An Overview of North Carolina Limited Liability Companies

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When the North Carolina Limited Liability Act became effective on October 1, 1993, North Carolina joined many states in recognizing this relatively new entity.  Initially, limited liability companies (LLCs) enjoyed limited use due to uncertainties regarding how such an entity would be treated for federal income tax purposes.  The Internal Revenue Service (IRS) clarified its position on the treatment of the LLC and, as a result, limited liability companies have become increasingly popular as an alternative to incorporating the small business.

An LLC offers a wide variety of benefits and advantages.  A recent change is that an LLC, like a corporation, may now exist perpetually.   There is limited personal liability as a member of the entity, even if the member participates in the management of the business.  An LLC may have different classes of interests and offer greater flexibility in structuring the membership interests than an S corporation.  Notably, a corporation may be a member in an LLC, while a corporation may not be a shareholder in an S corporation.  In addition, the LLC can be classified as a partnership for income tax purposes, potentially eliminating the "double taxation" tied to a traditional C corporation.

There are two types of LLCs recognized in North Carolina: member-managed and manager-managed.  In a member-managed LLC, each member is also a manager of the LLC by virtue of being a member.  A member-managed LLC is analogous to a general partnership, as all members take a management role in the company.

In a managed LLC, there are in essence two tiers of membership.  Managers are designated to manage the day to day operations of the business and are not managers simply because they are members.  A manager-managed LLC is similar to a limited partnership, as a member can simply be an investor in the business without taking part in the management of the company.  A manager-managed LLC is useful because the individuals designated as managers do not have to be members or have any ownership interest in the company.  Again, keep in mind that corporations or other entities may be members or managers of an LLC. 

An LLC is created by filing Articles of Organization with the North Carolina Secretary of State.  An operating agreement executed at the organizational meeting governs the LLC, like the by-laws of a corporation.  The operating agreement outlines the responsibilities of the managers, members, the percentages of ownership and the percentages of profits and losses attributable to each member.  Changes in the ownership structure are easily documented by revising the operating agreement.

This article is a basic introduction to LLCs.  There are many factors beyond the scope of this article to consider when choosing a business entity.  You should consult your accountant to make sure that the LLC is the right entity for your business from a revenue/tax standpoint in addition to seeking legal advice.

If you have any questions regarding the information in this article, please call Tracy Debnam at (919) 250-2107, or by e-mail at ttdebnam@smithdebnamlaw.com.

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Child Support
North Carolina Child Support Guidelines

Child support is calculated based on the North Carolina Child Support Guidelines, which are statewide presumptive guidelines formulated by the Conference of Chief District Judges. Copies may be obtained from the offices of the Clerk of Superior Court. There are three versions of the child support worksheet on which support can be calculated.  Worksheet A is used if the child is with the non-custodial parent fewer than 123 overnights per year.  If the child is with the non-custodial parent more than 123 overnights per year, Worksheet B is used.  Worksheet C is used if one child lives with one parent and the other child lives with the other parent.

For purposes of the Guidelines, "income" is defined as actual gross income of the parent if employed to full capacity, or potential income if unemployed or underemployed.  Gross income includes income from any source, including but not limited to salaries, commissions, bonuses, dividends, pensions, trust income, social security benefits, workers compensation benefits, unemployment insurance benefits, disability pay, gifts, alimony and support payments received from persons other than the parents of the child for whom support is being calculated.  Specifically excluded from gross income are benefits from public assistance programs, including Aid to Families with Dependent Children (AFDC), Supplemental Security Income (SSI), food stamps and general assistance.  With self-employed parents, gross income includes gross receipts minus ordinary and necessary expenses of the business.  Depreciation expenses and investment tax credits are among the business expenses allowed by the Internal Revenue Service, but not considered appropriate in determining gross income for calculating child support.

If a parent is voluntarily unemployed or underemployed, income may be imputed so that parent based upon his or her recent work history, occupational qualifications and prevailing job opportunities and earnings levels in the community.  If there is no recent work history, potential income may be imputed based upon a 40-hour workweek at minimum wage.  No income will be imputed to a parent who is physically or mentally incapacitated or who is caring for a child who is under the age of three years and for whom the parents owe a joint legal responsibility.

Certain adjustment to the parents' monthly gross incomes are allowed if they have pre-existing child support obligations or responsibility for other children.  The amount of child support payments made by a parent under a court order or separation agreement (for a child who is not involved in the action) is deducted from that party's gross income.  Similarly, a parent with another natural child living in the home may deduct the amount of his/her financial responsibility for that child from his/her gross income.  Responsibility for that other child is based on one-half of what the child support obligation would be for the party and the other responsible parent of that child.  Once these amounts are deducted from the parents' monthly gross incomes, the basic child support obligation is then determined by the adjusted gross incomes.

The Schedule of Basic Child Support Obligation, which is included in the Guidelines, is based primarily on economic research of the patterns of expenditures on children.  Once the basic support obligation is determined, certain credits are given for child care, health insurance payments and extraordinary expenses.

Health Insurance, Child Care Expenses and Extraordinary Expenses

The cost of health related insurance for the child is added to the basic support obligation.  If the amount attributable to the child cannot be determined, the total cost is divided by the number of people covered and the individual cost is multiplied by the number of children for whom child support is being calculated.  Medical and dental costs in excess of $100 per year and unreimbursed by insurance should be divided by the parents in proportion to their respective incomes.  Child care costs incurred due to employment or job search and also added to the basic child support obligation.

In the discretion of the Court, extraordinary expenses may be added to the basic child support obligation.  These expenses may included uninsured medical expenses in excess of $100 for a single illness or condition, expenses for orthodontia, dental treatments, asthma treatments, physical therapy, and uninsured chronic health problem, professional counseling and psychiatric therapy for a diagnosed mental disorder; expenses of attending a special or private elementary or secondary school to meet the particular educational needs of the child and transportation expenses for the child between the parents' homes.

Determination of the Presumptive Child Support Amount

The total child support obligation is calculated by adding the child care costs, health insurance costs and extraordinary expenses to the basic child support obligation.  The non-custodial parent's obligation is determined by multiplying the total child support obligation by his or her percentage of combined adjusted gross income.  The non-custodial parent receives credit for the amount of child care costs, health insurance premiums and extraordinary expenses that they pay out-of-pocket.  The resulting amount is the child support obligation owed to the custodial parent.

Deviation from the Guidelines

Upon its own motion or upon a motion from either party, the Court may deviate from the Guidelines in cases where application of the Guidelines would be inequitable to one of the parties or to the child.  Detailed information on the parents' income and expenses and the reasonable needs of the child are required for a party requesting a deviation from the Guidelines.

Child Support and Visitation

Child support and visitation are totally separate issues.  Some non-custodial parents withhold child support unless they get the visitation they want.  Likewise, many custodial parents deny the non-custodial parent visitation unless they pay child support.  Parents need to resolve these issues separately and not at the expense of the children, who are the ones who suffer when child support is not paid or visitation is denied.

If you have any questions regarding the information in this article, please call Cynthia McAlister at (919) 250-2168 or cmcalister@smithdebnamlaw.com, Jeff Ellinger at (919) 250-2172 or jellinger@smithdebnamlaw.com or Rose Stout at (919) 250-2169 or rstout@smithdebnamlaw.com.

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What's in a Domain Name? The Problem with Cyber-Squatters

What's in a name? When it comes to the Internet, the answer can be not only a significant sum of money, but also a phenomenon of the e-commerce age known as "cyber-squatters." A domain name is the "address" for a website, such as the website address of Smith, Debnam, Narron, Drake, Saintsing and Myers, L.L.P. is www.smithdebnamlaw.com. Prices for domain names have sky-rocketed with companies' increasing interests in utilizing generic domain names that are easily remembered and can easily attract web surfers who are potential customers or clients. In a much publicized purchase, a national bank recently purchased the domain name "Loans.com" for $3 million.  Rising prices for domain names have resulted in "cyber-squatting." A cyber-squatter will register the names or trademarks of well-known individuals or companies in hopes of re-selling the domain names for a premium price. Such tactics have led to litigation, such as Panavision International L.P. v. Toppen, 141. 4.3d.1316 (9th Cir.1998).  In Panavision International, Mr. Toppen registered hundreds of domain names which used popular company or product names. When the Panavision Corporation attempted to register the domain name "Panavision.com," the domain name was not available because Mr. Toppen had registered the name and established a website that displayed a picture of the city of Pana, Illinois. After Mr. Toppen offered to sell his domain name to Panavision for $13,000.00, the company filed suit. The Federal District Court found that Mr. Toppen's conduct infringed Panavision's trademark rights to identify and distinguish its goods and services on the Internet, and diluted Panavision's registered trademark.  In November 1999, Congress enacted the "Anti-Cybersquatting Consumer Protection Act" or "ACPA" as a means to resolve disputes arising from improper domain name registration. Under the ACPA, domain name owners may be liable for "cyber-squatting" if: (1) they have a bad faith intent to profit from use of another's trademark or service mark; and (2) they register or use a domain name that is identical or confusingly similar to another's trademark or service mark.  Rather than filing a lawsuit against potential "cyber-squatters," business owners or individuals are considering dispute resolution via arbitration because of lower costs and quicker results. In October 1999, the Internet Corporation for Assigned Names and Numbers "ICANN" provided a set of uniform rules for domain name dispute resolution. Under these uniform rules of arbitration, ICANN has the authority to cancel, suspend or transfer a domain name. 

If you have questions regarding e-Commerce and internet law please contact Jerry Myers at (919) 250-2133 or by e-mail at jmyers@smithdebnamlaw.com.

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Custody and Visitation -- Grandparents v. Parents

Family law attorneys are seeing an increasing number of grandparents seeking visitation and custody with their grandchildren through the court system. Grandparents' concerns have been heightened by the U.S. Supreme Court decision in June that strengthened the rights of parents. In that case, a Washington state judge had awarded the parents of the deceased father regular weekend visits with their grandchildren. The Supreme Court overruled that decision and stated that under the Constitution, a state cannot be permitted to infringe on the fundamental rights of the parents to make child-rearing decisions. 

There is a strong presumption that a fit parent will act in the best interests of his or her child, and that includes making decisions about the degree of contact a child may have with anyone, including a grandparent. However, this presumption can be overcome in cases involving abuse, neglect, unfitness, or where a parent has acted inconsistently with his or her parental obligation.  A judge must respect the parents' fundamental right to make decisions concerning the care, custody and control over their children; at the same time, a judge's decision must reflect what is in the best interest of the child.  In North Carolina, there are four statutes that allow a grandparent to file an action for custody or visitation: 
     (1) N.C.Gen.Stat.§50-13.2(b1) permits a grandparent to intervene in an ongoing custody dispute and request visitation with a grandchild. 
     (2) N.C.Gen.Stat§50-13.5(j) allows a grandparent to petition for custody or visitation due to changed circumstances in those cases where custody has previously been terminated. In one case, grandparents were allowed to intervene when their visitation rights were arbitrarily terminated by the natural mother after the grandparents had established a continuing, substantial relationship with their grandchildren after an earlier custody order.
      (3) N.C.Gen.Stat.§50-13.2A permits a biological grandparent to file an action for visitation where the minor child has been adopted by a stepparent or relative of the child. To allow visitation where the minor child has been adopted by a stepparent or relative of the child. To allow visitation under this statute, the court must determine that a substantial relationship exists between the grandparent and the child, and that the visitation is in the best interest of the child. This statute is applicable only when the grandparents' biological child's rights have been terminated through a stepparent adoption, not if they were terminated in juvenile court or when the child is adopted by a non-family member. 
     (4) N.C.Gen.Stat.§50-13.1(a) permits any parent, relative or other person, agency, organization or institution claiming the right to custody of a minor child to institute an action for custody. Although broadly worded, this statute does not give grandparents the right to file an action for visitation if there is no ongoing custody dispute between the parents and where the grandchild is living in an intact family (which includes a single parent living with his or her child and a natural parent married to a stepparent living with the child). Again, judges must give weight to the presumption in favor of the parents, so a grandparent seeking visitation or custody under this statute must prove that the parent has abandoned the child, was abusing or neglecting the child, or that the parent was otherwise unfit and not acting in the best interest of the child. 

An important factor in either custody or visitation cases involving grandparents is the grandparents' level of involvement with their grandchildren, both before and after a divorce. Custody disputes can be traumatic for children who are put the in the middle of a chaotic battle between their parents. Often, grandparents provide the stable nurturing children need as they learn to adjust to their parents living in separate households. This is especially true when the grandparents have had an ongoing close relationship with their grandchildren. Under the law, however, the presumption in favor or parental rights is strong and the courts will interfere with that right only in limited circumstances. Grandparents who have strong relationships with their grandchildren and their grandchildren's parents are more likely to continue having access to their grandchildren and to be a continuing influence in their lives. 

If you have any questions about the information in this article, please call Cynthia McAllister at (919) 250-2168 or cmcalister@smithdebnamlaw.com, John Narron at (919) 250-2170 or jnarron@smithdebnamlaw.com, Rose Stout at (919) 250-2169 or rstout@smithdebnamlaw.com or Jeff Ellinger at (919) 250-2172 or jellinger@smithdebnamlaw.com.