Reflections on 9/11, Ten Years Later

The tenth anniversary of 9/11 comes up on Sunday.  I, like many Americans, still remember where I was that morning as I watched with sadness and anxiety as the events of that day unfolded on national news.  At the time I was working downtown at a health center in Baltimore.  One of my colleagues, Scott, came into my office that morning and told me that a plane had flown into the World Trade Center.  Initially I thought it was an accident, but Scott seemed to think that something more was going on.  A number of us sat down in the conference room and watched the television news of the incident, and a second plane then flew into the other tower.  I still vividly remember watching in horror as people in the world trade center stood outside of the building on the ledge and jumped to nearly certain death as they had no other way out of the building.

Ten years have passed since this national tragedy occurred, causing the loss of almost 3,000 people.  In 2008, my girlfriend (now wife) and I visited the WTC site in New York City as work progressed in preparing the site for a new office complex.  We look forward to the completion of the new buildings to grace the skyline of one of the great cities in the world.

Estate Planning for Small Businesses

Do you own your own business?  Having a plan for your business is important to your business’ success in the market.  Part of your planning should involve what will happen to your business when you retire or die, particularly if income from your business supports your loved ones.  If you haven’t planned for business succession, or you haven’t reviewed your plan in a while, now might be a good time to talk with a professional for help.

There are several parts to consider when planning for business succession.  First off, under Maryland law, people that die without a will leave their assets to family members based on the Intestate Succession Statute, which is codified in the Maryland Estates and Trust Code Ann. § 3-101 et seq. Generally, a married spouse with children will leave assets titled in their name, including business interests, to the wife and kids.  If you are married, but have no kids and your parents have pre-deceased you, then your spouse will inherit those assets.

Now, individuals that die with a will are said to die “testate,” meaning that they have written down how they wish the things they own to be transferred to others at death.  Some business owners have a will and plan which they have duly executed, which describes how they wish their assets, including the business, to be distributed.  In many cases, the testator drafts his/her will to benefit a primary group of people or a single individual, such as a wife, child or other relative.  It may be that the owner of a business wishes to leave the business to his wife or children.

However, there are a number of problems for an owner to simply leave his/her business interest with a spouse and/or children.  For example, can your spouse or children operate the business in your stead?  If you own the business with other people, do those other owners wish to continue the business with your relatives as an owner of the business?  In addition, it may be that your family depends on the cash value of the business that you, as the owner, are able to draw out of the business (either by salary or by profit distributions).  If those family members cannot effectively work for the business to generate income or maintain the profitability of the business, the value of the business may decline rapidly after you die.

For some small businesses, the value may be mostly tied to the business owner and his/her relationships with the business’ clients.  Should the owner die, the clients may quickly decide to find another business to buy the product or service from, which means that the business value may quickly diminish as sales and revenue dwindle.  If the surviving family was counting on the value of the business to continue after the owner’s death, this may come as a rude awakening, particularly in the wake of the loss.

A buy-sell agreement may be an appropriate way to solve these problems.  The buy-sell agreement is a way for you, ahead of time, to agree that the people that inherit your interest in the business will sell, and the business itself or the surviving owners will buy, your business interest in exchange for money.  Such an agreement typically involves the purchase of an insurance policy, and a discussion around how to value the business (such as based on book value, or based on the sale of similar businesses in the same market).  The contract in combination with the insurance policy ensures that your business interest is transferred to those that value and can utilize it, while also providing a cash benefit to your family or other beneficiaries of your estate.


New Maryland Benefit Corporations

Effective October 1, 2010, a new Maryland statute permitting the formation of “benefit corporations” goes into effect. The statute adds subtitle 6C to Title 5 of the Maryland Corporations and Associations Article. It provides the ability for a corporation to elect to be a benefit corporation, either by incorporating with language in its Articles indicating that the corporation is being formed as a benefit corporation, or by amending its Articles to reflect this fact.

Benefit corporations differ from regular, for-profit entities in two ways:

1. Benefit corporations are organized to allow directors of the corporations to consider benefits to employees, customers, society at large, or the environment when making decisions for the corporation, while sheltering directors from liability under the Courts and Judicial Proceedings Article, section 5-417. See Md. Corp & Assoc. Code Ann. § 5-6C-07.

2. Benefit corporations are required to have a third party review the corporation’s performance in meeting its “beneficial” activities, and publish a report annually of the corporation’s progress in meeting its beneficiary objectives.  See Md. Corp. & Assoc. Code Ann. § 5-6C-08.

As to limiting director liability, directors previously had immunity when they performed their duties in conformity with the standard of care described in section 2-405.1 of the Corporations and Associations Article, which requires directors to act in good faith, and both subjectively and objectively in the best interests of the corporation.  Of course, what’s in the best interests of a corporation is not necessarily in the best interests of the environment or the corporation’s employees.  In economics, these reality is called a “negative externality.”

For example, a non-benefit corporation may elect to buy coal-power from the power company because it is cheaper than a wind-energy alternative (which is generally true in Maryland, unfortunately).  The pollution to generate and transmit the power to the company is a negative externality, because the power company does not have to pass along the long-term costs of the pollution that is a byproduct of the energy production.  Instead, the rest of us (and future generations of us) bear these costs in the form of lost productive land, global warming, and other health costs.

A benefit corporation could consider these external costs when renewing its energy contract with the power company, and may ultimately decide to pay more for wind power in order to reduce the corporation’s impact on the environment, and the directors would still have immunity from liability for this decision (so long as the decision otherwise complied with the applicable statutes).  The economic result of this decision won’t change – the corporation will almost certainly need to raise its prices to consumers to cover its increased energy costs – but the directors who made this decision will not be liable for considering the environment when deciding to contract with a wind-generated energy supplier.

Maryland and Vermont are the two jurisdictions that presently recognize a “benefit corporation” as a legal entity.  More states are considering changes to their laws  to permit this corporate form.

Online Privacy v. Copyright Infringement

Looks like the copyright infringement allegers will win, when the judge has to choose between your online privacy rights and plaintiffs proving their infringement claims.  Check out the article on Yahoo.

This isn’t new, in the sense that Napster, Grokster, and other similar cases involved the sued company turning over information about the users and what they viewed.  However, youtube logs of what videos were viewed by whom, may very well feel different to youtube users.  Where the successors to Napster advertised themselves as another way to violate the property interests of copyright holders, youtube has not.  The primary focus of youtube has been to help the general public publish their own diatribes, and silly sexy commentaries on obscure definitions or concepts, but not so much to view pirated full-length feature films.