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Business & Corporate - New Jersey Law Blog
- Stark & Stark Attorney Featured on Legally Speaking
Michael J. Fekete, member of Stark & Stark's Business & Corporate group, was a featured guest on the Camden County Bar Foundation's weekly television talk show Legally Speaking on Sunday November 9, 2009. Mr. Fekete discussed the New Jersey Home Improvement Law, the Consumer Fraud Act and the Contractor's Registration Act. You can watch the full episode online here.
- Changes in Deferred Compensation Law Requires Compliance By January 1, 2009
Section 409A was added to the Internal Revenue Code pursuant to the American Jobs Creation Act of 2004 in response to Congressional concerns about excessive executive compensation and executives’ ability to manipulate their compensation arrangements with the companies they manage. Section 409A requires that every deferred compensation plan or arrangement comply with certain strict guidelines. Plans or arrangements that are subject to Section 409A are required to be fully compliant with the final regulations under 409A by January 1, 2009.
What is “Deferred Compensation” Under 409A?
What is so striking about Section 409A, it its application to almost every type of plan or arrangement in which compensation is paid in a year subsequent to the year in which the services were performed by the service provider (i.e. the executive). Compensation is deferred when the service provider first has a legally binding right to the payment of compensation. Because the definition of deferred compensation is so broadly defined in Section 409A, it not only encompasses traditional nonqualified deferred compensation plans (i.e. where the executive elects to defer salary or bonuses), but also to payments under employment agreements, severance agreements and other similar arrangements. Tax-qualified plans such as 401(k) plans and IRAs are exempt from Section 409A. Also exempt from Section 409A are bona fide vacation, sick leave, disability pay and death benefit plans.
Section 409A Requirements
Section 409A specifically addresses when a service provider may make an election to defer payments under a deferred compensation plan or arrangement, when compensation under a deferred compensation plan or arrangement may be distributed, and how a service provider may delay the receipt of payments under a deferred compensation plan or arrangement.
Each deferred compensation plan or arrangement (including employment agreements, severance agreements and other similar arrangements) must be in writing and fully compliant with Section 409A by January 1, 2009.
What Happens if the Section 409A Requirements are Not Met?
Failure to comply with Section 409A will have severe consequences to the service provider. Those consequences include i) immediate taxation of all amounts deferred under the plan or arrangement; ii) assessment of an interest penalty for the underpayment of taxes during the deferral period; and iii) an additional 20 percent penalty tax. In addition, the service recipient (employer) will have additional tax reporting requirements under Section 409A.
Immediate Action is Necessary
All documents, plans, arrangements or contracts that may defer compensation must be reviewed immediately. Among these documents are:- Deferred compensation plans and/or agreements
- Employment agreements
- Severance plans and/or agreements
- Change in control agreements
- Stock appreciation rights agreements
- Expense reimbursement policies
Stark & Stark can assist you in reviewing and amending your deferred compensation plans and arrangements and will work to ensure that all documents are compliant with Section 409A by January 1, 2009. We can also assist you with new plans and arrangements that will be Section 409A compliant when drafted.
- Stark & Stark Attorney Featured on Camden County Bar Foundation's Legally Speaking
Michael J. Fekete, member of Stark & Stark's Business & Corporate group, will be a featured guest on the Camden County Bar Foundation's weekly television talk show Legally Speaking. Mr. Fekete will discuss the New Jersey Home Improvement Law, the Consumer Fraud Act and the Contractor's Registration Act. The show will air Saturday November 9, 2008 at 12:30 PM and Wednesday November 12, 2008 at 5:00 PM, on Comcast channel 190 (WPSJ-TV).
- Buying an Existing Business -- What to Consider
Cary S. Kvitka, member of Stark & Stark's Business & Corporate and Franchise groups, authored the article Buying an Existing Business — What to Consider for the September 2008 issue of Mercer Business Magazine.
Mr. Kvitka discusses the risks associated when opening a business - whether it is your first business or you are an established business owner looking to expand into a new market. Mr. Kvitka advises business owners to make sure that the transaction is properly structured, that you’ve exhaustively investigated the target business, and that the contract for sale is properly drafted.
You can read the full article here (PDF).
- What To Include In Your Limited Liability Company's Operating Agreement
In a limited liability company (LLC), if no operating agreement (the agreement between the members of the LLC) is in place, the limited liability company statute of the state where the LLC was formed controls the relationship between the members of the Company.
It is important that the members cover as much as possible in the Operating Agreement, rather than relying on the default provisions in the LLC statute. One example of what can happen if there is no Operating Agreement (or the Operating Agreement is silent on a particular issue) is what happens if a member of a limited liability company (LLC) wants to resign.
If the Company is a New Jersey LLC, if the Operating Agreement (the agreement between the members of the LLC) is silent, a member can resign by providing six months' notice to the Company and the other members, and is then entitled, within a reasonable time, to get paid the fair value of the resigning member's interest.
If the Company is a Delaware LLC, if the Operating Agreement is silent, a member is not entitled to resign (and would thus not be entitled to a payment for the value of the member's interest until the interest is sold or the Company is dissolved).
This shows that the members of an LLC should make clear what they would want to happen if one of the members wants to resign, so that they are not in danger of having the "default" provisions of the LLC statute, which are different from state to state, instead of their own wishes, govern the operations of the Company. - Claim of Undue Influence Resolved by Court Before Death of TestatorA will is obviously prepared when a individual is still alive. A will contest usually comes about after the individual dies. However, a California Appellate Court has recently decided that when a conservator secures Court approval of an estate plan while the individual is still alive, any challenge to the will must be made at that time and not after the individual dies.
In the case of Murphy v. Murphy, in the Court of Appeal of the State of California, First Appellate District, Docket No. A115177, a dispute arose between siblings after their father had a stroke and could no longer operate his business. The son was concerned that his sister was exercising undue influence over the father, and, with Court approval, hired a conservator to wind down the business and deal with the father's assets. At that time the son learned that his father's will left all assets to his sister and none to him.The conservator