Virgin Islands Law Blog

Virgin Islands Law Blog

U.S. Virgin Islands law & politics

Study: USVI Lost 4,500 Jobs After Hurricanes of Fall 2017

Posted in Business, Hurricane

Information gathered by the Federal Reserve Bank of New York’s Research and Statistics Group shed some light on the effects of the hurricanes of Fall 2017 on the economy of the U.S. Virgin Islands, including the statistic that the territory lost 4,500 jobs in the wake of the hurricanes.

That figure accounts for a 12 percent job loss between August 2017 and November 2017, before and after Hurricanes Irma and Maria. As of May 2018, only about 600 of those jobs had returned, leaving many people out of work and many companies still struggling to get back to pre-hurricane levels.

This means the economy in the territory suffered a more significant blow from the storms of 2017 than it did from other major storms like Hugo (1989) and Marilyn (1995), though not as severe as other areas have suffered from other storms, such as New Orleans from Hurricane Katrina in 2005.

In addition, while Puerto Rico has received more headlines in the continental United States for its disaster relief efforts and humanitarian crises in the wake of the storms, the economic effect was actually substantially more severe in the U.S. Virgin Islands. Puerto Rico suffered half the job loss percentage that the Virgin Islands did, and has reversed half of that job loss already.

This can be explained in part by the geography of the territories. Almost everyone in the Virgin Islands lives within several miles of coastline, compared to Puerto Rico, where many settlements are in the mountains that are miles away from the shore. This means that while job loss might not have been as severe in Puerto Rico, people were more cut off from utilities, transportation and communication, which made for a greater disruption of everyday life

Tourism hit hard

Still, the economic effects of the storms were far more severe in the U.S. Virgin Islands, mostly because of the territory’s dependence on tourism. Puerto Rico has a much more diversified economy, with tourism accounting for only about two percent of its total economy versus about 13 percent in the U.S. Virgin Islands.

Predictably, the storms devastated tourism in the territories. Few people want to visit an area that has suffered significant storm damage, is without many basic utilities and is focused on rebuilding its infrastructure and buildings.

Before the hurricanes, there were about 600,000 to 700,000 cruise ship visitors to the territory in a given four-month period. However, from September to December 2017, only 241,000 passengers arrived on cruise ships, which made for a 57 percent drop from the previous year.

The economy in the U.S. Virgin Islands continues to rebound, but it will be a long, slow journey to get back to pre-storm employment and earnings. For more information about how your company can continue to recover, contact a corporate planning attorney in the U.S. Virgin Islands.

Tom Bolt is Managing Attorney of BoltNagi, a full service business law firm located on St. Thomas, VI.

How to Convert an LLC to a Corporation

Posted in Business, Corporate & Financial Services

The process of converting an LLC to a corporation can vary depending on the circumstances of your business. There are three types of conversion available—which method you choose depends on where you primarily do business and whether you meet the requirements for each method.

Here’s an overview of each of them.

Statutory conversion

This type of procedure is relatively new, and offers business owners a more streamlined means of converting an LLC to a corporation. All it takes is filing a few forms with the Secretary of State’s office. Every state and territory that allows statutory conversions has its own specific forms that you must fill out, but in general, the steps involve:

  • Preparing a conversion plan, which must be approved by the LLC members
  • Filing a certificate of conversion and, as needed, an LLC certificate of formation and any other legally required documents

The effects of a statutory conversion are the same as other forms of conversion—those who were members of the LLC are now stockholders in the corporation, and all assets and liabilities of your LLC are now assets and liabilities of the corporation. The legal structure of the LLC then ceases to exist. These effects all occur automatically, rather than through separate individual agreements that require additional filings, making it a speedier method.

Statutory merger

This process is a bit more complicated than a statutory conversion, and is frequently used in states and territories that do not allow statutory conversions. The basic steps are as follows:

  • Form a new corporation (LLC members become stockholders)
  • LLC members vote to approve the merger as both LLC members and stockholders
  • LLC members exchange membership rights for corporate shares
  • File a certificate of merger and other legally required documents with the Secretary of State’s office

The main difference between this process and statutory conversions is that you must create your corporation as a separate business entity before transferring the LLC’s assets and liabilities. This process generally involves extra fees and additional steps. You must also formally exchange membership rights for corporate shares through a drawn-up merger agreement, and file a separate form to officially dissolve your LLC.

Nonstatutory conversion

The final available conversion process is nonstatutory conversion, the most complicated and expensive method of conversion. In most cases, it is recommended that you avoid using this process if at all possible—most businesses that would look at this category are eligible for a statutory conversion or statutory merger.

The main steps of this process are as follows:

  • Form a new corporation
  • Transfer the assets and liabilities of the LLC to the corporation
  • Arrange a formal exchange of LLC membership interests for corporation shares
  • Formally liquidate and dissolve the corporation

For more information about the process of converting an LLC to the corporation and to obtain legal advice for this process, contact a skilled corporate planning attorney in the U.S. Virgin Islands.

Steven K. Hardy is an Associate Attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.

U.S. Department of Labor Investigating Wage Issues in the U.S. Virgin Islands

Posted in Labor & Employment

The United States Department of Labor’s Wage and Hour Division (WHD) recently paid a visit to St. Croix and St. Thomas to investigate some reported wage issues, as well as to offer compliance assistance with regard to recovery efforts still ongoing after Hurricanes Maria and Irma.

According to a press release issued by the Department of Labor, federal agents were reviewing local employers’ compliance with the McNamara-O’Hara Service Contract Act (SCA), the Contract Work Hours and Safety Standards Act (CHWSSA), the Fair Labor Standards Act (FLSA) and the Davis-Bacon and Related Acts (DBRA). Particular issues they were investigating included missed payroll, unpaid work hours and failure to provide required fringe benefits and wages under federal construction and service contracts.

There had been some concerns that employees who were working on hurricane recovery efforts were not receiving the wages and benefits they had earned and that were, by rights, theirs to be compensated with. The Department of Labor also wanted to ensure all employers in the territory were competing on a “level playing field.”

Any employees or employers in need of compliance information, wish to file a complaint or intend to schedule a meeting with a representative from the WHD can contract the Caribbean office of the WHD at 787-775-1947 or 1-866-4-USWAGE, or get in touch online. Any conversations had with these representatives, regardless of medium used, are strictly confidential.

DOL recovers pay for 13 employees

The investigation did yield some tangle results—the WHD forced one construction contractor based in Alabama, KW Construction Work, Inc., to pay out nearly $15,000 to 13 Texas-based employees who were stranded without pay and transportation in the U.S. Virgin Islands after doing some hurricane recovery work.

According to the Caribbean District Office of the WHD, the contractor committed several violations of the FLSA, including failure to pay minimum wage, failure to pay overtime, failure to keep records of how many hours the employees were working and misclassification of employees as independent contractors.

WHD officials stated the department received a back wage compliance agreement and payment from the company within just 24 hours. The employer also arranged for transportation that would return the employees to Texas within several days.

There are likely more employees in the U.S. Virgin Islands being affected by these kinds of issues. While recovery efforts are winding down in comparison to where they were earlier this year, there are still many people temporarily in the U.S. Virgin Islands, and if they do not get the compensation or transportation they were promised, they could find themselves in difficult financial situations.

For more information about the work being done by the WHD in the U.S. Virgin Islands, contact an employment law attorney in the territory.

Ravinder S. Nagi is Assistant Managing Attorney and Chair of the Labor and Employment Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.

Supreme Court Approves Use of Class-Action Waivers by Employers in Arbitration Agreements

Posted in Labor & Employment

On May 21, 2018, the United States Supreme Court ruled that employers may require employees to enter arbitration agreements that waive their rights to seek class-action claims against the employer. The split, 5-4 decision was authored by Justice Neil Gorsuch, rejecting the position held by the National Labor Relations Board (NLRB) that any of these types of class-action waivers violated employees’ rights to engage in “concerted activities” with regard to terms and conditions of employment, a protection afforded by the National Labor Relations Act (NLRA).

The ruling drew criticism from Justice Ginsburg, who voted with Justices Breyer, Kagan and Sotomayor as the dissenters and called the ruling “egregiously wrong.”

About the case

The case in question, Epic Systems Corp v. Lewis, actually featured three cases combined into one. In each of these cases, an employer and employee entered into a contract that required individual arbitration processes to settle labor and employment disputes.

As background, the NLRB ruled in 2012 that the NLRA essentially nullified the Federal Arbitration Act’s policy favoring enforceability of these arbitration agreements when any class-action waivers are involved in the case. At the time, the NLRB reasoned that any class-action claims related to employment disputes are a type of concerted activity protected under the stipulations of the NLRA. Since that ruling, courts have been split as to whether or not they must defer to this precedent set by the NLRB. The Supreme Court’s ruling clarifies the issue.

The impact

So what does this decision by the court mean moving forward for class-action employment cases?

Now, employers across the nation are allowed to include clauses in contracts or other arbitration agreements that make it mandatory for employees to resolve their employment disputes in individual arbitration proceedings rather than entering into class-action suits or other collective acts in cases where those agreements are governed by the Federal Arbitration Act.

Any clauses that require individualized arbitration allow employers to handle disputes in the workplace more efficiently on a one-on-one basis, and these employers are now protected from elevated risk of large judgments and major class-action suits.

It is expected that, moving forward, employers will be more likely to include mandatory arbitration agreements that have collective and class action waivers as a condition of employment. This means fewer class-action suits nationwide, less risk of employer liability for workplace disputes and less expense faced by employers in defending these types of cases.

For more information about how this case could impact businesses throughout the United States, get in touch with an experienced corporate planning attorney in the U.S. Virgin Islands today.

Ravinder S. Nagi is Assistant Managing Attorney and Chair of the Labor and Employment Practice Group at BoltNagi PC, a full service business law firm that serves the U.S. Virgin Islands.

How to Write an Effective Business Plan

Posted in Business

A strong, concise business plan is crucial when starting a new business. Not only will it give you a roadmap for how you will grow your business in its early years, but it will also be useful for investors, who want to see that you have a well-thought-out venture that has a good chance of being viable and sustainable before they invest their money into it.

Here is what you should include in your business plan:

  • An executive summary: This should sum up your entire business plan. What are the goals you have for your company? What do you hope to achieve? What are you looking for out of potential investors? Clearly state exactly what you’re looking for, and do not mince words.
  • Business description: Begin with a short description of the industry in which your business will operate, discussing the outlook for that industry at the present and in the future. Discuss any new products or other developments that could benefit or impact your business in any way.
  • Market strategies: Before you launched your business, you presumably (or at least should have) conducted some in-depth market studies, allowing you to familiarize yourself with all aspects of the market. In this section of your business plan you will identify your target market and properly position your company in a way that you can serve that market and garner sales.
  • Competitive analysis: Identify all of the competitors you have in your market, their strengths and weaknesses and strategies you have that will give you a distinct advantage over these competitors. As part of this, consider how your business will differ from your competitors, and any barriers you can develop to prevent potential future competitors from taking over your market share.
  • Operations and management plans: Describe how your business will operate on a day-to-day level. Your operational plan should include the responsibilities of your management team and all tasks assigned to the company’s various departments.
  • Design and development: If you’re selling a product, you should use this section to give potential investors a description of the design of that product. You should also be able to clearly map out how it’s been developed in the context of production and marketing. This section should also contain a development budget that will realistically allow you to achieve your goals.
  • Financial data: Keep financial data toward the back of the business plan, but still be as thorough as you can. Include any financial factors that could affect your company, as well as any financial backing you’ve already received for your venture.

These are just a few of the categories you’ll need to include in any business plan you prepare for your company. For more information, we encourage you to contact an experienced corporate planning attorney in the U.S. Virgin Islands.

Tom Bolt is Managing Attorney at BoltNagi, a respected and well-established corporate law firm, proudly serving entrepreneurs and business owners throughout the U.S. Virgin Islands.

How Creditors Can Protect Themselves During Bankruptcy Proceedings

Posted in Business

As a creditor, there’s always a chance you’ll receive an official notice in the mail at some point, alerting you that someone to whom you have loaned money has filed for bankruptcy. One of the primary reasons people file for bankruptcy is to discharge some of their debts.

 

You must act quickly if you are to protect the interests of your business. The following are some of the issues you should consider and the steps you should take when alerted that a client has filed for bankruptcy:

  • Attend creditors’ meetings: Have a representative attend the creditors’ meeting and debtor’s deposition. This gives you the chance to ask questions of the debtor while they are under oath and to take the debtor’s deposition. This can arm you with extremely valuable information that will assist you through the rest of the bankruptcy process. Attending the creditors meeting will also allow you to understand what led to the debtor’s bankruptcy filing, and, most importantly, the correct financial status of the debtor and priority of other creditors’ claims. Keep in mind that a bankruptcy filing does not necessarily mean that the debtor is completely insolvent. Oftentimes debtors have remaining assets that can be liquidated to satisfy debts, or the debtor may even be in a position to restructure or reorganize its operations and continue paying down their obligations.
  • File Notice of Appearance: When you file a Notice of Appearance with the bankruptcy court, you will be notified by the court about all of the debtor’s actions and appearances.
  • Proof of claim: As a creditor, you have the right to file a proof of claim to ensure you are included in the distribution of any funds that are not exempt. This could, for example, involve you sharing in any repayment plans created by the debtor.
  • Automatic stay relief: If you have an interest in property owned by or leased to the debtor filing for bankruptcy, you can file for relief from the automatic stay. Successfully doing so grants you the power to either begin or continue the foreclosure process, or recover property you had leased to the debtor.
  • Dismissal: If you have just cause to do so, you can seek to have the bankruptcy case dismissed entirely. Examples of scenarios in which the court will consider a dismissal include bad faith or qualification issues. This immediately returns both parties to their pre-bankruptcy standing and allows you more options in seeking the funds you are owed.
  • Review reports: You have the right as a creditor to review monthly reports under Chapter 11 bankruptcy that are sent to the U.S. Trustee after they’re filed with the bankruptcy court. These reports can provide some useful and illuminating information about the case.
  • Debt discharge objections: You can object to the discharge of any debts owed to you. You may also file a non-dischargeability complaint if any debts were incurred via fraud or false financial statements, or were incurred shortly before the debtor filed for bankruptcy. This complaint is due within 60 days after the creditors’ meeting.

For more information about how you can protect your interests when a debtor files for bankruptcy, contact an experienced U.S. Virgin Islands bankruptcy lawyer.

Nash Davis is an Associate Attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.

Five Safeguards You Should Add to Your Financial Power of Attorney

Posted in Tax & Estate Planning

When planning your estate, you can carefully craft your power of attorney documents to suit your own needs. However, there’s always the potential your chosen agent will misuse the powers granted to them. Even if you trust that person implicitly, building some safeguards into your power of attorney document can be quite helpful and give you some extra peace of mind.

Here are a few examples of such safeguards you might consider adding to your financial power of attorney.

  • Have another party handle some accounting: If you lose capacity to handle your own financial affairs, there’s a chance your power of attorney will lose all oversight. Therefore, it can help to have another person watching financial transactions as a sort of backup in case you become incapacitated. This person can be a professional accountant, an attorney or simply a trusted friend or relative—the idea is to provide extra accountability and oversight when it comes to the use of your money.
  • Establish an inventory of assets: Having an inventory of your assets prepared before your agent starts managing your assets will give you a baseline for comparison in the future. Share this inventory with your trusted party who will also act as an oversight for accounting matters.
  • Impose limits on changes to beneficiaries: By limiting changes to beneficiaries, you’ll make sure your wishes remain honored and that your chosen agent does not abuse his or her power by, for example, removing beneficiary status from a person he or she does not like. This includes limiting changes to rights of survivorship in bank accounts, or changes to any beneficiary designations in wills, insurance policies, trusts, retirement accounts, annuities and investment portfolios.
  • Set the agent’s abilities and limits regarding gifts: As a general rule, your safest option is to prohibit your agent from making any types of gifts. But if you have had a pattern of giving throughout your life and want that to continue even during your incapacitation, you can set limits regarding gifting. Do so by identifying only the recipients you wish to receive gifts, or classes of recipients you will allow, and by placing limits on the frequency and amounts of these gifts.
  • Add safeguards for large transactions: You could, for example, have a pair of co-agents to share the responsibility of managing your finances, so long as they are able to work together. You might also consider adding an extra step for particularly large transactions, requiring approval in the form of a signature from this third party. Such transactions could include major investments or purchases of a home or vehicle.

It is important you choose an agent you can trust to be responsible with your finances, but even then, there are never any guarantees that your agent will not abuse his or her power. Talk to an estate planning attorney in the U.S. Virgin Islands to learn more about how you can protect your estate by adding some safeguards into your power of attorney.

Nash Davis is an Associate Attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.

What Legal Duties do Directors and Officers of Nonprofit Organizations Have?

Posted in Nonprofit

Directors and officers of nonprofit organizations are often volunteers who receive no form of financial compensation. However, they still have a fiduciary duty to their organizations, and breaching that duty could result in them being personally liable for any damages they cause to the organization.

With this in mind, here are some of those legal duties owed by directors and officers to the nonprofit organizations they serve.

Acting in the best interest of the organization

This is the simplest duty these officers and directors have—they must always act in the best interest of the organization, and exercise reasonable care in performing all of their duties. The organization’s interests should be placed ahead of any other interests, including (and especially) their own.

Disclosing and avoiding potential conflicts of interest

It is extremely common for directors and officers of nonprofit organizations to have other interests outside of their organization. For example, a director might work for a commercial business that does some type of work with the nonprofit. In another example, a director could have an active role in another organization on the opposite side of certain policy members. These conflicts shouldn’t be a problem with regard to a director’s ability to serve on the nonprofit board, as long as those directors fully disclose those interests and are able to avoid potential conflicts.

The organization will still need to consider the possibility that a volunteer will be biased in certain types of decisions. It is the board’s right and responsibility to review these other interests and determine if there is a potential conflict and whether/how it can be mitigated.

Ability to be tight-lipped about organizational information

Directors of nonprofits have the duty to maintain the organization’s important information in confidence. This doesn’t only apply to information that has clearly been designated “confidential” by the organization, but also to any information the director would reasonably expect the organization would wish to keep confidential, even if it didn’t expressly designate that information as confidential.

Respecting various corporate opportunities

Directors have the duty to respect corporate opportunities as they arise. They are not allowed to appropriate any of these corporate opportunities, such as business prospects, ideas or investments related to the organization’s activities or programs. This tends to become a problem if corporate opportunities that arise for the nonprofit organization conflict with other interests held by the director outside of the organization.

This relates to the first duty discussed—that all directors must act in the best interest of the organization they serve. Standing in the way of corporate opportunities would certainly not constitute acting in the organization’s best interest.

For more information about the legal duties of directors and officers of nonprofit organizations, contact an experienced business planning attorney in the U.S. Virgin Islands.

Tom Bolt is Managing Attorney of BoltNagi PC, a full service business law firm located on St. Thomas, U.S. Virgin Islands.

How Nonprofit Directors Can Avoid Legal Liability

Posted in Nonprofit

There are some circumstances in which directors of nonprofit organizations can be held legally liable for acts they carried on behalf of the organization, or acts that could be construed as them representing the organization.

With the potential for legal liability constantly looming, it is imperative that the organization have a commitment at all levels to operating fully within the law. This will help prevent most cases in which legal liability would be an issue. Any time the law is unclear, directors (and the organization as a whole) should use a conservative approach and not attempt to press their luck regarding possible liability.

Here are some tips to help you avoid legal liability with your nonprofit organization.

  • A strong commitment to education: For your organization to stay in full legal compliance, you must commit to educating all directors (who are typically volunteers) of all the potential legal risks the organization faces. A good way to do this is to have orientation programs for all new directors that come aboard the organization. These programs should have sections that include information and training in various compliance challenges. Ongoing education can also help to provide reminders of these compliance issues and prevent any challenges from arising.
  • Constantly available legal counsel: You should have legal counsel that is always available to your organization and its directors. The organization’s attorney will monitor organizational policies and programs, as well as any external policies and regulations that could affect the organization. If issues that could lead to potential risk arise, the attorney can bring these issues to the attention of the directors.
  • Indemnified directors: Indemnification is a promise to pay for the legal defense (and any damages incurred) if the indemnified person is accused of legal wrongdoing while acting on the organization’s behalf, with the exception of cases involving gross negligence or fraud. By indemnifying directors, you help shield them from personal liability for organizational matters and give them a little extra incentive to act as directors in the first place.
  • Insurance: To give yourself a broader safety net, get liability insurance for your organization. These policies cover a wide range liability types, paying for any legal defense and resulting damages or settlements from claims of wrongdoing by the organization or its directors. Liability insurance has the added benefit of opening up potential new opportunities for the organization. Many businesses or organizations will not do business with nonprofits if they do not have liability insurance.

It’s important to take whatever steps possible to protect your volunteer directors from legal liability on behalf of the organization. To learn more about how you can shield your directors from legal liability, contact a knowledgeable attorney in the U.S. Virgin Islands.

Revocable vs. Irrevocable Trusts: A Comparative Analysis

Posted in Tax & Estate Planning

As you go through your estate planning process, it’s important you fully understand the options and tools available for you to accomplish your goals. For example, knowing the difference between revocable and irrevocable trusts is crucial to your estate planning success.

Here is a brief analysis of each type of trust and how they differ from each other.

Revocable living trusts

Revocable trusts can be changed at any time. If you ever have any second thoughts about provisions of those trusts for any reason, or simply want to change your beneficiary or trustee, you can easily modify the terms of that trust with an amendment, or revoke the entire thing and write it from scratch.

The clear benefit of such a trust is its flexibility. However, the downside is that any assets placed in a revocable trust will still be considered your own assets for estate tax and creditor purposes. If you are sued, those trust assets will not be protected from your creditors, and all assets will be subject to federal and state taxes upon your death.

There are several main reasons people use revocable trusts in their estate planning:

  • Planning for incapacity: An eventual mental or physical disability could prevent you from managing your own assets. Any assets you place in a revocable trust can be managed by your disability trustee, rather than a court-appointed guardian.
  • Avoid probate: Any assets placed in a revocable trust will bypass the probate process after your death, going directly to the listed beneficiaries.
  • Privacy: The contents of your revocable trust do not become public record, unlike the contents of a will.

Irrevocable trusts

As the name suggests, an irrevocable trust cannot be revoked after a certain point in time—usually upon your death. You can design it to break into several separate irrevocable trusts for the benefit of your surviving spouse or other beneficiaries, if you wish.

Irrevocable trusts do not, then, have the same flexibility that is characteristic of revocable living trusts. They do have several benefits, however:

  • Estate tax reduction: Any assets placed into the trust will not count toward the value of your estate, as they technically become property of the trust rather than you, the trust maker. If your estate is valued over the threshold for the estate tax, this can help you reduce your estate tax responsibility.
  • Asset protection: The trust assets in an irrevocable trust are no longer property of the trustmaker, which means creditors or other people taking legal action against you cannot touch those assets.
  • Charitable giving: You can set up irrevocable trusts specifically for leaving behind money or assets to charitable organizations. If you begin transferring assets into a charitable trust while you are still alive, you’ll receive charitable income tax deductions for the years in which you make those transfers. If the initial transfer does not occur until after your death, the estate as a whole will benefit from the charitable deduction.

For more information about irrevocable versus revocable trusts and which makes the most sense for you to use in your estate, contact an experienced U.S. Virgin Islands estate planning attorney.

Steven K. Hardy is an attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.