With the recent rise in popularity of microbreweries in Michigan, there has been an increase in small businesses/entrepreneurs entering the hospitality industry. In addition to other off-site distributors of alcoholic beverages, such as gas stations and liquor stores, many on-site providers of alcohol such as restaurants, bars and hotels rely on the ability to do so for a significant portion of their profits. Thus, in starting a hospitality business, it is necessary to have some background knowledge of liquor law and the licensing regulations with which to comply. The law in this area varies from state to state, so specific knowledge of Michigan law is necessary if the business operates in Michigan.
 
The Three-Tier System
In Michigan, distribution of liquor, beer, wine and other spirits is handled by three distinct parties: 1) the manufacturer; 2) the wholesaler; and 3) the retailer. The second party, the wholesaler, is the State of Michigan, which acts as a middleman between the manufacturer and the retailer. One reason for this is to prevent manufacturers from creating exclusivity agreements with bars or stores. Other reasons include the ability to regulate liquor prices for taxation and to ensure compliance with licensing requirements.
 
Typically, a business (or person involved in a business) that serves as a manufacturer cannot serve or even have an interest in a retailer, and vice versa. The result of this is to prevent large breweries from opening their own retail stores which only sell their products. At the small business level, however, this can cause unique problems when it comes to ownership or ownership interests in a manufacturer or retailer. For example, if a client was looking to open a bar (a retailer), but also leases a commercial building to a microbrewery (a manufacturer), the State of Michigan would likely deny this client a liquor license for their new bar because of this “three-tier” conflict of interest.
 
There are some exceptions to this three-tier rule built into the Michigan Liquor Code. Specific manufacturers such as microbreweries, micro-distilleries and small wineries are allowed to serve their own products to customers for on-site consumption at their brewing or distilling facilities. The rub here is that these business structures are subject to quota limits in terms of how much of their product they can produce under Michigan law.
 
Licensing Requirements
In order to operate as a manufacturer or retailer in the state of Michigan, a business must obtain the necessary license(s) from the Michigan Liquor Control Commission (“MLCC”). Depending on the type of business, the requisite license may be subject to a quota. The quota system limits the number of licenses that are available in each municipality, which is population-dependent. Most licenses in Michigan are also freely transferable. However, it is often very difficult to obtain these licenses. If all licenses in a municipality (up to the quota) have already been issued by the MLCC, purchasing one from an existing business is typically very expensive. A business may also hold any number of these licenses. These licenses include:
 
  1. Class C license - Permits a business such as a bar to sell beer, wine and spirits (including liquor) for on-premise consumption. There is one Class C license available per every 1,500 people in a given municipality.
  2. “Resort 550” – A transferable license for hotel resorts allowing the sale of beer, wine and spirits (including liquor) for on-premise consumption. The name commonly used for this type of license stems from the initial issuance of 550 of these licenses by the MLCC.
  3. Specially Designated Distributor (SDD) license – Allows a business such a gas station or grocery to sell packaged spirits (including liquor) for off-premise consumption. There is one SDD license available per every 3,000 people in a given municipality.
  4. Specially Designated Merchant (SDM) license – This is similar to an SDD license, but allows the business to sell beer or wine. SDM licenses are not subject to quota, and can be applied for by filling out an application with the MLCC. An SDM license is often held in conjunction with an SDD license, if the business can acquire one.
  5. There are also separate licenses for manufacturers, including breweries, microbreweries, small winemakers and small distilleries.
 
Action Step: Applying for a License
Whether the license is obtained from the MLCC directly or purchased from an existing business, the prospective license holder must file an application with the MLCC. Since this application could make or break your prospective business venture, it is very important to consult with a business attorney or a liquor law specialist before beginning to expend time and money in a business venture that will require a liquor license of any type. It is all too common for an entrepreneur to spend significant money and time to secure all the other facets of the business and then be denied a liquor license. Depending on the type of business and the license sought, there are many unique concerns that a business owner may face. Having an attorney with knowledge and experience in this area is very important.  It can mean the difference between acceptance or denial of your application.

The untimely and unforeseen death of music superstar Prince has brought a lot of attention to the basic question, “What happens when someone dies without a Will?”  As most of our readers have probably heard, Prince appears to have died without any estate planning documents in place.
 
Answering the question posed by this article is not as straightforward as one may assume and generally the answer is typically “it depends.”  How assets, accounts and policies are distributed after death depends on a variety of factors including whether the asset, account or policy had a joint owner or a designated beneficiary.  Additionally, estate planning and Probate law can also vary dramatically from state to state. This article will describe intestate succession in Michigan.  Intestate succession is the legal term for the process of distributing an individual’s assets through Probate upon death when there is no Last Will and Testament or Living Trust.
 
A Probate Estate must be opened in Probate Court. The Probate Estate distributes all property that is owned solely by the individual, meaning there is not a co-owner with rights of survivorship or a beneficiary. A few examples of property that would require Probate include real estate, bank accounts, and retirement accounts without designated living beneficiaries.  This list is by no means inclusive, but provides an idea of some of the types of assets that would end up in Probate Court.
 
Individuals often assume that if they are married, their entire estate will automatically be inherited by their spouse. In Michigan, this is not the case.  If the individual who died has children, grandchildren, or parents living at the time the individual dies, a portion of the individual’s estate will pass to the children of the individual.  If the individual has no children or grandchildren, but one or both parents are alive, the surviving parents inherit a portion of the estate.  If the individual does not have a surviving spouse, children, grandchildren, or parents, the distributions begin to get more complicated.  Generally speaking, the simplified version of the order of relatives who would inherit if there is no surviving spouse, children, grandchildren, or parents is as follows:
 
 
  • Siblings, or nieces and nephews if a sibling is no longer living;
  • Aunts and uncles, or cousins if the aunts and uncles are no longer living. 

 

The specific percentage each relative would inherit depends specifically on the family composition of the individual on the date of his or her death.
 
The example of Prince’s estate is extreme and his estate will take many years to resolve.  We should keep in mind that estate planning is not only for the wealthy.  Probate can be very costly for the administration of an estate, and disagreements can dominate the process.  Additionally, having only a Will does not avoid Probate.  What is needed for a proper estate plan varies greatly based on individual circumstances. If you have questions regarding the estate planning process and how to avoid Probate, please do not hesitate to contact us directly. 

The legal requirements for the duties of directors and officers of a corporation in Michigan are not well understood by business owners. This article explains these requirements, known as fiduciary duty, and briefly details common requirements of directors or officers of corporations.  There are similar rules that apply to members and managers of limited liability companies in Michigan.
 
It is important to note that under Michigan law, all fiduciary duties are applicable to both officers and directors of the corporation.
 
What is a “Fiduciary?”
A corporate fiduciary is an individual who is employed as an officer of the corporation or has been elected by the shareholders as a director to hold and exercise power on behalf of the shareholders. Under Michigan law, officers and directors have a basic obligation to act only in the best interest of the shareholders.
 
What Duties Are Owed?
Although fiduciary duties stem from common law principles, they are found in Michigan’s corporation law, which is the Michigan Business Corporation Act. These duties include: 1) the duty of loyalty to shareholders to only act in their best interest; 2) the duty of care; and 3) the duty of good faith. Corporate fiduciaries are protected by the “Business Judgment Rule” in the absence of a breach of one of the above-mentioned duties in their day-to-day operation of the company.
 
The Business Judgment Rule
The fiduciary rules do not provide that a director or officer of a corporation will be liable for all bad decisions they make while serving the corporation, since this would produce an absurd result, making any risk-taking by officers or directors off limits. The solution to this is the Business Judgment Rule which states that when a corporation suffers a loss from a lawful transaction, a director or officer is not liable when he or she acted in good faith, on an informed basis, and under the honest belief that the action was taken in the best interest of the company.
 
Duty of Loyalty
The duty of loyalty is one of the most common fiduciary pitfalls for directors and is especially magnified in the case of a closely-held corporation where directors are often also shareholders. The duty of loyalty is most commonly breached when the director either: 1) engages in a transaction on behalf of the corporation that constitutes “self-dealing”; 2) engages in a transaction that constitutes self-interest; or 3) engages in a personal transaction that rightfully belongs to the corporation.
  • Self Dealing - Self-dealing occurs when a director has a financial interest in both sides of a transaction. An example of this would be having the corporation purchase another company that the director personally holds stock in. Self-dealing essentially creates automatic liability for the director unless his or her financial interest in the transaction is disclosed prior to its acceptance by the rest of the board of directors.
  • Self-Interest - A director engages in self-interest when he or she will receive a personal benefit from a transaction that is not equally shared by the shareholders. This is not the same as self-dealing. An example of self-interest would be a director obtaining a large bonus from the company every year the corporation is extremely profitable, but engaging in an extremely risky transaction to attempt to reach the profit goal. This is known as the “Enron Pattern”.
  • Corporate Opportunity - Under the Corporate Opportunity Doctrine, a director breaches his/her duty of loyalty when he or she personally seizes a business opportunity for personal gain, which the corporation could have taken. This includes any opportunity the director learns of from his/her position in the company or any opportunity to engage in a business in which the company is engaged or expects to engage. Again, disclosure is the solution to potential corporate opportunity issues.
 
 
Duty of Care
Generally, a director has a duty to keep him/herself informed of the activities of the corporation. The duty of care is not often included in a lawsuit against a director because a corporation may indemnify its directors for breach of the duty of care under Michigan corporate law.
 
 
Duty of Good Faith
Since the duty of care is often subject to indemnification, the duty of good faith has somewhat replaced it in lawsuits against directors. The duty of good faith may be breached either by objective or subjective bad faith. This means that an officer or director must either consciously disregard his or her responsibilities or act with an intent to harm the company or its shareholders.
 
Action Step:
In order to ensure you are meeting your duties as a director or officer, or as a member of a limited liability company, you should ensure your business has a corporate/business attorney to advise you and make sure you understand your fiduciary duties in the context of your particular situation. In addition, you should consult with your insurance agent to make sure you have directors and officers liability coverage under your business general liability insurance policy.

In Michigan, individuals and businesses engaged in residential building and residential improvement or maintenance work need to be mindful of the licensing requirements for specific trades.   
 
This article will provide a brief overview of some of the issues surrounding licensing requirements, including examples of some of the “less obvious” trades that require licensing in Michigan, the consequences of engaging in a trade without a proper license, and the steps to take to obtain the required license. 
 
Does My Trade Require a License?
In general, a person or business who contracts with a property owner to do residential construction or remodeling on a project with a total value is $600 or more (including material and labor) is required to be licensed as either a Residential Builder or a Maintenance & Alteration Contractor under Michigan law.  The definitions of a Residential Builder and a Maintenance & Alteration Contractor are very broad in terms of what falls under each license. The differences between the two types of licenses are as follows:
 
Residential Builder License
A residential building license is required to operate as what most people think of as the typical construction contractor.  A residential builder may build a new home or do any kind of repair work.  It is important to note that even if a residential builder contracts for the whole job, there are separate licensing requirements for certain specialty areas included in such work, such as plumbing, electrical, heating and cooling, and ventilation work.  If the residential builder contracts for the entire job, the builder may use licensed subcontractors for the other areas of work.
 
Maintenance and Alteration Contractor License
A maintenance and alteration contractor need only be licensed for a specific trade(s) and may only accept contracts for completion of services in which they are licensed.  This requirement exists whether or not the building being worked on is a new build or a remodel.  The definition of a maintenance and alteration contractor is very broad and generally includes any repairs and most improvements or changes to a residential structure.   Some of the unique types of activities that require licensing are:
 
  • painting and decorating;
  • siding;
  • gutters;
  • tile and marble;
  • swimming pools; and
  • laying wood floors. 
 
Please note that this list is not comprehensive.  If you are unsure whether your trade requires a license, please contact us.   
 
What Are the Consequences if I or My Business Engages in a Licensed Trade Without the Required License?
The consequences of failing to obtain the proper license are harsh. In fact, engaging in a licensed trade without a license is a criminal offense.  In the case of a first offense, failing to be licensed when necessary is a misdemeanor punishable by a fine of not less than $5,000.00 or more than $25,000.00, or imprisonment for not more than one year, or both. 
In addition, an unlicensed builder or maintenance and alteration contractor cannot collect monies if they are not paid by a customer.  Examples of collection measures afforded to licensed builders are the use of construction liens, foreclosure, and the potential to obtain money damages through a collection lawsuit.  If an unlicensed builder or contractor attempts to use these measures, the contractor and their business may not only be subject themselves to the criminal consequences above, but may also be liable for civil damages and restitution.
 
How Do I Obtain a License?
Generally, the licenses discussed above require at least sixty hours of approved education courses and that the contractor must take and pass a required examination for the specific type of license.  It is important to remember that each profession, trade, and business entity has different license requirements.  If you have questions regarding licensure requirements, whether your profession requires a license, or the steps you need to take to become licensed, please, do not hesitate to contact us directly regarding your specific situation.  
 
 

Introduction
 
The real estate industry indicates that cottage ownership in Michigan is at an all-time high.  Cottage owners enjoy many benefits of ownership. Cottages often appreciate at a faster rate than primary homes.  The owners also receive the enjoyment of a getaway where they can relax, unwind, and, perhaps most importantly, where they create a natural social gathering spot for children, grandchildren, extended family and friends.
 
Cottage legacy planning ensures that the cottage remains in the family for future generations. Proper planning for the cottage can help avoid negative tax consequences for the parents and their adult children and provide for the orderly transition of the cottage to the children.
 
A baseline tool of cottage legacy planning is that the parents need to convey the cottage to one of their trusts during their lifetime. This will keep the cottage out of probate and will allow for an orderly plan for the transition of the cottage to the children.
 
The Challenges
 
The key challenges in cottage legacy planning are:
 
  1. Avoiding an increase in the property taxes when the cottage passes from the parents’ generation to the children.
  2. Avoiding capital gains tax upon the appreciation that occurred during the parents’ ownership of the cottage.
  3. Simply and effectively providing for the payment of the annual expenses and taxes incurred through cottage ownership.
  4. Having a system in place that distributes use of the cottage among family members.
  5. Avoiding the threat to ownership that would result from a divorce, death, or disability of a child, tax lien, or judgment against a child.

 

Alternative Structures for Maintaining the Cottage in the Family
 
There are two primary alternatives for maintaining the cottage as a legacy during the life of the parents and following the parents’ passing. They are: 1) a trust; or 2) a limited liability company. The principal factors involved in selecting which of these alternatives should hold the cottage for the duration of the parents’ lives and following the parents’ passing include:
 
  1. Parents are able to impart their wishes for how the property is to be handled after death.
  2. Flexibility in changing the use of the cottage and other terms of the trust following the parents’ passing.
  3. Avoiding an increase in the property tax on the cottage due to events during the parents’ lives and following the parents’ deaths. This increase in property tax is often referred to as uncapping.
  4. Limiting the liability of the parents, the children, and the entity selected to own the cottage.
  5. The ultimate capital gain tax on the sale of the cottage.

 

Trust
 
Use of a trust can be employed to continue the ownership of the cottage within the family, manage the expenses, and dictate use of the cottage.
 
The transfer by the parents of the cottage to one of their trusts during their lives would not result in an increase in property taxes. This is permitted under new legislation in Michigan which came into effect on January 1, 2015.
 
The cottage would remain in one of the parents’ trusts following their passing. Upon the death of one of the children following the parents’ deaths, however, property taxes could increase.
 
The trust would provide for the contribution by the children of a pro rata share of the expenses, including maintenance and improvements, property taxes, insurance and utilities. If a child did not share in the burden of the expenses, after a period of non-contribution, that child’s interest in the trust would forfeit. This is intended to be a strong incentive to encourage contribution as opposed to causing forfeiture. Another alternative would be for the parents to leave a portion of their assets to provide for the payment of the annual expenses of the cottage.
 
A use agreement is necessary, either within the trust or as a separate document.
The trust would also maintain a policy of life insurance to buy out a deceased child’s interest in the cottage.
 
There are certain disadvantages to using a trust in legacy planning for a cottage. The primary disadvantage is that trusts offer little capacity for flexibility following the death of the parents. The children would be unable to alter the terms of the trust following the parents’ deaths, although this may be desirable in certain situations. A limited liability company would provide for greater flexibility in this regard. Another disadvantage is that a trust offers no shield against liability.
 
Limited Liability Company
 
Use of a limited liability company is the other alternative to continue the ownership of the cottage within the family and manage expenses and use. The mechanics of this include the creation of a “springing” limited liability company during the parents’ lives. The limited liability company would spring to life upon the death of the second parent --. At that time, the cottage would be conveyed to the limited liability company out of whichever of the parents’ trusts owns the cottage. It is believed that this will not result in an increase in the property taxes.
 
The children would enter into an agreement that provides for the remaining children to purchase the interest of the Cottage upon the death, divorce, bankruptcy, etc. of one of the children.
 
The agreement would provide that the limited liability company would maintain a policy of life insurance to buy out a deceased child’s interest in the cottage.
 
The agreement would also provide for the contribution by the children of a pro rata share of the annual expenses, including maintenance and improvements, property taxes, insurance, and utilities. If a child did not share in the burden of the expenses, that child’s interest would forfeit. Again, this is intended to encourage contribution as opposed to causing forfeiture.
 
The death of a child following the deaths of the parents can result in an increase in the property taxes. Michigan’s rules provide that when more than 50% of the ownership in limited liability company changes, the property taxes will “uncap”.
 
ACTION STEP:

If you are a cottage owner or the child of a cottage owner, it makes sense to explore the alternatives available for passing the cottage to the next generation. Planning now is critical to avoid undesirable tax consequences and to provide for the orderly ownership, payment of expenses, and use of the cottage in the future.

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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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