In Michigan, corporations (including non-profits) are required to have a board of directors.  The board is responsible for overseeing the affairs and activities of the company or organization.  The board of directors is elected by the shareholders of a corporation, including the chairperson of the board of directors.  The company’s bylaws will dictate how the board operates.  The bylaws will also indicate how many directors need to be on the board.  This can be as few as one director, which is very common for a single shareholder corporation. 
One of the more important things that the board of directors is responsible for is selecting the company’s officers – president, secretary, and treasurer.  The officers are responsible for the day-to-day affairs of the company and running the business.  Michigan requires an annual meeting of directors to select each year’s officers.  This is usually done on the first Tuesday in March each year.  Michigan also requires there to be an annual meeting of shareholders whereby the directors are elected each year. 
The bylaws of the company will also dictate how often the board will meet.  The bylaws can be set up so that consent documents can be prepared and signed every year in place of having actual, physical meetings of the directors and the shareholders.  This is typical for companies that have a single officer, shareholder, and director.  On the other hand, some organizations have ongoing affairs that need to be addressed by the board of directors, so monthly or bi-monthly meetings are necessary.  For other organizations, annual meetings are all that is needed.
For a company that requires an actual, physical board meeting, the protocol for the meeting varies based on the organization.  Typically, an agenda for the board meeting will be sent out to the board members in advance of the meeting.  Often, this will constitute notice of the meeting to the board of directors pursuant to the bylaws.  The agenda will include reports of the officers and committees, new business that the board needs to discuss, and old business from a prior meeting.  The secretary will take notes (minutes) of the meeting to report back to the shareholders what the board discussed and decided.  The minutes also memorialize the board meeting and should be kept with all important company records.  The minutes will include all motions brought in front of the board, notes on the discussion, who seconded a motion, and whether or not the motion passed.  Motions are required to be made, seconded, discussed, and voted on to adopt (or deny) significant proposals before the shareholders and directors, such as the organization borrowing funds, potential mergers or sale, adding a new line of business, etc.  Typically, the “significant” events are outlined in the company’s bylaws.
These formalities are imperative to maintain proper legal standing for a corporation and keep separation between the entity and its shareholders, officers, and directors as individuals. If these formalities are not complied with, the personal assets of shareholders, officer and directors may be at risk despite the purported protection of the corporate form.  The company should also be sure that its business insurance policy includes officer and director coverage.

Michigan has some unique tax provisions which can negatively impact the sale, transfer, and/or purchase of real estate. Being aware of these rules is important when making decisions with regard to selling, purchasing, and gifting real estate in Michigan.
In addition, there are several Federal and Michigan tax provisions to be aware of when selling or transferring real estate.
Under Michigan law, the increase in a property’s value for property tax purposes cannot exceed the rate of inflation. This value, known as the “Taxable Value”, is used for property tax calculation and assessment. After the economic reverie following the Great Recession, it is quite common for real estate in Michigan to have a lower Taxable Value upon which property taxes are determined, as compared to the Assessed Value, which is not limited by the rate of inflation.
If property is sold or transferred in Michigan, the purchaser will pay property taxes on the assessed value of the property, as opposed to the taxable value. This sale or transfer permits the municipal taxing authorities to mark-up the value of the property for tax purposes, causing the purchaser to pay much higher property taxes than the seller had been paying. This is known as “uncapping” and it can be quite expensive. On investment and rental real estate, uncapping can factor heavily into the annual carrying cost of the real estate.
There are some exceptions to uncapping, many of which are quite complex. The most common exceptions include transfers between husband and wife, transfers from one family generation to the next, corporate real estate involved in a transaction which is a tax-free merger or consolidation, transfers pursuant to a court order, and transfers out of a probate estate to the decedent’s heirs and beneficiaries.
A transfer out of a living trust to a beneficiary will result in uncapping unless the beneficiary is the person who set up the trust or that person’s spouse.
Michigan has a State Real Estate Transfer Tax and a County Real Estate Transfer Tax. The taxes are levied upon the sale of real estate. Together, these taxes are levied at the rate of $8.60 for every $1,000 of value or sale price or fraction thereof. Therefore, the sale of a home for $300,000 will trigger a tax on the seller of $2,580.
There are some exceptions to these taxes as well. One exception that is particularly prevalent is a transfer where no money changes hands. This can occur when real estate is gifted, when it is transferred in satisfaction of a judgment of divorce, and when a spouse transfers the real estate to himself or herself and his or her spouse. Another common exception is transfers made by U.S. Federal agencies as sellers, such as the Department of Housing and Urban Development and the Department of the Interior.
Other exceptions include the entering into of a land contract, a transfer from a parent to a child, transfers to a limited liability company if the ownership percentages in the company are equal to the ownership percentages before the transfer, and a transfer from an owner to a new joint tenant where the owner remains a joint tenant.
For Federal income tax purposes, gain on the sale of real estate is taxed at either a flat 15% or 20% rate. High income taxpayers pay capital gains tax at the 20% rate.
For Michigan tax purposes, gain on the sale of real estate is taxed at the rate of 4.25%. Thus, the combined Federal and Michigan tax rate on gain on the sale of real estate is either 19.25% or 24.25%.
There are some exceptions to the imposition of the capital gains taxes. Married taxpayers can exclude up to the first $500,000 in gain on the sale of their principal home. Single taxpayers can exclude up to $250,000 in capital gain.  The principal residence exemption can be used on the principal residence as long as the owner occupies the home for at least two years within the five year time period immediately before you sell it.
Other exceptions include “like-kind exchanges” and transfers of real estate to a company owned by the person transferring the real estate.
Certain situations give rise to ordinary gain as opposed to capital gain. This includes gain from the sale of business or rental real estate, upon which the depreciation deduction was taken. Gain from the sale of business and rental property will be partially taxed as ordinary gain and not at capital gains rates. This places the rate on the ordinary gain portion as high as 39.6%.
In order to avoid the pitfalls of selling or buying real estate, seek the advice of a qualified attorney. A real estate attorney can often structure the transaction so as to avoid, or at least minimize, the negative impact of the Michigan and Federal tax rules impacting real estate transactions.

Many business owners seek to form a formal business entity for the primary purpose of protecting their personal assets from any future legal claims there may be against their business. Although forming a corporation or a limited liability company (“LLC”) is surely a step in the right direction, this protection can be lost if the business owner does not comply with other formalities required by Michigan law. These formalities must be complied with in order to ensure that a potential lawsuit or creditor’s claim against the business does not reach the business owner’s personal assets.
In a civil lawsuit, a business defending a lawsuit may lack sufficient funds to pay the entire judgment that is awarded to the plaintiff. In order to ensure recovery for the full amount, plaintiffs will often argue a legal theory called “piercing the corporate veil” in order to allow the plaintiff to move beyond the assets of the business and recover directly from the personal assets of the business owner. This is not to say all businesses are at risk from this. Piercing the veil is only proper where the court perceives there is abuse of the corporate form, which is simply another way of saying that corporate formalities are not being followed by the business owner. It is also important to note that under Michigan law, piercing the veil is applied to LLC’s by courts in the same manner as corporations.
In addition, a plaintiff may name the individual directors and officers of a corporation (or members and manager of an LLC) as defendants in a lawsuit in order to have additional pockets to reach and to intimidate the directors and officers into settling the case. The best means to protect against this is for the business owner to add directors and officers liability coverage to the general liability insurance policy maintained by the company. This coverage will protect directors and officers (to the same extent as the business) for the types of claims and lawsuits the general liability policy covers.
Outside of engaging in illegal acts such as fraud, here are a few of the most common reasons Michigan courts may permit a plaintiff to pierce the corporate veil:
1.   Absence of Corporate (or LLC) Formalities: 
This is most commonly a problem for businesses that have attempted to create an entity, but have not retained an attorney who specializes in assisting business owners and entrepreneurs. In starting their business, many entrepreneurs will pay an attorney a one-time fee to prepare the necessary documents to form a corporation or LLC. Sometimes business owners who have attempted to set up a corporation or an LLC on their own only use inception documents consisting of only a short document called the Articles of Incorporation (for corporations) or Articles of Organization (for LLCs).   There are several other documents, however, that must be prepared beyond these Articles to ensure all formalities are met.  Additionally, there are documents required to fulfill these formalities every year the company is in existence.  An experienced business attorney will prepare all of the required documents for the business.
2.  Commingling Personal and Business Funds:
    If you operate your business under a corporation or LLC, it is imperative that you open a separate bank account under the name of your business entity. It is equally important that all transactions of the business flow through the business’s bank account and none of the business transactions flow though the owner’s personal bank account. It is equally important that none of the owner’s personal expenses and transactions flow though the corporate bank account. Although personal funds may be contributed to the business as a capital contribution, for all intents and purposes, the contribution must be treated as a formal transaction (ex: shareholder exchanges cash for stock in the corporation).
3. “Undercapitalization”, a/k/a Siphoning Funds to a Shareholder (Corporation) or Member Interest Holder (LLC):
A business must maintain enough capital to sustain itself as a separate entity and not operate as a mere façade for the personal operations of a shareholder. Some small business owners, especially those who operate a single-shareholder corporation or single-member LLC, may distribute all annual profits of the business to themselves as dividends, leaving their business’ bank account barren. It is a violation of Michigan law for a business entity to pay all or almost all of its cash to its owner(s) if doing so leaves the business unable to pay its creditors in the normal course of business.
In this situation, courts are reluctant to allow business owners to shield their personal assets, and may reach the personal assets of the business owner to satisfy a judgment. The simple solution here is to keep the appropriate amount of capital in the business to support its operations and run such operations independent of the personal needs of the business owner(s).
The first step is to engage an attorney who specializes in assisting business owners and entrepreneurs and direct them to do a review of your business documents and operating procedures. By putting a plan in place to create or update these documents to comply with current law, a savvy business owner can ensure their business complies with all requisite formalities, as well as ensure that the business is being run and managed in a way that does not abuse the corporate (or LLC) form under Michigan law. 

Some of the most common questions we receive from estate planning clients are regarding which assets should be owned by or payable to their Revocable Living Trust.  The process of transferring assets into a Revocable Living Trust during life or upon death is known as “funding” the Trust.  The Revocable Living Trust funding process is a crucial, yet often overlooked, step in the estate planning process. Properly titling and setting up beneficiary designations on your bank accounts, investments, and other assets ensures that if you become incapacitated during life, or pass away, your relatives are able to handle your affairs without initiating a probate court proceeding.  Since every estate planning situation is different, if you have specific questions about whether or not your assets are properly held in order to avoid probate, you should consult with your estate planning attorney.  With that being said, the following are some general considerations to make when determining ownership and beneficiary designations if your estate plan is complete and includes a Revocable Living Trust Agreement.
How do I fund the Trust?
Funding your Revocable Living Trust is the last step in the estate planning process and it is done after your Revocable Living Trust is executed and in existence.   This includes making sure that all of your assets are properly designated so that they will either pass to your Revocable Living Trust or a living beneficiary when you pass away.  The key item to remember is that if an asset is owned by an individual and not by their Revocable Living Trust, or their Revocable Living Trust is not the named beneficiary of the asset, that asset will require probate when the individual dies, even if they have a Will and a Trust.
Therefore, it is important that when you meet with your estate planning attorney, you disclose all of your real estate ownership interests, business ownership interests, and the types of accounts in which you hold your liquid and investment assets.  At the end of the estate planning process, Williams & Knack, P.C. provides you with a letter detailing the necessary steps to fund your Revocable Living Trust that are tailored to your specific situation, and follows your wishes in terms of how property is to be distributed to your beneficiaries upon your death. 
When should I fund the Trust?
The answer is right away, but many people have questions about whether assets need to be owned by their Revocable Living Trust while they are still living.  Generally, the answer is typically no, unless your situation includes special circumstances.  Remember that properly funding your Revocable Living Trust requires proper beneficiary designations and that does not necessarily mean that there will be any change in account ownership.  The instructions our firm provides in the letter referenced above will properly accomplish funding the Trust, but only if they are followed completely and accurately.
Are there any assets that should not be put into the Trust when I die?
The answer to this question depends on your financial and family situation, but generally we do not recommend naming a Revocable Living Trust as a beneficiary of any IRA, 401(k), or other “qualified” retirement funds and annuities. The reason for this recommendation is there are significant income tax advantages to naming your spouse, your adult children, or other persons as the beneficiaries of these types of accounts.  A living beneficiary can continue to defer the distribution and withdraw the balance of these accounts slowly over a period of years.  The amount they will be required to withdraw is based on certain factors including your age when you die and the beneficiary’s current age, life expectancy, and the beneficiary’s relationship to you as the account owner.  Alternatively, if you name your Revocable Living Trust as the beneficiary of this account, when you die, the Trustee will likely be required to liquidate and distribute the funds in the account within five years from the date of your death.  The assets in the account will then be taxed all at once, and as a consequence, will be subject to the higher taxation rates for Trusts. Furthermore, the assets will not be able to earn interest, dividends and capital gains, compounding tax free.       
Something to keep in mind, however, is that if your situation includes minor children or a special Trust for amenities for a beneficiary with a disability or if it is not your intention to have your beneficiary have complete access to the funds immediately upon your death, this recommendation would not apply to you.
As indicated, funding your Revocable Living Trust is specific to your own personal, family, and financial situation.   In addition, if you obtain a new account or a new piece of property, you need to take the steps to fund your Revocable Living Trust (or designate a beneficiary) with those accounts and assets as well.  We recommend that you confirm your beneficiary designations at least every few years to make sure that none of your assets will fall to probate.  If you have questions regarding funding your Revocable Living Trust and designating beneficiaries, please do not hesitate to contact our office directly.   

Often, people or companies that rent real estate get into trouble with a tenant.  There are numerous problems that can arise as a landlord – both with residential tenants and commercial tenants.  A landlord should have the proper protection by having a professionally drafted, case-specific lease that conforms with state, county, and municipal regulations and statutes.  There are many things that need to be present in most – if not every – lease agreement.  This includes items such as a description of the premises, rent amount, payment specifics, the county where a collection or eviction suit can be brought, etc.  In addition, every piece of real estate is unique and comes with its unique set of concerns and issues.  If there is a specific issue with a certain piece of property, it needs to be addressed in the lease.  A lease needs to function as both a sword and a shield.  It needs to protect the parties, both proactively when the other party does not perform and defensively when the other party attempts to come after (them) owner/landlord under the lease. A bit confusing – can you name the parties?
Landlords much too often use a boilerplate lease that they find on the internet, receive from a realtor, friend, or wrote themselves.  While it is certainly better to have something instead of nothing, the leases that we see that are not properly drafted can be dangerously lacking.  One example that we have seen recently is a commercial lease that did not include a default provision.  The lease neither defined what it meant for the tenant to be in default of the lease, nor did it dictate the landlord’s available remedies. This left the landlord vulnerable when the tenant ceased making rent payments. 
It is important for a landlord to protect itself by building certain items into its lease agreement. Michigan law requires that a residential lease contain certain specific lanaguge. Michigan law also requires that the landlord and tenant have an inventory checklist and itemized list of damages.  All of these documents work together to allow the landlord remedies from the tenant, as well as protect the landlord if a tenant attempts to make a claim that is not within the purview of the lease. All of these documents work together to allow the landlord remedies from the tenant, as well as protect the landlord if a tenant attempts to make a claim that is not within the purview of the lease.
Another bad situation that is made worse by having a poorly drafted lease is when a residential lease is used with a commercial tenant.  We have seen this situation too often, which can be detrimental to a landlord when there is an issue with a tenant.  There are certain items that need to be included or addressed in a commercial lease that would not be present in a boilerplate residential lease.  There will also be items included in a residential lease that should not be included in a commercial lease.  It is also important to ensure that any kind of extension of or amendment to the lease is in writing signed by both parties.
There are very specific Michigan statutes regarding what needs to be included in a lease.  When a lease is sourced online or is a fill-in-the-blank type lease, these items are missed.  This can be fatal to the landlord when attempting to evict or collect from a tenant for breach of the lease.  One specific example is that pursuant to MCL §554.603, the landlord must inform the tenant of the name and address of the financial institution where the security deposit is held.  The statute specifies the language, in 12-point boldface font, which must be included in a lease. 
On the flip side of what we have discussed thus far, there are also many things that can go wrong as a tenant.  If a landlord does not perform as they are supposed to, such as not making repairs or paying property taxes, the tenant needs to ensure there are protections in the lease to allow them to force the landlord to perform and give the tenant remedies if the landlord does not do what he is supposed to do.
If a proper lease is not used, both parties could end up in a long, expensive court battle.  It is well worth the time and money up front to have a professionally drafted lease prepared to protect everyone involved.  It certainly makes things much easier when an issue arises.

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About Us

The Firm, deeply rooted in Livingston County, has its origins in 1994 when it was founded by Tim Williams.  After having practiced predominantly in tax law for many years with larger firms, Tim decided to start a new firm that centered around working with people rather than with only highly complex tax issues. The Firm is centered in working with entrepreneurs and individuals with a personal touch.  The goal of the Firm has always been to create a relationship-driven rapport with its clients to establish long-lasting, personal relationships.  From the time it was founded, the Firm has specialized in business law and estate planning and probate practice.  Many of the Firm’s clients rely upon its attorneys for business guidance as well as legal counselling. The Firm has always made it a priority to devote time to giving back to the Livingston County community and its residents by working with and giving to charitable and service organizations.  The firm plans to continue to grow its client base in Livingston County and the surrounding areas.


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