The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 6807 June 23, 1994 CORPORATIONS: Ban on corporate political contributions or expenditures in elections for state office LIMITED LIABILITY COMPANIES: Ban on corporate political contributions or expenditures in elections for state office MICHIGAN CAMPAIGN FINANCE ACT: Ban on corporate political contributions or expenditures in elections for state office The prohibition on corporations making contributions or expenditures in elections for state office in section 54(1) of the Michigan Campaign Finance Act does not apply to limited liability companies formed under the Michigan Limited Liability Company Act. Contributions or expenditures to a candidate from a limited liability company may be attributed to individual members of the company. A limited liability company that has a corporation as a member may not make contributions or expenditures in elections for state office with funds derived from the corporate member. A limited liability company that has a corporation as a member may make contributions or expenditures in elections for state office with segregated funds derived from the non-corporate members of the limited liability company. Honorable Richard H. Austin Secretary of State Treasury Building Lansing, Michigan You have asked several questions regarding the ability of limited liability companies formed under the Michigan Limited Liability Company Act (LLCA), 1993 PA 23, MCL 450.4101 et seq; MSA 21.198(4101) et seq, to make political contributions. Your first question is whether the prohibition on corporate contributions or expenditures in elections for state office in section 54(1) of the Michigan Campaign Finance Act (CFA), 1976 PA 388, MCL 169.254(1); MSA 4.1703(54)(1), applies to limited liability companies formed under the LLCA. The LLCA authorizes a new form of organization for conducting business. In a limited liability company the members of the company, like the shareholders of a corporation, are not personally liable for the debts of the organization. See section 501(2) of the LLCA. But section 204(2)(b) and (2)(c)(ii) requires a limited liability company to distinguish itself from a corporation in its name. Unlike a corporation, a limited liability company does not have an unlimited duration. See sections 203(1)(e) and 801 of the LLCA. Finally, the LLCA is designed so that limited liability companies will be treated like partnerships rather than corporations for federal income tax purposes. House Legislative Analysis, HB4023, May 26, 1993. In Austin v Michigan Chamber of Commerce, 494 US 652; 110 SCt 1391; 108 LEd2d 652 (1990), on remand 937 F2d 608 (1991), the United States Supreme Court upheld the constitutionality of the section 54(1) prohibition on corporate contributions or expenditures in elections for state office. In reaching that result, the Court made it clear that the section 54(1) prohibition on corporate contributions did not apply to "unincorporated associations." Austin, supra, at 666. Section 102(2)(i) of the LLCA defines a "limited liability company" as "an entity that is an unincorporated association having 2 or more members and is formed under this act." (Emphasis added.) Based on this statutory definition, it is clear that a limited liability company is not a corporation subject to the prohibitions on campaign contributions in section 54(1) of the Michigan Campaign Finance Act. It is my opinion, therefore, that the prohibition on corporations making contributions or expenditures in elections for state office in section 54(1) of the Michigan Campaign Finance Act does not apply to limited liability companies formed under the Michigan Limited Liability Company Act. Your second question is whether contributions or expenditures to a candidate from a limited liability company may be attributed to individual members of the company. There is currently no specific statutory or administrative rule covering how political contributions of a limited liability company account must be attributed. The main purpose of the LLCA is to provide a form of business organization in which the limited liability company's members are not personally liable for the company's debts while securing the same federal tax treatment as partnerships. House Legislative Analysis, HB4023, May 26, 1993. If properly structured, a limited liability company will be treated as a pass-through entity for federal income tax purposes. See Rev.Rul. 88-76, 1988-2 CB 360. Pass-through entities are not subject to federal income tax at the entity level, unlike corporations. Your department has addressed this issue, in the context of partnerships, in 1982 AACS, R 169.35a, which provides: (1) A contribution drawn on a partnership account shall be attributed to the partners as individuals, and not to the partnership, if the contribution is accompanied by a written statement containing the name and address of each contributing partner and the amount of each partner's contribution. The statement shall include the occupation, employer, and principal place of business of each individual who is a member of the partnership and contributed $200.01 or more for that election. (2) A committee which receives a written statement attributing a partnership contribution to the partners as individuals shall report the contribution as if the committee had received a separate contribution from each individual. [ Emphasis added.] Rule 169.35a recognizes that, in Michigan, a partnership is a distinct legal entity separate from the individual partners. Employment Security Comm v Crane, 334 Mich 411, 416; 54 NW2d 616 (1952). Contributions drawn on a partnership account are attributed to partners as individuals if they are accompanied by written statements containing the names and addresses of the contributing partners and the amounts of their contributions. Individual partners are not required to form a committee pursuant to MCL 169.203(4); MSA 4.1703(3)4), even if their contributions exceed $500.00. The same reasoning underlying Rule 169.35a may be applied to an entity organized under the LLCA. Under section 304 of the LLCA, a limited liability company is similar to a partnership in that a member is entitled to receive distributions from the company before the member's withdrawal and before dissolution. The member, subject to any restrictions in the company's operating agreement and other limitations in the LLCA, may reach his or her draw or share. The individual members are separate and distinct from the limited liability company similar to a partner in a partnership. See section 102(2)(i) and (1) of the LLCA. Accordingly, like a partnership, contributions from a limited liability company may be attributable to individual members if the contributions are accompanied by written statements containing the names and addresses of the contributing members and the amounts of their contributions. It is my opinion, therefore, that contributions or expenditures to a candidate from a limited liability company may be attributed to individual members of the company. Your third question is whether a limited liability company that has a corporation as a member may make contributions or expenditures in elections for state office with funds derived from the corporate member. Under section 102(2)(i)(1) and (o) of the LLCA, a corporation may be a member of a limited liability company. However, there is no language in the LLCA that suggests that the Legislature, in passing that statute, intended to relax the ban on corporate contributions and expenditures in elections for state office found in section 54(1) of the CFA. The courts have consistently upheld the power of the Michigan Legislature to prohibit corporate contributions or expenditures in elections for state office to preserve the integrity of the elective process. In People v Gansley, 191 Mich 357, 376; 158 NW 195 (1916), the Court stated: It is probable that the legislature had in mind the fact that it is matter of history that corporations have in many instances used their funds (acting through and by their officers) to influence elections, and that body believed that such practice was an abuse and menace to good government, which it sought to remedy by this legislation. The record, in our opinion, is a justification for the legislation complained of. It was for the legislature to say, in the exercise of the police power, whether such use of corporate funds opened the door to corruption and tended to destroy safeguards sought to be placed around elections to "protect the purity of the ballot." More recently, in Advisory Opinion on the Constitutionality of 1975 PA 227 (Questions 2-10), 396 Mich 465, 492; 242 NW2d 3 (1976), four Justices of the Michigan Supreme Court stated: The legislative intent in prohibiting financial involvement of corporations in the elective process was to prevent the use of corporate funds to impose undue influence upon elections. Large aggregations of capital controlled by a few persons could have a significant impact upon the nomination or election of a candidate. The possibility of misuse of corporate assets by persons acting on behalf of uninformed or unwilling shareholders and the attempts at influence or importunity which might be exerted upon a successfully elected candidate by a contributing corporation represent abuses which the passage of the corrupt practices act sought to eliminate. [ Footnote omitted.] In Austin, supra, 494 US, at 659-660, the Supreme Court majority ruled: [M]ichigan's regulation aims at a different type of corruption in the political arena: the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public's support for the corporation's political ideas. See supra, at 658-659, 108 LEd2d, at 691. The Act does not attempt "to equalize the relative influence of speakers on elections," rather, it ensures that expenditures reflect actual public support for the political ideas espoused by corporations. We emphasize that the mere fact that corporations may accumulate large amounts of wealth is not the justification for Sec. 54; rather, the unique state conferred corporate structure that facilitates the amassing of large treasuries warrants the limit on independent expenditures. Corporate wealth can unfairly influence elections when it is deployed in the form of independent expenditures, just as it can when it assumes the guise of political contributions. We therefore hold that the State has articulated a sufficiently compelling rationale to support its restriction on independent expenditures by corporations. [ Citations omitted.] If corporations could contribute to candidates for state office indirectly through limited liability companies, it would render the prohibition on corporate contributions in section 54(1) of the CFA meaningless. The legislative intention in passing the LLCA was to authorize a new form of business entity for liability and tax purposes, not to eliminate the ban on corporate contributions in elections for state office. It is my opinion, therefore, that a limited liability company that has a corporation as a member may not make contributions or expenditures in elections for state office with funds derived from the corporate member. Your fourth question is whether a limited liability company that has a corporation as a member may make contributions or expenditures in elections for state office with funds derived from the non-corporate members of the limited liability company. There is no prohibition on contributions or expenditures in elections for state office by the non-corporate members. Thus, the limited liability company may make contributions and expenditures in elections for state office with segregated funds derived from the non-corporate members. Given the prohibition on corporate contributions, the limited liability company may not make contributions or expenditures in elections for state office unless it segregates its funds so the contributions are made only with funds derived from the non-corporate members. It is my opinion, therefore, that a limited liability company that has a corporation as a member may make contributions or expenditures in elections for state office with segregated funds derived from the non-corporate members of the limited liability company. Frank J. Kelley Attorney General