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Open Sign - iStockMore and more business owners are incorporating a charitable intent or purpose into their companies. However, many still wish to remain a for-profit business and therefore do not apply for non-profit or tax-exempt status. Recently, the Minnesota legislature and Governor Dayton passed into law the Minnesota Public Benefit Corporation Act, which allows a business to make a public proclamation of the company’s intent to incorporate some form of charitable benefit into their for-profit business.

The Act

The Minnesota Public Benefit Corporation Act (the “Act”) is not effective until January 1, 2015. After such time, a corporation can make an election under the MN Secretary of State’s office to become a public benefit corporation and particularly specify whether the corporation is a general benefit corporation (“GBC”), a specific benefit corporation (“SBC”), or essentially a combination of the two. Under the Act, a GBC is a corporation that elects to pursue a general public benefit and a SBC is a corporation that elects to pursue a specific public benefit.

The Definitions

Under the Act, a general public benefit is defined as “a net material positive impact from the business and operations of a general benefit corporation on society, the environment, and the well-being of present and future generations.”1

A specific public benefit is defined as “one or more positive impacts, or reduction of a negative impact, on specified categories of natural persons, entities, communities, or interests, other than shareholders in their capacity as shareholders, as enumerated in the articles of a public benefit corporation.”2

Key Points

The few items to note about the Act are:

  1. Currently, only corporations can make this election. Limited liability companies (LLCs) and partnerships do not have the ability to make this election yet under the Act.
  2. There are no tax benefits for making this election to be a public benefit corporation (other than any regular tax benefits the company would receive for donating money to any non-profit organizations). This is NOT an election for non-profit or tax exempt status.
  3. All of the laws that currently apply to corporations formed under Chapter 302A of the Minnesota Statutes still apply to the corporation, except where the law might conflict with the Act under Chapter 304A for corporations that have elected to be a public benefit corporation.
  4. If the business makes the election to be a public benefit corporation, the company must use in its name the appropriate choice of the following: “General Benefit Corporation,” “GBC,” “Specific Benefit Corporation” or “SBC.”
  5. Lastly, the corporation MUST file an annual report with the Secretary of State to provide details of how the company upheld and met its general or specific public benefit. If the company fails to file the annual report, it will result in the loss of the public benefit corporation status.

You can read the full text of Chapter 304A here. Again, the Act is not effective until January 1, 2015. However, if you wish to form a public benefit corporation, or convert an existing corporation into one, contact an attorney to discuss in more detail the rules and regulations required to make the election.

1 & 2 Minnesota State Legislature – Minnesota House of Representatives H. F. 2582

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JudgeOn June 12, 2014, the U.S. Supreme Court ruled on a divisive bankruptcy and estate planning case.  At issue was whether an individual retirement account (“IRA”) that a debtor inherited was exempt from the debtor’s bankruptcy estate under the Bankruptcy Code.  The Bankruptcy Code permits a debtor to protect assets that are in a “retirement account” and exempt from income taxation. [click to continue…]

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Man & Woman at Laptop - iStockSome of the small business clients I work with often want to hire an independent contractor versus bringing on a permanent employee. The use of independent contractors is very attractive to businesses because it can reduce the business’s exposure to employment-related lawsuits and reduce the business’s tax burden (i.e., no income tax withholding, Social Security taxes, Medicare taxes). While it can make sense in many cases to bring on an independent contractor, it is very important that the business discern from the outset whether it is truly seeking an individual that would be better classified as an employee because the risk of misclassifying the independent contractor can bring about serious legal consequences.

Classifying: Independent Contractor vs. Employee

To be clear, an independent contractor is an individual (or business) that provides services or goods as and when required to another business. Independent contractors are usually paid on a freelance basis. Whereas, an employee is hired and compensated to perform specific tasks at the direction of a business on a regular basis. Businesses withhold taxes for employees. Businesses to not withhold taxes for independent contractors, but are required to report to the IRS when it pays more than $600 per calendar year to a specific contractor.

There are a few different tests to determine whether an individual is a contractor or an employee. Minnesota courts tend to use “The Common Law Test”. Under this test, the main consideration is the amount of control and direction a company exercises over an individual. In general, if a business controls only the end result, the individual is likely considered a contractor. On the other hand, if a business controls the means of achieving the end result, then the individual is most likely an employee.

Another test, “The Economic Realities Test”, looks at whether the individual is dependent on the business for his or her economic opportunities. Some of the factors include:

  • The permanency and duration of the relationship
  • The method of payment, whether by time or by job
  • The degree of specialized skill required by the individual
  • The individual’s investment in equipment, materials, or facilities to accomplish the task

Besides the aforementioned two tests, the IRS developed its own 20-factor test to determine when an individual is an employee. The 20 factors have been divided among three categories: 1) behavioral control, 2) financial control) and 3) the relationship of the parties. Behavioral control refers to whether the business has the right to control how an individual performs a specific task. Financial control means whether there is a right to direct or control how the business aspects of the individual’s activities are conducted. Finally, the relationship of the parties pertains to how the individual and business perceive their relationship to each other.

Misclassification

If an individual is misclassified as a contractor, when the individual should be considered an employee, a business exposes itself to:

  • Wage and Hour litigation
  • Liquidated Damages
  • Civil Penalties
  • Punitive Damages/Attorneys’ Fees
  • Benefits
  • Taxes

Given all of the above, it is important for businesses to understand whether they are in need of a contractor or an employee because the consequences of misclassification can be very expensive. Be sure to consult a business attorney or CPA to assist with the proper classification.

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Review, Review, Review!

by Jennifer Santini July 3, 2014 Estate Planning 101

When we assist clients with drafting their estate plans, we try to draft a plan that will grow and evolve with them overtime. However, this does not mean that clients should stick their plans into […]

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A New Development in Euthanasia

by Jamie Held July 1, 2014 Estate Planning 101

Earlier this year, the law making body in Belgium passed a law removing the age restriction on the country’s euthanasia law.  Belgium has allowed euthanasia since 2002.

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The Constant Fear of “Rejection” When Drafting Real Estate Deeds

by Kim Prchal June 25, 2014 Estate Planning 101

When drafting real estate deeds (even though the Minnesota Uniform Conveyancing Blanks forms look relatively simple) there are several statutory-specific rules that inevitably lead to the return of your deed with a “rejection letter” from […]

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Recent MN Tax Changes – Why You Received a Refund from MN

by Erik Doerr June 16, 2014 Taxes

If you are like me, you recently received a second tax refund from the State of Minnesota. Right before that, you also received a letter explaining that you were about to receive the refund and […]

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Basics of Business Formation

by Kate Wells June 11, 2014 Business

Many Minnesota entrepreneurs are well aware that they need to take steps to limit their potential for liability but are unclear about which type of entity is right for them. This post will outline some […]

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Grief

by Jayne Sykora June 9, 2014 Estate Planning 101

During the four years or so that Epilawg has been in existence, there have been countless posts about the guiding principle behind the purpose of this blog: figuring out how to best write your own […]

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Hello, My Name Is…

by Jennifer Santini May 28, 2014 Estate Planning 101

I spent the Memorial Day weekend out of town for a wedding and was joking with some of the other guests that the bride (who is my stepsister) will most likely hire someone to assist […]

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After Hours with Bob Cohen

by Jamie Held May 22, 2014 After Hours

Name: Bob Cohen Employer: Tamar Fink, Inc Position: Principal Location: Mpls, MN Education: B.S.B. Accounting – University of Minnesota How long have you been in your career field? I have been in the life insurance […]

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