OBP News

The First Decision in Forming a Business: What Type of Entity? By: Corey Moore

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Choosing the appropriate entity for a new business is not as easy as one might think. Most people tend to gravitate towards a limited liability company, or LLC, for its relative ease of formation and asset protection, however there are various other entities that can be beneficial for an emerging business.  The various entity types, including C and S corporations, LLCs, and partnerships all have aspects that can be useful to a new business and should be examined before selecting an entity.

Businesses with Multiple Owners

If the new business entity will have multiple owners with different rights and interests when it comes to control, income, business losses, or assets upon liquidation, ownership rights may need to be structured differently for each owner.

If the new entity is a C or S corporation, ownership is limited to company issued stock and those owning the majority of outstanding stock control the business, whereas partnerships and LLCs are flexible and can customize and define control and interests through the entity’s operating agreement. The ability to customize LLCs and partnerships can allow the owners to set up a business structure that can take into account the differences each owner may bring to the business.

Earnings Bailout Potential

Further, it is important for the new business owners to fully understand the earnings bailout potential of various entities. With S corporations, LLCs, and partnerships, it is fairly easy to remove earnings from the business and pass them on to the owners.  In this case the profits generated by the business are taxed directly to the owners, so the distribution of profits in the form of dividends or partnership distributions will not carry tax consequences for the entity.  However, when a C corporation distributes earning to owners, or shareholders, in the form of dividends, the dividend distribution is not deductible to the corporation. Instead, it is double taxed, once to the entity and once to the owner, which can be a huge hit against company profits.  This tax trap can be avoided if the shareholders are employed by the corporation and receive earnings in the form of taxable compensation.  The compensation would then be deductible to the corporation, which results in a tax at shareholder level only.

Business Losses

A new entity can also benefit from utilizing losses generated by the business. The threshold issue is whether the losses should be retained by the entity or passed through to the owners. Losses generated by C corporations are retained in the business and can be carried backwards or forwards to be deducted against earned income.  This can be a valuable tool in lowering the business’s tax liability once the business makes a profit, but the shareholders never benefit from the losses of the business.  In an S corporation, LLC, and partnership, losses can be passed through to the owners.  For example, when losses are anticipated in the first year of the business, passing the losses on to the owners may generate tax advantages if the owners have other taxable income against which those losses can be offset. 

Ability to Restructure

Additionally, the ability of an existing organization to restructure without being penalized can be a helpful tool for a business down the road. For a C corporation looking to restructure, the options are limited.  If it converts to a partnership or LLC, the corporation will recognize gain on all its assets, and the shareholders will recognize gain on the liquidation of their stock, leading to tax liability.  An S corporation and other pass through entities, on the other hand, can convert without triggering the type of gain and tax consequences you would see with a C corporation.

Estate Plan Integration

Although most people do not consider it when starting a business, it is also important to integrate a new business entity with the owners’ estate plan. Owners may want to shift income to a lower tax bracket, freeze or slow down the growth of an estate, or utilize the annual gift tax exclusion.  To make use of these options, LLCs and partnerships provide the best options and flexibility.

Potential of Sale

Finally, although most people will not think about it when beginning a business, it is important to consider the possibility of selling the business or going public. If the business is an S corporation, partnership, or LLC when the assets are sold, the gains realized on the sale of the assets are taxed to the owners in proportion to their interests in the business.  In a C corporation there will be taxes levied on the proceeds at the corporate level and then upon distribution to the shareholders.  The shareholders will pay capital gains tax on the difference between the amount they received in distribution and their individual basis in the corporation’s stock.  While there are ways for C corporations to mitigate their tax liability, it would be easier to sell a business if it was not a C corporation.  However, if the company is funded with outside capital, as many emerging companies are these days, and the plan is to eventually go public, then a C corporation is the only option.  The interests of outside investors and potential gain that can be found on the public market may trump any of the other concerns discussed above.

Deciding which type of entity to use for a new business venture may not be a difficult decision for some, but it is important to look at all the factors before creating the entity. The above discussion does not address every factor to consider nor is it a thorough discussion of the factors mentioned.  The point is to make sure to fully analyze and understand how the choice of entity decision can help or hinder the goals of the business.

Don’t Let Emotional Support Animals Drive You Crazy – By: Brandy Natalzia

If you own or manage residential rental property in Colorado, you may have noticed a growing trend in tenant requests for “reasonable accommodations” in the form of emotional support animals (ESAs). Reasonable accommodations are defined as when a tenant asks a landlord to make a change in an existing rule or policy so they may have an equal opportunity to enjoy the unit and surrounding property. The Federal Fair Housing Act and the Americans with Disabilities Act require landlords to provide reasonable accommodations for tenants with disabilities, and ESAs typically do qualify as such an accommodation. This means that if your property is a “no-pet” property, you would be required to modify your policy to allow an animal that is claimed to be an ESA.

Landlords cannot refuse to rent to tenants with disabilities nor can landlords ask applicants and tenants about the details of any conditions. Sometimes the disability is apparent, such as a tenant in a wheelchair, but many times a person’s disability is not obvious to observers. An ESA is a companion animal which provides therapeutic benefit, such as alleviating or mitigating some symptoms of an individual’s mental or psychiatric disability. ESAs are typically dogs and cats, but may include other animals.

Many homeowners, property managers, and homeowners associations have become all too familiar with health professionals producing letters for individuals seeking to keep an emotional support animal in a property based on an online health questionnaire. Unlike service animals under the ADA, standards governing emotional support animals are virtually non-existent and there are no restrictions on the types of animals that qualify as assistance or companion pets. Associations frequently end up relying on statements made by unlicensed individuals who may be out of state and never even met the individuals making requests.  The standards are vague enough that landlords and property managers may face a risk if they fail to make a proper determination regarding a tenant’s request for a reasonable accommodation.

House Bill 16-1201 (“HB 1201”) was introduced to address a gaping loophole used by tenants to keep dogs and cats in communities which ban them, but was killed by the Democrats in the House Health, Insurance & Environment Committee in March on a 7 to 6 party line vote.

HB 1201 would have regulated how licensed professionals in Colorado must approach providing recommendations for ESAs under the Colorado Fair Housing Act.  In particular, this bill would have required that licensed physicians, physician assistants, nurses, psychologists, social workers, marriage and family therapists, licensed professional counselors and addiction counselors must make the following findings prior to recommending that an individual should be permitted to have an emotional support animal:

  1. The licensed professional must make a finding that the individual requesting the emotional assistance animal has a disability as defined by Colorado law orthat there is insufficient information available to make a determination that the individual has a disability; and
  2. The licensed professional must actually meet with the individual requesting an emotional support animal IN PERSON, prior to making a finding of whether the person has a disability which necessitates the emotional support animal.

This bill would have all but done away with the concept of online ESA approvals that require little more than a valid credit card to obtain. It would have given landlords a greater ability to confirm a tenant’s true disability and would have decreased the current abuse of the existing policy.

While House Bill 1201 has been defeated, there is now a new bill (House Bill 16-1308) that has been introduced and referred to the Judiciary Committee.  Federal and state law require places of public accommodation to allow service animals trained to do work or perform tasks for a disabled person.  Under this bill, it would be a misdemeanor for a person to intentionally and fraudulently misrepresent an animal in his possession as his service animal for the purpose of obtaining any of the rights or privileges granted by law to persons with disabilities that have service animals.  This bill does not have the same type of impact on landlords since it applies to places of public accommodations, but further indicates that whether the issue is emotional support animals or service animals, there is a growing legislative reaction to perceived abuses of statutes designed to help persons with disabilities.

Many of the more recent court cases involving landlords, property owners, tenants, and animals center on the laws, rules, and regulations about ESAs, not service animals. To outsiders, it is difficult to distinguish between an ESA and a pet. As a landlord, it can be difficult to ensure that you are following federal, state, and municipal laws regarding reasonable accommodations. However, even if you believe you are in compliance with the law, it does not prevent an applicant or tenant from filing a discrimination claim if you deny the reasonable accommodation request. If a prospective tenant files a complaint with HUD, which is usually turned over to the Colorado Civil Rights Division (“CCRD”), you are required to thoroughly respond to the complaint in a timely manner. This response can be time-consuming with requests for documentation, telephone interviews, rebuttals, etc. If the CCRD finds probable cause for discrimination, there is a mandatory conciliation that the landlord and tenant must attend, at which time the CCRD will attempt to negotiate a settlement between the parties, which usually involves a monetary payment to the tenant. If that conciliation does not result in a resolution, the matter must then be set for a trial in front of an administrative law judge.

In general, the consequences of denying a reasonable accommodation request can vary depending on location. If you find yourself with a request for a reasonable accommodation, your existing community pet restriction policies are likely inapplicable and the consequences of denying a request could be costly, both in time and money. The best course of action for most landlords is to seek legal counsel before responding to these types of requests.

Involving Litigation Counsel Early on in a Dispute Can Help Keep You Out of Court- By: Jennifer Lynn Peters

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Otis, Bedingfield & Peters, LLC attorney Shannan de Jesús appointed to the Greeley Philharmonic Orchestra Board of Directors

1Otis, Bedingfield & Peters, LLC is proud to announce that attorney Shannan de Jesús has been appointed to The Greeley Philharmonic Orchestra Board of Directors.

The Greeley Philharmonic Orchestra is a not-for-profit organization, in its 105th season. It is the oldest orchestra in the West. As a board member, Shannan will help plan for upcoming seasons and help grow support for the orchestra. Shannan will also participate on the promotional subcommittee.
The Greeley Philharmonic Orchestra provides captivating and uplifting programs for a great evening out. The longevity of the orchestra is a result of their commitment to providing wonderful performances.

“I am excited about joining the Greeley Philharmonic Orchestra’s Board of Directors and working with others who are passionate about giving back to the community, promoting the arts, and sharing their love of classical music,” said Shannan de Jesús.

Ms. De Jesús’ practice with Otis, Bedingfield & Peters, LLC focuses on trademark and related intellectual property litigation, and business and probate litigation.

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Otis, Bedingfield & Peters, LLC provides a range of legal services throughout Northern Colorado. OBP has 14 attorneys spread across its two offices in Greeley and Loveland. For more information, contact Shannan de Jesús at sdejesus@nocoattorneys.com or Jennifer Lynn Peters at jpeters@nocoattorneys.com or call 970-330-6700 or visit www.nocoattorneys.com.

Otis, Bedingfield & Peters, LLC attorney Christian J. Schulte appointed to the Greeley Chamber of Commerce Board of Directors

christian-120x180 2Otis, Bedingfield & Peters, LLC is proud to announce that attorney Christian J. Schulte has been accepted to The Greeley Chamber of Commerce Board of Directors.

The Greeley Chamber of Commerce is an investment organization that is driven to meet the needs of the businesses in our community. The chamber is a great source of information for assisting and promoting businesses.

The Greeley Chamber of Commerce Board of Directors develops and oversees the implementation of the Chamber’s Strategic Plan. They identify policies and initiatives for the benefit of all Chamber investors.

“I am truly pleased to be involved with the Greeley Chamber, because it does so much to help our city thrive. It’s a great group of people to work with, and I’m looking forward to doing my part,” said Christian J. Schulte.

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Otis, Bedingfield & Peters, LLC provides real estate law and business law services throughout Northern Colorado. OBP has 13 attorneys spread across its two offices in Greeley and Loveland.  For more information, contact Christian J. Schulte at cschulte@nocoattorneys.com or Jennifer Lynn Peters at jpeters@nocoattorneys.com or 970-330-6700 or visit www.nocoattorneys.com.

 

Fred L. Otis Honored for Excellence in Real Estate Law

Mr. Otis saw law as a way to serve people in his community

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GREELEY, CO, January 20, 2016, Fred L. Otis, Attorney of Otis Bedingfield & Peters, LLC, has been recognized by Martindale-Hubbell for showing dedication, leadership and excellence in real estate law and for holding an AV Preeminent Rating for more than 15 years.

“Fred has long been the go-to real estate lawyer in Northern Colorado,” said his partner Jennifer Lynn Peters. “It is nice to see him getting recognized on a national level for his long-standing commitment to excellence in real estate law.”

Mr. Otis is currently a managing member of the law firm of Otis, Bedingfield & Peters, LLC, where he routinely represents clients in all types of real estate transactions. He also works closely with the firm’s 12 other attorneys and is a champion of numerous community projects throughout Greeley and Weld County.

As an attorney, Mr. Otis is particularly skilled in the field of real estate law, and he is regularly responsible for handling commercial real estate and business transactions. He is admitted to practice in Colorado and before the United States District Court for the District of Colorado, the 10th Circuit Court of Appeals, and the U.S. Supreme Court.

During his over 40 years of practice as a real estate lawyer in Greeley, Colorado, Mr. Otis also served as a municipal court judge for the City of Greeley from 1979-1985, and as a director of the Northern Colorado Legislative Alliance from 1992-1997. He was a member of the Commission on Judicial Performance for the 19th Judicial District from 2000-2007, and he served on the Weld County Planning Commission from 1978-1983, and as chairman of the commission in 1982. Mr. Otis also taught real estate law at Aims Community College from 1977-1979. Prior to entering private practice, Mr. Otis served as a special agent for the Federal Bureau of Investigation from 1971-1976.

Looking back, Mr. Otis became involved in his profession because he enjoys serving people and wanted to serve more; he saw the law as a way to accomplish this, and he earned a JD from the University of Arkansas in 1972 to achieve his goal. He was recently inducted into Worldwide Registry and also maintains affiliation with the Weld County Bar Association and the Colorado Bar Association. As a testament to his sterling reputation, Mr. Otis maintains an AV-Preeminent Rating with Martindale-Hubbell, which he has held since 2001. Mr. Otis is looking forward to continuing to serve his clients throughout Northern Colorado.

For more information about Mr. Otis or Otis Bedingfield & Peters, LLC, visit http://nocoattorneys.com.

Business Attorney Corey W. Moore joins Otis, Bedingfield & Peters, LLC

Corey Moore 120X150Corey W. Moore joins OBP as an associate attorney in our Loveland office. Born in Broomfield, Colorado, Corey most recently worked as a law clerk at Donahoe & Young, LLP in Valencia, California, where he handled bankruptcy, business, and real estate matters.

A former middle and high school history teacher, Corey holds a BA in History from the University of California, Berkeley and earned his J.D. from Pepperdine University School of Law, where he focused on estate and tax planning. During his tenure at Pepperdine University, Corey gained valuable experience working in-house at a global fixed-income investment firm in London, a litigation and transactional firm in Denver, and with the Los Angeles County District Attorney’s Office Hardcore Gang Division. He also served as a fellow for Pepperdine’s Geoffrey H. Palmer Center for Entrepreneurship and the Law, where he counseled community members in developing and implementing business plans.

“We are happy to welcome Corey back to Colorado,” says managing member Tim Brynteson. “Our firm’s estate planning and business succession practice is growing and we are excited to have Corey add his knowledge and personality to the team.”

Corey is admitted to practice law in Colorado and is a member of the Colorado and American Bar Associations. His practice at OBP will focus on business and real estate transactions and estate planning.

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Otis, Bedingfield & Peters, LLC provides real estate law and business law services throughout Northern Colorado. OBP has 13 attorneys spread across its two offices in Greeley and Loveland. For more information, contact Corey Moore at cmoore@nocoattorneys.com or Jennifer Lynn Peters at jpeters@nocoattorneys.com or 970-330-6700 or visit www.nocoattorneys.com.

Good for You: Windsor resident named to BizWest 40 Under Forty

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Look who made Windsor Now news! Congratulations Lee Morehead! Check out the article at the following link:

http://www.mywindsornow.com/news/18736485-113/good-for-you-windsor-resident-named-to-bizwest

Ruling on Endangered Species Act listing has wide implications

Kolanz-John[1]By: John Kolanz on September 18, 2015

Oil and gas and agricultural interests in Colorado and four nearby states celebrated a Texas federal judge’s ruling last week vacating Endangered Species Act protections for the lesser prairie chicken. Environmental interests were less enthused. While the ruling may ease the regulatory burden for certain entities in the region, its real significance could reach much further.

The judge found that the U.S. Fish and Wildlife Service misapplied the factors that it must consider to determine whether a species qualifies for ESA protection (i.e., “listing”). The Act requires FWS to consider, among other things, the adequacy of existing regulatory protections.  If non-ESA mechanisms sufficiently protect a species, it should not qualify for listing.

The ESA is widely considered the strictest of all environmental laws. Once its protections attach to a species, the Act can severely limit activities that may harm the species or its habitat. In the case of the prairie chicken, this had implications for routine oil and gas and agricultural operations within the species’ range.

In an effort to avert a listing, Colorado, Texas, New Mexico, Oklahoma and Kansas teamed with private interests to create a comprehensive rangewide conservation plan for the prairie chicken.  When implemented, the plan would raise funds through enrollment and mitigation fees, and use these funds to develop conservation measures. Landowners would dedicate “offset land” consisting of prairie chicken habitat to be enhanced and preserved to counter unavoidable impacts to habitat elsewhere in the range. Landowners would receive payment and other economic incentives to provide offset land to the program.

Despite these efforts, FWS listed the bird as threatened in April 2014. At the time of the listing decision, the plan had not yet been implemented.  Therefore, the service determined that participation in the plan, as well as its implementation and funding, were too uncertain to guarantee protection to the bird. FWS further concluded that not listing the bird would discourage participation in the plan. The judge rejected this analysis an improper application of the service’s own policy on evaluating forthcoming conservation efforts during listing decisions.

The judge held that for FWS to give weight to such emerging plans in its listing analysis, it need only find that the plans are likely to be implemented and effective. In assessing the likelihood of implementation, FWS should consider prior industry and landowner participation in similar conservation efforts, and whether the plan creates a “good deal” for landowners in which they will want to participate. The judge held that the Service’s application of a stricter standard rendered the lesser prairie chicken’s listing invalid.

The direct effect of the ruling will take some time to sort out. For instance, it is somewhat unclear whether it vacates the lesser prairie chicken’s listing only in Texas, or in all five states where the bird is present.

However, its larger impact will go beyond the present case.  For starters, the ruling could influence the upcoming listing decision for the greater sage grouse, due this month, as well as the pending appeal of the recent decision to list the Gunnison sage grouse. Both have significant implications for Colorado.

Moreover, FWS is scheduled to make many more listing decisions for species across the country.  Comprehensive mitigation plans have become a popular mechanism to help avoid listings, but have had varying success. The ruling should reinforce the importance of state, local, and private entity cooperation in developing comprehensive plans to protect vulnerable species.  Properly crafted and implemented, these plans can provide numerous benefits.

They can create markets for property owners, who often bear a disproportionate burden under the Act, to get paid for the ecosystem benefits their lands provide. Moreover, these plans offer far more certainty to the regulated community in terms of the cost and timing of activities and projects that would otherwise require ESA review.

The plans also can help local and state governments minimize economic disruptions for their citizens and businesses. They can further help ensure that FWS allocates its limited resources to those species truly needing ESA protection. Finally, at-risk species can benefit from early conservation efforts that could be implemented more quickly than those produced through individual ESA review.

While opportunities presented by each species will vary, in many cases, the potential benefit of encouraging such plans is widespread and substantial. What some may consider a defeat for the lesser prairie chicken actually could be a win for all.

John Kolanz is a partner with Otis, Bedingfield & Peters LLC in Loveland. He can be reached at 970-663-7300 or via email at JKolanz@nocoattorneys.com.