RMS Law Firm, PLLC, Sets Sail!

I am very pleased to announce the launch of my new business, RMS Law Firm, PLLC, as of October 3, 2011, where  I will continue my business, estate planning, real  estate and mediation practice.

While much has changed in our world over the past 50 years, little about the practice of law has kept up with those changes.  So I am trying to bring the law firm into the new century by combining the benefits of many on-line legal providers with the personal touch or relationship of a traditional law firm. RMS Law Firm gives small businesses, individuals and families the legal services they want and need in a cost-effective and client-oriented manner.

I know all about the “new normal” in our economy and society – families and businesses have less to spend and want value-oriented, low cost options for all of the goods and services they need without sacrificing quality.  Clients want certainty and value, so by carefully managing overhead and by offering flat rate and “package” pricing on almost all work completed, RMS Law Firm can provide that predictability while retaining the best features of the traditional firm model – the ongoing personal relationship with the client and uncompromising quality in the work provided.

Non-Profits and Tax-Exempt, 501(c) Organizations – A Confusing Distinction

It happens to me all the time.  A client calls and says he or she wants to start a “501(c)” for a new charity.  It’s a common error and one that I do not mind clearing up for the client and for your readers, so here it goes:

What the client is really asking for (in most instances) is to create an entity under state law (typically a non-profit corporation), and to then prepare and complete an application to the IRS to designation that non-profit entity a tax-exempt organization under Section 501(c) of the Internal Revenue Code.  Make sense now?  No? Allow me to elaborate then.

Establishing a non-profit entity is pretty simple.  We prepare Articles of Incorporation or Organization and file these with the Minnesota Secretary of State in order to establish the legal entity.  We also prepare bylaws that control the governance of the nonprofit corporation and miscellaneous resolutions that address other housekeeping type matters such as officers and directors, banking resolutions and the adoption of several necessary policy statements (conflict of interest, record retention and whistleblower policies being the main ones).  This typically costs around $500, including in that figure the $70 filing fee that the Secretary of State collects when the Articles of Incorporation or Organization are filed. 

What we will have accomplished by taking these steps is to create a separate legal entity for non-profit activities.  This is not yet a tax exempt entity, however.  Instead, the non-profit status simply means that the entity’s purposes do not include making a profit for the benefit of its owners (the raison d’être for a for-profit entity).  This means that the nonprofit still files tax returns, still pays taxes on any revenue in excess of its expenses, and that contributions to the entity are not tax deductible by the donor and are taxable income for the non-profit entity.  None of this represents an issue if the venture will never make a profit (that is, have earnings or income that exceed its costs) and if the entity is not dependent upon donations for its operations.

In order to qualify as tax-exempt, an organization must apply to the Internal Revenue Service and seek a formal determination of exemption. Not all non-profit entities will qualify as tax-exempt; generally, only those entities that are engaged in the activities described in Section 501(c) of the Internal Revenue Code will receive that designation from the IRS.  Among the types of organizations and activities that do qualify for tax-exempt status are those that (i) are organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, (ii) that foster national or international amateur sports competition (but only if no part of its activities involve the provisions of athletic facilities or equipment), or (iii) promote the prevention of cruelty to children or animals.

The process of applying for tax exempt status (that is, to become a 501(c) organization) is complex and I recommend that you work with an experienced CPA or tax practitioner to ensure that the extensive IRS application (IRS Form 1023 – you may find this at http://www.irs.gov/) is filled out correctly.  The IRS receives hundreds of 501(c) applications each year, and considers them on a state-by-state, rotating basis.  The time period for receiving approval is, therefore, quite unpredictable - if your application is received just before the applications from your state make it to the top of the IRS’s stack, then you might hear back from the IRS quite quickly.  If your application is received, however, right after your state had its turn, you will be behind the applications from the 49 other states!  Therefore, it is critical that your application be correct and complete – you would not want to have the application rejected due to an error and have to start your application process (and waiting period) all over again.

If you would like more information about nonprofit or tax-exempt organizations, please send me an email at roger.stahl.esq@gmail.com.

Succession Planning for the Small Business Owner

Here is an entry that I originally wrote for the Wendland Utz law firm site that has been re-posted at LawPivot (and attributed to my partner Dave Pederson - but its all in the family anyway!):

One area of concern that we frequently help our small business clients with is succession planning.  It is never too soon to begin considering your exist strategies, as some aspects of a comprehensive succession plan can take years to develop.  Here are some excerpts from a letter we recently sent to one of our successful small business owners who, though just 40 years old, is wisely considering his options regarding succession:

One of the elements in any complete business succession plan is personal estate planning.  The two are so related that we really cannot address one without also thinking about the other.  As a first step in the business succession plan, therefore, we need to make a start on your personal estate plan.

Life Insurance is another element in the succession plan that you should consider.  This plays a role in a number of separate areas.  First, adequate life insurance will provide short term liquidity to pay possible estate tax (state and federal) liabilities resulting from your passing.  Second, it provides additional assets for your family – replacing income that may otherwise have come from your work.  Third, the right type of policy (a key person policy) provides additional, immediate capital to your business in order to find and replace your role in the company.  What constitutes the right amount of coverage is something you should research further (there are lots of opinions) and discuss with an insurance agent that you trust.  Similarly, the type of policy or policies that you purchase (term, universal, whole life) is also the subject of lots of opinions and should be approached and answered as I have outlined here.  Finally, do not forget to consider life insurance on your spouse as well – married couples with one employed spouse tend to under-insure the spouse who is not working outside of the home.

We also talked about your long-term goals for your current business.  It was evident that, in the near future (5-10 years) you would like to see the business sold.  This kind of a strategic goal needs a strategy in order to make your wish a reality, so we discussed several options, all of which focused on the potential buyer.

There are two basic categories of buyers to be thinking about with your business; an internal/succession buyer or an external/strategic buyer.  Generally, an internal/succession buyer would be a family member or key employee (or group of employees).  Obviously, the family member/purchaser is not an immediate likelihood now (this could change as the children grow, of course), and you have not yet identified any current employee having the interest or capacity to become a viable purchaser.  I recommended that you take some time to reflect on what qualities, experience, characteristics, skills/training and aptitudes someone would need to have to be a viable, internal/succession buyer.  This exercise will be helpful for you in hiring future employees – not so much for necessarily going out and looking to hire that person, but in recognizing such a possible buyer in someone who you were otherwise interviewing or hiring.

The external/strategic buyer will most likely be another company that does what you do, whether a local competitor or another company looking to expand into this market.  It is possible that someone with no prior experience in your business could be a purchaser as well; this circumstance is pretty rare however, and I have only seen it occur once in my practice to date (that buyer had just sold another, unrelated business and was looking for a new investment – a new company to run.  He sold it again within a couple years).  There are a number of ways to go about exploring this avenue, including formally listing the business with a broker.  Under your circumstances, the best approach will be discreet and direct discussions with other companies that you select and approach about a possible sale.

In that regard, you should bear in mind that you are negotiating from a position of strength right now, as the business is currently doing well and you have no immediate need to sell.  Nevertheless, as I noted above, you do want discussions that develop beyond a preliminary stage to be discreet and should therefore be covered by a written non-disclosure agreement (“NDA”).  This will help protect your business in at least three areas:  (i) non-disclosure of your financials, (ii) erosion of customer base that can arise when word of a possible sale is leaked, and (iii) unease or flight of employees who believe their continued employment is at risk.  I can provide you with a form of NDA to use if discussions progress as well as advice on when in that process the NDA is important.

Finally, the item that started this whole line of discussion was the phantom stock plan that I had put together for you last year.  This project still has a role to play in your long-term strategy, even if that role is not immediately evident or necessary.  The fundamental usefulness of a deferred compensation plan such as the phantom stock plan is that it builds loyalty by creating an incentive for key employees to stay with the company and to work hard to increase its value.  So as key employees are hired or developed over time, the phantom stock plan is available as a means to retain those employees, whether or not they might also be or become internal/succession buyers.

I hope that this helps to tie together the discussions we started last week.  Please let me know if anything in this letter prompts further questions and when we should continue our discussion.

Law and the Camping/Hiking Ethic

If you were ever a boy or girl scout, or even if you weren't, but still like to camp or hike, then you probably have heard and know the camping/hiking ethic:  "leave your campsite or the hiking trail in better shape than you found it.  Muffy Aldrich asserts that this attitude of stewardship is the "sine qua non" to her view of Preppy (and shall I contradict her?  I think not).  But I think it is also the sine qua non of a lawyer who tries to keep the best interests of his or her client at the forefront.

Completing the case or the transaction with the client's situation in better shape than you found it should be what motivates a caring lawyer to get up and go to the office each day.  It sound quite Pollyanna perhaps, but it is essentially what Carolyn Elefant means when she asks "do you want to be remembered as a lawyer who used your talents to change lives and make the world a better place?"  Is this solely a matter of altruism?  No, there is an economic benefit that comes to the attorney who practices with the hiking ethic in mind:  clients will become repeat clients and will refer their family and friends.

Real life being what it is, even the best and most caring attorney cannot always leave their client's circumstance in better shape than they found it.  But it is gratifying when it does happen.  I recently completed an estate plan with a couple.  They have two young children and intended to get to their estate plan some time ago.  They were happy to have that task completed (for now - estate plans are always evolving; but that's another post) and grateful for my help.  But there is more to it - they told me they were proud of their estate plan.  Now, I did not do anything especially elaborate or sophisticated with their estate plan - but it is a good, practical plan that they understood well enough to explain to others (I dislike plans that are so elaborate, so weighed down with tax code references etc. that the client must take on faith that their estate plan does what the lawyer says it does - more on this in another post).  Am I proud of the plan I prepared for these clients?  Yes, because it was the right plan for where they are right now and it gave them no less and no more than they needed; but I guess what I will say is that I am very, very pleased that the good, practical work I did gave these clients a feeling of pride and accomplishment and truly left their circumstances in much better shape than they were before I started my work - and that's why I like practicing law. 

The Essential Estate Planning Element - the Power of Attorney

Perhaps you have reached a point in your life where you want to begin your estate plan.  There many reasons why people finally get around to this – they have children, they are planning a trip, or Dave Ramsey told them they should.  Similarly, there are many elements to a complete estate plan.  But there is one element that you should prepare immediately.  This element is the durable power of attorney.

What is a durable power of attorney and why is it so important?  A power of attorney is a legal document in which you grant to another person (or several people) the power and authority to act on your behalf and make decisions on your behalf in all matters other than health care matters (health care matters being governed by a separate legal document, the health care directive).  When the powers that are granted continue after a person becomes incapacitated or incompetent it is called a durable power of attorney.  Thus the durable power of attorney allows someone else (someone you trust) to act on your behalf if you are not available or able to act.  In the absence of a durable power of attorney your loved ones would have to go to court and be appointed guardian and conservator, a potentially expensive and time-consuming process.

Preparing an effective power of attorney takes very little time and is inexpensive.  Forms are available from various on-line sources and for Minnesota residents, in the power of attorney statute, Minnesota Statutes § 523.23. 

If you have questions about durable powers of attorney or would like help preparing or reviewing your power attorney, please contact Law-telier, at the email shown to the right.

The Law-telier Philosophy

Welcome to the first post on my blog, Law-telier.  In future posts I will be featuring articles about the law and other stuff.  Not esoteric articles and not necessarily articles about how to practice (although, on that last point, I can't promise you there will never be a post about the practice or the life of a lawyer).  These will mostly be articles about how the law can help you, how it can be practical in your life.  The articles will cover estate planning matters like wills, trusts, powers of attorney, transfer-on-death deeds, avoiding probate (or maybe not avoiding it), the shameless and practically criminal things that some attorneys do to promote and sell clients unneeded revocable or lifetime trusts, health care directives or living wills, prenuptial or antenuptial agreements, co-habitation and joint tenancy agreements.


The articles will also discuss business and employment matters, like choosing the best form for your new business, the difference between a S corporation and a C corporation and an LLC (limited liability company), the dangers of partnerships, being a sole proprietor, self-employment tax, contracts and buying or selling real estate.

This blog will also talk about how attorneys charge for the work they do and how that can be done better and fairer.  I may also give you my views on the many legal products and forms that are available, for free or otherwise, on the internet.  These views may surprise you, so check in from time to time to see what's happening here.


Finally, why "Law-telier"?  L'Atelier (pronounced “la-TEL-yā”) is a French word that refers to a designer’s or artist’s studio or workshop.  So "Law-telier" will have articles about the services and solutions that I specifically design and craft to meet my client's unique legal needs.


I am not giving legal advice here, just information,.  So if you have any questions about anything you read here, you should consult with a lawyer who you know and trust.  Unlike many attorneys, I appreciate clients who do their research, who are well-informed and who ask questions.  I hope that you can find something here with which to challenge your own attorney or challenge me if you like.