Professional Corporations

If a Schedule K-1 lists you or your client as a “general partner” and 2% owner of a partnership, is that the end of the story for proving ownership status? This week, we consider that question in the context of a long-running litigation between a well-known insurance litigation firm and its former “partner” over his standing to sue to dissolve the business.
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This week’s New York Business Divorce examines a fascinating post-trial decision last month by Justice Emily Pines in which the court resolved competing claims by a medical practice and one of its members who was expelled in the aftermath of a contentious acquisition of an ambulatory surgery center. You won’t want to miss it.

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Tax analysis is a critical part of the business divorce attorney’s job when it comes to fashioning a shareholder buy-out agreement that, among other things, protects the selling shareholder from personal income tax liability on non-distributed or “phantom” net income that later may show up on the shareholder’s Schedule K-1. This week’s New York Business Divorce looks at a recent decision by Manhattan Supreme Court Justice Judith Gische in a fight over the tax consequences of a buy-out settlement of a corporate dissolution.

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Matter of Bernfeld, decided last week by a Brooklyn appellate panel in a signed opinion authored by Justice John Leventhal, offers a rare and fascinating encounter with an ultimately unsuccessful attempt to obtain judicial dissolution of a professional corporation under Section 1103 of the Business Corporation Law, brought by the widow of the deceased majority shareholder. If you are, or have a client who is, a co-owner of a professional corporation, do yourself a favor and read this week’s New York Business Divorce.

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As if we needed another lesson in the perils of failing to enter into a written shareholders’ agreement, last week the Appellate Division, Second Department, affirmed a lower court ruling rejecting a buyout demand by the expelled shareholder of a law firm organized as a professional corporation. It’s in this week’s New York Business Divorce.

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Fights over the good will value of a business are not uncommon in corporate dissolution and buyout proceedings. In this week’s New York Business Divorce, read about a recent appellate decision holding that courts lack authority to appraise good will post-dissolution in the absence of an agreement of the parties that good will is a distributable asset of the corporation.

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