Lucas County Prosecuting Attorney 700 Adams Street Toledo, Ohio Mr. Johnson, Mr. Manoranjan concur; Ms Jackson not participating.

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1 The Board of Education for ) the Toledo Public Schools, ) ) Appellant, ) ) CASE NO. 97-P-1299 vs. ) ) (REAL PROPERTY TAX) Lucas County Board of ) Revision, Lucas County ) DECISION AND ORDER Auditor, and Hytower Ltd., ) ) Appellees. ) APPEARANCES: For the Appellant School District For the County Appellees For the Appellee Property Owner - Michael W. Bragg Spengler Nathanson P.L.L. 608 Madison Avenue - Suite 1000 Toledo, Ohio Julia R. Bates Lucas County Prosecuting Attorney 700 Adams Street Toledo, Ohio William T. Maloney Maloney, Lindsay and McHugh Spitzer Building - Suite 330 Toledo, Ohio Entered: April 3, 1998 Mr. Johnson, Mr. Manoranjan concur; Ms Jackson not participating. This matter began with an original complaint presumably prepared and filed on behalf of Hytower Ltd., an Ohio limited liability company, by its managing member. Such person appeared in a representative capacity before the Lucas County Board of Revision. There is no claim that he is authorized to practice law in the state of Ohio. Upon consideration of pertinent Supreme Court decisions upon the matter, as well as the provisions of R.C. Chapter 1705 creating limited liability companies, we find this

2 complaint is not legally sufficient to confer jurisdiction upon the board of revision. The subject property is an office building and parking garage formerly known as the "Owens Corning Fiberglass Tower" in Toledo, Ohio. The building was built in Hytower Ltd. purchased it while it was going through foreclosure in January of Basem Mufleh signed the original complaint on behalf of Hytower, Ltd. Mr. Mufleh is identified in Hytower's response to our December 19, 1997, show cause order as the owner of a 50% membership interest in Hytower Ltd. and as the managing member of this Ohio limited liability company. Mr. Mufleh's original complaint was filed with the Lucas County Board of Revision on March 28, The school district filed a responsive countercomplaint on May 6, It was duly signed by an attorney. The Lucas County Board of Revision conducted a merit hearing on June 13, Mr. Mufleh appeared at the hearing on behalf of Hytower Ltd. and presented the case for a lower taxable value. The Lucas County Board of Revision then granted a substantial reduction in the assessed valuation of the property. This appeal ensued. Limited liability companies present a comparatively new form of business entity. Similar entities became popular in European and Latin American countries such as Germany, Argentina, Brazil and Chile because they provided for the pass through of income without the double taxation associated with corporate entities, while at the same time providing limited liability for its members. Wyoming became the first state to 2

3 enact legislation permitting the formation of limited liability companies in But, they were not initially well received. Only twenty-six limited liability companies were formed under Wyoming legislation from 1977 through This was due in large part to uncertainty as to how the Internal Revenue Service would treat income. Would it take the position that limited liability companies should be treated as an association (taxable as a corporation), thus creating two levels of taxation? Or, alternatively, would it treat the limited liability company as a partnership with only one level of taxation? The Internal Revenue Service issued a clarifying revenue ruling in 1988 which determined that the partnership characteristics of a Wyoming limited liability company prevailed over association (corporate) characteristics, thus qualifying it for taxation as a partnership in that particular case. See Revenue Ruling Thereafter popularity increased to the point where by 1995 forty seven states had enacted legislation providing for the formation of limited liability companies. Ohio's limited liability company act, Sub. Senate Bill No. 74 was introduced in 1994 and adopted by a unanimous vote of both houses of the 120th General Assembly. The Governor signed the Act on April 1, 1994, and the Act became effective on July 1, Ohio Laws S.B. 74. The Limited Liability Company Act was codified as R.C. Chapter1705. There were two distinct types of acts prevailing at that time: (1) the so-called "bullet-proof" type which provided little or no discretion in formation decisions and was intended to 3

4 provide greater certitude that the characteristics required by the Internal Revenue Service for partnership treatment would be present; and (2) the "flexible" type act which permitted deviation from basic provisions of the act. The risk: if one deviated too far one may no longer satisfy the test for taxation as a partnership. Ohio adopted the flexible form of legislation. Accordingly, one can not ascertain without further inquiry whether federal taxing authorities will view a given Ohio limited liability company as an association (taxed as a corporation) or a partnership. Critical to our analysis of this appeal is the nature of the interest a member acquires in a limited liability company. As we observed in V.F. Holdings v. Cuyahoga Cty. Bd. of Revision (Dec. 12, 1997), Interim Order, B.T.A. No. 97-M-664, unreported, a partner acquires a direct ownership interest in partnership property and is a party affected as contemplated by R.C A general partnership is a creature of the common law of Ohio, and is an aggregate of individuals not a separate legal entity. Arpadi v. First MSP Corp. (1994) 68 Ohio St. 3d 453; Lakeside Avenue Limited Partnership, et al., v. Cuyahoga Cty. Bd. of Revision (January 9, 1998), B.T.A. No. 97-K-695, unreported. A shareholder in a corporation, an entity created by statutory law, only owns an interest in the corporation, which is deemed to be personal property, R.C (A), not a direct ownership interest in the corporation property. Similarly, a limited liability company is a statutory creation and in that regard R.C provides: 4

5 "R.C : Holding and Conveyance of Property: "Real and personal property owned or purchased by a limited liability company shall be held in the name of the company. Conveyance of that property shall be made in the name of the company." [Emphasis added.] R.C (H) provides: "R.C : Definitions: "(H) 'Membership interest' means a members share of the profits and losses of a limited liability company and the right to receive distributions from that company." [Emphasis added.] R.C further provides: "A membership interest in a limited liability company is personal property." We conclude therefore that membership in an Ohio limited liability company provides no direct ownership interest in any of the real or personal property of such company. C O N C L U S I O N: It is uncontested that Mr. Mufleh signed the original complaint on behalf of Hytower Ltd. He appeared in a representative capacity before the Board of Revision. Mr. Mufleh makes no claim that he is authorized to practice law. We conclude that in these instances Mr. Mufleh engaged in the unauthorized practice of law by acting in a representative capacity on behalf of Hytower Ltd., a separate legal entity. See R.C ; Sharon Village Ltd. v. Licking Cty. Bd. of Revision (1997), 78 Ohio St.3d 479; Union Savings Association v. Home Owners Aid, Inc. (1970), 23 5

6 Ohio St.2d 60. Having so determined, it is our duty to remand this matter to the Board of Revision with instructions to dismiss the complaint. To do otherwise would be to permit the unauthorized practice of law in violation of R.C , Sharon Village, supra. Accordingly, this matter is remanded to the Lucas County Board of Revision with instructions to dismiss the underlying original complaint. ohiosearchkeybta 6