General Partners

The Butler University College of Business, Ice Miller and Inside INdiana Business announced today the results of their fourth annual statewide survey of Indiana's chief executive officers, senior executives and business owners. The survey, "The State of Our Business – A Perspective from Indiana Executives," provides insight and understanding on the significant issues facing the state's business leadership.

The project partners identified 2,420 CEOs and other executive officers as potential respondents. Of those contacted, 428 responded to a comprehensive online survey designed by the Butler University College of Business.

The project partners identified 2,420 CEOs and other executive officers as potential respondents. Of those contacted, 428 responded to a comprehensive online survey designed by the Butler University College of Business.

"The survey found some reasons for optimism," stated Gerry Dick, president of Grow INdiana Media Ventures, LLC and host of Inside INdiana Business. "For example, many CEOs report there is now a stronger likelihood they will pursue adding jobs compared to their outlook in 2009." The survey found that central Indiana companies are more likely to add jobs as are companies with less than $5 million in revenue and those between $10 million and $50 million in revenue.

"We're now seeing several trends emerge as we start to analyze the data over a four year period," noted Byron Myers, chief managing partner, Ice Miller. "Many of the priorities of Indiana executives, with the exception of customer loyalty and retention, received importance ratings that are statistically equal to ratings received in 2009 as well as all past years of the survey. This may be an indication that even in times of major economic change CEOs maintain a relatively consistent structure of priorities."

"This year's CEO survey shows that the general business mood is improving but most CEOs are hesitant to implement solid growth strategies until the economy settles down somewhat," said Bill O'Donnell, director of graduate programs, Butler University College of Business. "We are also pleased that now, with four years of data, we can start tracking trends and see the direction CEOs view the state's economy to be moving."

Study highlights from 2010 include the following:

•  Customer reputation is back on top as the highest ranked business issue. In 2009, the highest ranked issue was customer loyalty and retention.
•  K-12 education and innovation continue to be ranked as the strongest disadvantages for Indiana as compared to neighboring states. Cost of living is still seen as the strongest advantage that Indiana has over neighboring states and has been on the rise as the strongest advantage since 2007.
•  CEOs believe the availability of private funding sources is significantly less compared to 2009.
•  A new question was added in 2010 regarding CEOs' plans to hire workers. There is optimism among CEOs that they will hire in 2010, as adding full-time and part-time workers was ranked above the midpoint on the scale.
•  Having enough time is still CEOs most challenging issue, although keeping up with technology has moved up in the ranking.
•  New questions about social media were added to the section relating to information technology. One-third of CEOs said they have a policy concerning social media usage for employees.

The project partners will continue to benchmark the results from the 2010 survey and monitor, discuss and analyze the state's progress. A full summary of the report can be found online at: www.inceosurvey.com.

With the jet lag of yesterday’s travels mostly behind us we got to work straight away this morning, starting with a briefing at our hotel to focus our delegation on the day’s activities.

This is my first trade mission, my first trip to China and my first experience being in a country where I have no familiarity whatsoever with the country’s language.  Beyond picking up a few phrases to offer polite greetings or extend thanks, I couldn’t pick up the language enough to read a menu or get through one line of a power point presentation.  Ditto for most of the delegation, so we welcomed the use of translators for our official visits today with leaders from Zhejiang.

Lt Governor Skillman officially opened the trade mission this morning with brief remarks to the delegation, and then we set off for a meeting at Zhejiang International Business Group (ZIP), located just a few miles from our hotel.

ZIB is a state owned company invested by the Zhejiang Government. The three key areas covered by the company are trade and distribution, financial services, and industrial investment.

The meeting with ZIB began with comments by Joe Kelsay, director of the Indiana Department of Agriculture, followed by formal comments from Lt. Governor Skillman, who outlined the importance of growing our relationship with the China and the Zhejiang province.  She noted this is the fourth international ag trade mission since she and Governor Daniels took office in 2005, with each trade mission leading to new relationships for Indiana agriculture.   Agriculture is a major driver for Indiana’s economy, contributing $25 billion annually and since 2005 has brought more then $5 billion in investments.

Various ZIB officials took turns describing the numerous sectors in which ZIB has an interest.

We learned ZIB owns 18 secondary holding subsidiaries and 148 solely-owned or major-held companies. The U.S. is ZIB’s second largest market behind the EU, with export products in 210 main categories including textiles, agriculture and native produce, and light industrial products.

Following each person’s formal remarks in English or Chinese, a translator would step in to translate for the rest of the group and it is clear both our delegation and our hosts from ZIB are proud of the accomplishments of the businesses and trade organizations they represent.

During our ZIB visit, delegation member Sonny Beck, president of Beck’s Superior Hybrids, Inc, based in Atlanta, Ind., spoke about his company’s growth in Indiana and its market share in the seed  marketplace.  Beck’s has grown from a producer of products - in this case, seeds - and now is a marketing company that helps the producers.  Sonny is the third generation to run the company and his sons and daughter are now members of the Beck’s team.

The most formal part of the delegation’s day was the afternoon seminar on Agriculture, Trade and Investment, featuring a number of presentations focusing on various sectors of economic development and agriculture.  Joining Lt. Governor Skillman and Joe Kelsay in speaking to the group were delegation members Dave Bramlage of Cole Hardwood and Steve Eberly, director of development for Midwest Indiana Economic Development.  Dave reminded us that hardwoods are the largest part of Indiana’s ag sector, contributing $6 billion annually to our state’s economy.  Steve focused his remarks on Indiana’s emerging wind power development.

Representatives, including Zheijang’s director-general of agriculture, took to the podium to describe various ag commodities and how they fit into the Zhejiang domestic and international marketplace.  The remainder of the afternoon was spent in small group discussions between Indiana delegates and their Zhejiang counterparts and translators moved quickly between the tables to assist with introductions and to facilitate informal meetings between the two groups.

We were delighted a young Hoosier familiar to the Chinese language and economy volunteered to join us to help with our translation needs. Ben Hurst, a student at Macalaster College in Minneapolis, has spent the past six months in a Chinese immersion program here in Hangzhou.  He will return home to Indianapolis in six weeks and this fall will begin his senior year of college. Ben hopes to continue his studies of the Chinese language and urban development and emerging markets upon graduation next May. A special thanks to Ben for his invaluable assistance with translating at our meetings on Thursday afternoon.

We closed the day with a lovely banquet hosted by Ruan Zhongxun, director general of Zhejiang’s Foreign Affairs Department.  Both Lt. Governor Skillman and Director General Zhongxun spoke to the dinner guests about the opportunities for Indiana and Zhejiang to become partners in progress.  The meal was a great way to cap off our day.

Tomorrow it’s off to tour a bio-tech company with a high tech ag farm specializing in flower and seed production, greenhouses and research, and then a visit to Zheijang University.

I’m looking forward to starting my day with another early morning walk along the beautiful West Lake where, at 5:30 a.m., crowds of retirees gathered to perform their morning routines including  practicing the art of Tai Chi exercise and playing badminton.  A nice way to kick off another day packed with opportunities to advance Indiana’s already impressive standing place in the world’s economy.

According to a recent survey of middle market companies in the southeastern United States, there may be a bit of a debt maturity crisis approaching.  AlixPartners conducted a study of 142 companies and found that there is approximately $6.3 billion in debt scheduled to mature in 2010.  In 2009, those companies had overall debt of $64 billion but generated revenue of only $59 billion.  This, along with a general shortage of working capital within the companies, points to a strong need for credit availability this year.

Now, we all know that the credit markets have opened up a bit.  Both 2009 and early 2010 have certainly been better than 2008.  However, they haven't opened up that much.  As a result, working capital management will be more important than ever as companies try to weather this storm.  According to the AlixPartners study, companies included in the study had only 8.9 days in working capital coverage.  The study stated, "Like the old saying goes, 'cash is king' – and both generating and husbanding cash through all means possible is going to be key for companies in this region this year, starting with having cash for debt service.  That's the only way to make sure this debt powder keg doesn't turn into a bomb."

Some studies suggest that the answer is  yes!  In a recent study, the Preqin Research Report Private Equity Investor Survey August 2009, many limited partners (LPs) investing in private equity funds reported that the balance of power in negotiations between the funds general partners (GPs) and the LP's had shifted in favor of the LPs.  In fact, according to the Preqin report, in April 2009, 27 percent of investors thought they had greater negotiating power.  Three months later, in July 2009, 55 percent of investors interviewed by Preqin believed they had greater negotiating power.

Why would that be?  Certainly, one of the reasons is that levels of LP investment have fallen significantly from previous years.  According to the Preqin report, private equity funds raised $194.5 billion in the first quarter of 2008, while they raised only $64 billion in the first quarter of 2009.  The GPs have to compete for the limited LP funds that are actually being invested now.  One of the ways to do that is to offer LPs more favorable terms.

So, cash-rich LPs appear to be returning to the market.  Private equity fundraising has already begun to improve in 2009.  According to the Preqin report, $79.7 billion was raised by private equity funds in the second quarter of 2009 as compared to $64 billion in the first quarter of 2009.

When you are choosing an entity there are a number factors you should consider.  For instance, you should think of how you would like to manage the business, protection against liability and your preferred tax treatment.  Below are brief descriptions of several business entities that may suit your needs and some of the advantages and disadvantages of choosing those entities.

Sole Proprietorship
The sole proprietorship is the simplest form of business.  A sole proprietorship is not an entity separate from you.  Though the sole proprietorship is a simple and convenient way to operate your business, you should beware, you will be exposed to unlimited personal liability if you operate your business as a sole proprietorship.  The owner of a sole proprietorship is directly and personally liable to creditors and other claimants. 

Corporate Entities

Corporation
A corporation is a business entity created under state law and is as an independent legal "person" apart from its shareholders and directors. A corporation's shareholders are generally not liable for the obligations of the corporation and are thus generally shielded from the corporation's creditors even if the corporation cannot pay its obligations.  Corporations must comply with statutory rules which are typically more restrictive and require considerably more formality than limited liability companies.

C Corporation
The distinction between a C Corporation and an S Corporation relates to the corporation's tax treatment.  Some of the advantages of a C Corporation are that ordinarily you may deduct the entire value of the fringe benefits offered to shareholders who also serve as employees, the number of shareholders the entity may have is unlimited and they may be either individuals, entities, U.S. residents or foreign.  C Corporations also have significant flexibility to carry corporate losses forward to future tax years.  But, operating as a C Corporation usually subjects you to double taxation, i.e., tax at two levels.  First, the net earnings of the corporation are taxed, and then, the shareholders will be taxed on the earnings of the corporation distributed to the shareholders.  For example, if a corporation issues dividends to its shareholders, it has already paid income tax on that money, but the dividends remain taxable as income to each shareholder. 

S Corporation
An S corporation is a regular corporation that has elected "S corporation" tax status. An S Corporation provides the limited liability of a corporation and the tax treatment of a partnership or a limited liability company.  With respect to non-tax considerations, the S corporation is essentially identical to a C Corporation.  The significant tax advantage with the S Corporation is that the corporation does not pay any income tax on its earnings.  Some disadvantages to an S Corporation are that only once class of stock is permitted and you must limit the shareholders to 100 individuals, none of which may be an entity (with the exception of estates and certain types of trusts) and none of which may be non-resident aliens.

Unincorporated Entities - Limited Liability Company
The limited liability company (LLC) has characteristics of both a corporation and a partnership. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of "pass-through" income taxation.  Unlike a corporation, few of the LLC statutory rules are mandatory and most of its governance is dictated by an operating agreement executed by its members  The management powers in the LLC can be retained by the members of the LLC or centralized within a board of managers (who may or may not be members).  Another advantage of the LLC is that its flexibility allows for much less administrative paperwork and record keeping than a corporate structure.  Some disadvantages of an LLC are that some investors are more comfortable with a corporate structure (although this may only be an issue once the company is ready to take on significant investors and not in the early stages of your business) and some creditors may require that you, and other members, personally guarantee a loan to your LLC. 

Partnerships

General Partnership
In a general partnership, each partner has full and equal control over the partnership.  The partnership is a "pass through" entity for tax purposes.  While partners have considerable flexibility in structuring their relationship, partners run a great risk of loss because there is no limitation to a partner's liability.  Partners have joint and several liability for the acts of each partner within the scope of partnership business. 

Limited Partnership
Under a limited partnership (LP), unlike a general partnership, the limited partners are not responsible for partnership debts, obligations and liabilities.  An LP may have an unlimited number of limited partners, but must have at least one general partner who is responsible for the management of the partnership.  The general partner remains personally liable for partnership debts, obligations and liabilities, but the general partner can be a limited liability entity to add a layer of protection to the individuals managing it.  Like the general partnership, the LP is treated as a "pass-through" entity.  A disadvantage of the LP is that the limited partners must be careful not to become engaged in the decision making of the business or they will run the risk of losing limited liability protection. 

Limited Liability Partnership
A limited liability partnership (LLP) is a variation of the LP which allows a limitation of liability without the restriction on active participation required with an LP.  Under an LLP, partners remain liable for their own acts and are generally not liable for the acts of others, unless the partner has acted negligently or committed misconduct.  As with the general partnership and the LP, an LLP is treated as a "pass-through" entity for tax purposes.

Bottom Line:  There is no "one size fits all" answer to the choice of entity question.  You should give careful consideration to your needs and the needs of your business before settling on an entity.  Since the factors in consideration may be significant and the tax analysis complex, it may be wise to consult your tax advisor or an attorney to assist you in the decision process. 

Indiana State Senator Beverly Gard, chair of the Energy and Environmental Affairs Committee, has focused much of her time and leadership in recent Indiana General Assembly sessions on livestock and confined animal feeding operation legislation.  Senator Gard has authored Senate Bill 221 this session.  It overwhelmingly passed the Senate and is moving to the House.  The bill establishes "good character" provisions and allows for a livestock operator's past management record to be considered when applying for a new or expanded livestock permit.  Most agriculture and livestock groups in the state consider SB 221 a "consensus piece of legislation."

The recent passage of Proposition #2 in California along with other states' actions to restrict and modify traditional livestock production practices has intensified efforts to make similar changes in other states.  The Humane Society, for example, is actively pursuing moratorium and strong animal welfare bills in Ohio and Illinois.  In Indiana, aside from SB 221, other bills surfaced this session that included distance set-backs and even production moratoriums.

Ice Miller closely monitors these proposals and their industry and political dynamics for clients.  Last week, Mark Shublak, a partner in the firm's Public Affairs Practice Group, provided an overview of Statehouse activities.  This week, Ice Miller talked with Senator Gard and asked for her personal and political perspectives on SB 221 and other pending livestock related bills.  Hear more of Senator Gard's first-hand commentary from the Indiana Statehouse.