SHAREHOLDER DISPUTES – SHAREHOLDER OPPRESSION

LAW OFFICES OF
Lustig & Wickert, PLLC.
3400 Dundee Road
Northbrook, Illinois 60062
Telephone (847) 509-9090

Shareholder Disputes

Most breaches of fiduciary duty by shareholders begin with someone hiding information. Shareholders of businesses of all sizes have a right to know what is going on in the business.

Even a minority shareholder has the right to examine corporate books and records to protect his interest so long as he has a legitimate purpose and is not proceeding for improper reasons. If you are cut out of the operations of a business you own, you have a right to request the records of the business.

We handle all aspects of ownership disputes including shareholders, LLC membership, and partnership disputes, and the defense and prosecution of claims involving:

• Breach of fiduciary duty
• Conflicts of interest and self-dealing
• Shareholder derivative actions
• Minority shareholder, LLC membership and partnership rights
• Excessive management compensation
• Shareholder oppression claims due to forced or unfair buy-out agreements and fair value calculations
• Failure to pay dividends or distributions
• Failure to pay earned wages or sales commissions
• Deadlocks and freeze-out disputes
• Appraisal rights

Right to Business Records

Most business partner disputes begin with the owners with majority control hiding information from those in the minority. Most breaches of fiduciary duty begin with someone hiding information. Shareholders of small businesses have the right to know what is going on in the business.

Even a minority shareholder has the right to examine corporate books and records to protect his interest so long as he has a legitimate purpose and is not proceeding for vexatious or speculative reasons. If you are cut out of the operations of a business you own you have a right to request the complete records of the business. The records that must be shared are not just limited to financial records or meeting minutes as the majority owners may tell you. Instead, once a purpose has been established, the shareholder’s right of inspection extends to all books and records necessary to make a complete investigation, including all books, papers, contracts, minutes, or other instruments from which he can derive any information that will enable him to protect his interests.  A proper purpose is one which seeks to protect the interests of the corporation as well as the interest of the shareholder seeking the information.

If the majority controlling partners fail to produce business records they face a stiff penalty. 805 ILCS 5/7.75(d) provides:

“Any officer, or agent, or a corporation which shall refuse to allow any shareholder or his or her agent so to examine and make extracts from its books and records of accounts, minutes and records of shareholders, for any proper purpose, shall be liable to such shareholder, in a penalty of up to ten per cent of the value of the shares owned by such shareholder, in addition to any other damages or remedy afforded him or her by law… “

If your partners are trying to cut you out of the business but have not acted yet, you can file suit to obtain information and prevent the harm before it starts. Your partners will be punished with a penalty of up to ten percent of the value of your ownership interest plus attorneys’ fees necessary to get a court order requiring them to provide the records requested.

Shareholder Oppression Claims—Forced buy out

The Illinois Business Corporation Act 805 ILCS 5/12.56 allows for a minority shareholder to get paid the fair value of his or her ownership interest if he or she can prove oppression, waste, or deadlock. These claims are much easier to prove than fraud or fiduciary.

Section 12.56(f)(6) provides that, if the parties are unable to reach an agreement on the value of the shares, the “court, upon application of any party, shall stay the proceeding under subsection (a) and shall determine the fair value of the petitioner’s shares.” The goals of dissenters’ rights statutes today are to protect minority shareholders from majority overreaching, self-dealing, and oppressive conduct in an attempt to eliminate a minority shareholder at a price below fair value, or in an attempt to transfer power to the majority

Section 12.56(a) of the Act provides that a shareholder may petition the circuit court for a variety of remedies if any of the following is established:

“(1) The directors are deadlocked, whether because of even division in the number of directors or because of greater than majority voting requirements in the articles of incorporation or the bylaws or otherwise, in the management of the corporate affairs; the shareholders are unable to break the deadlock; and either irreparable injury to the corporation is thereby caused or threatened or the business of the corporation can no longer be conducted to the general advantage of the shareholders; or

(2) The shareholders are deadlocked in voting power and have failed, for a period that includes at least 2 consecutive annual meeting dates, to elect successors to directors whose terms have expired and either irreparable injury to the corporation is thereby caused or threatened or the business of the corporation can no longer be conducted to the general advantage of the shareholders; or

(3) The directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent with respect to the petitioning shareholder whether in his or her capacity as a shareholder, director, or officer; or (4) The corporation assets are being misapplied or wasted.”[8]

When a minority shareholder is able to prove oppression they can ask the court for several remedies including the purchase of their shares for fair value.

Shareholder Oppression Claims-Fair Value Buy Out

“Fair value” as defined by statute is much more favorable to a minority shareholder than selling shares for fair market value or any other metric of value normally employed when selling an interest in a small business. The Illinois Business Corporation Act defines fair value as: “taking into account any impact on the value of the shares resulting from the actions giving rise to a petition under this Section.”

The Illinois Business Corporations Act provides:

“(e) If the court orders a share purchase, it shall:

(i) Determine the fair value of the shares, with or without the assistance of appraisers, taking into account any impact on the value of the shares resulting from the actions giving rise to a petition under this Section…

For purposes of this subsection (e), “fair value”, with respect to a petitioning shareholder’s shares, means the proportionate interest of the shareholder in the corporation, without any discount for minority status or, absent extraordinary circumstances, lack of marketability.

The purchase ordered pursuant to this subsection (e) shall be consummated within 20 days after the date the order becomes final unless before that time the corporation files with the court a notice of its intention to dissolve and articles of dissolution are properly filed with the Secretary of State within 50 days after filing the notice with the court.”

The statute providing for this remedy uses the term “fair value” — rather than “fair market value” — as the standard used to determine the buyout price. The statute further provides that “fair value” means “the proportionate interest of the shareholder in the corporation, without any discount for minority status or, absent extraordinary circumstances, lack of marketability.” This language is critical where the majority owners frequently assert  that they are entitled to a discount when purchasing the minority interest. Illinois law is clear that discounts at the shareholder level are disallowed because they result in undervaluing the dissenters’ shares while overvaluing the majority’s shares, thereby effectively punishing the minority shareholder for exercising his statutory right to dissent.

The Illinois Business Corporations Act, (805 ILCS 5/12.56) provides:

“If the parties are unable to reach an agreement as provided for in paragraph (5) of this subsection (f), the court, upon application of any party, shall stay the proceeding under subsection (a) and shall determine the fair value of the petitioner’s shares pursuant to subsection (e) as of the day before the date on which the petition under subsection (a) was filed or as of such other date as the court deems appropriate under the circumstances.”

Shareholder Oppression Claims—Fair Value Calculation

Once a minority shareholder or partner establishes a right to be bought out the next question is how much is the minority interest worth?

Illinois courts have stated that there is no precise formula for valuing the stock in a corporation, and a trial court is to consider “[e]very relevant evidential fact and circumstance entering into the value of the corporate property and reflecting itself in the worth” of a dissenter’s shares. A relevant factor is anything that might impact on the stock’s intrinsic value. Some of the factors that may be relevant to a determination of fair value include the stock’s market price, the corporation’s earning capacity, the investment value of the shares, the nature of the business and its history, the economic outlook of the business and the industry, the book value of the corporation, the corporation’s dividend paying capacity, and the market price of stock of similar businesses in the industry. Although “fair value” is not synonymous with “fair market value,” fair market value is another relevant factor to be considered.

According to Financial Accounting Standards Board (“FASB”)’s Accounting Standards Codification (“ASC”) 820, fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” An “orderly transaction” is a hypothetical transaction assumed to take place on the measurement date with the subject asset having been exposed to the market for the usual and customary period of time for transactions involving such assets in order to provide sufficient time for marketing activities. It is a sale where the seller is not under duress (e.g., a forced liquidation or distress sale). Fair value measurements are considered from the perspective of a market participant that already holds the asset or owes the liability. The objective of measuring fair value is to determine an exit price: the price that a known seller would receive to sell an asset or to transfer the liability to a market participant buyer.

The income approach generally relies on the expectation of future cash flows and/or earnings. In many cases we apply a Discounted Cash Flow Method (“DCF”) to estimate the Enterprise Value of the minority interest by discounting the projected future free cash flows from the business using an appropriate discount rate.

In practice, we are able to maximize settlement by engaging reputable business valuation experts early in the litigation to establish a value for the business. Settlements are achieved by establishing a clear, conservative, value for the.

Wage Claims by Minority Business Owners

More often than not when a shareholder is locked out of a business they also are not paid their wages.

The Illinois Wage Payment and Collection Act requires that businesses promptly pay their employees earned wages and other compensation upon separation and provides employees, including executives, with enforcement tools to recover earned compensation from an employer. The Act covers all employees who perform work in Illinois for an Illinois employer. In order to establish a claim under the Wage Payment and Collection Act, an employee or ex-employee must prove that: (1) that the defendant was an “employer” under the Act; (2) that the parties entered into an “employment contract or agreement,” as defined in the Act; and (3) the employee is owed “final compensation” under the Act. The Act empowers a judge hearing the employee’s claim to award attorney fees and costs to the employee, to be paid for by the employer. The other owners of the business are personally liable because officers and directors are liable who knowingly aided or allowed a violation of the Act to occur. The added element of personal liability can create tremendous leverage as part of a larger shareholder, member, or partnership claim.

The Wage Payment and Collection Act defines wages as follows: “Any compensation owed an employee by an employer pursuant to an employment contract or agreement between the 2 parties, whether the amount is determined on a time, task, piece, or any other basis of calculation. Payments to separated employees shall be termed “final compensation” and shall be defined as wages, salaries, earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays, and any other compensation owed the employee by the employer pursuant to an employment contract or agreement between the 2 parties.” Plus severance pay is considered final compensation compensable under the Act.

The Wage Payment and Collection Act include a penalty of 2% monthly, or 24% annual interest, plus attorney fees.

Sales Commission Claims by Minority Business Owners

In many small businesses you are entitled to both the value of your ownership interest and your earned commissions when you leave the business.

The Illinois Sales Representative Act (“ISRA” or the “Act”, 820 ILCS 120.01 et seq.), is intended to protect the right of terminated independent sales representatives to receive timely payment of their commissions. ISRA is intended to apply to sales representative agreements that satisfy the “minimum contacts” test for jurisdiction in Illinois.

The Illinois Sales Representative Act provides in pertinent part:

“(3) ‘Principal’ means a sole proprietorship, partnership, corporation or other business entity whether or not it has a permanent or fixed place of business in this State and which:

• (A) Manufactures, produces, imports, or distributes a product for sale;
• (B) Contracts with a sales representative to solicit orders for the product; and
• (C) Compensates the sales representative, in whole or in part, by commission.”

The ISRA specifically provides that in cases where there is no written agreement: “If there is no contract, or if the terms of the contract do not provide when the commission becomes due, or the terms are ambiguous or unclear, the past practice used by the parties shall control” and “If neither [the contract or past practices] can be used to clearly ascertain when the commission becomes due, the custom and usage prevalent in this State for the parties’ particular industry shall control.” So, even if you do not have a separate sales commission agreement, if you were paid sales commissions you are entitled to any earned commissions when you leave the business.

The penalties for a failure to pay commissions are harsh and do not require a showing of bad faith. The Illinois Sale Representative Act 820 ILCS 120/3 provides:

“A principal who fails to comply with the provisions of Section 2 concerning timely payment or with any contractual provision concerning timely payment of commissions due upon the termination of the contract with the sales representative, shall be liable in a civil action for exemplary damages in an amount which does not exceed 3 times the amount of the commissions owed. Additionally, such principal shall pay the sales representative’s reasonable attorney’s fees and court costs.”

Bottom of Form

Practice Areas

• Antitrust Litigation
• Arbitration and Mediation
• Breach of Contract
• Business Law
• Business Torts
• Construction Litigation
• Corporate Law
• Fraud and Embezzlement
• Intellectual Property
• Legal Malpractice
• Mergers and Acquisitions
• Ponzi Schemes
• Real Estate Litigation
• Sales Commission Claims
• Securities Litigation
• Shareholder and LLC Member Disputes
• Transactions

Piercing The Corporate Veil: What Does It Mean?

Introduction:

An essential and valuable aspect of limited liability entities is that the owners of the entity are not usually liable for the debts and obligations of the entity.  It was the invention of the concept of limited liability two hundred years ago that enabled the massive investment in business that helped fuel modern economies. People could invest their money and, while they risk the money invested, they are not risking all their assets if the company fails.

Corporations, Limited Liability Companies and Limited Partnerships can provide owners with limited liability. Generally, the owners are not answerable for the debts of the entity.

Corporations are the most common form of limited liability companies, and they are divided into public corporations, in which ownership is available on public stock exchanges, and private corporations whose shares are not publicly available. While the protection of limited liability is strong, the protection for owners of a corporation from liability is not absolute. There are times when the shareholders have committed acts that make them accountable for the corporation’s debts.

To impose personal liability on the owners, a plaintiff must pierce the so-called “corporate veil.”  In Illinois, this is done under what is called the Alter Ego Doctrine.  The Doctrine is used to make a corporation’s owner (its shareholders) liable when the shareholder improperly uses the corporate entity to commit acts which improperly harm the corporation, or third persons dealing with the corporation.

The Basic Law:

The Doctrine is intended to prevent individuals or other corporations from misusing the corporate laws by forming a corporate entity for the purpose of committing fraud or other misdeeds. Under the Doctrine, when the corporate form is used to perpetuate fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts may disregard the corporate entity and hold its individual shareholders liable for the actions of the corporation. The separate personality of the corporation is a statutory privilege, and it must be used for a legitimate business purpose and must not be perverted. When it is abused, it will be disregarded and the corporation looked at as a collection of individuals.

Piercing the corporate veil is seldom easy. However, we have found that if there is clear unfairness if the protection is given, many judges are inclined to take such corrective action.  It is not merely that a creditor is not paid a debt…it must be that the reason the creditor is not paid is that the shareholders took some action that strikes that court as improper and contrary to usual business practices.

Disclaimer: This website is maintained by Lustig & Wickert, PLLC. which produces this blog to provide general information about itself as well as general news about business law and commercial litigation. The information you obtain at this site is not, nor is it intended to be, legal advice upon which you should rely or act. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this website does not create an attorney-client relationship between Lustig & Wickert, PLLC. and the user or browser. You should not send any confidential information to us until and unless a formal attorney-client relationship has been established. If you would like to discuss your concerns call us at 847.509.9090 or contact us by email at Info@Lustiglaw.com.

What You Need to Do About Tariffs

A tariff clause in a contract will help manage risks related to changes in import duties or trade tariffs. You should specify how tariff increases or decreases will be handled, ensuring price stability and clarity in obligations.

Some key points to consider when drafting a tariff clause:

1. Define Key Terms: Specify what constitutes a tariff change and how it impacts pricing.
2. Risk Allocation: Defines which party bears the cost of tariff changes.
3. Price Adjustments: Allows for contract price modifications if tariffs change.
4. Notification Requirements: Designate a process for informing the other party about tariff changes.
5. Force Majeure Considerations: Some contracts may treat sudden tariff hikes as an event that excuses performance.
6. Negotiation Flexibility: Helps businesses renegotiate terms if tariffs significantly impact costs.

Here are a few examples of different tariff clauses that businesses use to manage risks related to trade tariffs:

1. Price Adjustment Clause – Allows for renegotiation of contract price if tariffs increase beyond a certain threshold. Example:  “If customs duties or trade barriers increase by X% or more, the affected party shall notify the other party within 30 days. Both parties will engage in good-faith negotiations for 60 days to agree on an adjusted price.”
2. Cost-Sharing Clause – Provides that tariff-related cost increases are split between the buyer and seller. Example:  “If tariffs increase by X% or more, the additional costs shall be shared equally between the buyer and seller.”
3. Force Majeure Clause – Treats sudden tariff hikes as an event that excuses performance. Example:  “If a government-imposed tariff renders performance commercially impractical, the affected party may suspend or terminate the contract without liability.”
4. Termination Clause – Allows either party to exit the contract if tariffs significantly impact costs. Example:  “If tariffs increase beyond X%, either party may terminate the contract upon 30 days’ written notice, without liability for damages.”

Review your commercial contracts immediately. Make sure that all contracts reflect your tariff intentions.

Call us if we can help.

Disclaimer: This website is maintained by Lustig & Wickert, PLLC. which produces this blog to provide general information about itself as well as general news about business law and commercial litigation. The information you obtain at this site is not, nor is it intended to be, legal advice upon which you should rely or act. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this website does not create an attorney-client relationship between Lustig & Wickert, PLLC. and the user or browser. You should not send any confidential information to us until and unless a formal attorney-client relationship has been established. If you would like to discuss your concerns call us at 847.509.9090 or contact us by email at Info@Lustiglaw.com.

Cliff Notes For Forgery

What is forgery

* Creating a false document: This includes creating a completely fake document, such as a driver’s license or a diploma.

* Altering a genuine document: This involves changing existing information on a real document, such as adding zeros to a check or changing the date on a contract.

* Signing another person’s name: Signing someone else’s signature on any document, from a check to a legal contract.

Penalties for forgery

The penalties for forgery vary depending on the jurisdiction and the severity of the offense. In many cases, forgery is a felony punishable by:

* Imprisonment: Sentences can range from several years to decades in prison

* Fines: Significant fines are typically imposed, often in addition to imprisonment.

* Restitution: The convicted individual may be ordered to pay restitution to the victim for any financial losses incurred.

Impact of forgery

Forgery can have serious consequences for both individuals and businesses.

* Financial loss: Victims of forgery can suffer significant financial losses, such as the loss of money, property, or business opportunities.

* Reputational damage: Forgery can damage the reputation of individuals and businesses, making it difficult to conduct future transactions.

* Legal troubles: Individuals convicted of forgery may face difficulty finding employment, obtaining loans, and even traveling.

How to protect yourself from forgery

* Use caution when signing documents: Always carefully review any document before signing it and always get a copy of anything you sign.

* Protect your personal information: Guard your Social Security number, driver’s license, and other personal documents carefully.

* Be wary of unsolicited requests for personal information: Never provide personal information to anyone you don’t know or trust.

* Use security features: Utilize security features such as watermarks, holograms, and raised ink to deter counterfeiters.

If you suspect forgery

If you suspect that you have been a victim of forgery, it’s crucial to take immediate action:

* Contact law enforcement: Report the suspected forgery to your local law enforcement agency.

* Gather evidence: Collect any evidence related to the forgery, such as the forged document itself and any communication related to the incident.

* Consult with an attorney: An experienced attorney can advise you on your legal rights and options.

Forgery is a serious crime with significant legal and financial consequences. By understanding the risks and taking appropriate precautions, you can help protect yourself and your business from this type of fraud.

Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. You should consult with an attorney for advice regarding your specific situation.

Please note: This is a general overview of forgery. The specific laws and penalties related to forgery can vary significantly by jurisdiction.

We hope that you found this article helpful.

Disclaimer: This website is maintained by Lustig & Wickert, PLLC. which produces this blog to provide general information about itself as well as general news about business law and commercial litigation. The information you obtain at this site is not, nor is it intended to be, legal advice upon which you should rely or act. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this website does not create an attorney-client relationship between Lustig & Wickert, PLLC. and the user or browser. You should not send any confidential information to us until and unless a formal attorney-client relationship has been established. If you would like to discuss your concerns call us at 847.509.9090 or contact us by email at Info@Lustiglaw.com.

What Is An EEO-1 Annual Report Anyway?

The EEO-1 Component 1 Report (also known as “Standard Form 100”) is a mandatory annual data collection that requires certain employers to submit information regarding their workforce.

All private-sector employers with 100 or more employees, and federal contractors with 50 or more employees meeting specific criteria, must complete an EEO-1 Report annually.

The EEO-1 Report relates to equal employment opportunities (hence “EEO”) and requires relevant employers to submit demographic workforce data, including data by race/ethnicity, sex and job categories.

The data submitted is kept confidential by the EEOC unless companies choose to voluntarily disclose it.

Although all U.S. employers of 15 employees or more must comply with Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination based on race, color, religion, sex and national origin”, only certain employers need to submit an EEO-1 Report to evidence the make-up of their workforce.

Who files an EEO-1 Report?

You need to file an EEO-1 Report if you are:

• A private employer with 100 or more employees.
• A federal government prime contractor or first-tier subcontractor with 50 or more employees and a federal contract/subcontract amounting to $50,000 or more.
• A company with 50 or more employees that serves as a depository of Government funds or as a financial institution which is an issuing and paying agent for U.S. Savings Bonds and Savings Notes.
• An employer with fewer than 100 employees but that is associated with other company(s) or a parent company where the entire enterprise employs 100 or more.

EEO-1 Reporting Checklist

The following seven steps to EEO-1 reporting are designed to walk you through what you need to do:

1. Eligibility. Determine if you need to submit an EEO-1 Report (see ‘Who has to file an EEO-1 Report?’ above)
2. Form. If you haven’t filed an EEO-1 Report before, register as a first-time filer online on the EEOC’s website at EEOC.gov.
3. Data identification. Familiarize yourself with the data that needs to be collected. This includes, for the company and each location or division:

• Company name
• Physical address (of headquarters)
• EIN NAICS Code DUNS, if the organization is a federal contractor.
• The workforce snapshot pay period used.
• Number of employees at the prescribed levels above, in each of the prescribed categories

1. Identify your data sources. Where will you find the data you need to include in the form? What internal systems and data sources will you need to search?
2. Delegate. Allocate responsibility for gathering the data and submitting the Report.
3. Assemble. Gather data, collate if needed, check for accuracy and submit in time to meet the deadline. Looking at an EEO-1 sample report will help by giving you an example EEO-1 Report on which to base your reporting.
4. Retain a copy of the Report for at least one year for audit purposes.

How to File Your EEO-1 Report

Once you have determined that you need to file an EEO-1 Report, you’ll need to know how to submit the Report.

The EEOC prefers organizations to submit their EEO-1 Component 1 Reports online. This is done either:

• Via the EEO-1 Component 1 Online Filing System, or
• As an electronically transmitted data file (TEXT or CSV) via a data file upload If you’re filing for the first time, you need to register with the EEOC before you can file your EEO-1 Component 1 Report.

You will be provided with a company I.D. and password.

When Is the EEO-1 Report Due by Year

Year is the year data relates to the EEO-1 Report filing due date.

Year             EEO-1 Report Filing Due Dates

2023            TBD

2022            December 5, 2023

2021            May 17, 2022 (Tentative)

2020            October 25, 2021 (extended)

2019            October 25, 2021 (extended)

Penalties for Not Filing an EEO-1 Report

It is compulsory to file an EEO-1 Report – meaning that failure to do so will incur penalties. If an employer refuses or fails to complete an EEO-1 Report, the Equal Employment Opportunity Commission (EEOC) can obtain a U.S. District Court order that compels the employer to file a Report. This could potentially lead to the employer being held in contempt.

Federal contractors or subcontractors that need to file an EEO-1 Report may have their federal government contract terminated. They may also be prohibited from being granted future federal contracts.

Any employer that makes a willfully false statement on an EEO-1 Report can face a fine, imprisonment of up to five years, or both.

Illinois Requirements

Illinois law requires private businesses with 100 or more employees in the State of Illinois to submit an application to obtain an Equal Pay Registration Certificate (EPRC) by providing certain pay, demographic, and other data to the Illinois Department of Labor (IDOL) by March 24, 2024, and to recertify every two years after the first submission. The law also requires such employers to submit certain information with their application, including: a statement certifying that the business is in compliance with the Equal Pay Act of 2003 and other state and federal laws related to equal pay^.

You can visit IDOL’s Equal Pay Registration Certificate page to access the online portal that businesses must use to submit their contact information and required data to IDOL, a training guide for use of the portal, a compliance statement template, and other certification information and resources.

If you have any questions regarding the Equal Pay Registration Certificate, you can email DOL.EPRC@illinois.gov.

Questions to the EEOC can be directed to 202.921.2539

Disclaimer: This website is maintained by Lustig & Wickert, PLLC. which produces this blog to provide general information about itself as well as general news about business law and commercial litigation. The information you obtain at this site is not, nor is it intended to be, legal advice upon which you should rely or act. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this website does not create an attorney-client relationship between Lustig & Wickert, PLLC. and the user or browser. You should not send any confidential information to us until and unless a formal attorney-client relationship has been established. If you would like to discuss your concerns call us at 847.509.9090 or contact us by email at Info@Lustiglaw.com.

Get Financial Religion Before Selling Your Business

There is no better time for small business owners looking to sell their closely held business. However, business owners hoping to cash out can quickly discover that issues with their internal financials can become a roadblock to a sale. Disorganized or missing financial or corporate records when selling your business can turn off potential buyers, who demand complete transparency when buying a business. Financial mistakes that can derail a transaction include:

Inaccurate inventory reports. With no one to hold them accountable, a small business owner’s main focus can be to minimize taxes. When business owners artificially lower inventory so the cost of their goods increase, it can cause tax issues at the end of the year. Over-reporting or under-reporting inventory, can lead to owners misreporting their taxable income.

Not using an accountant, professional bookkeeper or computerized account software? With a limited number of resources available, some small business owners try to be their own bookkeeper despite being unqualified. When small business owners don’t have a proper accounting system in place to track their income and expenses on a daily basis, it is difficult to get a good understanding of the earning potential of a business.

Failure to report all cash sales. Sellers can adversely impact the value of their business if they conceal cash transactions, such as pocketing cash from sales in order to avoid paying income and sales taxes. Since businesses usually sell for a multiple of cash flow, it’s in an owner’s best interest to report cash income in advance of a sale. A multiplier received on that cash flow will usually offset any taxes paid on the higher reported income.

Get Financial Religion. Beyond attracting potential prospects, organized and accurate financial records can help business owners identify what parts of their business need attention to prepare it for a sale.

The good news for sellers is that many of these mistakes are fixable, but getting the financial records in shape for a sale takes time and work. Correcting financial records to satisfy a buyer can take several years to fix. Some sellers may want to remove their personal expenses from the business financials and take steps to ensure their financial records match their tax returns. Owners should consider hiring an experienced bookkeeper and waiting until the business financial records appear credible to a prospective buyer.

Accurate financial records can also qualify your business for a Small Business Administration loan. If a business doesn’t have accurate and understandable financial records and tax returns, it won’t qualify for an SBA loan, Often, incomplete or inaccurate financial records can force a seller to offer seller financing, prolonging the seller’s exit.

While this is a great time to be selling your business, financial mistakes and inaccurate or incomplete financial records can quickly derail a sale. If you are serious about selling your business, there is no time like the present to get financial religion and begin cleaning up your business finances.

Disclaimer: This website is maintained by Lustig & Wickert, PLLC. which produces this blog to provide general information about itself as well as general news about business law and commercial litigation. The information you obtain at this site is not, nor is it intended to be, legal advice upon which you should rely or act. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this website does not create an attorney-client relationship between Lustig & Wickert, PLLC. and the user or browser. You should not send any confidential information to us until and unless a formal attorney-client relationship has been established. If you would like to discuss your concerns call us at 847.509.9090 or contact us by email at Info@Lustiglaw.com.

Sexual Harassment Training Now Required

On August 9, 2019, Illinois enacted the Workplace Transparency Act, which amends the Illinois Human Rights Act. This new law requires that all Illinois employers provide annual sexual harassment training to its employees.

Effective January 1, 2020, all employers must train all employees in Illinois each year. The first deadline is January 1, 2021. The annual sexual harassment training program must include:
An explanation of sexual harassment
Examples of conduct that constitute unlawful sexual harassment
A summary of federal and state statutory provisions, including remedies available to victims of sexual harassment.
A summary of the responsibilities of employers for prevention, investigation, and corrective measures of sexual harassment.

Employers who do not provide training will be subject to civil penalties, including a $500 penalty to businesses with less than 4 employees, or a $1,000 penalty to those with 4 or more employees. Penalties for repeat violations can rise to $5,000 per violation.

In addition to the training requirements, the Workplace Transparency Act makes the following changes:

Independent contractors. The Workplace Transparency Act amends the Illinois Human Rights Act to protect not just employees, but also independent contractors from harassment and discrimination.

Disclosures. The new law requires employers, labor organizations, and local governments to disclose to the Illinois Department of Human Rights (IDHR) the total number of final adverse administrative or judicial decisions involving sexual harassment or discrimination in the previous year entered anywhere in the U.S. Employers must make the disclosure beginning July 1, 2020, and each July 1 thereafter. Employers may also be required by the IDHR to disclose during an investigation the total number of settlements involving sexual harassment and discrimination claims entered into during the previous five years anywhere in the U.S.

Non-disclosure agreements, non-disparagement clauses, and mandatory arbitration agreements. The Workplace Transparency Act places significant restrictions on the use of these types of agreements for cases involving harassment, discrimination, or retaliation.

Victims Economic Security and Safety Act (VESSA). The law expands VESSA to allow victims of domestic, sexual, or gender violence to take unpaid leave to seek medical help, legal assistance, counseling, safety planning, and other assistance without penalty, if requested. A victim of workplace harassment could be entitled to such leave.

Bar and restaurant owners. Owners of restaurants and bars are now required to provide sexual harassment training annually to all employees (regardless of employee classification), available in both English and Spanish. The training must be specifically aimed at the prevention of sexual harassment in the restaurant and bar industry. Such employers must also provide employees with the company’s sexual harassment policy and instructions on how to report sexual harassment incidents within the first week of hire.

Casino and hotel owners. By July 1, 2020, owners of hotels and casinos are required to provide portable safety notification devices (at no cost) to employees who frequently work alone in restrooms, guest rooms, casino floors, or other isolated spaces. The safety device must allow them to call for help if they fear their safety or witness sexual assault or harassment.
Casino and hotel owners must also provide all employees with a current copy of the hotel or casino’s anti-sexual harassment policy (including reporting procedures and the prohibition against retaliation) and post the policy in clearly visible areas of the hotel or casino, both in English and Spanish.

This new law should be taken seriously, and every Illinois employer must comply. Employers can design and implement their own in-house training program or outsource the training to a third party vendor. If you would like more information or need a referral to an outside training vendor, please contact Shelly Lustig at 847.509.9090, by email at slustig@lustiglaw.com or visit us on the web at https://www.lustiglaw.com

Disclaimer: This website is maintained by Lustig & Wickert, PLLC. which produces this blog to provide general information about itself as well as general news about business law and commercial litigation. The information you obtain at this site is not, nor is it intended to be, legal advice upon which you should rely or act. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this website does not create an attorney-client relationship between Lustig & Wickert, PLLC. and the user or browser. You should not send any confidential information to us until and unless a formal attorney-client relationship has been established. If you would like to discuss your concerns call us at 847.509.9090 or contact us by email at Info@Lustiglaw.com.

Sales Representatives In Illinois Have A New Friend

Today’s Growth Consultant of Minooka, Illinois, Sued By New Zealand Investor

Oral LLC Operating Agreements Are Now Enforceable – Be Careful

The Illinois Limited Liability Act was recently amended in ways that could adversely affect persons owning an interest in an Illinois limited liability company. The amendment of most consequence is that an oral operating agreement is now binding on its members and managers.

This means that two or more people may decide one day that they had orally entered into an operating agreement even before the Articles of Organization of the company were filed. The terms and conditions of such an oral operating agreement would then be subject to each person’s understanding of the agreement based upon memories that fade with time.

A second problem arises if and when a new person gets admitted as a member. The amended Limited Liability Company Act provides that a new member is deemed to assent to the existing operating agreement. If the existing operating agreement is oral, what terms and conditions has the new member agreed to?

Without a written operating agreement, the new member is agreeing to be bound by whatever the existing members remember the operating agreement to be.

If you own an interest in a multi-member Illinois Limited Liability company without a written operating agreement, you should call us to see how this amendment may affect you.

Disclaimer: This website is maintained by Lustig & Wickert, PLLC. which produces this blog to provide general information about itself as well as general news about business law and commercial litigation. The information you obtain at this site is not, nor is it intended to be, legal advice upon which you should rely or act. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this website does not create an attorney-client relationship between Lustig & Wickert, PLLC. and the user or browser. You should not send any confidential information to us until and unless a formal attorney-client relationship has been established. If you would like to discuss your concerns call us at 847.509.9090 or contact us by email at Info@Lustiglaw.com.