Bottom Line Business Insights : Maryland Business Lawyer & Attorney : Wagonheim Law Firm : Mergers & Acquisitions & Contractual Negotiation

By Michael Lentz

In an unfortunate rite of fall, Maryland law requires the State Comptroller “immediately after September 30 of each year,” to prepare, and send to the State Department of Assessments and Taxation (“SDAT”), a list of every Maryland corporation that has not paid any tax due (other than a purely local tax) by October 1 of the year following the year in which the tax was due. The requirement also applies to Maryland Limited Liability Companies (LLCs), and includes a failure to make any required unemployment insurance contributions or reimbursement.

When SDAT receives the list from the Comptroller, it sends each entity on the list a notice that the entity’s charter will be forfeited if the taxes due are not paid by the date stated in the notice. Unfortunately, mailing of the notice is sufficient – failure to receive the notice does not affect or delay the forfeiture or annulment of corporate existence. 

Most companies, though, find another aspect of the forfeiture law even more troubling, as it is a trap for the unwary business owner. Maryland entities, as well as those formed outside of Maryland but subject to jurisdiction in Maryland (which likely means doing business in Maryland) must file an annual report, and pay the annual report fee.  Because the form, found here, is called a personal property tax return, many business owners understandably believe that they need not file the form unless the business owns property in Maryland. 

Unfortunately, this is not so. The filing requirement (and $300 annual fee) apply to domestic and foreign corporations, limited liability companies (LLCs), limited liability partnerships (LLPs) limited partnerships (LPs, Business Trusts, and Real Estate Investment Trusts (REITs), whether or not they own personal property in Maryland. Immediately after September 30 of each year, the Comptroller certifies to the SDAT a list of entities that have not filed their personal property returns. The SDAT then issues a “proclamation” forfeiting the charters of all non-compliant entities. When a forfeiture occurs, the SDAT will mail notice of forfeiture to the affected entity, at the entity’s address on record with the SDAT.

There are two significant consequences to forfeiture: first, any person who knowingly transacts business in the name of a corporation whose charter has been forfeited and not revived is guilty of a misdemeanor “and on conviction is subject to a fine of not more than $500.” Second, once a corporation’s charter is forfeit, the corporation in its own name can no longer maintain or defend any suit in any Maryland court. Rather, the directors of the corporation become trustees for the assets of the corporation. 

Revival of a forfeited charter is a fairly simple matter. First, the forfeited corporation must correct the problem that led to the forfeiture. Once this is done, the corporation should file Articles of Revival (form and instructions here). For an LLC, LLP, or LP, file Articles of Reinstatement (form and instructions here).    

As a matter of careful housekeeping, the forfeited entity should, after revival, adopt resolutions expressly ratifying all actions taken during the period for which it was without a charter. 

Bottom Line:  Make sure that your business has paid all necessary taxes and has filed a Personal Property Return for 2011, even if the business does not own any property. If you are unsure, you can check the SDAT website listing entities subject to forfeiture.   You can also check whether your company entity is in good standing via the SDAT’s Charter Search Page.  If your entity has been forfeited, revive it promptly; this will avoid many headaches later.

Check out our Mobile App, BizRx in the Apple Store to see how your business checks out!

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This week, we decided to reintroduce one of our archived, popular blogs. Let us know what you think!

Employees are expensive; misclassifying them as independent contractors is more so.

Most state laws require employers to pay for their employees' workers' compensation coverage and unemployment insurance...at a minimum. The Federal government imposes additional (and very expensive) requirements. Specifically, employers must:

• Pay Social Security contributions of 6.2% of salary up to $106,800 (in 2009)
• Withhold 1.45% of all earnings for Medicare
• Pay overtime to eligible employees
• Provide unpaid leave under the Family and Medical Leave Act for those companies to which the Act applies.

Independent contractors, on the other hand, receive 1099 forms at the end of the year and are responsible for their own taxes. Employers contribute nothing.

It is tempting, therefore -- particularly in difficult economic times -- for employers to classify people as independent contractors and save both the money and the headache of withholding taxes insurance payments, and contributions. But it's not that easy. The IRS looks very carefully at each situation to determine the exact nature of the relationship between the company and the individual.  For the most part, it comes down to a question of control. 

The IRS and most states examine the following factors to determine the nature of the relationship:

1. The company's right to direct or control how the work is being performed
2. Who establishes training programs and whether they are mandatory
3. The source of the tools (including computers and software) used to perform the work
4. The location where the work is performed
5. Whether the company has the right to assign additional projects
6. Whether the hired party hires and pays his or her assistants or support staff
7. The company's right to determine when the work is performed and/or set certain hours

Bottom Line: If your company has the right to control or direct what is being done, how it is being done, and when it is being done, your company is most likely and employer.  

Most importantly, a wrong answer can be extremely expensive. Companies which misclassify employees and independent contractors can be subject to huge tax bills for unpaid taxes as well as penalties for failure to file required tax forms and, in certain circumstances, failure to adhere to Federal and State statutes such as the Family and Medical Leave Act and Title VII of the Civil Rights Act of 1964, as amended (applicable to employers who have 15 or more employees). In addition, misclassified employees can pursue their own claims against the company for any losses they may have sustained.

Both companies and individuals can ask the IRS to make a determination of employment status by filing with the IRS Form SS-8:  Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

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By Guest Blogger, Robert Porter, Attorney

Hurricane Irene left my family without electricity like millions of others along the East Coast. On Sunday morning, at exactly 7:00 am, a neighbor’s tree crashed down on the power line  that serves our house and a few others. Unlike many, our outage lasted for over a week (roughly 7 days, 13 hours and 35 minutes – not like we were counting or anything). We were better off than some during that week however – our kind and generous neighbors ran an extension cord through our back yards, which allowed us to keep our refrigerator, cell phones, computers and re-chargeable batteries going.

We made the best with what we had – we made pancakes and bacon in a skillet on the grill, we “explored caves” with our sons and their flashlights and finally got to use the weather radio that we bought years ago. By Day 7, though, we had had enough, and we started thinking that someone (more specifically, the neighbor whose tree fell) should be responsible for the damage done.

The law in Maryland regarding damage done by trees is both clear and unsettled. Marylanders have a clear right of self-help in cases where a neighboring owner’s tree endangers their property. A land owner has the right to “cut encroaching branches, vines and roots back to their property line” to prevent the neighboring owner’s tree from causing damage; Melnick v. C.S.C. Corp., 312 Md. 511, 514 (1988). Self-help does not allow an owner to enter onto the neighbor’s property or cut down the neighbor’s tree, but it does allow an owner to cut limbs and braches up to the common boundary.

The unsettled question that the Court of Appeals did not address in the Melnick case is whether a tree’s owner should or would be held responsible for damage to another’s property if the owner knew or had reason to know that the tree was dead or dangerous. It’s certainly possible that a court would hold the neighbor responsible in that situation. What is definite, however, is that any attempt to find out by filing suit would be expensive…in both money and goodwill.

Before the crew from Florida restored electrical service to our house, the question of who was to blame seemed important. As soon as the lights came on, though, we decided not to focus on the inconveniences of being (mostly) without power for a week. Instead, we decided to clean up the branches that fell on our side of the fence, to thank our wonderful neighbors for their generosity and to enjoy the memories of pancakes and bacon on the grill. Being without electricity can certainly make you feel powerless, but it also can empower positive choices and decisions, and the choice is ours.

Did you find yourself in a similar situation? Tell us what happened!

Bob is a real estate and business lawyer concentrating his practice on commercial, investment, and institutional property. He handles business planning and implementation strategies, including business entity (ownership structures) and real estate transactions. Bob also concentrates on projects involving development and conservation of real property, including development agreements, easements, restrictive covenants, and contracts.

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Unlike many, I don’t see the Baltimore Grand Prix as defined by a few races and the Labor Day weekend. The Baltimore Grand Prix, if we are determined to do it right, is about the branding of a still great city. It is a step in taking back our image from Homicide and the Wire. And the success or failure of the Baltimore Grand Prix will not be determined by a tally of weekend hotel stays and restaurant tabs. It will be determined by follow up.

Much has been written about the downsides. We’ve heard from disgruntled residents, people worried about the noise, the perceived misdirection of funds, and the diversion of government from “what it should be doing.”

I get all those things…and I respectfully disagree.

Government is about larger things; and larger things do not get accomplished without ruffled feathers. But it’s more than that. Thanks to HBO, Baltimore has become known as a place where exciting things happen…but most of them are unsolved. That’s not how it should be.

The Mayor has to be Baltimore’s champion – not just its steward. And it takes more than slogans on repainted benches. It takes some excitement – something eye-catching.

Now I know that there are people out there anxious to report the verdict on the Grand Prix first thing Tuesday morning. Those people remind me of folks who step on the scale after one workout expecting to see a measurable difference. You can’t. You get results by continuous effort over a long period. And you begin to notice results in little ways. A looser collar here, a bit more energy there. Not risking collapse by walking up the steps to the third floor. 

Similarly, the Grand Prix is (or should be) part of an effort to showcase the city as a destination. A place where businesses should be. Anyone with any understanding of marketing knows that one initiative does not establish an identity – not for a company and not for a city. 

I applaud the Mayor for taking a chance; for giving Baltimore a shot to be known for something beyond the headlines.

There is an old saying that sports headlines trumpet man’s successes while news headlines only trumpet his failures. 

 

If that’s the case, can anyone argue that Baltimore needs more sports?

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