year of decedent’s death, the buyer’s title company with generally require information concerning the assets and debts of the estate and a bond from the executor before agreeing to insure the property.        

• Print
• Comments
• Trackbacks

This week's New Jersey Legal Update podcast is a follow-up to a previous podcast on minority oppression discussing who can file a minority oppression lawsuit, and what one can expect if they do. This podcast will follow up with a discussion of one of the most important parts in a minority oppression lawsuit - valuation

This week's New Jersey Legal Update podcast is presented by Scott Unger, Shareholder of Stark & Stark's Litigation Group.

• Print
• Comments
• Trackbacks

Punitive damages are meant to punish the defendant, not compensate the Plaintiff. Generally speaking, they are allowed only in cases where the defendant’s conduct has been especially egregious. As a result, punitive damages are rarely awarded, leading many in the franchise community to disregard the danger of having punitive damages awarded against them.  

The danger, however, is real. A case in point was the recent punitive damages award in Tarr v. Bob Ciasulli's Mack Auto Mall, Inc., 390 N.J.Super. 557, 916 A.2d 484 (A.D. February 2007). According to the published court opinion, this was a sexual harassment case where a relatively manageable award of $25,000.00 against an automobile sales franchisee ballooned into an additional $85,000.00 in punitive damages (and attorneys fees) resulting in a very expensive day for the Franchisee. 

Other recent cases have awarded significantly higher punitive damage awards (though they are often reduced later through the appeal process). The bottom line is that the franchise community, like any other employer, needs to be vigilant in preventing “bad” conduct from becoming “egregious/outrageous” conduct.

Address employee problems quickly and be proactive when an employee complains of discrimination and/or harassment. Taking these steps may very well convince a judge that, while the conduct may merit an award of compensatory damages, punitive damages are not appropriate.  In this way you can help manage risks and keep troublesome litigation from becoming business-killing litigation.

• Print
• Comments
• Trackbacks

As a follow up to previous posts regarding the case of Mount Laurel Township v. MiPro Homes, the Builders League of South Jersey, Inc. and MiPro Homes, L.L.C. has petitioned the United States Supreme Court to review the decision issued by the New Jersey State Supreme Court in December.

The New Jersey State Supreme Court upheld a lower court’s decision to allow ambush acquisitions stating towns and municipalities could proactively condemn property to prevent development. It is the position of the Builders League of South Jersey and others that this decision, if allowed to stand, will have a chilling effect on development in New Jersey and a negative impact on families with school children and developers of projects deemed politically undesirable.

The question raised is whether or not the Takings Clause of the Fifth Amendment to the Constitution prohibits a municipality from condemning private property for “public use” when the municipality’s public use determination is ad hoc, pretextual, and not part of a comprehensive planning process.

You can download the petition here.

• Print
• Comments
• Trackbacks

As the student loan scandal widens, it seems that most colleges and universities will have to examine and modify any existing internal policies that outline appropriate conduct between employees and outside service providers.

In both New Jersey and New York, news is unfolding of possible inappropriate practices of college and university employees accepting perks ranging from stock options, the use of vacation homes, trips, as well as cash provided by loan industry representatives in an effort to become one of the institution’s preferred lenders for prospective students.

More than 90% of all students have some form of student loan, and more than 80% utilize the private lenders recommended by the university. Since these loans are for the most part subsidized by the government, there is little risk of non-payment to the lenders, in fact student loans are not even dischargable in bankruptcy.

Colleges and universities must now face the reality that in spite of their enlightened existence, they too are subject to conflicts of interest, as well as possible civil and even criminal liability.

• Print
• Comments
• Trackbacks

Bill Singer, Shareholder in Stark & Stark Securities Practice Group, was quoted in the article, Small Firms Upset by an NASD Hiring, in yesterday's Investment News.

You can read the full story here.

• Print
• Comments
• Trackbacks

New York Cooperative housing corporations and incorporated condominium associations are subject to stipulated requirements and remedies contained in the New York Business Corporation Law or Non-for-Profit Corporation Law and case law applying and interpreting these statutes.  New York Condominiums are also governed by the New York Condominium Act, Article 9-B, Real Property Law (the “Condominium Act”).

An annual meeting of shareholders and unit owners (collectively “Owners”) is required by the New York corporation statutes.  See CLS Bus Corp Law Sec. 602(b); CLS N-PCL Sec. 603(b).  The annual meeting is important to Owners to both elect corporate management and obtain information concerning corporate finances and affairs.  However, the rights of unit owners with respect to regular and/or special meetings of the board of directors or board of managers (the “Board) is limited.  

In some states the condominium and corporations statutes require regular and/or special board meetings to be open to all unit owners.  This does not allow Owners to participate in the discussions or vote but it does allow them to receive first hand information regarding the operations, finances, management and matters which are of concern to the Board.  There is no statutory right in New York granted to Owners to attend board meetings in either the Condominium Act or the applicable corporations statutes.  The board meetings need not be open unless this requirement is imposed in the Articles of Incorporation or By-laws.   Unless otherwise restricted, any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action.  The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee.  See CLS Bus Corp Law Sec. 708(b). 

There are certain decisions that require Owner approval such as amendments to the governing documents, election or appointment of officers and removal of a member of the Board for cause.  However, the Board is authorized to make day-to-day management decisions that are binding on the corporation without the need to ratify said decisions at an open meeting or without approval from the membership. Such day-to day management decisions include but are not limited to hiring employees, including management companies, bringing litigation on behalf of the corporation, making expenditures for repairs or improvements of common areas, establishing house rules, and fixing monthly maintenance charges as well as special assessments.  The Owners have a right to inspect the minutes of the meetings and can therefore obtain information regarding Board’s decisions from a review of same.

• Print
• Comments
• Trackbacks

This week's New Jersey Legal Update podcast is a seminar presented by David J. Byrne, Shareholder in the firm's Community Associations Group, which was given to attendees at last week's 21st Annual Cooperator's Co-op & Condo Expo, in New York, New York.

The seminar discussed fiduciary duty & governing documents, the roles of boards, members and management in cooperatives, what is necessary when conducting board meetings, and cases/courtroom stories involving associations and cooperative governance issues.

You can download the New Jersey Legal Update Podcast # 65 here. (34 MB)

• Print
• Comments
• Trackbacks

In the recent New Jersey Supreme Court case of Pacifico v. Pacifico, the contract doctrine of contra proferentem was discussed.  This doctrine provides that when a contract term is ambiguous, a court must adopt the meaning that is most favorable to the nondrafting party.

In this particular case, the parties (husband and wife) had entered into a Property Settlement Agreement dealing the issues in their divorce case.  With regard to the marital home, it was agreed that the parties would continue to own the marital home as joint tenants until it was sold at any one of certain triggering events.  The wife was to have the first option to buy out the husband's interest and the husband was to have the second option.  If neither party wished to purchase the other party's interest in the home, it would be sold.

When the younger son became emancipated, the wife offered to buy the husband's share of the home at the value determined in 1996 - the date of the Property Settlement Agreement.  The husband's position was that the value should be set at the current fair market value.

The trial court held that the wife had the right to purchase the husband's interest at the current fair market value.  The Appellate Division reversed and held that the Property Settlement Agreement was ambiguous because it did not specify the date on which the property should be valued for buyout purposes.  The Court stated that  any ambiguity  should be construed in the wife's favor since the husband's attorney drafted the Property Settlement Agreement.

The Supreme Court disagreed holding that the doctrine of contra proferentum should not have been applied here, where both parties attorneys were involved in different drafts of the agreement and where there was no unequal bargaining power between the parties.  

The case was remanded back to the trial court for a determination of the parties' intent and credibility.

• Print
• Comments (2)
• Trackbacks

• Print
• Comments
• Trackbacks

Thomas Lewis, Shareholder of Stark & Stark's Employment Group was quoted in the article, Working for free: Volunteers spend countless hours pitching in to give back to the community and to stay busy, in yesterday's Asbury Park Press.

You can read the full story here.

• Print
• Comments
• Trackbacks