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Rewrite of business organization laws provides uniformity, clarity

June 28, 2017

All it took to simplify Indiana’s business organization laws was a 149-page bill.

The result, according to attorneys who helped craft the legislation, is removal of inconsistencies and potential pitfalls in the current disparate statutes that govern registration, reporting and other requirements for corporations, limited liability companies, nonprofits, limited liability partnerships and limited partnerships doing business in Indiana.

Reddick Reddick

“We wanted to make sure each business entity was treated the same from the perspective of its obligation to file” reports with the Office of the Indiana Secretary of State, said Marci Reddick, a Taft Stettinius & Hollister LLP partner who chairs the Indiana Business Law Survey Commission. “I think it’s going to be helpful to practitioners to have the same rules for all entities.”

What’s new?

Senate Enrolled Act 443 cleared the General Assembly without a vote in opposition and will take effect Jan. 1, 2018. The later enactment date allows the Secretary of State’s Office time to technologically gear up for changes the law dictates — a challenge Reddick called “Herculean.”

Perhaps the key change is a new requirement for all registered business entities: Each must update filings with the secretary of state every two years. Biennial reports are currently required for corporations, nonprofits and LLCs, but there is no such requirement for LPs and LLPs.

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“I thought that would be controversial,” said Frank Sullivan, a former Indiana justice and current Indiana University Robert H. McKinnney School of Law professor, because it would create a bit more work for LPs and LLPs and require them to pay a filing fee of $75 to $100 every two years. “It turned out this was a real hole in our statutes, and everybody thought it would be better off if it were plugged.”

Sullivan, who chaired the commission’s task force that explored rewriting the statutes, explained that because LPs and LLPs had no requirement to update filings, businesses that had ceased remained on the books and appeared to be active. This could pose problems, for instance, for a bank checking whether a partnership continued to be a going concern.

Another hiccup under current law — multiple entities can be registered under the same name, either as the business organization or as a “doing business as” identity. After Jan. 1, the law will bar registration of duplicate entity or d/b/a names with the Secretary of State’s Office. The act also will harmonize requirements among entities for reporting mergers, conversions and domestications of entities relocating from other states.

Sullivan said the task force in its work asked lawmakers and other stakeholders what they thought the laws should be, and many were surprised about the diverse treatment of various entities, the ability to register duplicate names, and other disparities. Most of the new language will be found in revised sections of Indiana Code 23-0.5 and 23-0.6, and Sullivan said the changes reflect the consistency most stakeholders believed the law should provide.

Push for uniformity

After Gov. Eric Holcomb signed the bill into law, Secretary of State Connie Lawson called SEA 443 the most far-reaching revision of Indiana business law in two decades. “The new law will simplify business formation and bring consistency to the rules that govern businesses and business transactions,” she said.

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Mallory Long, legislative counsel for the Business Services Division of the Office of the Secretary of State, was a key staffer who assisted the task force in developing its proposal. Long said the revised statute uses the Uniform Business Organization Act and the Model Entity Transaction Act as templates while also incorporating elements of existing state law.

“SEA 443 repeals more law than it enacts,” Long said. Because Indiana’s business statutes have been updated periodically since the early 1900s to accommodate new forms of organization as they developed, the requirements for each sometimes differed when they were enacted. These were spread across five different sections under Title 23 of the Indiana Code.

“By bringing these sections from their individual places in statute into the new locations, the bill will unify and make consistent all of these provisions. This will assist businesses and business law attorneys because it will streamline the statute,” Long said. It will also make future updates much easier.

Making Indiana attractive

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Sullivan said the rewrite began with the initiative years ago of then-Business Law Survey Commission chairman Richard Thrapp, a partner at Ice Miller LLP. Thrapp called the current laws on the books “a hodgepodge of statutes.

“I think the whole goal of what the commission has been doing is to make Indiana an attractive state to organize your business,” Thrapp said. “We had a mosaic of some things that were covered, others not at all.”

Lawyers who spoke for this article uniformly used the word “trap” to describe the effect of Indiana business organization law as it had developed over the past 100-plus years. Thrapp said rules varied for different entities for things as simple as the specific data that was required. Long noted, for instance, that foreign (out of state) corporations, nonprofits and LLCs can each terminate their registrations, but no such provision existed for LPs and LLPs. “This can potentially be confusing for businesses. After SEA 443 goes into effect, all foreign entities will have the same ability” to withdraw registrations, she said.

Thrapp said that to conduct some transactions under current law, entities would have to register in another state, conduct the transaction and then re-register in Indiana. Such scenarios will vanish under the new law.

“Traps mean unfriendly,” he said. “The goal of the commission has been for Indiana law for businesses to make sense, be user-friendly and be the sort of thing where you don’t need to hire corporate lawyers to navigate through all the different rules for different entities. … That’s not the way lawyers should be making money, because of rules that don’t make sense.”

Looking forward

Reddick, who’s served on the commission for 27 years, called the revamp of business organization law one of the most significant she’s been involved with. Sullivan called the rewrite one of his proudest accomplishments.

“Our goal is always to make doing business in Indiana as easy as possible and as attractive as possible, and that’s what (the new laws) are intended to do,” Reddick said. She said as the Jan. 1 enactment date approaches, the Secretary of State’s Office will post information on its website about the changes and pertinent instructions.

Thrapp said the revisions are likely to attract more business organization to the state, which creates value not just for the business community, but for everyone.

“We’re reducing the friction of commerce, and that’s a good thing,” he said.•

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