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Employers Can Require COVID-19 Vaccinations For Most Employees

Thu, 25 Feb 2021 18:15:27 GMT

As this relentlessly awful year mercifully draws to a close, a light at the end of our pandemic tunnel is rapidly approaching. COVID-19 vaccines are poised for approval, and it is expected that distribution will begin in earnest shortly. But no matter how much and how confidently the FDA and other health experts proclaim these vaccines to be safe and effective, there are large numbers of Americans who say they won’t get the shot when it becomes available. The most recent Gallup poll found that only 63 percent of Americans say they are willing to be inoculated against the disease.

Many of those who don’t want to get vaccinated will soon find out that they work for an employer who feels differently. Those employers may also tell them that they either need to get the vaccine or need to find a new job. And, in most cases, employers may be well within their rights to terminate employees who refuse to take the COVID-19 vaccine.

Mandatory Vaccinations Are Not New

Companies that have spent the better part of the year – and lots of money - trying to keep their workplaces COVID-free see the vaccine as the apex of those efforts. With a fully vaccinated workforce, business owners can operate without disruption and provide employees, customers, clients, and patients with confidence and peace of mind.

But all of those benefits of the vaccine only accrue to fully vaccinated workforces. So, many companies may mandate that employees get their shot as a condition of continued employment. By doing so, they are following a legally sound path that predates the current pandemic.

Well before anyone had heard of coronavirus, plenty of employers, primarily in the health care sector, required employees to get the flu vaccine and vaccinations against other infectious diseases. Most public school districts also require proof of vaccinations before a student can enroll and attend classes.

Since most employees in Illinois work on an “at-will” basis, they can face termination for almost any reason not expressly prohibited by federal, state, or local laws. Generally, no law stands in the way of an employer requiring the COVID-19 vaccine for its workers.

ADA and Religious Exceptions

However, employers who make vaccines mandatory need to be mindful that employees with legitimate health or religious concerns about the vaccine may be protected from termination and other adverse employment actions if they refuse the shot. But these exceptions don’t necessarily apply just because someone doesn’t believe in vaccines generally (“anti-vaxers”) or thinks that forcing them to get vaccination is an infringement on their liberties.

Employees who have a disability recognized under the Americans with Disabilities Act (ADA) that prevents them from taking the coronavirus vaccine cannot be forced to get the vaccine, so long as their exemption does not impose an “undue hardship” on the employer. Such disabilities in this context may include a compromised immune system or an allergy to an ingredient in the vaccine.

While there has been no definitive guidance on the subject, one could credibly argue that an employee’s refusal to get vaccinated is an “undue hardship” if it places the health and safety of other employees and visitors at increase risk of infection. Even in such cases, however, an employer may need to make a “reasonable accommodation” for the employee, such as allowing them to work from home.

Similarly, the anti-discrimination provisions of Title VII of the Civil Rights Act of 1964 may protect a worker if their “sincerely-held religious beliefs” preclude them from getting a vaccination. Such beliefs do not include political or personal views. The burden is on the employee to demonstrate the legitimacy of their religious objections to the vaccine.

More Than Legal Issues To Consider

Even when an employer is within their legal rights to require employees to get the COVID-19 vaccine, other considerations may weigh against such a mandate. For example, they may need protection against an employee who has an adverse reaction, even if they signed a waiver upon receiving the shot. A vaccination requirement may also get an adverse reaction from employees generally as well as the general public if it seems heavy-handed and overreaching. Of course, those that decide against a mandate face risks if someone does contract the coronavirus in the workplace and sues.

Please Contact Grogan Hesse & Uditsky With All Of Your COVID-Related Employment Questions

If you have questions or concerns about how to handle vaccinations or other employment issues related to COVID-19, please call us at (630) 833-5533 or contact us online to arrange for a consultation.

Are You Eligible for the Second Round of PPP Loan Forgiveness?

Mon, 11 Jan 2021 20:44:51 GMT

The Paycheck Protection Program (PPP) is back , offering a second round of loan forgiveness to new borrowers and qualified second-time PPP borrowers. The second round of PPP loans has earmarked up to $284 billion to support business owners' payroll costs and other eligible expenses through March 31, 2021. Loans will be available to first-time participants on Monday, January 11, and existing PPP participants on Wednesday, January 13.

First Draw PPP Loan Eligibility

Borrowers that did not participate in the first round are generally eligible for a First Draw PPP Loan if they were in operation on February 15, 2020, and fall into one of the following categories:

Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
Eligible self-employed individuals (including sole proprietors and independent contractors).
Non-profit organizations, including churches.
Accommodation and food services operations with no more than 500 employees per location.
Sec. 501(c)(6) business leagues with no more than 300 employees that do not receive more than 15% of its income from lobbying.
Qualifying news organizations with 500 or fewer employees per location.

Second Draw PPP Loan Eligibility

Existing PPP participants are generally eligible for a Second Draw PPP Loan if the borrower:

Used or will have used its First Draw PPP Loan as authorized.
Has no more than 300 employees.
Can prove it has suffered at least a 25% reduction in gross income between the same quarters in 2019 and 2020.

Our team is committed to monitoring new developments with the PPP and providing you with the information you need. It is essential that your small business consults with knowledgeable corporate attorneys , financial advisors, and accountants on your PPP eligibility and forgiveness applications. If you have any questions about the new eligibility requirements or any other issues involving the PPP, please feel free to call or email us.

Amendments to PPP Loan Forgiveness

Fri, 05 Jun 2020 19:49:09 GMT

Many businesses that received Paycheck Protection Program (“PPP”) funds are coming to the end of their respective eight-week time periods (“Expenditure Period”) during which they must use the PPP funds to obtain forgiveness under the CARES Act. Unfortunately, many of these businesses have found it difficult to reopen and remain fully operational throughout the Expenditure Period and consequently to meet spending thresholds necessary to obtain full forgiveness. Luckily for these businesses, some much needed flexibility is on its way.

Paycheck Protection Program Flexibility Act

On June 5th, the Paycheck Protection Program Flexibility Act (“PPPFA”) was signed into law. The PPPFA made the following changes relevant to PPP loan forgiveness:

Extends the Expenditure Period from eight weeks to the earlier of twenty-four weeks from the date of the loan origination or December 31, 2020.
Reduces the required payroll spending amount to a minimum of 60% on payroll instead of the current 75% minimum requirement. This would allow businesses to use the remaining 40% of the PPP funds on rent and other operational items as needed.
Extends the deadline for workers to be able to be rehired to December 31, 2020 instead of the current cutoff of June 30, 2020.
Extends the PPP loan to a five-year term instead of the current two-year term.

As any amendments governing the use and repayment of PPP loans may be vital to a small business’ ability to continue to operate and successfully plan for the future, our team will continue to keep you up to date on the on-going developments. As always, it is important to consult with informed attorneys, financial advisors, bankers and accountants on how best to use your PPP funds. Should you have any questions, don’t hesitate to call or email us.

PPP Loans Less Than $2 Million Deemed Good-Faith Certified

Sat, 16 May 2020 02:09:27 GMT

Yesterday, in an update to its PPP FAQ, the SBA clarified its review of the “good faith” certification required in applying for PPP loans. As PPP applicants are aware, to apply for PPP loans, an applicant must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” For most applicants, COVID-19’s ramifications made this statement a no-brainer. But many left wondering how the SBA would police this clause. After all, borrowers are relying on PPP loan forgiveness if they properly use their loan proceeds. There is concern that the SBA’s review of the good faith certification could thwart borrowers’ forgiveness goal even if they used their loans for payroll and other areas acceptable for forgiveness. The SBA’s announcement gave reason to alleviate that concern for some borrowers.

In Question 46 of its PPP FAQ (found here in its entirety), the SBA states that borrowers with an original principal amount of less than $2 million will be deemed to have made the required good faith certification. In the legal world, statements deemed to be true are facts for all intents and purposes. This clarification likely means that the SBA won’t even spend the time reviewing good faith certifications for loans under $2 million. Keep in mind, however, that the $2 million threshold applies to applicants taken together with their affiliates. If your total loan amount falls under $2 million, then you’ll have the benefit of this safe harbor.

For borrowers with loans greater than $2 million, you won’t have this safe harbor but that doesn’t mean you couldn’t have made a good faith certification. Your cases will be reviewed under their individual circumstances. In effect, today’s announcement changed little in advising how the SBA will review loans over $2 million. There remains uncertainty as to what the audit process for this good faith certification will look like and whether borrowers will have an opportunity to appeal, but if your loan is under $2 million you can breathe a small sigh of relief in knowing the certification you made in your application won’t be scrutinized.

If you have any questions on this latest announcement or just want guidance on the PPP in general, give us a call. We’ll keep you updated as more clarification comes out.

Handling a Tenant Defaulting under a Commercial Lease amidst COVID-19

Tue, 28 Apr 2020 02:14:45 GMT

If my tenant won’t pay, what are my options? Prior to COVID-19 pandemic, landlords understood how to handle a defaulting tenant. But the legal landscape (along with everything else) is now in a constant state of flux, with legislators navigating through issues concerning health, economy and justice. In this article I’ll offer some clarification on landlord-tenant laws in light of the pandemic, focusing on commercial lease agreements.

A theme in the varying messages from our federal and state governments is that creditors need to relax when it comes to debt repayments. That sentiment carried into Illinois’ and other states’ messages addressing rent. Governor Pritzker, for instance, ceased eviction proceedings for residential properties. Tenants of the Chicago Housing Authority are relieved of their rent payments, at least until the end of the month. And Chicago’s mayor, Lori Lightfoot, urged private landlords to offer the same reprieve.

Yet commercial properties are conspicuously absent from the recent press. Does that mean that commercial landlords can evict a defaulting tenant? No, at least not in Cook County. Legal eviction relies on an operational court system. Due to the pandemic, courts are closed apart from emergency motions. And evictions fall short of meeting that “emergency” threshold. The chief judge of Cook County has a moratorium on evictions, and the Cook County sheriff won’t enforce eviction orders. Neither the chief judge nor sheriff distinguished between residential and commercial leases when making their announcements, so the effect is that all evictions must cease for a while.

Note, however, that ceasing evictions does not equate to ceasing rental obligations. Commercial leases are akin to business transactions between sophisticated parties. They are founded in contract law, giving the commercial lease agreement more control over resolving disputes than residential leases which have statutory and other equitable protections for tenants. Therefore, commercial landlords still have the right to enforce the lease obligations despite the pandemic.

Although the courts are closed, the case filing system is not. Commercial landlords can still file suit for breach of lease. Those lawsuits can be served on tenants through special process servers. Once served, tenants must still respond to the complaint within the statutory timelines. Filing and serving a lawsuit can afford the commercial landlord some leverage to negotiate now, or it can be queued for when the courts reopen if negotiations fail.

The decision to sue should never be taken lightly, and should be especially scrutinized given the hardships many are facing with the pandemic. Negotiation between landlord and tenant should be the first option in resolving commercial lease disputes. But if those talks don’t pan out, litigation remains a viable option. Landlords must still follow their contract terms when initiating dispute resolution. If properly handled, commercial landlords can seek monetary damages (which typically include their attorneys’ fees) and, eventually, an eviction.

If you have questions about handling a dispute with a commercial tenant or enforcing obligations under a commercial lease, talk to me or one of the experienced attorneys at GHU.

What Business Can Expect When It Comes to PPP Loan Forgiveness

Tue, 28 Apr 2020 02:08:38 GMT

The Coronavirus Aid, Relief, and Economic Relief (“CARES”) Act was passed on March 25, 2020 in order to provide, amongst other things, much needed and immediate assistance to businesses impacted by the COVID-19 pandemic. Under the CARES Act, the Small Business Administration (“SBA”) is authorized to temporarily guarantee loans under a new SBA (7(a) loan program, otherwise known as the Paycheck Protection Program (“PPP”).

If used correctly and in accordance with the CARES Act guidelines, these PPP loans are potentially eligible for complete and tax-free forgiveness. PPP loan amounts are forgivable to the extent that such funds are used to pay forgivable expenses as delineated in the CARES Act (“Qualified Expenses”) within eight weeks after the PPP loan is disbursed (“Expenditure Period”). Any of the PPP loan funds that are not used on Qualified Expenses during the Expenditure Period must be paid back within two years.

Please note that the CARES Act provides that PPP funds will be forgiven on a covered loan in an amount equal to the sum of the payroll costs incurred and payments made during the Expenditure Period. At this time it is not known whether the costs and payments eligible for forgiveness include funds paid during the Expenditure Period or funds that were both paid and incurred during the Expenditure Period. Accordingly, until the SBA provides more definitive guidance on this, borrowers should only use PPP funds for the payment of expenses incurred and paid during the Expenditure Period.

Now that the $349 billion in funds from the initial round of the PPP have been exhausted, and businesses await the second round of PPP funding (approximately $310 billion), what can PPP borrowers expect to be forgiven as Qualified Expenses?

Here are some of the most common questions, and our answers, regarding the PPP loans:

1) Rent Payments

a. Any rent payments under a lease that is in effect before February 15, 2020 will qualify as a Qualified Expense.

b. There is currently no guidance whether rent prepayments, past-due rent payments or late fees under a lease are Qualified Expenses.

2) Utilities

a. Utility payments are Qualified Expenses and include electricity, gas, and water.

b. Internet, telephone and transportation utilities are also most likely covered as Qualified Expenses, however, further SBA guidance is needed on these items in order to know for sure.

3) Mortgage Payments

a. Principal payments or prepayments are not Qualified Expenses.

b. Any mortgage interest incurred on or before February 15, 2020 is a Qualified Expense.

4) How Much of the PPP Funds Need to be Spent on Payroll?

a. At least 75% of the PPP funds need to be spent on payroll costs.

b. Payroll costs include the following: (a) salaries, commission, wages or other similar compensation up to an annualized amount of $100,000 per employee; (b) tips; (c) paid vacation, sick, medical and family leave; (d) severance pay; (e) group health insurance expenses; (f) state or local payroll tax; or (g) retirement benefits.

c. Payroll costs do not include the following: (a) payments for emergency paid sick leave or expanded family and medical leaves; or (b) federal pay roll tax expenses.

5) Are Employee Bonuses and Raises Included as Qualified Expenses?

a. It is not entirely clear whether raises or bonuses paid to employees will be considered Qualified Expenses. Any borrower using PPP funds to pay employees bonuses or raises should only do so as the borrower would otherwise do in the ordinary course of its business. Additionally, it is important to keep in mind the $100,000 compensation threshold when giving bonuses and raises.

6) Are Compensation Payments to Shareholders, Members or Other Owners of Borrowers Covered as Qualified Expenses?

a. Distributions to shareholders, members or other owners of borrowers that are not payments for work performed by such shareholders, members or other owners would not be considered a Qualified Expense.

b. Payments to shareholders, members or other owners who perform work for the borrower may be included in payroll costs as a Qualified Expense.

7) What Will Reduce PPP Loan Forgiveness Amount?

a. The PPP loan forgiveness amount will be reduced by (a) the reduction in the borrower’s average number of full-time equivalent employees (“Employees”), and (b) reduction in Employees’ salaries.

b. The PPP will compare the borrower’s average number of Employees during the Expenditure Period against the number of Employees during borrower’s choice of either the period from (i) February 15, 2019 until June 30, 2019; or (ii) January 1, 2020 until February 29, 2020. If there is a decrease in the number of borrower’s Employee’s during the Expenditure Period compared to the applicable base period, the PPP loan forgiveness amount will be reduced in proportion to such decrease.

c. The PPP loan forgiveness amount will be reduced dollar for dollar for a reduction of more than 25% in the total compensation of any employee during the Expenditure Period as compared to the most recent quarter that the employee was employed prior to the Expenditure Period. Please note that this will not apply to employees who made more than $100,000 in 2019.

8) Can Rehiring Employees Eliminate Loan Forgiveness Reduction Amounts?

a. Yes. If a borrower’s reduction in Employees occurred between February 15, 2020 and April 26, 2020 and the borrower eliminates that reduction in Employees by June 30, 2020 (either by rehiring Employees or hiring new Employees), then the Employee reduction will not be used in determining the loan forgiveness amount.

9) Can I Restore an Employee’s Salary to Eliminate Loan Forgiveness Reduction Amounts?

a. Yes. If an employee’s total compensation is reduced more than 25% but such employee’s salary reduction is eliminated by June 30, 2020, then the salary reduction will not be used in determining the loan forgiveness amount.

While we await further guidance from the SBA on what will and will not be forgiven under the PPP loans, it is important to be aware of what you are using your PPP loan funds for and why. As the PPP loan forgiveness rules can be complex and vague, it is important to consult with informed attorneys, financial advisors, bankers and accountants on how best to proceed. Our team is keeping up to date on these on-going developments and will be sure to advise you accordingly. Should you have any questions, don’t hesitate to call or email us.

DSOs Present Challenges For Dental Practices Seeking COVID-19 Loans Under the CARES Act

Sat, 18 Apr 2020 02:15:43 GMT

Like almost every other business and profession, dental practices have been decimated by the COVID-19 pandemic. Stay-at-home orders, social distancing, and the limitation of economic activity to “essential services” means that dentists are deferring most routine, elective, or non-emergency procedures. With doors closed and chairs empty, practices find themselves in untenable positions in terms of paying their workforce, rent, utility, and other obligations.

While the federal government’s response to the current crisis has been lacking in many respects, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed at the end of March does provide for financial assistance to cash-strapped businesses, including dental practices. Among the many aspects of the CARES act, eligible practice owners can obtain low-interest and potentially forgivable loans for coronavirus losses through the Paycheck Protection Program (PPP).

But for practices that are part of a dental services organization (DSO), qualifying for a PPP loan can be a particularly tricky endeavor. Loans are only available to businesses with less than 500 employees, so can or how does a small practice qualify for a PPP loan if they are part of or affiliated with a large DSO with too many employees to participate in the program?

Paycheck Protection Loan Basics

The PPP sets aside almost $350 billion in funds for emergency Small Business Association (SBA) loans to help qualifying businesses cover payroll for their workforce as well as pay for other operational costs such as rent and utilities.

Dental practice owners can apply for a PPP loan at any lender approved to participate through the existing SBA 7(a) lending program, as well as at any other institution approved by the U.S. Department of the Treasury. Participating lenders began accepting applications on April 3, and businesses can apply for a PPP loan until June 30, 2020.

The maximum amount any small business or practice may borrow is 250 percent of its average monthly payroll expenses incurred during the one-year period before the date on which the loan is made, up to a total of $10 million. This amount is intended to cover eight weeks of payroll expenses and any additional amounts needed to make payments towards debt and certain other identified obligations such as covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks following the loan.

The purpose of the Paycheck Protection Program is to help businesses retain employees at their current base pay. If the borrower keeps all of its employees and uses the loan proceeds for the above-described purposes, the entire loan may be forgiven. There is no requirement that the employer have work for the employees in order to pay them.

The Problem For Practices In DSOs: Too Many Employees to Qualify For a PPP Loan

With some exceptions, PPP loans are only available for small businesses that employ 500 or fewer employees. For dental practices that are part of a dental services organization, this limitation may or may not pose an insurmountable barrier to loan eligibility as the SBA may count the total number of employees of the DSO, not the individual practice, in determining whether a practice qualifies.

On April 3, 2020, the SBA issued guidance regarding how it treats practice management companies like DSOs when evaluating employee headcount. For purposes of determining the number of employees of a PPP loan applicant, the SBA considers the applicant together with its “affiliates.” As such, eligibility hangs on whether or not the SBA finds a practice and its DSO to be “affiliates.” And that determination centers on control.

As the SBA states in its guidance:

“Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists.”

There are four circumstances in which the SBA will find that there is control over the practice such that the practice would be considered an affiliate. The one most applicable to DSO arrangements involves control of management. Specifically:

“Affiliation… arises where a single individual, concern or entity controls the management of the applicant concern through a management agreement.”

Most dental practices that are part of a DSO are also parties to management agreements that give the DSO a substantial say in the management and operation of the practice. As such, practice owners should consult with an experienced dental practice attorney who can review any agreement as well as the overall relationship with the DSO to determine what, if anything, needs to be changed to reduce the chances that the SBA finds the two entities to be affiliates. As noted, the deadline for applications is June 30, so practices should take all necessary steps as soon as possible to position themselves for approval for these vitally needed funds.

CARES Act Summary

Sat, 28 Mar 2020 02:16:38 GMT

On Wednesday, the Senate passed an historic $2 trillion economic stimulus package that is expected to come out of the House this weekend and be signed by the President. While much of the stimulus is providing support to big business and directly to taxpayers, there are also substantial benefits for small businesses. Called the “Paycheck Protection Program” (the “PPP”), it is part of the “The Coronavirus Aid, Relief, and Economic Security Act” (the “CARES Act”), because it’s meant to ensure that businesses have the funds to pay their employees and to prevent layoffs. Loans offered through the program may be forgiven under certain circumstances. However, employers will need to pay back the interest accrued, effectively making the principal a grant.

What is the purpose of PPP?

The PPP provides short-term cash flow assistance to small businesses to assist them and their employees with the economic impact of the COVID-19 pandemic. Funds under PPP will be made available during the period prior to June 30th by lenders certified by the SBA and guaranteed by the federal government.

Who is eligible for PPP?

Benefits under PPP are generally available to small businesses with 500 or fewer employees (full and part-time). Eligible small businesses also include sole-proprietors, independent contractors, and other self- employed individuals, including even “gig economy” workers. Note that the SBA publishes guidelines that may prohibit certain businesses larger than average in their industry, and you should consult your individual counsel to ensure compliance prior to applying.

What are the permitted uses of PPP funds?

Small businesses that receive loans under the PPP must use loan funds to pay payroll costs (i.e., salaries, wages, vacation, parental, family, medical, or sick leave, severance, retirement benefits, and state or local taxes assessed on compensation), costs related to group health care benefits (i.e., insurance premiums), employee commissions, interest on mortgage obligations, rent, utilities or interest on other debt, incurred prior to obtaining the loan. Note that loan funds under PPP may not be used by employers to pay salaries in excess of $100,000.

What are the terms of PPP loans?

Loans under PPP may be as large as 2.5 times a business’s average monthly payroll costs over the last 12 months, not to exceed $10 million. Salaries over $100,000 will not be included purposes of determining payroll costs. PPP loans have a maximum interest rate of 4% and may carry maturity dates up to 10 years. Eligible borrowers under PPP may also defer payment of non-forgivable principal and interest for at least 6 months but not more than a year. No collateral is required to be pledged and the normal personal guarantee requirement for SBA loans appears to be waived. Thus, the loan will be nonrecourse to the employer’s owners.

How will the PPP Loans be forgiven?

If the business uses the loan funds for the approved purposes and maintain the average size of its full-time workforce based on when it received the loan, the principal of the loan will be forgiven, meaning the company will only need to pay back the interest accrued. The loan forgiveness may be reduced pro-rata if the average number of full-time employees during the forgiveness period fails to satisfy the applicable requirements.

How should a business apply for a loan under PPP?

To apply for forgiveness, businesses must submit documentation regarding the eligible uses of loan funds, a certification that such documents are true and correct, as well the amount to be forgiven, and any other documentation the SBA deems necessary. The SBA will purchase any loan forgiveness amounts from its certified lenders and this canceled indebtedness will not result in taxable income to the business.

While further regulations are on the way, it is clear that the government is serious about getting help to small businesses in an expedited manner. Our team is keeping up to date on the developments and will be sure to advise you accordingly. Should you have any questions, don’t hesitate to call or email us.

Straight Talk on the New Families First Coronavirus Response Act

Sat, 21 Mar 2020 02:35:04 GMT

The President signed an emergency aid package into law the evening of March 18 after it passed through Congress with bipartisan support. The package, named the Families First Coronavirus Response Act (the “Act”), responds to the growing pandemic and economic impact by providing for paid sick leave, free testing and expanded unemployment benefits. The Act is organized into “Divisions”, two of which relate to employee leave from work. Division C, the Emergency Family and Medical Expansion Act , expands FMLA coverage to allow employees to care for children due to school or daycare closures, and Division E, the Emergency Paid Sick Leave Act , provides additional benefits for paid sick time to certain employees. The following is a breakdown of the new legislation and its impact on small businesses.

Who Qualifies for Paid Leave Under the New Coronavirus Law?

The new Act provides many American workers access to paid leave if they need to take time off work because of the Coronavirus, including not only full time workers but also people who aren’t typically entitled to such benefits, like part-time and gig economy workers. The new legislation is primarily focused on small businesses, excluding companies with more than 500 workers and expanding the scope of FMLA to apply the new mandate to small businesses with fewer than 50 employees. The Labor Department could exempt these small businesses if providing leave would jeopardize their viability. Employers can also decline to provide leave to workers at the forefront of the pandemic, including health care providers and emergency responders.

Who exactly is defined as a “health care worker” and what qualifies for the “viability” test remains to be seen. The FMLA does include a very broad definition of “health care provider” that is very broad, including for example, dentists and chiropractors. It is not clear at this point, however, whether such a broad definition will apply to the new legislation or whether it will cover administrative staff employed by an otherwise qualifying health care provider.

In addition, employees covered by multi-employer collective bargaining agreements whose employers pay into pension plans and self-employed individuals may also have access to paid leave under the new Act.

What type of paid leave does the law offer?

The new law provides qualified workers up to 2 weeks of paid sick leave if they are ill, quarantined or seeking testing or preventive care for coronavirus, or if they are caring for sick family members. In addition to these 2 weeks, the Act also expands FMLA to provide up to 12 weeks of leave to people caring for children whose schools are closed or whose child care provider is unavailable because of coronavirus. Under this portion of the new Act, the first 10 days of leave may be unpaid.

If an employee is sick or seeking care for themselves, they may be entitled to the full amount of their usual compensation, up to a maximum of $511 a day. If caring for a sick family member or a child whose school or day care is closed, they may be entitled to two-thirds of their usual pay, up to a daily limit of $200.

What is the government’s plan for small businesses to afford this new mandate?

Companies providing benefits under the new law will be reimbursed for the full amount paid, including the employer’s contribution to health insurance costs during the period of leave, within three months in the form of a payroll tax credit.

When does this new law go into effect?

The law goes into effect on April 2nd, 15 days following the President’s signature. Once effective, the sick leave is immediately available for use by employees. Employers cannot require employees to use any other available paid leave before using the sick leave under the new legislation. The paid sick time does not carry over from year to year, and the Act itself is set to expire on December 31, 2020.

Grogan Hesse & Uditsky, P.C. is here to assist its clients with any questions they may have regarding the impacts of Coronavirus/COVID-19. Please contact our Coronavirus/COVID-19 Response Team being led by Amy Grogan and Jordan Uditsky, or the attorney with whom you normally work at the firm.

COVID-19: FORCE MAJEURE AND COMMERCIAL LEASE

Sat, 21 Mar 2020 02:34:14 GMT

As the COVID-19 pandemic continues to affect businesses at every level, dentists and dental offices are no exception. With practices suffering from a sharp decline in patients being treated, dental offices may begin to struggle to continue to timely pay all of their business expenses, including rent. As almost all commercial leases will contain an Act of God or Force Majeure clause, dental tenants or dental landlords may be tempted to invoke these provisions.

H owever, before invoking the Force Majeure clause, you will want to be sure to check the following:

Whether your business insurance will cover events related to the COVID-19 pandemic. While not usually the case, some business insurance policies will cover civil actions by governmental authorities.
All lease requirements in connection with invoking the Force Majeure clause, including timeframe for notice, method of notice and what events can actually trigger the clause.
The terms of your Force Majeure clause to determine whether the COVID-19 pandemic is likely to be covered. This may not be as straightforward as you think. Instead of language like “national pandemic” or “global disease”, your lease may include events that are, by their nature, out of the control of either the tenant or the landlord.
The terms of your Force Majeure clause to determine whether it excuses one party from performance or, much more commonly, just provides additional time for such party to perform its responsibilities under the lease. While rent obligations are not typically covered by this, other obligations may be, such as clauses requiring continuous operations, lease commencement or delivery dates, tenant alterations and repairs.
If rent will be due regardless of whether the Force Majeure clause is invoked. Most commercial leases contain provisions stating that rent shall at all times be payable when due, and no clause in the Lease or any other circumstances will relieve the tenant from such duty to pay.

As the interruptions from the COVID-19 pandemic continue to increase in duration and reach, it is important to consider your options under a commercial lease to best determine the course of action that will expose you to the least amount of liability.

If you are unsure regarding the terms of your commercial lease with respect to what actions you may take, please feel free to contact us at (630) 833-5533 or info@ghulaw.com .

Coronavirus: Insurance Coverage for your Business

Sat, 21 Mar 2020 02:17:26 GMT

“Am I covered for coronavirus?” Amidst the myriad issues resulting from the coronavirus pandemic, business owners are questioning whether their insurance policies cover their unexpected losses. Like most insurance inquiries, the answer depends on the detail of the underlying policies. Here are some types of insurance that your business may carry, and the factors that go into whether they’ll cover your business for the coronavirus pandemic.

Business Interruption. There’s no doubt that the pandemic has interrupted business operations across just about every industry, but the question of whether it triggers interruption coverage is another matter. Business interruption is most often tied to a commercial property insurance policy, wherein the coverage applies to economic losses resulting from disruptions in business operations. However, most business interruption insurance won’t trigger without a physical loss to the property, such as fire damage. Whether the coronavirus actually persists on inanimate objects is still an issue of current debate, let alone whether the virus damages property. There is some precedent for an unseen substance causing physical damage (such as asbestos), but without a separate endorsement covering virus or bacteria it will likely be hard convincing insurance companies to cover coronavirus interruptions under a typical business interruption policy.

Contingent Business Interruption. Another business interruption insurance, contingent business interruption (or supply chain insurance) covers losses that don’t belong to your property, but rather the property of your customers or suppliers. If a key vendor drops out of your supply chain, it’s reasonable to wonder whether this insurance covers your loss. Like business interruption, the loss to trigger coverage from a contingent business interruption policy must also be physical.

Liability Insurance. Apart from business interruption, the coronavirus may result in claims from your customers. Commercial general liability insurance covers your business for defense and indemnity costs resulting from third party lawsuits. For instance, health care providers may find themselves facing claims that they did not exercise reasonable care in protecting patients from exposure to the coronavirus.

Event cancellation. Sports games, concerts, conventions and many other events are being cancelled around the world due to the coronavirus. Some event cancellation insurance policies may include coverage for cancellation due to infectious diseases. On the other hand, some policies include endorsements that specifically exclude infectious diseases.

If you believe that your business may be covered by any of these policies due to the coronavirus pandemic, you must notify your insurer within the timing requirements of your policy. If you’re unsure whether your losses trigger coverage, we’re here to help you. Contact us at (630) 833-5533 or info@ghulaw.com for a free consultation.

Restraint, Response, or Retaliation: Dentists Need to Think Carefully Before Responding to Negative Online Reviews

Wed, 05 Feb 2020 03:36:23 GMT

Dentistry may be a unique profession with a proud history, but online, a dental practice is no different than a dry cleaner, restaurant, mechanic, or liquor store. That is because dental patients are just as likely to post a review of their experience on Yelp! or other online review sites as are customers of other businesses. And, as is the case for all businesses and professions, customers who have negative opinions tend to share those more often, and more adamantly, than those who have positive things to say. And Mary Alberti recently had a lot to say about her experience with a Buffalo Grove, Illinois endodontist.

As outlined in a defamation lawsuit the endodontist filed against Alberti , his former patient engaged in a concerted internet smear campaign to destroy his good name and reputation by posting “post after post” on Yelp!, Google, and other sites that contained false, defamatory, and anti-Semitic comments. He is seeking more than $4 million in damages, while Alberti has moved to have the case dismissed.

While the allegations in the Alberti case represent an extreme example of an angry, vindictive, and prolific patient using the internet to smear a dentist with an otherwise impeccable record, even one negative review can have a significant impact on a dentist’s practice and reputation.

Can You Sue for Defamation? Sure. Whether You Should Is a Much Harder Question

On more than one occasion, a panicked and indignant dentist or other client of mine has called me to ask whether they could and should sue their former patient for defamation as the doctor in the Alberti case has done. The answer, of course, is that you are well within your rights to sue “IHateYourDentalPractice123” or whoever it is that is trying to take a wrecking ball to your career. You can sue anybody for anything. Whether such a lawsuit will be successful or has any legal basis is another matter entirely.

The fact is that even the most scathing negative online review, if susceptible to the principle of “innocent construction” (meaning the allegedly libelous statement is given a non-defamatory interpretation because it is deemed ambiguous) or is composed of opinions rather than demonstrably false allegations of misconduct, will likely not qualify as actionable defamation in Illinois. Furthermore, such lawsuits can expose the offended dentist or other professional to backlash, ridicule, and bad publicity in the fast-moving and fickle world of social media.

If you look to hold online review sites and other platforms responsible for false and defamatory information posted by reviewers, you won’t get terribly far. While you may be able to get a website to remove a particularly egregious post, Section 230 of the federal Communications Decency Act largely immunizes such sites from claims based on comments or reviews posted by third party users.

A High Bar to Prove Defamation in Illinois

In order for a dentist to prove defamation under Illinois law, including a claim based on an online review, he or she needs to show that:

the patient made a false statement about the dentist;
there was an unprivileged publication of the false statement to a third party;
fault by the defendant amounting to at least negligence; and
the patient’s publication of the review caused damage to the dentist.

As to that last element, a defamation plaintiff does not need to prove actual damages if the statements are deemed inherently damaging. Defamation per se, as it is called, includes making such false allegations that the plaintiff:

committed a crime;
is infected with a loathsome communicable disease;
is unable to perform or lacks integrity in fulfilling his or her professional responsibilities;
lacks the ability to perform their professional duties, or otherwise harms the plaintiff in their professional reputation
has committed fornication or adultery.

Is It a Subjective Opinion or Factual Allegation?

The most common issue that arises in defamation cases based on online reviews is the question of whether or not a statement was false. Only false statements of fact can form the basis of a defamation claim, not opinions, no matter how histrionic or counterfactual they may be.

A statement of fact is one that can be objectively proved or disproved. Consider the two following hypothetical reviews of a dentist:

“She was rude, impatient, and treated me disrespectfully. It was perhaps the worst experience I’ve ever had with a dentist in my entire life. She is horrible.”

“He stole money from my purse and touched me inappropriately while I was under sedation.”

The former is non-actionable opinion, as the dentist will not be able to objectively prove whether or not she was, in fact, rude, disrespectful and the cause of one of the worst experiences in the patient’s life. Contrast that with the latter statement that accuses the dentist of specific actions and misconduct that can be proven or disproven with evidence.

Context Matters

Illinois courts have also focused on the context in which an allegedly defamatory statement was made when determining whether it can be the basis of a defamation claim. Even if one comment in a lengthy online rant is arguably a statement of provable fact, it may not rise to the level of defamation if a reasonable reader would see it merely as hyperbolic invective.

Consider the 2013 case of Brompton Building, LLC v. Yelp, Inc ., in which a building management company filed a defamation suit against an anonymous former tenant who had posted an over-the-top, relentlessly negative, and extremely lengthy review online. Even though the rant contained a few objectively disprovable statements, the Illinois Appellate Court found that those comments could not support a defamation claim because they would not be understood to be actual factual allegations in the context of the full review. As the court stated, "The context of the defamatory statements is critical in determining its meaning. In determining the context of the defamatory statements, we must read the writing containing the defamatory statement 'as a whole.'"

Dentists Need to Consider Patient Privacy and Professional Ethics

When faced with negative reviews, dentists need to make sure that their response doesn’t make a bad situation worse or make them appear petty and vindictive. Additionally, dentists who do decide to respond to a patient’s negative review publicly may inadvertently reveal confidential patient information in their attempts to refute allegations of poor or substandard care. Such HIPPA violations can have catastrophic licensing and regulatory consequences for dentists.

As infuriating as negative online reviews can be, it is the rare dentist who can make it through their career without leaving at least one patient dissatisfied or unhappy with their treatment. When a patient shares those feelings with the world, it can be easy to let it get under your skin, especially if the attacks are as relentless, ongoing, and full of unsavory allegations as appear in the Alberti case, which we’ll be monitoring to see if the court protects the endodontist from what seems to be a clear case of defamation. But sometimes, restraint can speak louder than a retort.

The Differences Between Registered Trademarks and Common Law Trademarks

Thu, 09 Jan 2020 03:37:21 GMT

Clients often ask me whether it’s worth it to file for trademark registration. I tell them that registration is both a business and personal decision. If you plan on using your mark beyond your current zip code – which is often the case with e-commerce – then registration is a smart business decision. But even then I ask: how would you feel if someone else began using the same mark? Therein lays the personal choice. Business owners understandably become attached to their name and logo. Sometimes the added protection registration provides is just worth it for that personal association.

But registration isn’t your only avenue to trademark protection. Like many other laws, you may have some trademark protection that naturally derives from “common law.” Common law trademarks don’t give you everything that registration offers but they do give you some rights, and those rights may be enough for you and your business. In this article, I’ll review some of the differences between registered trademarks and common law trademarks. Note that by “registration” I specifically am referencing national registration with the U.S. Patent & Trademark Office (USPTO). States also often their own registration but I’m focusing here on the national state.

Geographic Area

One difference between registered and common law trademarks is their geographic area of protection. A registered trademark grants you priority to use your mark across the entire nation. In contrast, a common law trademark is limited to the area in which you use it. Say, for instance, you operate your business using a common law trademark at a single retail store in Chicago. If someone else later uses the same mark in Milwaukee, you likely would not be able to enforce your trademark rights against them. On the other hand, if you were using a registered trademark for your Chicago store then you’d have a better claim for infringement against your Milwaukee competitor.

Courts

Another major, yet often overlooked difference between common law and registered trademarks is where you can enforce your trademark rights against a potential infringer. Naturally, since registered trademarks grant you priority across the nation, you have the benefit of using the federal courts and law. When it comes to trademark law, the federal courts have a uniform set of laws to apply which generally results in more predictable decisions and remedies. Plus, federal law remedies broaden with worse cases of infringement, known as “counterfeiting.”

Common law trademark-owners must use state courts and laws. Unlike federal law, state court decisions vary according to the differences in their state laws. Looking back at my hypothetical of Chicago and Milwaukee, you’d likely have to sue your competitor in Wisconsin under Wisconsin law, even though your trademark exists under Illinois common law.

In addition, common law trademark-owners first have to establish that they have a common law trademark to sue for infringement. That’s a fact-intensive process in which you need to prove when you started using the mark, that you use the mark in association with providing certain goods or services and the area in which you’ve been using the mark. It provides an opportunity for a potential infringer to defeat your claim before it begins, and could also leave you with an unfavorable opinion that limits your trademark protection going forward. Registered trademark-owners don’t have that burden. In fact, the burden completely shifts to the defendant to show why the mark should not be afforded federal protection. Shifting the burden to your opponent is an incredible advantage in any litigation proceeding.

Clarity

Another understated benefit of a registered trademark is the registration process itself. Usually the first step in applying for a trademark is searching for other owners’ trademarks. The USPTO documents all trademarks online for you or your attorney to search to see if anyone else is using the same or similar mark. After you apply, an examining attorney with the USPTO reviews your application. Sometimes they’ll respond with a letter outlining some concerns that they want you to address. Their letters often don’t block your application but rather raise legitimate issues to which you can reply and solidify the basis for your trademark. Once the examining attorney passes the application, the USPTO publishes your mark for potential objections from the public. Once that period lapses with no objections, you’ll receive your trademark registration certificate knowing that the USPTO vetted your application. Your mark will then be added to the federal register which puts the public on notice of your registered mark. In a way, the registration process earns registered trademark-owners the presumption that their marks are legitimate should they need to enforce them in court.

Symbols

Both common law and registered trademark-owners can us certain symbols next to their trademarks (although none are required) but the symbols are different. The most commonly recognized symbol is the ‘®’ which only registered trademark-owners can use. Simply put, the ‘®’ symbol shows that you registered your mark with the USPTO. Common law trademark owners can use ‘TM’ or ‘SM’ which still tells the public that you consider your mark a trademark under common law but it doesn’t show that your mark is USTPO-registered. In any case, each of those symbols put the public on notice that your mark is an important piece of your brand and its association with your goods or services.

Common law provides business owners with some trademark protection naturally through use. For some businesses, it may be enough. For others – particularly for those who aspire to expand – federal trademark protection is the better option. Consider these differences and your personal connection with your mark when making that decision.

Trademarks: If You Don’t Use Them, You’ll Lose Them

Wed, 15 May 2019 02:38:05 GMT

Registering trademarks for your name or logo is a great step to establishing your brand with consumers and investors. However, registration is just the first step; there are many more that you must take to maintain your trademarks. Trademarks do not expire after a set term like patents and copyrights, but their protection does depend on your continued use. You must file proof of your continued use every so often with the United States Patent & Trademark Office (“USPTO”). This article summarizes the post-registration deadlines and filing requirements to maintain your trademarks.

Note: The USPTO will not remind you of deadlines outlined in this article. As the trademark owner, it is up to you to record these dates and timely file the appropriate paperwork and pay the corresponding fees. Also, beware of third-party solicitations that look like official USPTO correspondence. They’re often foreign entities and comprised of non-attorneys, and they’ll offer to file your maintenance paperwork for a grossly marked up fee. Now, onto the filings…

Declaration of Use or Excusable Nonuse

When? Between years 5 and 6 after registration.

Where? Online with the USPTO “TEAS” or paper submission.

How much? $125 with TEAS or $225 via paper, per class of goods or services.

The first maintenance filing comes 5 years after your trademark’s registration date. The Declaration of Use is your attestation that you’re still using the trademark in connection with certain goods or services. Your Declaration must also include an example of how you’re using the trademark, called a specimen. It’s the most common filing at this stage in the maintenance of your trademark.

Alternatively, if you weren’t always using your trademark but want to maintain your registration, you can file an Excusable Nonuse . The Excusable Nonuse must include the date when you stopped using your trademark and the details around why you stopped using it. You must also include the specific steps you’re taking to resume use of your trademark.

The Declaration of Use or Excusable Nonuse can be filed online with the USPTO with a filing fee of $125 or submitted via paper application with an increased fee of $225, per class of goods or services. You must file these forms between years 5 and 6 from the date of your trademark registration, but you can extend the deadline for an additional 6 months with an added $100 fee.

Declaration of Use/Excusable Nonuse plus Application for Renewal

When? Between years 9 and 10 after registration, and every 9th and 10th year period thereafter.

Where? Online with the USPTO “TEAS” or paper submission.

How much? $425 with TEAS or $725 via paper, per class of goods or services

The second maintenance filing comes 9 years after your trademark’s registration, and must be filed between every 9th and 10th year period after that. This filing includes another Declaration of Use or Excusable Nonuse combined with an Application for Renewal . This combined filing can be submitted online with the USPTO with a filing fee of $425 or via paper application with an increased fee of $725, per class of goods or services. You can extend the filing deadline for an additional 6 months with an added $200 fee.

Conditional filings: Declaration of Incontestability, Amendment, Assignment

The following filings depend on certain conditions rather than deadlines. A Declaration of Incontestability is optional but provides you additional protection at a relatively cheap cost. The Declaration is your statement that you have been using the trademark continuously for 5 years without any adverse legal decision or pending proceeding involving the trademark. Once filed, the Declaration shields the owner from certain attacks to the validity of the trademark. It can be filed online with the USPTO with a filing fee of $200 per class of goods or services, and can be combined with a Declaration of Use.

If you find that your trademark registration certificate contains errors, you can file an Amendment but only under limited circumstances. For instance, you can remove or add an article in a word mark but an amendment cannot materially alter the mark itself. You can also file an amendment to correct the owner’s name, such as updating it to the proper legal entity after originally listing your business’ trade name. You can file an Amendment online with the USPTO with a filing fee of $100.

Finally, if you sell or give your trademark to another owner, you should file an Assignment . The Assignment includes the basic information for the new owner, but also requires you to file a copy of the document actually assigning the trademark rights. The assigning document should include references to the registration numbers and the effective date of the assignment, and be signed by both parties. You can file an Assignment online with the USPTO with a filing fee of $40.

Don’t let your brand suffer because you failed to properly maintain your trademark registrations. Record the USPTO’s deadlines and consider other filings when you’re engaging in business that potentially impacts your trademarks. Consult with an attorney experienced with trademarks if you’re unsure whether to submit a filing or need guidance

Mechanics Liens: What you don’t know can hurt you

Wed, 24 Apr 2019 02:38:47 GMT

In most aspects of law, mistakes can be made and fixed. However, if you are a contractor or subcontractor, an individual buying a recently renovated or new construction home, or a corporation who is having work performed on your property, it is important to understand that Mechanics Liens are a different animal.

What is a Mechanics Lien? In short, it is a method by which a contractor or subcontractor can place a lien on a property if they have not been paid for the work performed or materials provided. The law within Illinois on Mechanics Liens is statutory in nature and strictly construed. A statute that is strictly construed must be followed exactly.

What does that mean for you?

The steps that must be taken to perfect a Mechanics Lien depend on the form of the lien being sought, the parties involved (contractor vs. subcontractor), the type of work (public or private construction), and whom the lien is against (owner, lender or third party).

For example, any subcontractor who is working a private construction project must provide notice of the lien claim within 90 days of the last date the subcontractor performed work or delivered material to the project. This form of notice must be done in a very specific way, and any variance will defeat a party’s lien claim. For instance, sending a notice of a Mechanics Lien claim via regular mail is a fatal error. Notice under these circumstances must be delivered via certified or registered mail with return receipt requested and delivery limited to addressee only, to the owner of record or via personal service (see 770 ILCS 60/24 for more details.) Similarly, the lien must be recorded within a prescribed period of time, and generally must be recorded within four months of the last date worked. A failure to record within the prescribed period of time is again fatal to a Mechanics Lien claim. If performed correctly, the Mechanics Lien dates back to the date of the contract between the owner and the contractor so that the contractor has priority over those who purchase the property after the contract.

What does this mean for a homebuyer or investor? Legally, the lien dates back to the time of the contract and that lien will take precedence over a later purchase. In layman’s terms, you need to be certain all contractors and subcontractors have been paid prior to purchase. Otherwise, you will be responsible for to pay outstanding balances even if you did not know they existed. Normally a lien will appear on a title check, but if the home has undergone recent construction, this is a danger to be aware of.

Mechanics Liens are an integral tool in Illinois construction law. However, the statutory guidelines are often overlooked and errors in the perfection of Mechanics Liens are frequently discovered after it is too late. If you have any questions regarding your Mechanics Lien rights or other construction law, please contact our litigation team at Grogan, Hesse and Uditsky.

ESTATE PLANNING BASICS

Fri, 01 Mar 2019 03:39:27 GMT

In my interactions with people looking to set up their estate planning, the benefits of an estate plan seem to be fairly well understood: providing for the care of your children, taking care of your family upon your passing and protecting your assets while minimizing your expenses. What people often over-look are all of the documents that are typically needed for an effective estate plan and what exactly these documents accomplish. A complete estate plan in Illinois will generally consist of four documents: a Will, a Trust, a Healthcare Power of Attorney and a Property Power of Attorney. Here is a look at what each document is and the purpose it serves:

Will

A Will serves two crucial functions by (i) providing for how your property will be distributed at the time of your death, and (ii) allowing you to appoint a guardian for any minor children you have. With respect to directing the disposition of your property, if you do not have a Trust, the Will is the primary document that handles the disposition of your assets. However, if you have a Trust, then the Will acts as a catch-all with a “pour over” provision and any assets that are not titled in the name of your Trust will “pour over” into your Trust.

More importantly, a Will allows you to appoint a guardian for any of your minor children. If you do not appoint a guardian in the Will, the probate court will decide who the guardian will be. The court appointed guardian may not always be who you intended to entrust with your children. Accordingly, a Will is essential in ensuring that your children end up with your chosen caregivers after your death.

Trust

A revocable Trust, also known as a living Trust, is the most efficient and effective way to provide for the distribution of your property after your death. A Trust is a separate legal entity created to hold your property for you, and a living Trust allows you to still be in full control of your property during your lifetime. Upon your death or incapacity, the Trust will then provide for a Trustee to administer the Trust property per your directions. Most importantly, assets in a Trust are not subject to probate which can easily take 6 months to a year and be very costly. In other words, the probate process will cost more than a typical estate planning package that includes setting up a Trust.

A Trust also gives you greater control over your property upon your death than a Will does. In Illinois, with a Will, your children will receive all of your property at 18, or at the very latest, 21. With a Trust, you can distribute the desired percentage of your assets to your beneficiaries at whatever ages you desire. You can also make the size and timing of your beneficiaries’ inheritance contingent on certain life events or achieving certain goals and milestones, such as reaching a certain age, graduating college or getting married.

Healthcare Power of Attorney

This document appoints an agent to make medical decisions for you if you are unable to make those decisions yourself. These decisions can include end of life decisions and what you would like to happen with your remains upon your death. The Healthcare Power of Attorney will also permit your appointed agent to have access to your medical records. This is important in light of increasingly strict HIPAA regulations. Without having a Healthcare Power of Attorney, parents of children over the age of 18 and even spouses are often denied access to medical records.

Property Power of Attorney

This document appoints an agent to make certain financial decisions for you and to pay whatever ongoing expenses you may have (mortgage, utilities, etc.) if you are unable to make those decisions or payments yourself. Without this document, it will be nearly impossible for anybody to obtain the passwords to your accounts to make any of your required payments or to obtain authorization to act on your behalf.

While each estate plan is crafted specifically to fit the needs of a particular person, couple or family, the documents discussed above are generally what you should be looking for in setting up your Illinois estate plan. It is important to remember that while these estate planning documents are the best choice for certain people, they may not be the best choice for you. Accordingly, it is important to consult with an experienced attorney before determining what estate plan best suits your specific needs. Please feel free to reach out to me with any questions at bhaney@ghulaw.com or visit our website at www.ghulaw.com .

Dental Partnership Checklist

Wed, 16 Jan 2019 03:40:17 GMT

Like a marriage, the early days of a dental partnership can be exciting and new, with each participating dentist working together to build the foundation of a long term relationship. Unfortunately, like many marriages dental partnerships often end in divorce, and if the partners have failed to adequately plan for the day their “marriage” comes to an end, that divorce can be an ugly, emotionally draining experience that will cost both partners a small fortune and have a negative impact on the value of the practice. A successful dental partnership is one that has been well thought out in advance with concrete, written procedures that act as a “pre-nuptial” agreement as to how the dental partnership will be dissolved in the event the partners can no longer work together.

The following is a “Dental Partnership Checklist” that any dentist should review prior to engaging in discussions with another dentist regarding a dental partnership.

1. Cultural Fit, Practice Philosophy and Partnership Objectives : A dentist once described his partner’s work as “fast food dentistry” while he practiced “fine dining dentistry”. Before entering into any dental partnership, you need to be sure you share the same values as your partner, that you approach practicing dentistry in a similar manner, and that you are on the same page in terms of practice goals, time horizon, and financial needs.

2. Duties, Compensation, and Benefits : One of the most significant areas of tension we encounter in dental partnerships is the failure of one partner to meet expectations regarding the amount of time expected to dedicate to the practice. A dentist recently approached us about exiting a partnership. He had joined another dentist in a practice, only to find out a short time later that the partner dentist opened another office and therefore couldn’t dedicate the amount of time expected to the partner practice. Be sure to put in writing what each partner’s duties, compensation and benefits will be for and from the dental practice. While each partner is an owner, they should also be treated as an employee, with defined duties, compensation, and benefits. Any failure to satisfy those duties and obligations should trigger real consequences, such as a buyout right by the other dental partner.

3. Contributions of Capital and Distributions from the Dental Partnership : Be sure to clearly define who is contributing what to the dental practice, and how each partner will be compensated. Will each partner dentist receive compensation based on a formula? How will the remaining profit be split up? What if there is a loss at the end of the year, who and how will it be made up? These are only a few of the many questions to be answered regarding how the dental practice income will be allocated and distributed. Each unique partnership arrangement requires careful thought and specific planning to ensure the partners intention is carried out in the event of a disagreement or change in circumstances.

4. Management Authority and Dispute Resolution : Who makes the decisions in your dental practice may be driven by economics. If you are a young dentist buying in to an existing dental practice, management control may be something you cede to the elder dentist, but for “50/50” dental partnerships this can be a touchy subject. What happens if you don’t agree on buying a major piece of equipment, remodeling the office, or opening a second location? Providing clear authority for day-to-day management and a concrete written procedure to resolve disputes regarding more significant financial and management issues can save a dental partnership. There are a myriad of methods to resolve disputes so be sure to ask your attorney what is best for your dental partnership.

5. Exiting the Partnership : One of the most challenging circumstances to address legally in most dental practices that are structured as “50/50” partnerships is clearly defining the method and terms of an exit. The easy situations to deal with are death, disability and retirement, where triggers are generally definitive and valuation formulas can be applied in a straightforward manner. The real challenge is the case where the partners just don’t get along anymore and can’t agree on a way for one partner or the other to exit. Most advisors fail to address this most important issue, but it can be the most costly both financially and professionally. With some careful forethought and frank discussions facilitated by your legal, tax and financial advisors you can avoid this pitfall.

While all of the above matters are important to address in any dental partnership, the most important is to get it in writing! All the best planning amounts to nothing years down the road if you fail to get your partnership agreement in writing so you, your advisors, or, in the worst case scenario, a court or arbitrator can refer to it in issuing a decision in your partnership dissolution. You may think you are saving a few bucks by making a handshake deal, but it will cost you thousands down the road if you end up in a dispute with your partner.

Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his expertise as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. This blend of legal and business experience provides Mr. Uditsky with unique insight into his client engagements, which in addition to dentists also includes a variety of corporate and transactional matters, real estate, and commercial finance. Mr. Uditsky grew up in a dental family, with his father, grandfather and sister each owning their own dental practices.

Before You Sign: The Non-Disclosure Agreement (NDA)

Thu, 13 Dec 2018 03:41:08 GMT

The first step in beginning many new business relationships is executing a non-disclosure agreement (NDA), also known as a confidentiality agreement. The NDA protects and provides instructions to handle non-public information. It’s also likely the first time two parties negotiate a written contract, providing insight on their document review, responsiveness, and willingness to compromise. The NDA is a safeguard and first impression that you shouldn’t take lightly.

In this article I review some of the more common provisions in the NDA and detail how you should approach them. Keep in mind that reviewing the document is just one part; you also must analyze the confidential information that you’ll be sharing. I rarely review an NDA without first discussing with my client what the transaction is about and what non-public material will pass to the other side. After you appreciate the information you’ll be sharing, then you’ll be in position to analyze your counterpart’s NDA.

1) Make it mutual.

If you’re handed an NDA, the first thing to check is whether it’s one-way or mutual. One-way NDAs protect only one party’s information, and put all of the obligations to keep that information confidential on the other party. Unless you have little-to-no bargaining power, you should not accept a one-way NDA (and even then you should ask for mutual protection). Most businesses will readily accept a mutual NDA when asked. Since an NDA doesn’t guarantee that you’ll be doing business with your counterparty, you shouldn’t risk sharing your confidential information with no protection.

2) Watch out for other contract obligations.

Sometimes you’ll be faced with an NDA that tries to do too much. Pricing terms, supply obligations, personnel decisions, etc., do not belong in an NDA. The NDA should not guarantee any terms for future performance. After all, the parties will only begin sharing their information after signing the NDA. You’ll likely find something unexpected that will change your preconception of the deal. Leave the transaction obligations for a later contract once you’ve had time to analyze your counterpart’s data. You don’t want to be held to a promise that you can’t later keep because you didn’t have all of the details.

3) Don’t give away your intellectual property (IP) rights.

Part of your own internal review will include identifying your confidential IP. Perhaps your counterpart is interested in paying you to use that IP. That’s great! But don’t give away your IP rights in an overeager NDA. If you need to share your confidential IP then make sure there’s nothing in the NDA that allows your counterpart to use it outside of the scope of the NDA. The NDA should not grant the other side to license or own your IP or anything they derive from that IP. If you want to collaborate on creating something new, then negotiate a separate contract to handle that.

4) Establish an end date.

Many NDAs are silent as to their duration or require the receiving party to protect confidential information indefinitely. There is rarely – if ever – information that warrants your protection for more than a few years in the business world. Technology advances, vendors change, and processes become obsolete. You don’t want contracts holding you to obligations forever. Down the road they could lead to a mistaken breach or create an issue when you need to disclose all of your contracts, such as during an asset sale. The caveat is trade secrets which should remain secret. Get an end date for everything else.

5) Give some extra attention to the dispute resolution.

It’s great to be excited about a potential deal with your counterpart, but don’t breeze through the dispute resolution provisions in NDAs. “We’re on the same page, this deal will never be an issue!” is a common sentiment and later regret of every manager who’s had to litigate a contract dispute. NDA dispute resolution is atypical to most contracts because it often includes non-monetary relief, such as an injunction. That type of relief is okay, but don’t give up your power to contest a claim, be served, or other due process rights. Dispute resolution provisions in NDAs tend to get bloated, so read them carefully in case they over-reach.

The NDA is the door to many promising business relationships, but don’t rush through. Negotiate the NDA like any other contract and display your sophistication to your counterpart. Dedicate some time to ensure it’s fair, and that it sufficiently protects your own confidential information. Your business will be better for it.

Abrasive or Confident? Evaluations and Gender Bias in the Workplace

Wed, 31 Oct 2018 02:42:02 GMT

The end of the year brings dread to many supervisors and managers who are responsible for annual performance reviews. Nonetheless, performance evaluations are a tool for businesses to create valuable feedback for employees. All too often, however, gender bias sneaks its way into the evaluation process.

What is gender bias?

In the workplace, women and men are frequently judged in different ways. Think about your office. How would you describe one of your male colleagues? A leader, independent, confident, funny. These are common descriptors used in male evaluations. How would you describe one of your female colleagues? Have you ever used the word bossy, abrasive, or emotional? Studies have shown that these judgments on women’s personalities predominate in female performance evaluations and are lacking in their male colleagues’ performance evaluations. In a 2014 study conducted by Kieran Snyder, she found that women’s reviews were almost 30% more likely to include critical feedback. More strikingly, of the critical feedback received, women were provided with less than subtle personality judgments as opposed to simply constructive reviews. As Snyder puts it, “Men are given constructive suggestions. Women are given constructive suggestions – and told to pipe down. ”

Who causes the problem?

Everyone. This is a problem for male and female supervisors alike, because implicit bias is present due to the circumstances of our culture. Some individuals perceive that women should act or behave in certain ways and this perception is frequently carried over into the workplace. Women are expected to smile, “be nice,” and make friends in a way that rarely occurs for men.

Why is gender bias a problem?

First and foremost, gender bias is a problem because it inhibits employees from being valued based on their actual performance and encourages inefficient and ineffective workplace dynamics. Having a workplace that enables double standards, such as accepting a man’s assertiveness or confidence as a positive traits while viewing those same characteristics in a woman as negative traits, makes for a hostile workplace for women who perceive that their skills are undervalued or underappreciated.

What can be done?

First and foremost, recognize that bias is a problem and train your management to confront this issue. As a business owner or supervisor, become aware of gender bias and engage your employees to learn about it as well. Have an informed training or roundtable. Change the methods of your evaluation. In an April 2017 Harvard Business Review article by Paola Cecchi-Dimeglio, she finds that existing performance appraisal systems exacerbate the problem. She suggests utilizing more frequent evaluations based on data as opposed to passive memory. She specifically suggests creating “tailor-made, automated, real time communication tools with instant feedback on employees’ weekly performance from supervisors, colleagues, and clients.” She hopes that the utilization of these new tools will assist in eliminating tendencies to resort to personality judgment as opposed to objective criteria. Smaller businesses that can’t afford or simply won’t implement new technologies should be more conscientious of gender bias in the workplace and question their own longstanding beliefs about behavior in the workplace.

Why should you care?

Failures in performance evaluations can lead to failures in the efficiency and effectiveness of your management and company. Also, consider your bottom line. Allowing gender bias to continue in the workplace exposes your business to liability. Creating performance evaluations that demonstrate gender bias creates a potential paper trail of discrimination in the workplace opening a business up to discrimination claims.

If you have evaluations approaching and need advice on how to create an improved and more efficient dynamic in your company, contact the attorneys at Grogan Hesse & Uditsky, P.C or visit us at www.ghulaw.com for more information.

Non-Disclosure Agreements for Mergers and Acquisitions

Wed, 05 Sep 2018 02:42:51 GMT

In almost every merger and acquisition (M&A) transaction the buyer and seller need to share certain confidential information to evaluate the merits of and negotiate the terms of the potential deal (such as financial information, material contracts and customer information). The path to providing information safely is making sure the other party is bound to respect the confidential nature of the information and not use such information in a way that causes harm to the disclosing party.

Using a Non-Disclosure Agreement is a common way to protect your company’s sensitive information when it is shared with another party. These agreements are also known as “Confidentiality Agreements” or, as it will be referred to here, an “NDA”. Unfortunately, no document is going to guarantee that an unethical person won’t use shared confidential information in a nefarious manner, however, an NDA will certainly reduce the risk of a potential buyer disclosing sensitive information about your business or using that information in some competitive manner. If they do, then at a minimum you as the seller have a legal cause of action against them and most sophisticated buyers, and even competitors, won’t take that risk.

While there are many details of an NDA that bear scrutiny, our focus in this post is determining exactly what is considered confidential information.

What is Considered Confidential?

The definition of “Confidential Information” in the context of an NDA is generally described in very broad terms and can vary from one NDA to the next. There is of course a natural divergence of interests between buyers and sellers in defining Confidential Information, as sellers want as broad a definition as possible to protect their business and buyers want to narrow the definition. A compromise that most buyers and seller’s reach is a very broad definition of Confidential Information with certain exceptions, typically including: (1) any information that is already known to the public at the time that it is communicated to the potential buyer, (2) information that becomes publicly known after the seller discloses it to the potential buyer (other than through the fault of the potential buyer or its representatives) or (3) information that is required to be disclosed by law or a court of competent jurisdiction.

So what exactly is considered confidential? Here are some practical examples of information and documentation that would typically be protected under an NDA:

· Financial and statistical data

· Computer programs and other software

· Sales, customer and client information

· Business methodologies

· Patentable and unpatentable inventions, discoveries, know-how, works of authorship and trade secrets

· Techniques, strategies, plans and tactics

· Samples, test results and other test data

· Prototypes, drawings, computations, processes and data

· Information related to the current, future and proposed products and services of the company, including any research, experimental work, development, design details, specifications, samples, designs and models

· Employee information

In addition to protecting the confidential information of a business, an NDA should also prohibit a potential buyer from disclosing information about the potential transaction. In particular, the buyer should not be permitted to disclose to third parties any of the terms, conditions or other facts related to the negotiations between the parties. The NDA should also provide that a buyer is only permitted to use the seller’s confidential information for purposes of evaluating the potential transaction and disclosure should be limited only to such buyer’s advisors.

A sophisticated buyer will understand the need to execute an NDA that prevents the buyer from using or disclosing the seller’s confidential information. This confidential information is a very valuable asset of the seller’s business, and, while the buyer needs to evaluate such information, it is critical that this information is not disclosed by the buyer to third parties or used by the buyer for any purpose other than evaluating the seller’s business in connection with a potential transaction.

The following is a sample clause defining “Confidential Information” in an NDA:

As used in this Agreement, the term "Confidential Information" means and includes any and all information, techniques, plans, designs, costs, pricing, finances, research and development activities, Supplier specifications, supplier lists, business opportunities, personnel, and/or data disclosed by a party (the "Disclosing Party") to the other party (the "Receiving Party") before, on, or after the date hereof which relates in any manner, directly or indirectly, to the Disclosing Party and/or its customers, suppliers and Customers, whether such information is disclosed in writing, verbally, electronically, or otherwise, and which information the Disclosing Party maintains as confidential. Notwithstanding the foregoing, information and/or data shall not be considered Confidential Information if such information and/or data is: (i) established by the Receiving Party to have been known by it at the time of receipt, (ii) or becomes a part of the public domain through no direct or indirect act or omission of the Receiving Party, or (iii) received by the Receiving Party from a third party without similar restrictions, (iv) is independently developed by the Receiving Party without using any Confidential Information of the Disclosing Party, or (v) is approved for release by the Disclosing Party in writing and is released consistent with such approval.

If you need assistance preparing an NDA, or have questions about purchasing or selling a business, the attorneys at Grogan Hesse & Uditsky, P.C. are here to help. Visit us at www.ghulaw.com for more information.

Business Associate Agreement Under HIPAA: Your Clients Are Protected; Are You?

Thu, 02 Aug 2018 02:44:23 GMT

Representing healthcare clients is a very involved and complex task for any attorney to handle. This is especially true from a compliance perspective. The Health Insurance Portability & Accountability Act of 1996 (“ HIPAA ”) provides the requirements for the privacy and security rules regulating protected health information (“ PHI ”) of individuals and entities.

A dditionally, the HIPAA Privacy Rule and Security Rule (the “ Rule ”) set forth the rules for enforcing HIPAA violations and handling notifications involving any breach involving PHI (a “ Breach ”). Individuals and organizations required to comply with the Rule are called “Covered Entities.” However, the application of HIPAA does not stop at Covered Entities. HIPAA also applies to the business associates of Covered Entities, a role that is occupied by many attorneys representing Covered Entities.

What is a Business Associate?

On January 25, 2013, the final changes to the Rule were published. Under the Rule, a “business associate” of a Covered Entity can be held directly liable under HIPAA for a Breach. The Rule provides for three types of business associates working with or on behalf of Covered Entities: (1) business associate subcontractors; (2) entities routinely transmitting and accessing PHI; and (3) personal health record vendors.

Generally speaking, attorneys representing Covered Entities or business associates are business associate subcontractors if, in representing a Covered Entity or business associate, the attorney requires access to PHI in order to do their work for their client. If an attorney is a business associate, then a written Business Associate Agreement with their client is required.

Why Should I Enter Into A Business Associate Agreement?

The Rule requires business associates to enter into a written Business Associate Agreement that implements reasonable and appropriate policies in order to comply with the Rule and any Breaches thereunder. Failure to implement a written Business Associate Agreement can result in substantial fines and penalties. Amongst other things, Attorneys who are business associates can be held directly liable under the Rule, just as a Covered Entity would, for Breaches and violations of the Rule.

What is Required Under a Business Associate Agreement?

In order to avoid or reduce the chance of incurring liability for a Breach or other violation of the Rule the acts listed above, it is important to have a detailed and effective Business Associate Agreement. The template for a Business Associate Agreement should begin by incorporating the following requirements set forth under the Rule:

1) Establish the business associate’s permitted and required uses of PHI by setting forth how and when the business associate will use the PHI;

2) Provide that the business associate will only disclose PHI other than is set forth in the Business Associate Agreement or is required by law;

3) Implement appropriate safeguards to prevent the unauthorized use or disclosure of PHI;

4) Implement the requirements of the HIPAA Security Rule regarding electronic PHI;

5) Establish the situations and circumstances under which the business associate must disclose PHI to a requesting party;

6) Require the business associate to comply with all applicable requirements to the extent that the business associate is carrying out an obligation under the Rule on behalf of the covered entity;

7) Require the business associate’s internal practices, books and records in relation to the use and disclosure of PHI to be made available to the U.S. Department of Health & Human Services so that determinations regarding compliance with the Rule can be made;

8) To the extent practicable, require the business associate to return or destroy all PHI at the termination of the Business Associate Agreement;

9) Provide that any subcontractors, as defined by the Rule, business associate will engage with require the business associate to ensure that any subcontractors it may engage on its behalf that will have access to protected health information agree to the same restrictions and conditions that apply to the business associate with respect to such information; and

10)Provide for a termination of the Business Associate Agreement if the business associate violates a material term of the Agreement.

How will a Business Associate Agreement Reduce Attorney Liability?

While no Business Associate Agreement can eliminate an attorney’s liability under the Rule, it can greatly assist the attorney in limiting their liability to the extent possible.

First, while a Business Associate Agreement cannot change the statutory timeframes for providing notice or curing a Breach under the Rule, an attorney can give themselves as much leeway as possible with respect to how and when it must provide notice or cure a Breach by allowing themselves as much time as is permitted under the Rule.

Second, the Business Associate Agreement can provide greater clarity to the parties in detailing what a Breach is and when a Breach a occurs. This will help both parties reduce the probability of a Breach, recognize when a Breach occurs, and address either party’s failure to comply with the notice and cure provisions of the Rule.

Third, the Business Associate Agreement can provide essential guidance in handling a Breach by clearly stating each party’s responsibilities in the event of a Breach and the best and most efficient way to cure a Breach. Having definite and delegated plans of action for each party will provide security to each party in handling a Breach.

Finally, in addition to entering in to a Business Associate Agreement, it is also important to remember take a step back, evaluate your practice and determine the best way to become HIPAA and Rule compliant. This can be done by assessing your current level of compliance with HIPAA, projecting potential future compliance needs as your practice changes or grows and a developing plan of action to address any gaps you may discover or anticipate.

Are SAFE Investments Really Safe?

Thu, 26 Jul 2018 02:46:03 GMT

Originally created for accredited investors in 2013, the simple agreement for future equity, or “SAFE,” has become a popular crowdfunding tool for attracting all investor-types. With a SAFE, the company takes in capital investment with the promise that it will return equity to investors upon a significant event, such as a buy-out, merger or preferred stock offering. The SAFE seems ideal for crowdfunding because the company’s lack of a then-current legal obligation to SAFE investors reduces the paperwork and maneuvering necessary to keep the founders in control of their business.

But is the SAFE really a safe investment? If you equate that to mean a guaranteed return, then no, the SAFE is certainly not safe. In fact, the SEC issued its own alert [1] to warn investors of the pitfalls in using a SAFE investment. After all, the SAFE is an investment, and all investments come with risk. In this article, I’ll explain how the SAFE differs from traditional investments and outline some issues for you to keep in mind when considering your own SAFE investment.

The SAFE is its own unique investment vehicle.

A good place to start understanding the SAFE is to realize what it isn’t. People tend to lump investments into one of two categories: debt and equity. The SAFE is neither.

When you invest your money with a SAFE, you’re not giving the company a loan and the company isn’t handing you a note. In fact, the company has no legal obligation to pay you if the future events that trigger your return never happen. And, unlike a loan, your SAFE investment doesn’t accrue any interest no matter how long you wait for those future events.

A SAFE investment also won’t grant you any stake in the company. At the time of your investment, the company hands you a promise for future equity if the company realizes a certain event. If that event never happens, you don’t get equity. Your SAFE also doesn’t get you voting rights or other similar perks that typically come along with an equity investment. When investing with a SAFE, you literally hand over your money to the founders and, well, you wait. So, don’t expect your SAFE to provide returns like a traditional debt or equity investment.

To be fair, your SAFE investment can become equity at some point, but you definitely do not have any stake in the company at the time you make your investment. If – and only if – the company triggers a defined future event, then – and only then – will your investment convert to a stake in the company.

What to watch out for when considering a SAFE.

First and foremost, you must understand the future events that will trigger your return As I mentioned previously, typical SAFE triggers include a buy-out, merger, and preferred stock offering, and other events that generally involve a significant influx of outside capital. But don’t assume the SAFE you’re considering covers every scenario in which the company is doing well. For example, if the company is earning income by selling its products or services, then your SAFE return may not be triggered even though the company is making money. Remember, your stake only vests when those triggers defined in the SAFE actually occur, not necessarily when the company becomes successful.

There are other issues to spot when reviewing a SAFE, especially in the crowdfunding realm. Consider the impact of the number of investors likely to join you in a SAFE investment crowdfunding offering. In that scenario, the company will likely not want to negotiate with hundreds of investors to later modify the SAFE terms. After all, startups change considerably over short periods of time and SAFEs have no expiration. Check to see if the SAFE designates one investor or subset of investors with the power to amend the SAFE for all of the investors. The SAFE may identify this lead investor or investor group by its investment amount, thus creating majority and minority investors within the SAFE.

You should also be aware of repurchase rights. Your SAFE may provide the company with the option to pay you for your investment even after a triggering event. In that case, understand how the company values your investment. Be wary of the company undervaluing your investment by using either its own method or through an appraiser of its choosing. Also, review any future limitation on your potential equity stake, such as reduced voting rights. All equity isn’t necessarily created equal.

The SAFE can be a viable investment option that helps startups succeed and genuinely rewards investors when the company is successful. It could fit your budget and goals, and allow you to participate in a company you believe in. Just make sure to read, understand and scrutinize the terms of the SAFE you’re considering, and ask a professional for help before making a significant investment that may not align with your expectations.

[1] https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_safes

Illinois Lowers LLC Fees: When Less Is More

Fri, 16 Feb 2018 03:47:10 GMT

Until recently, the cost of operating as a limited liability company (“ LLC ”) in Illinois was near the highest in the nation. With the signing of SB867 on December 20, 2017, Illinois has now significantly reduced the cost of starting and operating an LLC in the state. This fee reduction is aimed to both help foster a business environment in Illinois that is friendlier to start-ups and entrepreneurs as well as to provide significant savings to the thousands of LLCs already operating in the state. Please see the chart below for a breakdown of the fee reduction for some of the more common LLC filing fees.

Type of Filing

New Fee

Old Fee

Articles of Organization

$150

$500

Articles of Organization – Series LLC

$400

$750

Articles of Amendment

$50

$150

Company Name Reservation

$25

$300

Company Name Registration

$50

$300

Assumed Name Renewal

$50

$100

Annual Report

$75

$250

Application for Reinstatement

$200

$500

Articles of Dissolution

$100

It is important to remember that while an LLC may be the best choice for certain types of businesses, it may not be the best choice for you. Before determining which type of entity best fits your company’s needs, you should consult with an experienced attorney and a qualified accountant. Please feel free to reach out to me with any questions at bhaney@ghulaw.com or visit www.ghulaw.com .

Robert Haney is an attorney and business advisor serving businesses in the Chicagoland area and throughout the country. Mr. Haney advises businesses and entrepreneurs from startup to sale, and strives to be a trusted advisor to his clients by delivering practical and efficient counsel on a wide range of matters. His combination of legal and business experience provides a unique perspective when counseling clients, giving him an understanding of the true value and application of his advice to their organizations. To learn more about Mr. Haney, visit www.ghulaw.com .

EBITDA: What is it and why does it matter?

Sat, 13 Jan 2018 03:49:03 GMT

The use of EBITDA is one of the most widely used metrics to understand the financial performance of a company. The acronym stands for Earnings Before Interest Taxes Depreciation and Amortization. EBITDA allows the financial world to adjust for certain transactions and arrive at a uniform measure of how well a business enterprise is doing. Anyone considering the sale of their business should be keeping an eye on EBITDA, understand exactly how its calculated and the impact it will have on the value of their company.

How is it calculated?

EBITDA is widely accepted to mean cash flow from operations. While EBITDA ignores working capital requirements and capital investment, which we will cover in another post, it provides a quick and widely used measure of just how well a firm is doing. The EBITDA calculation is effective for a buyer as a measure of true cash flow from a business as it ignores certain accounting adjustments, tax payments, and the effect of a Company’s debt burden.

The calculation is as follows:

Net Profit

Plus

Interest

Taxes

Depreciation

Amortization

= EBITDA

Remember, EBITDA is a measure of cash flow, and it is generally measured on a debt free basis. Thus, interest is removed from the calculation to measure the cash flow from the business before payment of long term debt. Taxes are also removed as different industries and firms have varying tax environments and may be calculated differently by different owners. EBITDA adjusts for these variations. Non-cash accounting adjustments such as Depreciation and Amortization are eliminated as they are used to spread over time the life of certain assets and as such is susceptible to inconsistent judgment between firms. By removing these items and “normalizing” cash flow, EBITDA improves the ability to compare firms to one another.

What is it used for?

EBITDA is a general measure of cash from operations and is important in assessing the performance of the firm over time compared to industry benchmarks. As such it is a key valuation measure for developing the sale price or valuation of a business. Understanding the change in EBITDA over a period of time facilitates an understanding of the underlying value and cash flow of any business, which is obviously imperative in evaluating potential acquisitions. As a commonly used indicator for research firms, EBITDA benchmarks are often published for specific industries that allow an outsider to discern on average how a firm is performing relative to its peers. As indicated above, however, EBITDA is most widely used as a primary tool in measuring a company’s value, which is typically expressed as a “multiple of EBITDA.” A company with EBITDA of $250,000 and a valuation of $1,000,000, is said to be selling at 4 times EBITDA. Practically, this means the company is worth 4 times its cash flow from operations. Determining the multiple is a topic for another post, but needless to say both the calculation of EBITDA and the determination of the multiple are heavily negotiated business terms that should be understood by all parties to a transaction.

So You Shut Down...Now What?

Fri, 08 Dec 2017 03:49:59 GMT

Whether you happily unwound your business or begrudgingly shut your doors, you should consider a formal dissolution of your company when you decide to close-up-shop for good. Completing a formal dissolution follows through on the principle that you likely applied when forming your company to begin with: it maintains a shield for your personal liability from company debts.

In this article, I navigate the key steps to a formal dissolution of your corporation or limited liability company (“LLC”) that will enable you to move on to your next venture feeling confident that no lingering liabilities will follow. Keep in mind that while much of this article applies to other entity formations, certain ones, like professional service corporations, have their own nuances to dissolution.

Here is a summary of the steps to a formal dissolution for corporations and LLCs, followed by more detail below:

1) Pay your Employees and Taxes.

2) Notify the Secretary of State.

3) Inform and Negotiate with your Creditors.

4) Thoroughly Identify and Carefully Distribute your Assets.

5) Cancel your Licenses and Terminate your Contracts.

But First! - Follow your Company’s own Guidelines.

Before you dive into the formal steps of dissolution, consult with your company’s organizational documents. Bylaws and Operating Agreements typically speak to how you may voluntarily dissolve your company, often including the number of owner votes required to dissolve, instructions for the wind-up process, and preferences for asset distribution. Don’t overlook these documents now, especially when you’re dealing with multiple owners who will undoubtedly be looking to get the most of the company’s remaining assets. If you fail to follow the procedures the owners agreed to when they set up the company, your dissolution may not in fact be valid!

1) Pay your Employees and Taxes.

Paying your staff and taxes is paramount to a successful formal dissolution. You must pay your employees their wages, including base pay, overtime and other applicable compensation. Also, you must pay the IRS and Illinois Department of Revenue the withholdings, sales, use and other applicable taxes that your business collected.

Federal and state laws provide hefty penalties for company executives who bail on their company’s wage and tax obligations. Tell your accountant of your plans for dissolution so that he or she can prepare the final quarterly and annual tax forms. Taxes are non-dischargeable debts that can follow you personally for years after they were due with significant late fees if the IRS deems you the “responsible person.”

2) Notify the Secretary of State.

A formal dissolution will not be complete without notifying the Secretary of State. For corporations, that means filing Articles of Dissolution detailing how the corporation authorized the dissolution and the status of the issued shares. LLCs meanwhile require a Statement of Termination which asks for little more than a forwarding address.

Note that with either entity, the Secretary of State will update your company’s status on its website to dissolved/inactive once it processes your dissolution forms. You’ll want to plan the rest of your dissolution in advance so that your creditors or other parties don’t find out by surprise of your dissolution before you’ve had the chance to notify them yourself.

3) Inform and Negotiate with your Creditors.

Fortunately, you don’t need to file for bankruptcy to obtain relief from your company’s outstanding debts. In fact, both the Business Corporation Act (“BCA”) and Limited Liability Company Act (“LLCA”) provide a procedure that allows you to actually bar your creditors from pursuing company debts, similar to what a bankruptcy court would provide but without the administrative costs. But you must follow the procedures intently, which involves notifying creditors of your company’s dissolution and providing them with time to raise a “claim” for an unpaid debt with you.

Should a creditor not send you a claim – and provided you followed the procedure correctly – it’s barred from later pursuing the company debt. On the other hand, you’ll need to address any claims you actually receive within the 120 day period set forth in the BCA and LLCA. You do have the option to settle the debt or reject the claim; however, rejecting a claim may invite a lawsuit. Both the BCA and LLCA provide that a rejection notice triggers the start of a 90-day clock for the creditor to file suit against you, else lose its claim altogether. In either case, it’s better to address the debt up-front, where you can negotiate on presumably friendlier terms. It only takes one creditor to file a lawsuit that will cost you more in attorney’s fees in the long-run, even if your defense is successful.

4) Thoroughly Identify and Carefully Distribute your Assets.

Most business owners don’t appreciate all of the assets that their companies obtain over the lifetime of their businesses. Some assets are easy to identify and value, such as cash in a bank account or company equipment. But others require a deeper analysis. Consider, for example, whether your company’s trade name or logo would be worth something to a former competitor. Think about whether your domain name for your website receives enough traffic to the point where someone may buy it from you rather than let its registration lapse. Don’t overlook assets that you could use to monetize and potentially resolve company debts.

Whatever assets you identify, take caution in distributing assets to company owners, or “insiders.” Both the BCA and LLCA require you to apply your assets first to creditors before distributing to owners and insiders. It’s common for one of the company’s founders to want to purchase a valuable asset, such as a patent, for use in a future venture. You’re allowed to sell assets to owners and insiders but you cannot grossly undervalue them in a “sweetheart” deal. There’s an inherent conflict between the owner’s or insider’s desire to get a great deal and your duty of loyalty to the company. If the sale doesn’t pass for sound business judgment or leaves the company unable to pay its debts, you may find yourself facing a lawsuit from another owner or a creditor.

5) Cancel your Licenses and Terminate your Contracts.

For every company, there are more dissolution tasks than shutting off the lights and closing the bank account. Consider all licenses you’ve obtained to operate and determine what actions you must take with their respective agencies. Look at all services to which the company subscribes and figure out how to effectively cancel them without accruing more debt. If you rent property, review your lease to see how you can terminate your possession and tenancy, and be sure to check for any personal guarantees as those will follow you despite the company’s dissolution.

Remember: the fact that your company is dissolved may not insulate you from liability if you don’t properly dissolve the company. Plan ahead to minimize potential liabilities. Hire a professional with experience in closing companies if the process seems daunting. The costs of formally – and properly – dissolving your company could save you a lot more in the long-term.

Tim Oliver is an attorney and advisor for small-to-medium sized businesses. He helps clients address the many legal issues they encounter throughout a company’s lifetime. Tim brings to business dealings what he’s learned during his several years’ litigating business disputes. His clients appreciate his detailed plans and efficient work product. To learn more about Tim, visit www.ghulaw.com .

Term Sheets, LOIs, and MOUs Demystified

Wed, 29 Nov 2017 03:50:47 GMT

You’ve spent a lifetime building your practice and the time has come to put it on the market. You engage a qualified transition specialist who has located a buyer, and are ready to begin negotiating the deal. Most likely, the buyer or the buyer’s representative will submit to you a document setting forth the business terms of the proposed transaction. Called a “term sheet”, “letter of intent”, or “memorandum of understanding”, this document is generally a non-binding outline of the business terms of your sale. For purposes of our discussion, we’ll refer to this document as an “LOI”, the intent of which is to determine if the purchaser and seller can agree on the business terms of the deal before plunging head first into the transaction, which leads to the engagement of lawyers, accountants, bankers, and other advisors, all of which can be costly to both the purchaser and the seller. That being said, and although LOIs are generally non-binding, we always recommend that our clients have the LOI reviewed by counsel prior to execution as it does establish parameters for the deal that can be difficult to renegotiate at a later date.

So how is an LOI structured, what does it look like, and what terms should it address? An LOI can take many forms, but essentially it’s just a letter from the buyer to you, the seller, outlining the essential terms of the deal. What follows is a summary of the sections you should be sure are addressed in your LOI:

Purchase Price and Terms of Payment : For most sellers the most important term in any LOI is going to be the purchase price…how much is the purchaser going to pay you for the practice and how will that purchase price be paid? Will there be a deposit and if so, who will hold it and when does it become non-refundable? Is the full purchase price paid at Closing or will a portion be held back pending some sort of performance review post-Closing? Is the purchase price fixed or will it be adjusted based on pre-Closing metrics? Is the purchase price payable in all cash or is there some sort of seller financing? All the foregoing questions should be answered in this section of the LOI.

Assets to be Acquired : While a detailed list of assets will be included with the definitive purchase agreement for the practice, the LOI should include general categories of practice assets the buyer intends to purchase, including tangible assets like dental equipment, office furnishings, supplies, business equipment and leasehold improvements, as well as other intangible assets such as patient lists, phone numbers, websites and goodwill. Cash is almost always excluded, but should certainly not be overlooked. Any other excluded assets, including personal effects, should be indicated here though will be detailed in the definitive purchase agreement. This section will also include a plan for handling the accounts receivable of the practice. Will the buyer be purchasing them, and if so at what percentage? Will the seller retain them but with assistance in collection from the buyer (usually for a nominal administrative fee)? If a patient owes money to both the seller and the buyer, who gets paid first? Addressing accounts receivable is never as simple as stating that the seller retains all accounts receivable or the buyer will purchase the accounts receivable. Complicated issues about ownership, collection, and administration should be addressed before the parties proceed.

Allocation of Purchase Price : While this may not be definitively known at the LOI stage, you as the seller should be aware and should discuss with your accountant what the tax allocation of the purchase price should be. While even more important for dental practitioners still utilizing a corporate tax as opposed to a pass-through structure, the allocation of the purchase price between tangible assets such as equipment and intangible assets such as goodwill can have significant financial consequences if not planned efficiently.

Post-Sale Transition : Most buyers will be looking for you to continue on in the practice for a period of time to ensure the smooth transition of the patients to a new dentist. While specifics will be detailed in both the definitive purchase agreement and possibly a post-sale employment agreement, it would be wise to set forth in the LOI the agreed upon term of any such engagement, such as how long the buyer expects you to maintain your current schedule and when you can start throttling back your hours, as well as the compensation for your services. If you have associates and key staff, there may also be language addressing the seller’s obligation, if any, to ensure the associates and staff stay with the practice as they may be integral to the profitability and successful transition.

Restrictive Covenant : Almost every practice transition I’ve assisted with has included a restrictive covenant imposed on the seller prohibiting the seller from competing with the practice after the sale. A fairly straightforward and industry standard provision, most restrictive covenants address both the period of time the restrictions will be in place as well as a radius in which the selling dentist is prevented from practicing. Restrictive Covenants may also include non-solicitation provisions preventing the buyer from soliciting patients and staff from the practice after the sale.

Earn-outs : While perhaps a bit less common than a simple all-cash purchase, some transitions will be structured in such a way where the selling dentist is paid a portion of the purchase price up-front with post-closing payments based on performance of the practice. These payments may be made over a period of years following the closing, aligning the future success of the practice with the selling dentist’s performance. While an entire article could be dedicated to the merit and risk of deals structured with earn-out components, needless to say that they should be described in detail in the LOI to ensure the parties are on the same page before they move forward. Earn-outs can provide a seller with an opportunity to receive a higher overall purchase price for their practice, but they can also result in conflict with the buyer and should be fully vetted by the seller’s advisors before they are agreed to.

Exclusive Dealing : While LOIs are non-binding, certain provisions can by agreement be made to be binding in the LOI. Exclusive dealing is one of those provisions that a buyer may request to be binding on the parties and will effectively require the seller to remove the practice from the market while the parties are negotiating the deal. Practice transitions can be expensive. Even at the LOI stage the parties may engage consultants, accounting firms, attorneys, and other advisors to assist in the evaluation of the transaction. Buyers don’t want sellers continuing to market the practice only to find another deal while the buyer has invested substantial financial resources in evaluating and negotiating the transaction. To induce you to remove your practice from the market though, a buyer may be required to put up earnest money as a sign of good faith to show that the buyer is serious about the acquisition. The LOI should indicate the amount of the earnest money, whether it is refundable, who will hold it, and under what conditions.

Confidentiality : Another binding aspect of the LOI, both parties should agree to keep their negotiations and any information or documentation they receive during the negotiations and due diligence period prior to execution of a binding purchase and sale contract confidential.

Lease : While glossed over in many an LOI for the purchase and sale of dental practices, the parties should certainly come to a meeting of the minds to ensure everyone is on the same page regarding the physical plant. Buyers will often have specific requirements driven by their lender as to the terms of the lease for any practice they intend to buy. Questions that should be addressed include whether the lease will be assigned to the buyer, whether the deal is conditioned upon negotiation of an extension or renewal of the lease term, and whether a seller’s guaranty, if a guaranty was provided to the landlord, will be released at closing.

Other Conditions and Contingencies : Other terms and conditions that may be addressed in an LOI include, among others, timing of closing, due diligence, financing, access to information and staff, governing law, responsibility for expenses, and broker’s fees. As LOIs reflect the terms of a particular transaction, each will be a bit different and there is no standard form. The key is to ensure that each LOI sufficiently describes the terms of the business deal between the parties such that they can proceed toward a definitive purchase agreement and eventually a closing. If you need assistance preparing a letter of intent for your practice, or have questions about purchasing or selling a dental practice, the attorneys at Grogan Hesse & Uditsky, P.C. are here to help. Visit us at www.chicagodentalattorney.com for more information.

Jordan Uditsky is an attorney and business advisor serving businesses in the Chicagoland area and throughout the country. Mr. Uditsky advises businesses and entrepreneurs from startup to sale, and strives to be a trusted advisor to his clients by delivering practical and efficient counsel on a wide range of matters. His combination of legal and business experience provides a unique perspective when counseling clients, giving him an understanding of the true value and application of his advice to their organizations. To learn more about Mr. Uditsky, visit www.ghulaw.com .

Dental Corporation Legal Checklist

Tue, 14 Nov 2017 03:51:36 GMT

When preparing to organize your dental practice, choosing the form of business entity may seem daunting. Dentists have many options for organizing their practices. In Illinois, these options include a limited liability partnership, professional association, professional limited liability company or a professional service corporation (“PSC”). Often, the best option for solo practitioner dentists is to form a PSC as it can provide tax advantages, liability protection and other benefits that are beyond the scope of this article. While a PSC operates similarly to a traditional corporation, because of its unique nature the set-up and maintenance of a PSC is a bit more nuanced than that of the traditional corporation. This article will provide you with a general overview and basic legal compliance checklist of the PSC incorporation requirements for dentists, but may also be applicable to other healthcare professionals.

Pre-Incorporation

1) Choose Your Company’s Personnel. Traditional corporations are not generally limited in who can participate in its ownership and operation. However, under the Professional Services Corporation Act (the “PSC Act”), a PSC is limited in who is allowed to participate in the company. All shareholders, directors, officers, agents and employees of the PSC must be duly licensed by the Illinois Department of Financial and Professional Regulation (“IDFPR”) to provide their respective dental services. Only “ancillary personnel” do not require licensure.

Ancillary personnel, which typically includes clerks, administrative staff and technicians, are employees who:

a) Are not licensed under the Illinois Dental Practice Act (“Dental Act”);

b) Are supervised by persons licensed under the Dental Act;

c) Do not hold themselves out to be licensed under the Dental Act; and

d) Are not prohibited by the IDFPR from being employed by the PSC.

2) Choose Your Company’s Name. Choosing your company’s name is vital to your PSC as it is often the first impression that people have of your company. The PSC Act has two main requirements when choosing your company’s legal name. The name must:

a) Include the full name or last name of one or more of the shareholders; and

b) End with “chartered”, “Limited”, “Ltd.”, “Professional Corporation”, “Prof. Corp.” or “P.C.”

However, if you would like to operate your company under a different name, your PSC can adopt a fictitious name by making a filing with the county clerk of the county where your company’s principal office is located.

3) Choose Your Company’s Location. The PSC Act and Dental Act require that your company’s principal address be located in Illinois. Additionally, the PSC Act requires you to submit a separate application for licensure from IDFPR for each business location in Illinois.

Incorporation

1) Draft Your Corporate Documents. To ensure that your PSC is in full corporate compliance, you will need to draft articles of incorporation, bylaws and other necessary documents for your company. In having these documents prepared, please note that it is important to use attorneys experienced in setting up PSCs to best protect your company from increased and unnecessary liability.

2) File Articles of Incorporation with the Illinois Secretary of State. Once you have compiled all of the necessary corporate documents, you will need to file the Articles of Incorporation with the Secretary of State. Articles of Incorporation can be filed in-person, via mail or on the Secretary of State website .

3) Obtain Your Federal Employer Identification Number. You can obtain a Federal Employer Identification Number or EIN, from the IRS via telephone or the IRS website .

4) Register with the IDFPR. The final step in setting up your PSC before your company can begin practicing dentistry in Illinois is obtaining a license for your PSC from the IDFPR. The license application can be filled out online via the IDFPR website .

Post-Incorporation

Once you organize a PSC, it is imperative to properly maintain the “corporate veil”, or the invisible wall separating you from your PSC. If the corporate veil is not maintained, the limited liability benefits you are afforded under your PSC can be destroyed and you may be held personally liable for the liabilities of your PSC (note however, that a PSC does not provide insulation from dental malpractice, for which a dentist remains personally liable). In order to maintain your PSC’s corporate veil, you must:

1) Timely file the PSC’s Annual Reports.

2) Timely renew the PSC’s license with IDFPR.

3) Properly maintain separate corporate minutes, records and consents for the PSC.

4) Do not commingle PSC funds and personal funds.

5) Only sign documents in the operation of your PSC in your capacity as an officer, director or shareholder of the company.

P lease note that the foregoing list is not necessarily exhaustive but it is the minimum you need to do to maintain your PSC.

That concludes the general overview and basic legal compliance checklist for forming a PSC in Illinois. It is important to remember that while a PSC may be the correct choice for certain dentists, it may not be the best choice for you. Accordingly, regardless of how you choose to organize your dental practice, it is important to consult with an experienced attorney beforehand to determine which type of entity best suits your specific needs. Please feel free to reach out to me with any questions at bhaney@ghulaw.com or visit our website at www.chicagodentalattorney.com .

Important information regarding recent overtime litigation in the U.S. District Court of Eastern District of Texas

Tue, 06 Dec 2016 03:52:46 GMT

On November 22, 2016, U.S. District Court Judge Amos Mazzant granted an Emergency Motion for Preliminary Injunction and thereby enjoined the Department of Labor from implementing and enforcing the Overtime Final Rule on December 1, 2016. The case was heard in the United States District Court, Eastern District of Texas, Sherman Division (State of Nevada […] The post Important information regarding recent overtime litigation in the U.S. District Court of Eastern District of Texas appeared first on GGHH Law.

On November 22, 2016, U.S. District Court Judge Amos Mazzant granted an Emergency Motion for Preliminary Injunction and thereby enjoined the Department of Labor from implementing and enforcing the Overtime Final Rule on December 1, 2016. The case was heard in the United States District Court, Eastern District of Texas, Sherman Division (State of Nevada ET AL v. United States Department of Labor ET AL No: 4:16-CV-00731). The rule updated the standard salary level and provided a method to keep the salary level current to better effectuate Congress’s intent to exempt bona fide white collar workers from overtime protections.

On December 1, 2016, the Department of Justice on behalf of the Department of Labor filed a notice to appeal the preliminary injunction to the U.S. Circuit Court of Appeals for the Fifth Circuit.

Since 1940, the Department’s regulations have generally required each of three tests to be met for the FLSA’s executive, administrative, and professional (EAP) exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”). The Department has always recognized that the salary level test works in tandem with the duties tests to identify bona fide EAP employees. The Department has updated the salary level requirements seven times since 1938.

The Department strongly disagrees with the decision by the court. The Department’s Overtime Final Rule is the result of a comprehensive, inclusive rule-making process, and we remain confident in the legality of all aspects of the rule.

Source: US Department of Labor

https://www.dol.gov/whd/overtime/final2016/litigation.htm

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CASH OR CREDIT…LANDLORDS BEWARE!

Sat, 18 May 2013 02:53:29 GMT

INTRODUCTION Though it may seem that the economy is on the mend, a quick discussion with the leaders of many area businesses exposes an underlying unease as to whether the economy as a whole can sustain its recovery given the inability of bureaucrats in Washington to craft long-term solutions to our country’s financial crisis. Many […] The post CASH OR CREDIT…LANDLORDS BEWARE! appeared first on GGHH Law.

INTRODUCTION

Though it may seem that the economy is on the mend, a quick discussion with the leaders of many area businesses exposes an underlying unease as to whether the economy as a whole can sustain its recovery given the inability of bureaucrats in Washington to craft long-term solutions to our country’s financial crisis. Many of these businesses continue to struggle to remain profitable and avoid the financial pitfalls of the recent recession. These same struggles affect more than the businesses themselves, and when a business’ financial struggles involve a bankruptcy they can have devastating results for creditors, particularly commercial landlords. While commercial landlords either holding a cash security deposit or a letter of credit may think themselves isolated from a tenant’s bankruptcy, some have found that neither is actually immune from risk.

CASH PITFALLS

Cash security deposits have long been the traditional form of security for a commercial lease, typically in the amount of one to two month’s rent. However, the recent financial crisis exposed a weakness in what was otherwise thought to be ironclad security against a tenant’s default. When a tenant declares bankruptcy the landlord may find themselves enmeshed in a fight with the bankruptcy trustee to retain that security deposit. A cash security deposit is generally regarded as an asset of the bankruptcy estate under Section 541(a). Courts have held, however, that landlords may offset a portion of the security deposit against their allowable claims but that any surplus must be returned to the debtor ( Oldden v. Tonto Realty Corp. , 143 F.2d 916 (2 nd Cir. 1944)). They have gone further to provide that a landlord’s security deposit constitutes a perfected security interest or lien in the landlord’s favor ( In re Johnson , 215 B.R. 381, 384 (Bankr. N.D. Ill. 1997)). It would seem the landlord’s ability to retain the security deposit is an equitable remedy until one examines and understands what an “allowable claim” is under the Bankruptcy Code.

A debtor-tenant has the ability to reject certain leases pursuant to Section 365 of the Bankruptcy Code. Such a lease rejection is tantamount to a default under the terms of most leases giving the landlord a general unsecured claim against the bankruptcy estate for the resulting damages. Unfortunately, the landlord’s claim is limited by Section 502(b)(6) of the Bankruptcy Code to the amount of accrued but unpaid rent plus the amount of rent reserved under the lease for the greater of one year or 15% of the remaining term of the lease. To the extent the cash security deposit exceeds the amount of the Landlord’s claim, it must be returned to the debtor’s bankruptcy estate.

WHY IS A LETTER OF CREDIT BETTER THAN CASH

In order to provide some insulation from the risk of a security deposit being tied up in a tenant’s bankruptcy, many landlords prefer the issuance of a standby letter of credit. A standby letter of credit issued by the tenant’s bank or, preferably, a bank satisfactory to the landlord is an independent obligation of the issuing bank to the landlord. The letter of credit stands apart from the tenant’s obligation to reimburse the issuing bank and is therefore not generally a part of the bankruptcy estate. Less risk? It would seem that way until one considers the long list of bank failures over the past several years and the FDIC’s unwillingness to honor letters of credit issued to commercial landlords by failed banking institutions. With the economic recovery still uncertain, commercial landlords should take proactive measures in their leases requiring tenants to replace letters of credit issued by insolvent banks and permitting the landlord to make a periodic review of the letter of credit issuer. Landlords should also reserve the absolute right to approve the bank issuing the letter of credit or provide a list of acceptable financial institutions from whom they will accept a letter of credit. It should also be noted that the interaction between a landlord’s proposed draw on a letter of credit and the 502(b)(6) cap is unsettled. Landlord’s should anticipate that any drawdown on a letter of credit may have an impact on the amount of the landlord’s claim in a tenant’s bankruptcy.

Jordan Uditsky is a partner in the corporate practice of Garelli, Grogan, Hesse & Hauert. He brings a diverse legal and business background to the firm, with a particular emphasis on the representation of startups and emerging companies, commercial real estate transactions, tax and estate planning. He advises businesses in a broad range of general corporate and corporate transactional matters, including business organizations and choice of entity issues, financing and private equity, mergers, acquisitions and joint ventures as well as business restructurings. Mr. Uditsky also employs his experience as a business owner to advise companies on regulatory issues and compliance matters, employment policies and legal issues related to their general operations and business strategy.

Garelli Grogan Hesse & Hauert offers sophisticated yet cost effective, practical solutions to our clients’ legal challenges. We strive to understand not only the legal issue but our clients’ business goals as well and craft tailored solutions to help them succeed. Our attorneys represent businesses and individuals throughout the Midwest in matters that include commercial litigation, securities, business counseling and transactions, commercial real estate, estate planning and family law. For more information contact Jordan Uditsky at (630)833-5533 x12 or juditsky@gghhlaw.com.

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TO LLC OR NOT TO LLC: THAT, IS THE QUESTION!

Thu, 10 Jan 2013 03:54:28 GMT

Limited Liability Companies, or “LLC” as they are more commonly known, have been the “entity du jour” over the past decade, and I’ve been asked by many a client what the real reasons are to choose an LLC over, for example, an S-Corporation, a Partnership or a traditional C-Corporation. Choosing the most appropriate structure for your business can be confusing even for the most learned legal practitioner, and I find that most attorneys know which entity they should recommend but don’t necessarily know why. In this article we’ll explore the differences between two of the most popular business structures, the LLC and the Subchapter S Corporation, or “S-Corp”.

The LLC and S-Corp are popular business structures for a variety of reasons, some of which the two have in common. Both the LLC and the S-Corp are creatures of statute, meaning they are separate legal entities created by a state filing and subject to state-mandated formalities, such as filing annual reports and paying periodic filing fees. Both entities are taxed like sole proprietorships (in the case of a single owner or shareholder) and partnerships (in the case of multiple owners or shareholders), meaning the company itself doesn’t pay federal taxes, but rather all company profits and losses are “passed through” to the individual owners, who report these tax attributes on their individual federal tax returns. These two business structures also share another key feature in that they have the ability to separate the liabilities of the business from the personal assets of the owners, thereby shielding those assets from business obligations. Despite the similarities, LLCs and S-Corps do differ in several ways, including their operational flexibility, administrative requirements, profit-sharing and employment tax implications, all of which we will explore in this article.

WHAT IS AN LLC ANYWAY?

According to the Internal Revenue Service, an LLC is an entity “designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership”. Although many times you will hear practitioners refer to an LLC as a “limited liability corporation”, you should note that an LLC is not actually a corporation. While both corporations and LLCs are created as a matter of state law, they are separate entities with entirely different governing rules and regulations. Nevertheless, the LLC is a flexible form of business enterprise that combines elements of both the corporate and partnership structures. As a pass-through entity, all profits and losses generated in an LLC are reported by the individual owners, or “members” as they are called, on their individual federal tax returns. What differentiates the LLC from a partnership, however, is the limit of the liability for which a member is responsible, which in most cases will be limited to such member’s investment in the company.

HOW ABOUT AN S-CORP?

Like a C corporation, an S-Corp is a corporation organized pursuant to the laws of the state in which it is formed. As in the case of an LLC, however, S-Corps resemble partnerships in the manner in which they are taxed, meaning all aspects of income, deductions and tax credits flow through to the shareholders, regardless of whether cash distributions or contributions are made. S-Corps must make an affirmative election under Subchapter S of Chapter 1 of the Internal

Revenue Code to be taxed as a partnership and the following requirements must be met in order to do so:

– The entity making the election must be a domestic corporation;

– The entity making the election may only have one class of stock;

– The entity making the election may not have more than 100 shareholders;

– Shareholders of the entity making the election must, subject to certain limited exceptions, be U.S. citizens and natural persons; and

– Profits and losses allocated to the entity’s shareholders must be in proportion to each shareholder’s interest in the business.

SO WHICH ONE IS RIGHT FOR MY BUSINESS?

As indicated above, LLCs and S-Corps differ in several ways, including but not necessarily limited to their operational flexibility, administrative requirements, profit-sharing and employment tax implications. Understanding the differences will dictate which of these two popular entities are right for your business.

One of the primary differences between an LLC and an S-Corp is the amount of administrative formality that is required to maintain an S-Corp. Remember, an S-Corp is in fact a corporation and therefore requires compliance with certain administrative formalities such as formation of a board of directors, annual reporting and other mandatory business filings, adopting by-laws, issuing stock, annual shareholder and director meetings with mandatory record keeping and other administrative requirements that a typical small business may not be prepared to deal with, particularly one with a single owner. An LLC on the other hand requires far fewer forms for registration and generally lower start-up costs. Limited Liability Company’s are not generally required to have formal meetings nor maintain minutes of meetings, though record keeping is still highly recommended. With fewer administrative formalities to maintain, LLCs may be more difficult to penetrate by those seeking to challenge its shield of liability protection. Generally, as long as the members of the LLC do not “co-mingle” funds, imposing liability beyond the LLC itself may be very difficult.

Another distinguishing feature between the LLC and the S-Corp is the operational and management flexibility inherent in an LLC versus the rigid structure of an S-Corp. Most matters relating to governance of an LLC can be handled in one document, typically termed an “Operating Agreement” or “Limited Liability Company Agreement”, which is the governing document of the company. Most state codes in fact allow members of an LLC to essentially override the LLC statute by otherwise agreeing in the operating agreement how the LLC will be governed. The owners of an LLC can decide to be self-managed (or, “member-managed” as it is otherwise known) or manager-managed. When member-managed, the LLC is run in the same manner as a partnership where the partners handle the day-to-day operations of the company. When manager-managed, the LLC is run similar to a corporation, where the members may elect one or more people to handle the day-to-day decisions of the company. S-Corps on the other hand, have directors and officers, where the board of directors makes major decisions and officers are elected to manage the company’s daily business. Of course, an LLC also has the flexibility to “elect” officers if they so choose, but many business owners appreciate the simplicity of their businesses being managed by a manager they have the authority to appoint or remove in their sole discretion.

When organizing a new company involving more than one owner, particular attention should be paid to the allocation of the company’s profits and losses as well as the distribution of available capital. S-Corporations, which are restricted to one class of stock, must allocate profits and losses pro-rata to its shareholders based on their relative share of ownership. Thus, a shareholder who owns 25% of the company’s stock reports a distribution of 25% of the company’s year-end taxable profit or loss, as the case may be, on the shareholder’s individual federal tax return. The one class of stock restriction governing S-Corps does not apply to LLCs, thereby allowing flexibility in planning distributions and allocations of profits and losses. A business organized as an LLC may allocate profits and losses disproportionately among its members, taking into account factors such as sweat equity, preferred returns for members contributing more capital and other arrangements forming the basis for so-called “special allocations”. The IRS may scrutinize such special allocations to ensure members are not attempting to evade taxation by allocating larger losses to members in higher income tax brackets, thus it is important to structure the allocations so that they have what the IRS terms “substantial economic effect”. Consider the case of four members who form an LLC where three members put up an equal amount of cash while the fourth member signs a note to contribute his or her share in installments over the first five years of the business. The operating agreement may provide that the first three members receive a larger distributive share of profits and losses for those five years during which the fourth member’s note is outstanding, even though all four members may each have an equal 25% ownership interest in the company. The IRS should respect this arrangement given there is a legitimate financial basis for the special allocation (i.e., it has “substantial economic effect”). It should be noted that an LLC’s structural flexibility would allow an operating agreement governing the foregoing company to provide for other restrictions, such as a limit on the fourth member’s ability to vote on certain issues affecting the company until the note is paid in full. It is this structural flexibility that motivates many entrepreneurs to choose the LLC for their new businesses.

While not generally a significant consideration for most new small business owners, it is important to note that owners of LLCs are considered to be self-employed and must therefore pay the 15.3% self-employment tax contributions towards Medicare and Social Security (note that the rate was effectively reduced in 2012 to 13.3% but is slated to return to 15.3% in 2013). Thus, all the income of an LLC is subject to self-employment tax whereas a corporation may retain some of that income after payment of the owner’s salary and treat it as unearned income not subject to self-employment. Of course, nothing is free in the eyes of the IRS as any such unearned income will be taxed at some point when it is distributed to the company’s shareholders as taxable dividend income.

While LLCs have been the entity of choice in recent years, the flexibility associated with its ownership and management structure in multi-member businesses comes with a price. That price is reflected in what can be complex operating agreements reflecting the practical realities of an agreement among the owners. In such situations it is important to remember that an operating agreement is not an “off-the-shelf” document that a practitioner or formation service can quickly plug names into and deliver without a thorough understanding of the member’s relative expectations. LLC operating agreements may need to combine complex provisions usually found in shareholder agreements, separate buy-sell agreements, partnership agreements and even employment agreements. Such provisions may affect issues such as capital contributions to the business, allocation and distribution of profits and losses as described above, members’ voting rights, admitting new members or removing existing ones, restrictions on transfer of membership interests and many others. Each member should retain their own counsel experienced in business organizations to advise them of their relative rights and obligations before entering into any such agreement.

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DON’T GET TRAPPED IN THE COVERAGE GAP: ADDITIONAL INSUREDS UNDER COMMERCIAL GENERAL LIABILITY POLICIES – RECENT DEVELOPMENTS

Wed, 14 Nov 2012 03:55:29 GMT

As the former owner of a contracting business I am all too familiar with the need to be named as an “additional insured” on a subcontractor’s certificate of insurance. Most business owners and risk managers though don’t fully understand the nuances of this often overlooked but vitally important part of their overall insurance coverage. For […] The post DON’T GET TRAPPED IN THE COVERAGE GAP: ADDITIONAL INSUREDS UNDER COMMERCIAL GENERAL LIABILITY POLICIES – RECENT DEVELOPMENTS appeared first on GGHH Law.

As the former owner of a contracting business I am all too familiar with the need to be named as an “additional insured” on a subcontractor’s certificate of insurance. Most business owners and risk managers though don’t fully understand the nuances of this often overlooked but vitally important part of their overall insurance coverage. For those that fail to read the fine print a trap may be looming and, as evidenced by a recent District Court case in the Northern District of Illinois, falling in could cost your company hundreds of thousands of dollars.

It is standard procedure in most service agreements that the service provider (the “Provider”) name the recipient of those services (the “Recipient”) as an “additional insured” on the Provider’s commercial general liability insurance (“CGL”) policy and evidence the same in a certificate of insurance issued by the Provider’s insurance carrier. The Recipient traditionally relies on this certificate as evidence of insurance in the event that damage to person or property is caused by the Provider, its employees or agents during the performance of the Provider’s duties under the agreement. The Recipient further expects that the Provider’s insurance will be primary in the event of an incident causing such damage. A recent case decided in the U.S. District Court for the Northern District of Illinois, however, exposed a coverage gap in which an additional insured might not be covered by the Provider’s CGL policy for damages incurred by the Provider’s employees.

The Provider in the case, Independent Building Maintenance Company (“IBM”), was engaged by Archer Daniels Midland Company (“ADM”) to perform window cleaning services. The service contract included a provision requiring IBM to obtain insurance and indemnify ADM for liability arising from the work IBM performed. A policy with The Burlington Insurance Company (the “Insurance Company”) was accordingly endorsed to name ADM as an additional insured. Subsequently, an IBM employee was cleaning windows when his ladder slipped causing him to injure his knee. The employee filed suit against ADM asserting negligence and premises liability. ADM tendered the defense of the suit to the Insurance Company, which ultimately disclaimed any duty to provide a defense. ADM settled the suit for $150,000 and alleged that it spent almost $200,000 in attorney’s fees over the course of the suit. The Insurance Company claimed it had no duty to defend ADM in the suit because (1) the policy’s cross liability exclusion barred coverage for bodily injury to an “employee of any insured” and (2) the employer’s liability exclusion barred coverage for bodily injury to an “employee of the insured”.

The court addressed the employer’s liability exclusion first, which is a typical provision in a CGL policy that bars coverage for personal injury claims by employees of the insured as such claims would normally be covered by an employer’s workers compensation insurance. The policy also included a severability clause that ADM relied on to argue that it was entitled to separate coverage under the policy so that a claim of injury by IBM’s employee against ADM would actually be covered. In general, severability clauses are intended to treat each entity covered under the policy as if each were insured separately. The court agreed with ADM, citing an Illinois Supreme Court case that considered the interplay of a severability clause and an employee exclusionary clause barring coverage for bodily injury to employees of “ the insured”. The court noted, however, that drafting a broader exclusion might be effective in barring coverage for employee’s suits against non-employer-insureds despite the existence of a severability clause.

Though the language of the employer’s liability exclusion was not sufficient for the Insurance Company to bar coverage to ADM, the court found the opposite with the cross liability exclusion which barred coverage for bodily injury to an “employee of any insured”. ADM attempted to rely on the same severability argument but the court disagreed, pointing in particular to the language “ any insured”. The court found that the distinction between the terms “ the insured” and “ any insured” in an exclusion is crucial in determining the significance of a severability clause, and even more so where the terms were used in different exclusion provisions of the same policy.

In summary, the court relied on the plain language to conclude that the employer’s liability exclusion did not bar coverage for ADM because the injured employee was not actually ADM’s employee (i.e., not an employee of “ the insured” under the plain language of the exclusion), but did bar coverage for ADM under the cross liability exclusion because, being named as an additional insured on the original endorsement, ADM became “ any insured” under the terms of the exclusion. In practice, business owners and risk managers should be wary to avoid the trap ADM fell into by doing some simple planning. First and foremost, realize that a certificate of insurance is merely evidence that coverage exists and is current but is subject to the exclusions in the original policy. Where possible obtain a waiver of the cross liability exclusion in the certificate of insurance, and be sure your counsel negotiates strong contractual indemnity provisions in the underlying agreement and that the Provider has the balance sheet strength to honor them.

For further information or a free consultation contact Jordan Uditsky at juditsky@gghhlaw.com .

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CITY OF CHICAGO CLARIFIES EXEMPTIONS TO TRANSFER TAX ORDINANCE

Thu, 08 Nov 2012 03:56:00 GMT

With the increase in recent years of real estate transactions involving distressed mortgage loans and investors or developers intent on acquiring fee title to the underlying property, the City of Chicago needed to clarify its position on the interaction of Exemptions C & M of the Chicago Real Property Transfer Tax Ordinance. Exemption C provides […] The post CITY OF CHICAGO CLARIFIES EXEMPTIONS TO TRANSFER TAX ORDINANCE appeared first on GGHH Law.

Exemption C provides that the acquisition of an interest in real property through the granting or purchase of a mortgage is exempt from Transfer Tax. Exemption M provides that the acquisition of a fee interest in real property through the granting of a deed in a foreclosure sale or a deed in lieu of foreclosure is also exempt. The Exemptions were enacted to ensure that a bona fide lender would be excluded from tax liability where the lender was seeking solely to perfect its security interest in the collateral or exercising its rights in that collateral. The City’s recent ruling intends to clarify that the investors and developers acquiring these properties remain subject to Transfer Tax when they take title to the property, but are not subject to taxation on both steps of the transaction; first upon purchase of the mortgage, and second upon acquiring fee title to the underlying property. The City further clarified that the transfer price on which the Transfer Tax would be assessed is the amount of consideration paid by the buyer to the lender for the mortgage, and is payable upon delivery or recording of the deed.

For further information or a free consultation please contact us at juditsky@gghhlaw.com .

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Garelli Grogan Hesse & Hauert Appoints New Lawyer

Wed, 03 Oct 2012 02:56:36 GMT

Elmhurst, IL, October 1, 2012–Garelli Grogan Hesse & Hauert (GGHH), a multi-practice law firm serving businesses and individuals throughout the Midwest, is pleased to announce that Jordan Uditsky has joined the firm as a partner to further expand its existing business transactional practice. Mr. Uditsky brings a wealth of experience to GGHH as both a […] The post Garelli Grogan Hesse & Hauert Appoints New Lawyer appeared first on GGHH Law.

Mr. Uditsky brings a wealth of experience to GGHH as both a lawyer and an entrepreneur. He has been advising clients in a wide range of businesses and real estate transactions for almost 15 years and delivers a unique perspective through his personal experience as the owner and general counsel of a multi-million dollar manufacturing company. Mr. Uditsky has a diverse corporate practice focused primarily on representing startups, closely held and emerging companies, commercial real estate transactions, and tax and estate planning. He advises clients in a broad range of general corporate, real estate and corporate transactional matters, regulatory issues, compliance matters, employment policies, and legal issues related to general operations and business strategy.

About Garelli Grogan Hesse & Hauert

GGHH offers the sophistication and experience of a large law firm while providing the cost-effective representation and personal attention common to smaller firms. With varied educational and professional backgrounds, GGHH attorneys offer practical business solutions tailored to clients’ needs. They provide legal advice and counsel on a wide variety of complex legal issues with practice areas that include corporate transactions, commercial litigation, estate planning, real estate, family law, and securities litigation.

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What Employers Need to Know About Discrimination

Wed, 29 Feb 2012 03:57:16 GMT

While you may have the best of intentions as an employer, a single misstep can create ugly employment lawsuits. There are important things that every employer must know to avoid employment litigation. Discrimination, in particular, can be especially tricky. Here’s what you need to know: Discrimination Hiring and promoting the best-qualified candidates isn’t always as easy […] The post What Employers Need to Know About Discrimination appeared first on GGHH Law.

Discrimination

Hiring and promoting the best-qualified candidates isn’t always as easy as it seems. Employers weigh the choices between candidates based on unequal qualifications all the time. You may have seen two resumes and thought, “if only these two people could be one person, I’d have the perfect candidate!”

Deciding between the two resumes like this can also lead to accusations of discrimination against one of several protected statuses, even when there was none. Promotions can be wrought with the same trouble. Worse, firing someone who hasn’t done their share of the work can bring on even more lawsuits.

These are just some of the tricky situations employers can find themselves in. It’s important to consult with an expert in employment law to stay updated on employment issues. In the end, it can save you a lot of time, money and frustration.

Consulting with an experienced employment lawyer can help you avoid this common dilemma.

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What You Need to Know About Legally Organizing a Business

Thu, 23 Feb 2012 03:57:53 GMT

You have an idea. You’ve decided to go for it. You’re ready to start your own business – but there are still a lot of questions need answered. What type of organizational structure fits your business? How many employees should you hire initially? Where do you get the funding if you can’t afford to start it yourself? How can you protect yourself from lawsuits filed by your customers or employees?While starting a business can be exciting, it’s also a time of high stress. But first, you have to legally organize your new company. It’s important to consider how you would like to organize your business. Under the law, you can organize your company as a sole proprietorship, partnership, a limited partnership, a limited liability company (LLC) or corporation. Some businesses even structure themselves as cooperatives, in which ownership is distributed among several people.

The process of business formation can be daunting regardless of how your business is structured. If you’re not sure which option would be best for your business, talk with a business law attorney.

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3 Common Questions Probate Lawyers Are Asked

Thu, 16 Feb 2012 03:58:29 GMT

Protecting our loved ones is a primary concern for most of us. Although it’s unpleasant to think about what happens when we die, it’s essential that we plan ahead. If passing your assets along to your surviving family members, close friends and favorite charities is important to you, there are some things you should know about […] The post 3 Common Questions Probate Lawyers Are Asked appeared first on GGHH Law.

Protecting our loved ones is a primary concern for most of us. Although it’s unpleasant to think about what happens when we die, it’s essential that we plan ahead. If passing your assets along to your surviving family members, close friends and favorite charities is important to you, there are some things you should know about the probate process (and when you should contact a probate lawyer ).

What does “probate” mean?

Probate is the process by which a deceased person’s assets are collected and distributed to the rightful heirs. The court often supervises the process, and the way it is executed can differ from one state to another.

First, the deceased person’s assets are collected and all debts are paid off using those assets. What is left over is distributed according to the person’s most recent will. Where no will exists, state laws take over to determine who gets what.

How long does the process take?

As with most legal processes, it depends on the circumstances. It’s not unusual for the probate process to take a year or more. Obviously, this can be difficult for your family members who could be waiting a long time for the process to be completed. While there are ways to avoid probate, many of them involve additional costs. A good estate planning lawyer can help you determine which methods are best for you and your family.

How do I handle disputes?

Unfortunately, the probate process is often prone to disputes. If you have lost a family member, you may know this all too well. Loved ones may dispute the validity of a will, or object to how the assets are distributed. Settling these disputes can be painful, but a probate lawyer can ensure that you have an objective representative.

The probate process can be extremely complicated. If you have questions, don’t rely on websites or what well-meaning friends may tell you – seek the help of an experienced probate lawyer at Garelli, Grogan, Hesse & Hauert.

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Estate Planning 101

Wed, 08 Feb 2012 03:58:56 GMT

Most of us hope to build wealth that we can pass along to our loved ones when we die. To ensure that your estate is transferred according to your wishes, estate planning is important. You might think that estate planning is just for wealthy people, but you’d be mistaken. Too often, families are torn apart over a dispute over even a modest inheritance. You can settle disputes before they start by preparing ahead of time. The first step to estate planning is developing a will. If you have a larger estate, a will might not be enough. In this case, it may be wise to consult an experience estate planning lawyer to discuss your options.

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A Brief Guide to Securities Law

Fri, 03 Feb 2012 03:59:34 GMT

Securities and financial markets are curious creatures these days. More and more, regulatory agencies are increasing their oversight as a result of corporate scandals, which can often mean that even innocent securities firms and financial professionals are caught up in time-consuming lawsuits. A securities lawyer can be an essential asset. No matter where you stand within […] The post A Brief Guide to Securities Law appeared first on GGHH Law.

No matter where you stand within the financial markets, securities laws can affect you. You may be a broker or financial professional who is being investigated by a regulatory agency. This can be a very cumbersome process, and can often leave you with a hefty financial burden. It’s important that you consult a securities lawyer to ensure that you are fairly defended against false claims. If you act soon enough, you may even be able to prevent litigation.

On the other hand, you may have been a victim of deceptive tactics by investment brokers, and there are several ways that this can happen. For example, “churning,” is a tactic in which the broker trades your account excessively in order to show more favorable returns.

Other times, you might be advised to put your money into an “unsuitable” investment. The investment would be considered unsuitable if you’re risking too much by placing your confidence in the poor investment. Sometimes, brokers will even blatantly misrepresent or omit important facts about the investment in order to convince you to put your money in a particular market. In these cases, you will need a securities lawyer to guide you through the securities arbitration process.

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