Donald Sterling Controversy: Proving Once Again Life is Stranger than Fiction, but are the NBA's actions legal?

Here's an interesting article on the Donald Sterling controversy from the General Counsel magazine.

An intriguing sub plot is the theory that Magic Johnson engineered the controversy to force Sterling (a well known racist and idiot) to sell the Clippers to Magic's same billionaire group that owns the Dodgers.

Rob Maitland 

Are Actions Against Clippers Owner Legal?

April 30, 2014

Responding to the public release of a recording of Los Angeles Clippers owner Donald Sterling making racist comments, NBA Commissioner Adam Silver yesterday announced a number of actions the league will take against Sterling, including a lifetime ban. Now experts are examining the legality of the full spectrum of sanctions: A lifetime ban, both from the Clippers and the NBA generally, and a $2.5 million fine. Silver is also urging the owners vote to force Sterling to sell  the team.

The NBA’s constitution appears to make the ban, and the fine, legal, as Silver’s decision in the matter has the effect of a binding arbitration decision. But voting to force Sterling to sell the Clippers – which would require a vote of three-fourths of the league’s owners – is murkier legal territory. The league constitution opens the door for owners who “willfully” violate its provisions to have their interest in a franchise terminated, though it’s most often understood within the context of financial breaches, like failing to pay bills or gambling on NBA games. However, a general requirement of ethical conduct in business dealings and contracts may be cited as legal grounds for the move. And with many sponsors ending their deals with the Clippers, and players threatening to strike, an argument could be made Sterling’s continued association with the team would be damaging financially and to labor relations.

While Silver said April 29 that he is confident enough owners will vote to oust Sterling, sports attorney Michael McCann writes for Sports Illustrated that there is likely to be discussion among those voting, based on four major concerns: The Clippers are financially viable; though Sterling has been outed as a bigot, the organization does not have a history of discrimination; the lack of a “morals” clause in the NBA constitution; and the fear of setting a worrisome precedent. There is no timeline to take a vote.

Many expect a legal battle that raises breach of contract and antitrust claims, as Sterling, an attorney, has proven to be one of the most litigious major sports teams owners. But it’s not clear that would make business sense. If Sterling maintained ownership, it might tank under the weight of his own bad PR. Gary R. Roberts, professor of sports law at Indiana University, told theWashington Post, “I don’t think that the other league owners are going to be able legally to kick him out. But they’re not going to have to. This guy doesn’t want to own a business that will be bankrupt in short order.”

Sole Proprietorships and General Partnerships: The "Original" Business Entities

Starting a business can be a very exciting time and it can also prove to be stressful as the task of procuring new clients and transitioning your idea into profits can take some time to come to fruition. However, there are initial steps that should be considered by every entrepreneur when embarking on the exciting endeavor of beginning a new business.  Considering traditional businesses, I wanted to explore two business types:  Sole Proprietorship and General Partnership.

The default classification of one individual that starts a business would be Sole Proprietorship.  Sole Proprietorship does not involve any document filings with the Secretary of State.  If two or more individuals start a business it is considered a General Partnership.  The assets and liabilities absent any agreement are assumed to be split equally amongst each partner.  However, the down fall to each of these entities would be that should there be any liability each individual would be liable for the entire amount of the debt.  In the eyes of the law, for both of these businesses, the individual and the business is considered one in the same.

A primary disadvantage of Sole Proprietorships and General Partnerships is joint and severable liability.  This means that should there be any debt or law suit judgment that is against the business, each individual will be liable personally for the debt or judgment.  Should the assets of the business not be sufficient to satisfy the judgment, the party that is owed the debt or judgment has rights to seek satisfaction against the personal assets of any party associated with the business.  Therefore, it is advised to speak with our firm when considering starting a business to decide which entity is right for you.  Not every business will need to file to be an Limited Liability Company, Corporation, Professional Limited Liability Company, but knowing when to file to have that additional level of protection and security is essential knowledge.

For more information contact The Maitland Law Firm at 919-265-0800. 

Education Trusts: A Unique Way to Plan for Higher Education

An Education Trust is a trust established for the exclusive purpose of financing the ever increasing costs of higher education.

Education Trusts can be great planning tools for anyone looking to provide funding for the education of loved ones and are typically used by grandparents, parents or others who are looking to assist with these costs.  They are a great way to build a meaningful asset over time using monies which might have gone for far less important gifts for holidays, birthdays and special occasions. 

• Education trusts allow great flexibility in regards to how the trust funds are used.  For example, you can make the trust as restrictive or as broad as you would like.  You can even specify the types of educational institutions that trust funds can be used for.
• You can name as many or as few beneficiaries in one education trust as you would like.  You can also differentiate between the amounts received by named beneficiaries.
• Education trusts are a great way to take advantage of $14,000 annual gift tax exclusions. 
• You can contribute a variety of assets to an education trust including, but not limited to, cash, real property, stocks and other investments.
• You can ensure a legacy for your family by ensuring that the people you love most have the means to pay for a higher education.

For more information on how you and your family can benefit from this approach to education financing, call Michele English at 919-265-0800.

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

We had a client inquire today regarding the tax implications of their bank forgiving the deficiency amount owed after a foreclosure sale.  The bank issued a 1099 of over $100,000.00 in "income" the client must report. 

Does the client need to pay income tax on that "income"?  Depends on whether the property was her primary residence and other factors.  Be sure to engage a CPA, attorney or other tax professional for problems like these.  Attached is an interesting primer.

Mortgage Forgiveness and Debt Relief Act

Registered Agents, Your Personal Representative for your Business

When registering your business with the Secretary of State, you are required to identify a Registered Agent.  The requirement for the registered agent is set out via NC General Statute and is as follows:

• Must be an individual who resides in this state and whose business office is identical with the registered office;
• A domestic corporation, non-profit corporation or LLC whose business office is identical with the registered office; or
• A foreign corporation, foreign non-profit or foreign LLC authorized to transact business or conduct affairs within the state whose business office is identical with the registered office.

Start-ups and smaller businesses that maybe have home offices value the service of the Registered Agent because it allows them to use a different address than their home address.  The address on file must be of actual office or residence, as Post Office Box addresses are not allowed to be used for the address of the Registered Agent.

The sole responsibility of the registered agent is to forward to the business that it represents any and all notice, process or demand that is served on the business via the Registered Agent.  Many entities find comfort in this being at another address because they may overlook certain documentation if sent to their office address due to them being in the business of making their business profitable. 

For more information on this topic and to discuss other business law questions, contact The Maitland Law Firm to schedule a consultation at 919-265-0800.

Operating Agreements, the Guiding Handbook for LLCs

Many business owners often times feel that the filing of the Articles of Organization is the final step to formalizing their business entity.  There is the additional step that is suggested to formalize the rules that will govern the relationships between individuals within the entity and also how to manage the affairs of the business.  This can be accomplished through the organization’s Operating Agreement.

Operating Agreements are used by Limited Liability Companies (LLC) that serve as an agreement between the members of the LLC and when combined with the Articles of Organization provide for the governing of the entity.  The Operating Agreement should be drafted to contain such provisions that include, but not limited to:

• Relations among members and other members and their defined rights within the LLC;
• Rights and duties of a person acting in the capacity of a manager;
• Activities of the company and the conduct of those activities; and
• Means and conditions for amending the Operating Agreement.

It should be noted that any person who becomes a member of any LLC is deemed to assent to the Operating Agreement.  The Operating Agreement does not have to be filed with the Secretary of State in conjunction with your Articles of Organization.  However, when there are multiple individuals involved within the business venture, it is wise to have a general understanding of the governing provisions of the entity when filing the Articles of Organization.  

If you would like to have your Operating Agreement drafted, amended or reviewed do not hesitate to give the legal team a call at The Maitland Law Firm.

For more information call Brad Hicks at 919-265-0800.