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March 2012

March 28, 2012
from the Colorado Bar Association
Business Law Section
Ed Naylor, Editor

Highlights...
What You Need to Know Before Holding a Raffle or Bingo Game Transferee Liability of Sole Shareholder of a Dissolved Colorado Corporation
From the Colorado Secretary of State's Office Business Law Section Activities
CLE Information

What You Need to Know Before Holding a Raffle or Bingo Game
By Sarah Steinbeck, Nonprofit Programs Manager for Colorado Department of State

This provides an overview of the requirements for operating charitable gaming in Colorado.  The first section explains the licensing requirements for raffles, bingo, and pull tabs.  The second section provides guidance for holding raffle-and bingo-like events if an organization does not meet the requirements for licensure. 

Does my group meet the requirements to apply for a charitable gaming license?

Three primary sources of law govern charitable gaming in Colorado: Article XVIII, Section 2 (sos.state.co.us) of the Colorado Constitution; Article 9 of Title 12 (sos.state.co.us/pubs/info_center/laws/Title12Article9.html) of the Colorado Revised Statutes; and section 1505-2 of the Colorado Code of Regulation (8 CCR 1505-2)(sos.state.co.us). These sources should be reviewed carefully, as this article only provides a general overview of the licensing requirements and options if the requirements cannot be met.

An organization must generally meet three primary requirements to be eligible for a bingo-raffle license: 1) be a nonprofit organization; 2) have been in existence for at least five years immediately prior to applying for the license; and 3) have a membership.  The Colorado Secretary of State’s office, which is responsible for licensing organizations and enforcing the bingo-raffle laws, will request the organization’s governing documents to verify each of these requirements.

Nonprofit Organization

The Colorado Constitution limits charitable gaming to “any bona fide chartered branch or lodge or chapter of a national or state organization or to any bona fide religious, charitable, labor, fraternal, educational, voluntary firemen’s or veterans’ organization which operates without profit to its members.”  (Article XVIII, Section 2 (2), Colorado Constitution.)  Each of the terms related to the type of organization is further defined in CRS § 12-9-102.  If an organization does not fall into one of these categories, the organization cannot operate a licensed raffle or bingo.

Five Year Requirement

The organization’s existence must be continuous for at least 5 years prior to applying for the license.  The term of existence requirement is set by the Colorado Constitution. (Article XVIII, Section 2 (2), Colorado Constitution.)  When determining whether an organization meets the five-year requirement, the Secretary of State’s office will review the organization’s governing documents and any records on file with the Business or Charities programs of the Secretary of State’s office.

Membership

The membership requirement’s importance derives from the limitations on who may assist with or operate the charitable gaming activities.  The Colorado Constitution prohibits anyone except bona fide members from participating in the operation of the games.  (Article XVIII, Section 2 (4), Colorado Constitution.)  The bingo-raffle license application requires each member to be listed by name.  If members of another organization are considered members of the organization that is applying for a license, each of the members of the other organization must be named.  Additionally, if an organization has an extensive member list and only a subset of the members will assist in the games, only the names of those people assisting with the games need to be included in the list that is submitted with the application.

Verification of the organization’s membership is completed by reviewing the governing documents.  If the documents conflict or state that the organization does not have members, the Secretary of State’s office will request additional information.  The membership list allows inspectors to quickly determine if the people assisting with the game are permitted to do so.

An organization may still become licensed in the name of the board of directors or trustees if it does not have members.  (See 8 CCR 1505-2 (3.0)(A)(3).)  This permits an organization with a large board to legally operate charitable gaming.  However, only the members of the board or the trustees can assist with or operate the games.  If an organization is licensed in the name of the board and the organization operates a raffle, only the board members are permitted to sell raffle tickets.

Common Errors

In addition to meeting the above three requirements, an organization must also have one of its members trained and certified as a games manager.  Organizations often receive the games manager certification and begin operating games without also having a bingo-raffle license.  Both the certification and the license are required prior to operating games of chance.

Allowing non-members to sell raffle tickets is one of the more common errors organizations make when conducting a raffle.  Family members who are not members of the organization are prohibited from selling tickets; therefore, batches of tickets should not be given to the parents, grandparents, or other relatives to sell unless each of those persons is a member of the organization. 

What can I do if my organization does not meet these three requirements?

Options for organizations that do not meet the three requirements fall into two main categories: no purchase necessary games, and games of skill.  Keep in mind that any charitable organization that solicits contributions will need to comply with the Colorado Charitable Solicitations Act, CRS § 6-16-101 et seq. 
           
No Purchase Necessary

An organization can operate a raffle-like event (although not one that meets the definition of “raffle” in CRS § 12-9-102 (19.3)) by not requiring payment or other consideration for entry into the drawing.  The odds of winning must be the same for a person who buys a ticket or makes a donation as for a person who enters without purchasing or donating.  The laws governing sweepstakes and contests, CRS § 6-1-801 et seq, should also be reviewed carefully.

Similarly, bingo games can be held if players are not required to purchase a bingo card.  Several venues offer this type of bingo event as an activity similar to a quiz night. 

Games of Skill

Games of skill are not regulated by bingo-raffle laws and provide an opportunity for organizations who do not qualify for a bingo-raffle license to raise funds.  For example, a group may sell tickets for opportunities to guess the number of marbles in a jar.  An organization should carefully develop criteria for determining a winner and how to resolve ties prior to offering opportunities to participate in the game. 

Other Options

Certain games, including rubber duck races, golf ball drops, and animal plop bingo, are not regulated by the bingo-raffle laws.  As with games of skill and no purchase necessary games, research should be done prior to initiating any game to ensure that the game complies with all laws and is not considered unlawful gambling. 

Other Questions?

Please call or email the Bingo-Raffle program with any questions. (303) 894-2200 x6410 or licensing@sos.state.co.us.


Colorado Federal District Court Imposes Transferee Liability on Sole Shareholder of a Dissolved Colorado Corporation
By Jim Serven, Moye White LLP

CRS Section 7-90-913 allows creditors to impose transferee liability on the owners of certain dissolved Colorado entities – including corporations and LLCs -- who receive liquidating distributions from the entity.  Under these rules as applicable to corporations, Section 7-90-913(1) provides that a claim against a dissolved Colorado corporation may be enforced (a) against the corporation “to the extent of its undistributed assets” and (b) “[i]f assets have been distributed in liquidation,” against a shareholder of the dissolved corporation.  In the latter case, “an owner's total liability for all claims under this section shall not exceed the total value of assets distributed to the owner, as such value is determined at the time of distribution.”

A recent federal District Court case, U.S. v. Holmes, 2012 WL 602652 (D.Colo.,2012), illustrates the potential reach of these rules, and will caution you about advising clients to voluntarily dissolve a Colorado entity. 

Background

James Holmes was the sole shareholder and a director and officer of Colorado Gas Compression, Inc. (CGCI), a Colorado corporation formed in 1977.  CGCI switched from C Corp status to S Corp status several times, sold assets, and made almost yearly distributions to Holmes from 1995 to 2002 aggregating over $3,600,000.  Following a 1997 tax audit, the IRS issued CGCI a $923,049 notice of deficiency in 1998 for three tax years.  CGCI allowed itself to be administratively dissolved by the Colorado Secretary of State in 2005.  In 2008, the IRS filed a civil action against Holmes after confirming CGCI had no assets.

Ruling

The Colorado Federal District Court ruled that the IRS could use section 7-90-913 to pursue Holmes for the full amount of all the CGCI distributions, even though they were made over the course of 7 years, and some of the distributions were made while CGCI had sufficient assets to pay its debts.  Section 7-90-913 applies to enforcing claims “under” 7-90-911 and 912.  Those sections allow a dissolved entity to “dispose” of claims against it by the entity giving actual or published notice of claims, and then providing a specific time period by which a creditor must assert the claim.  The Court applied 913, even though CGCI apparently did not even make use of the notice procedures of 911 or 912.  The Court did not address the question of whether those notices are required if a creditor is to use 913. 

The Court allowed the IRS to use the 7-90-913 enforcement mechanism instead of the more burdensome theories based on fraudulent transfers under the Colorado Uniform Fraudulent Transfer Act, or the unlawful corporate distributions under CRS sections 7-106-401 and 7-108-403.  Had there been no dissolution, the IRS’s task could have been much more difficult. 

Because dissolution could lead to a loss of some important liability protections, clients should carefully weigh the advantages and disadvantages of dissolving. 

Click Here to read Jim Serven’s complete article


FROM THE COLORADO SECRETARY OF STATE’S OFFICE

New Deputy Secretary of State Appointed

Secretary of State Scott Gessler appointed Suzanne Staiert to the Deputy Secretary of State position on February 29.

“I’m excited to bring Suzanne’s strong public sector legal experience to serve our customers and the people of Colorado,” Gessler said.  “Suzanne shares my customer-focused agenda aimed at breaking down barriers for Coloradans to their government.”

Most recently, Staiert served as an associate municipal judge for the City of Centennial. Prior to her position there, she served as legal counsel to Arapahoe County and the cities of Littleton and Aurora.

Staiert replaces Deputy Secretary of State Bill Hobbs, who announced his retirement last year after 12 years in the office.  Following his announcement, Gessler convened a search committee to identify a new deputy.

“With an upcoming presidential election and new initiatives scheduled for the Business and Licensing Division, it’s an exciting time to be a part of the Secretary of State’s office,” Staiert said.  “I’m looking forward to continuing my public service and helping Secretary Gessler deliver a more efficient office to our customers and the people of Colorado.”


BUSINESS LAW SECTION ACTIVITIES

New Lawyer’s Division - Luncheons

Basics of Securities Law and Private Placement Exemptions
Presented by: Jackie Benson, Moye White

Date/Time: Friday, May 11, 2012 - Noon
Location: CBA Offices, 1900 Grant Street, 9th Fl., Denver, CO 80203  Call-in available.
Prices (includes lunch): Business Law Section Member $15.00; Non-Member $20.00; Call-in $5.00
CLE Credit: CLE credit applied for
To RSVP for the Luncheon:  Call 303.860.1115, X727 or SEND AN E-MAIL TO:  LUNCHES@COBAR.ORG, PLEASE INCLUDE YOUR NAME AND “Business Law New Lawyers Luncheon” in your e-mail.   Vegetarian meals must be requested when making reservation.

Financial Institutions Subsection Report

The Financial Institutions Subsection recently completed a survey of Business Law Section members regarding priorities for the Financial Institutions Subsection.  The results of the sixty responses can be found by Clicking Here.  Look for future updates in this Newsletter about subsection CLEs, luncheons, and networking events that are being planned now. 

The Financial Institutions Subsection is looking for new members as well as ideas and ways for the subsection to contribute to the success of legal professionals working with financial institutions.   Any party interested in membership or in providing ideas regarding the subsection should contact the subsection’s new co-chairs:  G. Brent Coan of Otis, Coan & Peters, LLC (gbcoan@nocolegal.com) or Steve Suneson of Kavinoky Cook LLP (ssuneson@kavinokycook.com).


CLE INFORMATION
From Colorado Bar Association

Regulatory Advocacy: Your Role in Devising and Affecting a Positive Outcome for Your Clients in the Different Regulatory Spheres

Date/Time:  April 6, 2012 - 9:00 AM - 4:00 PM
Live and Live Webcast Programs are available
Live program will be held at the CBA-CLE Large Classroom, 1900 Grant St., Suite 300, Denver
Credits: Submitted for 6 General Credits
Prices:  Business Law Section Members - $259; CBA Members - $289; Non Members - $339;
New attorneys (in the first three years of practice) - $239

You can find more information or register for this program online.
Go to: http://www.cobar.org/cle/item.cfm?EventID=BL040612L
Or call us at 303.860.0608 or 800.860.2531

Organizing a Colorado Business

Date/Time:  April 11, 2012 - 9:00 AM - 4:00 PM
Live and Live Webcast Programs are available
Live program will be held at the CBA-CLE Large Classroom, 1900 Grant St., Suite 300, Denver
Credits: Submitted for 6 General Credits, including 1 Ethics Credit
Prices:  Business Law Section Members - $239; CBA Members - $269; Non Members - $309;
New attorneys (in the first three years of practice) - $209

You can find more information or register for this program online.
Go to: http://www.cobar.org/cle/item.cfm?EventID=BL041112L
Or call us at 303.860.0608 or 800.860.2531

44th Annual Rocky Mountain Securities Conference

April 13, 2012 - 8:00 AM - 5:00 PM
Live and Live Webcast Programs are available
Live program will be held at the Marriott City Center Hotel, 1701 California Street, Denver, CO
Credits: Submitted for 8 General Credits, including 1.5 Ethics Credits
Prices:  Business Law Section Members - $299-319; CBA Members - $329-349; Non Members - $349-399

You can find more information or register for this program online.
Go to: http://www.cobar.org/cle/item.cfm?EventID=BL041312L
Or call us at 303.860.0608 or 800.860.2531

Primer and 21st Annual Institute on Advising Nonprofit Organizations in Colorado

May 10-11, 2012
Live and Live Webcast Programs are available
Live programs will be held at the CBA-CLE Large Classroom, 1900 Grant St., Suite 300, Denver, CO
Credits: Primer Submitted for 4 General Credits and Institute Submitted for 8 General Credits and 1 Ethics Credit
Primer Prices: Business Law Section Members - $139; CBA Members - $159; Non Members - $199; New attorneys (in the first three years of practice) - $119
Institute Prices: Business Law Section Members - $239; CBA Members - $259; Non Members - $299; New attorneys (in the first three years of practice) - $219
Combined Prices: Business Law Section Members - $309; CBA Members - $329; Non Members - $379; New attorneys (in the first three years of practice) - $269

You can find more information or register for this program online.To register for both the Primer and Institute, go to: http://www.cobar.org/cle/item.cfm?EventID=BL051012BL
To register for just the Primer, go to: http://www.cobar.org/cle/item.cfm?EventID=BL051012L
To register for just the Institute, go to: http://www.cobar.org/cle/item.cfm?EventID=BL051112L
Or call us at 303.860.0608 or 800.860.2531

Better Appellate Writing, Briefing, and Oral Argument

May 24, 2012 - 9:00 AM - 1:00 PM
Live and Live Webcast Programs are available
Live program will be held at the CBA-CLE Large Classroom, 1900 Grant St., Suite 300, Denver, CO 80203
Credits: Submitted for 4 General Credits, Including 1 Ethics Credit
Prices:  CBA Members - $199; Non Members - $299; New attorneys (in the first three years of practice) - $159
You can find more information register for this program online.
Go to: http://www.cobar.org/cle/item.cfm?EventID=LI052412L
Or call us at 303.860.0608 or 800.860.2531

CBA/CLE Featured Publications

Guide for Colorado Nonprofit Organizations, First Edition:
There are more than 19,000 nonprofit organizations in Colorado that represent a vital part of the state’s economy. The laws affecting nonprofit organizations have become increasingly complex and are rapidly changing. With the passage of the Pension Protection Act of 2006, Congress enacted sweeping reforms affecting the charitable sector — the most significant legislation since 1969. Members of Congress have promised more legislation in the coming years in this area. A Guide for Colorado Nonprofit Organizations was prepared to serve as a resource for attorneys to assist them in understanding and addressing the legal and tax issues facing Colorado nonprofit organizations. As a valuable, comprehensive resource for practitioners, A Guide for Colorado Nonprofit Organization was written by more than 20 of Colorado’s top corporate attorneys (many of whom specialize in advising and representing nonprofit, tax-exempt organizations).  It covers the legal aspects of forming nonprofit entities in Colorado, the fundamentals of choosing the form of the entity, the requirements of maintaining the entity’s tax-exempt status, and the complex and ever-changing tax laws — federal, state, and local — that impact nonprofit organizations. As a guide for the practitioner, many of the authors have included sample forms, tables, and references to online resources, which enhance the text.

TO ORDER THE BOOK GO TO: http://www.cobar.org/cle/item.cfm?productid=ZGCNPO07B
Or call us at 303.860.0608 or 800.860.2531

2011 Annual Survey of Law:  Includes Chapters on Bankruptcy and Taxation!
Each year, author/practitioners from across the spectrum of legal practice areas provide their time and expertise to help produce The Annual Survey of Colorado Law, a yearly compilation of updates of Colorado case law, statutory, and regulatory developments. This 2011 edition is no exception: 35 authors provided updates in 24 areas of the law. The 2011 Annual Survey of Law chapter on Bankruptcy was authored by Kimberley H. Tyson, Ireland Stapleton Pryor & Pascoe; Holly R. Shilliday, Snell & Wilmer; and Robert J. Shilliday III, Shilliday Law. The Taxation chapter was written by leading tax practitioner Norman H. Wright, N.H. Wright & Assoc. The Annual Survey is available not only in a soft cover print version, but you can purchase and download individual chapters.  And, the price of the Annual Survey print version is only $49 for CBA members.

TO ORDER THE BOOK GO TO: http://www.cobar.org/cle/item.cfm?productid=ZASOCL11B
Or call us at 303.860.0608 or 800.860.2531

Contributions for future newsletters are welcome –
Contact Ed Naylor at ed.naylor@moyewhite.com or 303-292-2900
This newsletter is for information only and does not provide legal advice.

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