Posted on March 21, 2025 in Business

Fox & Moghul receives many queries every day regarding disputes between business partners. In a Limited Liability Company (LLC) in Virginia, each member and manager owes fiduciary duties to the entity to further its best interests. These duties include the duty of loyalty and the duty of care. In simple terms, fiduciary duties require business partners to act in the best interest of the LLC and its members.

This blog post will explain with examples when a business partner in an LLC has breached their fiduciary duty under Virginia law, and it will provide specific case law and statutory citations for a better understanding of the concept.

Understanding and recognizing breaches of fiduciary duty in an LLC is crucial for maintaining a successful business relationship among partners. If you believe a business partner has breached their fiduciary duty in your Virginia LLC, it's essential to consult with an experienced attorney who can help you navigate the complexities of the law and protect your interests. In conclusion, a business partner in an LLC may breach their fiduciary duty by misappropriating funds, engaging in self-dealing, or failing to exercise the duty of care. By being aware of these duties and ensuring they are upheld, LLC members can help maintain a successful and harmonious business partnership.

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 Posted on March 20, 2025 in Business

As more and more investors resort to LLCs to structure their business ventures, particularly in real estate, the requirement for a carefully formulated Operating Agreement is vital. Yet, one often sees inexperienced lawyers and investors fall victim to templated Operating Agreements full of nonsensical, boilerplate language.

One such critical concept often misunderstood or ignored is "substantial economic effect," a key principle of tax law that determines how LLCs allocate profits and losses to their members. Failing to address this can result in significant financial and legal implications for the members of the LLC. This blog explores what substantial economic effect means, how to identify and correct flaws in typical LLC Operating Agreements, and how ignoring these principles can leave members, particularly real estate investors, at a disadvantage.

What is Substantial Economic Effect?

Substantial economic effect refers to the Internal Revenue Service (IRS) standard that governs whether the allocation of profits, losses, and distributions in an LLC is valid for tax purposes. To comply with this standard, the allocations must reflect real economic consequences for the members, not just paper entries. You can read the exact guidance by the IRS on this issue here and here. The key elements of substantial economic effect are:

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 Posted on March 20, 2025 in Business

In the complex world of LLC Operating Agreements, one of the most misunderstood and overlooked issues is the concept of "phantom income." At Fox & Moghul, we’ve seen too many operating agreements that leave members exposed to this hidden financial trap, which can lead to significant tax liabilities without any actual cash in hand. Thus, in this blog, we’ll explore what phantom income is, how poorly drafted LLC Operating Agreements can leave members vulnerable to it, and how Fox & Moghul can help you avoid these pitfalls through meticulous drafting and review of your operating agreements.

What Is Phantom Income?

Phantom income, which is also known as "phantom tax" or "phantom gain," refers to income that a taxpayer is required to report to the IRS and pay taxes on, even though they haven’t actually received any cash. In the context of LLCs, this can occur when profits are allocated to members on paper but are not actually distributed in cash. The member still has to pay taxes on these "profits," even though they haven’t received any real money to cover the tax bill. Here is what the IRS regulations state about this issue. See here.

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 Posted on March 20, 2025 in Business

At Fox & Moghul, clients who call us are often confused by the concept of "veil piercing." This article will attempt to simplify the process.

The concept of corporate veil piercing is an important legal principle that allows creditors and litigants to hold shareholders or members personally liable for the debts or obligations of a corporation or Limited Liability Company (LLC) in certain circumstances. This article will provide an analysis of Virginia law on corporate veil piercing, focusing on a key Virginia Supreme Court case. Additionally, we will discuss the difference between veil piercing and reverse veil piercing.

Understanding Corporate Veil Piercing

Under Virginia law, corporations and LLCs are considered separate legal entities, distinct from their shareholders or members. This separation provides limited liability protection, shielding the personal assets of shareholders and members from the debts and obligations of the business entity. However, in some situations, courts may decide to pierce the corporate veil, holding shareholders or members personally liable.

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 Posted on March 17, 2025 in Business

Selecting the right business entity is one of the most critical decisions for entrepreneurs and business owners. The choice between an LLC, S Corporation, C Corporation, or Partnership has far-reaching implications on liability, taxation, management structure, capital raising, and compliance requirements. A well-informed decision can optimize tax efficiency, protect personal assets, and ensure operational flexibility.

To help business owners navigate this complex decision-making process, we’ve provided a detailed side-by-side comparison of these entity types, outlining their key characteristics, advantages, and disadvantages.

Choice of Entity Comparison

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