DMS Digest 9/1/2021

In meeting with clients this summer many of them are having strong years, many have told me “this is my best year yet!” When I hear comments like this my first thought is what can be done with the extra profits to put the company’s money to its best use and what can be done to mitigate high taxes (since as you know that is a by-product of high profits). With this in mind, I wanted to take the opportunity to talk about retirement plans and how they can be a win-win-win for companies, employees and owners.

First, “retirement plan” can mean a variety of different things, for the purpose of this conversation I am referring to tax qualified, employer sponsored retirement plans. Some typical examples of these plans include SIMPLE 401k and 401k plans.

401k plans are defined-contribution plans, which means employees contribute to the plan to fund their own retirement. Further, the employer can also contribute to the plan on behalf of the participants. There are administrative costs to setting up and administering 401k plans, if that cost is a concern then the SIMPLE 401k may be an option worth looking into as it provides employers the opportunity to have a 401k plan that is simplified and typically cost very little if anything to administer.

Retirement plans offer many benefits and provide companies options to enhance success, including:

1.   Attracting and retaining top talent

Having a retirement plan adds to your company’s suite of benefits, which is important to employees. Further, the employer can contribute to the plan on behalf of the employees, providing another means to incentivize their employees.

2.   Providing owners the opportunity to super-charge their personal retirement

If the owner is an employee, they too can participate in the retirement plan. Owners can typically maximize their contributions to the plan; further with the proper planning the retirement plan can be designed to allow larger contributions to go to owners and key personnel.

3.   Reducing the effect of income taxes

Tax savings are provided in a few ways, first “employer contributions” (mentioned above) are a tax-deductible company expense. Oftentimes plans can be designed to allow for discretionary contributions, giving companies the option to contribute more when they are more profitable which allow the opportunity to minimize income taxes for the company and its owners. Second, contributions made by participants (employees and employee owners) to a qualified 401k plan are tax deferred and reduce the employee’s taxable compensation.

The benefits are substantial and there are many options, owners can increase the amount that goes to their retirement and reduce their taxes even more by pairing their defined-contribution plan with a defended-benefit plan.

Often times retirement plans can be set up relatively quickly, however it is best to be proactive and begin the process sooner rather than later. If you would like to begin a retirement plan for your company it would be best to start that in Q3.

In conclusion, a retirement plan can provide a variety of benefits and options to your Company. Keep in mind, the above conversation just begins to scratch the surface as retirement plans come in many shapes and forms and can be designed in a variety of different ways, so it is important to understand the different types of retirement plans and their respective benefits, limitations and costs. If you think your company could benefit from a retirement plan please be sure to talk to us or reach out to me personally at sean@dmsmanagementsolutions.com. We are happy to review your situation, discuss recommended options and help connect you with people we trust to get your retirement set up right.

On January 8, 2021, Governor Mike DeWine signed the Ohio Revised Limited Liability Company Act (the “Act”) into law. The Act, which is codified at Chapter 1706 of the Ohio Revised Code, became effective on April 12, 2021. The Act is applicable to all Limited Liability Companies (“LLCs”) in Ohio (including entities which were formed before the applicable date of the Act and foreign LLCs who are licensed to do business in Ohio) beginning on January 1, 2022.

The Act is the result of significant work that was undertaken by members of the Ohio State Bar Association and is modeled after the Prototype LLC Act that was developed by the American Bar Association. The Act, similar to its predecessor, is intended to set default rules which, in the absence of an operating agreement, are intended to govern the formation and governance of LLCs and the rights of their respective members.

The Act contains several important changes to the law. First, the Act eliminates the distinction between a member’s and manager’s right to bind an LLC. Under the Act, a person’s ability to bind (aka, enter into contractual obligations) an LLC is governed by one of the following: 1) the LLC’s operating agreement; 2) decisions of the members in accordance with their rights under the operating agreement; 3) a Statement of Authority filed with the Ohio Secretary of State; or 4) the default rules set forth in the Act (R.C. § 1706.18). The Act also creates penalties, including the possibility of canceling the LLCs Articles of Organization, if the LLC does not continuously maintain a statutory agent in the State of Ohio.

The Act makes clear that, by and large, the terms contained in the LLC’s operating agreement will control over the rules set forth in the Act, except for a very narrow list of default terms that are contained in Section 1705.081 of the Ohio Revised Code which cannot be modified. An example of a default term that cannot be modified by the operating agreement is that an operating agreement cannot eliminate the duty of good faith and fair dealing amongst members and the LLC. The members can, however, eliminate the traditional fiduciary duties that members owe to an LLC and one another.

The Act also allows the creation of “series” LLCs. Series LLCs, which are established through the operating agreement, permit the members to create one or more separate series of assets and liabilities which are organized under a parent company. Each series is required to have separate rights, powers, or duties with respect to assets, obligations, and profits and losses and/or a separate purpose or objective. Series LLCs can be created for any lawful purpose, including non-profit and for-profit activities and objectives. Series LLCs must maintain separate records in order to maintain limited liability protection.

In summary, lawyers, accountants, members, and other individuals who work with LLCs should familiarize themselves with the Act and the exciting changes and opportunities that it provides for LLCs and their members to effectively own and operate their respective businesses.

Derek Hartman is an Associate at Kohrman Jackson & Krantz who brings nearly a decade of experience to the firm’s litigation team. Over the course of his career, Derek has represented both individuals and businesses of all sizes, including small businesses and Fortune 500 companies, through every phase of civil litigation. He previously owned and operated his own law firm where, besides servicing his clients, Derek managed day-to-day operations. He is passionate about using his skills and energy to apply the rule of law to further the interests of his clients and community.

Derek holds a dual Bachelor of Arts degree in psychology and paralegal studies from Kent State University, where he graduated summa cum laude, and earned his Juris Doctorate from the University of Akron School of Law. He is a member of the Ohio State Bar Association, as well as the Akron and Cleveland Metropolitan Bar Associations.

An avid Cleveland sports fan, Derek is a Browns season ticket holder and enjoys golfing, skiing, and spending time with his girlfriend and their two dogs, Milo and Chloe.

Kohrman | Jackson | Krantz

One Cleveland Center

1375 East 9th St. 29th Fl.

Cleveland, OH 44114

216-696-8700

Attracting and retaining talent for any business is a challenge, so once you have the team you trust in place, you want to keep those employees for as long as possible. A bonus program can be an integral part of your employee retention strategy.

Why should I consider a bonus program?

Bonus programs are one way to retain and motivate employees and provide them opportunities for growth. Bonus programs are set up so employees can see how their increased efforts positively affect outcomes for their company and allow employees to share in that increased success by earning more money. This tends to keep employees happy and motivated. Employees tend to stay with companies longer and work more efficiently when they are happy and motivated. Making the investment in a bonus program that retains efficient and happy employees is far more cost effective than constantly searching for, interviewing and training new employees.

Can I afford a bonus program?

Before you decide to implement a bonus program, it is important to have solid and reliable picture of your financial situation, making especially sure the profit and loss statement for your business is accurate. It’s important to maintain these records to ensure when it’s time to award bonuses, your team has met or exceeded the goals you’ve set.

How do I choose a bonus program?

Choosing how you’re going to incentivize and motivate your employees through a bonus program is not something you have to do alone. The team at Corrigan Krause has developed a bonus program implementation strategy that we customize for each of our clients. Every business owner has different goals, so each bonus program we develop caters to the specific goals our clients have for their employees.

There tend to be two types of structures for bonus programs: individual and collective.

If a business is able to measure an individual employee’s performance as it relates to the overall success of the business, the owner may choose to structure the bonus program based on specific, individual goals for employees. For some businesses, the goal may be to increase productivity and payout rewards. Others may want to reduce waste and encourage punctuality. By implementing a bonus program that focuses on individual employee success, the whole business benefits from improved efficiency.