Tag: business

Selling Your Business?

John Smith owned a small manufacturing business.  One day he received a call from one of his competitors who said he was interested in buying John’s business.  John was now 75 and this seemed like the perfect opportunity for him to retire and have that “nest egg” for him live comfortably in retirement.

John met with the buyer and they discussed, in general, John’s business.  After the meeting, the buyer presented a letter of intent to John, which proposed a purchase price of $10,000,000, subject to the buyer’s due diligence investigation of John’s business.  John felt pleased with the letter of intent and signed and returned it to the buyer.

During a long and protracted (and quite thorough) due diligence, the buyer and his accountants and lawyers examined the business and its books and records.  Based upon their examination, they advised the buyer of various legal and financial risks that John’s business was exposed to and which could become issues that the buyer would have to face.

John could not produce all of his current contracts with his customers.  The contracts which he had contained provisions which could cause the contracts to be terminated upon a sale of the business or a transfer of the ownership of the business.  Their key employees had no employment agreements and could compete with the business once they terminated employment.  The leases for the business’s facilities could not be assigned.

Despite the issues with the business, the buyer was still interested in purchasing the business.  The bad news was that the revised purchase price was to be $8,500,000 with a significant portion to be held in escrow pending resolution of various legal issues.

The above scenario is very common with small business owners.  Bigger companies who regularly acquire smaller companies are “professionals” in the acquisition business.  They know exactly what to look for and they know how to “string the seller along” until they present a reduced offer which most sellers feel they have to accept.

If you are thinking of selling your business, make sure that your business is ready to be sold and that you have copies of all contracts and leases and that you understand what they provide and how they will be affected upon a sale.  Have written employment agreements with all your “key employees.”  Pay attention to your inventory, your accounts receivable and other assets which “drive the sales price.”  Protect your intellectual property by obtaining patents, to the extent applicable, and trademarks.

If you are considering selling your business and would like a “legal check-up,” please do not hesitate to contact:

Morris Saunders at:

msaunders@lgattorneys.com or 312-368-0100.

Is Your Business Litigation Proof?

The heading of this blog is a misnomer. There is no such thing as being litigation proof. Anyone can sue your business for any reason and meritorious or not, you will still have to defend the claim.

Still, there are many important steps a business can and should take to reduce its exposure and put itself in an advantageous position in the event a lawsuit is filed. Here are two simple actions that every business, large and small, should take in order to be a little bit more secure in today’s volatile world.

1. An Updated Employee Handbook

Employee handbooks set forth company policy for all employees to follow. Handbooks are useful reference materials that employees can rely upon to guide their day to day activities. They are also evidence of a company’s practices that can be introduced in the event of a lawsuit.

As a business grows, it should be mindful that different laws will apply to it. For example, once a business employs 15 employees, that business is now subject to the provisions of the Americans with Disabilities Act (“ADA”). Once that happens, an employee handbook should be modified to include language related to the reasonable accommodations that the business will make to comply with the ADA. If an employee with a disability were to file a claim under the ADA, a company with a handbook containing reasonable accommodation language would have a stronger argument that its practice is to comply with the ADA, than a company without such a policy in its handbook.

Also, business owners must be mindful that the law is constantly changing. For example, Illinois just enacted a law that requires an employee’s existing sick leave be granted to employees not only while they are sick, but also to care for sick family members (read more about that law here – http://lgattorneys.com/illinois-employee-sick-leave-act). Illinois businesses should amend their handbooks to reflect the change or discuss the pros and cons of moving away from sick leave/vacation time to paid time off that does not differentiate between sick leave and vacation time.

2. Record Retention Policy

If a company becomes involved in litigation, regardless of the issue, there is going to be a records request for all relevant documents in anyway related to the underlying lawsuit. This often involves emails and other electronic communications.

Having a records retention policy is important for several reasons. First, it ensures that all documents are kept for the optimal amount of time to conduct business without clogging servers or storage spaces. Second, it ensures that a company isn’t holding any documents for longer than legally required. Should a business be subject to a records request, a business is required to produce the documents in its possession. A plaintiff in a suit cannot use a document against you if you do not have it (and are not legally required to have kept it). Third, there are many record retention laws specific to different areas of business. A record retention policy can make sure a business does not violate the law by getting rid of documents too soon.

It is important that the business in question follow its policy universally and not on an ad hoc basis. As long as there is not a litigation hold in place requiring a company to keep all related records, then the company is free to follow its record retention policy without inadvertently destroying evidence and leading to a claim of evidence spoliation.

By consulting with an attorney and preparing an employee handbook and records retention policy, a business can take important first steps toward avoiding litigation, or at least being better placed to withstand a lawsuit if one comes its way.

For more information about developing an employee handbook or record retention policy appropriate for your business, please contact:

Robert Cooper at:

rcooper@lgattorneys.com or 312-368-0100.

Cook County Raises Minimum Wage

On October 26, 2016, the Cook County Board passed an ordinance to gradually increase the minimum wage to $13.00 per hour by 2020. The Cook County Board’s action follows the lead of the City of Chicago which in 2014 passed an ordinance to gradually increase the minimum wage in Chicago to $13.00 per hour by 2019.

The first increase is effective July 1, 2017, raising the minimum wage from $8.25 to $10.00 per hour. The minimum wage will increase again on July 1, 2018, to $11.00 per hour; on July 1, 2019, to $12.00 per hour; and on July 1, 2020, to $13 per hour. The ordinance applies to any business or individual that employs at least one employee who performs at least two hours of work in any two-week period while physically present within the geographical boundaries of Cook County, with limited exceptions.

The ordinance also requires Cook County employers to provide notice to their employees regarding their rights under the ordinance, including: (i) conspicuously posting a notice at each facility within Cook County; and (ii) providing a written notice to employees with their first paycheck issued after July 1, 2017.

Employers are subject to significant penalties for non-compliance with the ordinance, including, but not limited to, fines in the amount of $500 to $1,000 per each day of non-compliance. The ordinance also establishes a private cause of action for employees who may recover damages against an employer in an amount equal to three times the amount of any underpayment, in addition to the employee’s attorneys’ fees and costs. An employer’s failure to comply with the ordinance may also violate other laws including the Illinois Wage Payment and Collection Act, Illinois Minimum Wage Law, and Federal Fair Labor Standards Act, which also provide for an employee’s recovery of damages, interest and attorneys’ fees.

If you have any questions regarding the minimum wage applicable to your business or your obligations under the new Cook County Ordinance, please contact:

Kristen E. O’Neill at:

koneill@lgattorneys.com or 312-368-0100.

If You Sell Stock In Your Start-Up Business Can You Exclude the Gain From Income?

You started your business and it grew beyond your wildest dreams. Now, a potential purchaser has approached you to acquire your business. Your first thought after, “I’m going to be rich!”, is “How much of my money will the IRS want from me?”

If your stock qualifies as “qualified small business stock” (QSBS) then that big payoff could escape income tax. Prior to 2015, Internal Revenue Code Section 1202 provided a tax free benefit in certain situations for stock acquired after September 27, 2010, but before 2015. The “Protecting Americans from Tax Hikes Act of 2015” (PATH Act) restored the QSBS provisions for stock acquired in 2015 and thereafter.

Now, subject to certain limits, you may exclude from gross income 100% of any gain realized on the sale or exchange of QSBS held for more than five years. Also, the excluded portion of the gain from eligible QSBS is not treated as an alternative minimum tax preference item.

Stock qualifies as QSBS only if it meets all of the following tests:

  1. it must be stock originally issued after Aug. 10, 1993;
  2. as of the date the stock was issued, the corporation was a domestic C corporation with total gross assets of $50 million or less (a) at all times after Aug. 9, 1993 and before the stock was issued, and (b) immediately after the stock was issued;
  3. in general, you must have acquired the stock from the corporation, either in exchange for money or other property or as pay for services to the corporation; and,
  4. during substantially all the time you held the stock:  the corporation was a C corporation; at least 80% (by value) of the corporation’s assets are used in the active conduct of one or more qualified businesses; and the corporation was not a foreign corporation, or certain other types of companies.

A qualified business cannot be: a business involving services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services or a business whose principal asset is the reputation or skill of one or more employees; a banking, insurance, financing, leasing, investing, or similar business; a farming business (including the raising or harvesting of trees); a business involving the production of products for which percentage depletion can be claimed; or a business of operating a hotel, motel, restaurant, or similar business.

For each tax year, the amount of gain eligible for the exclusion is limited to the greater of: $10 million ($5 million for married persons filing separately), or 10 times your total adjusted basis in QSBS of the corporation disposed of by you in the tax year.

The above is a brief synopsis of the rules regarding QSBS. If you’d like to discuss these rules or any other business issue you might have, please contact:

Morris R. Saunders at:

msaunders@lgattorneys.com or (312)368-0100

Food Safety, Potential Liabilities, and the Impact of New FDA Regulations

Every year, millions of people are affected by food-borne pathogens such as E. coli, salmonella and listeria.  While the most urgent concern in any such situation is the sickened customers’ health, large outbreaks make big news which negatively impacts a food professional’s business and can even destroy it.  In some cases, owners and operators can also face criminal liability.  Understanding food safety liabilities and legal issues and preventing any sort of outbreak – large or small – not only protects consumers but preserves a food service operators reputation and bottom line.

In the U.S., a business is usually strictly liable for selling a contaminated food product.  In other words, an affected customer does not need to prove and identify the particular failure of the business but only needs to prove that the food was contaminated and caused illness.  Given the breadth of food safety regulations, nearly any company in a food supply chain can be held liable.

The FDA Food Safety Modernization Act

Most recently, in April 2016, the Food and Drug Administration (FDA) published the Food Safety Modernization Act (FSMA) rule on Sanitary Transportation of Human and Animal Food.  This rule became effective in June 2016.  The purpose of the regulation is to advance FDA’s efforts to protect foods from farm to table by keeping them safe from contamination during transportation and to create a modern, risk-based framework for food safety. The goal of this rule is to prevent practices during transportation that create food safety risks.  Recognizing that many businesses, particularly small businesses, may need more time to comply with the requirements, the compliance dates are adjusted accordingly. 

Other Food Safety Laws and Regulations

It is not difficult to pin liability on food producers, retailers or foodservice operators.  A claim can be based on the implied warranty that the food was unfit for consumption and the business failed to take reasonable care to ensure it was safe.  There is also a variety of federal regulations relating to facility registration, recordkeeping, labeling, and reporting regarding events involving illness resulting from food-borne contamination.  In addition to FDA’s requirements, food businesses are subject to other federal, state, and local requirements.  

How to Mitigate the Risk and Liability Related to Food Safety Issues

There are several steps and precautions operators can take to reduce the likelihood of food-borne illnesses and to make dealing with a problem easier.  First, businesses should require thorough written contracts that its suppliers comply with safety standards and that everyone in the supply chain have appropriate liability insurance coverage.  In addition, foodservice operators should keep detailed records regarding all food product purchases in order to be able to determine where products came from.  Finally, in addition to getting to know your local rules and regulations, become familiar with the relevant government departments and officials that have jurisdiction over your business.  In the event of a food-borne illness outbreak at your establishment, you will be better able to navigate an investigation and understand what is necessary to mitigate the circumstances.

For further information regarding this topic, please contact:

Jonathan M. Weis at:

jweis@lgattorneys.com or 312-368-0100.

Is It a Hobby or a Business and What Does the IRS Think?

A taxpayer may deduct “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” But if the activity giving rise to the expenses “is not engaged in for profit,” these activities are not considered a “trade or business” and are commonly referred to as “hobbies”. Hobby expenses may only be deducted from hobby profits and not from any other income that the taxpayer may have.

In 2014 the Tax Court held that a taxpayer had deducted the expenses of his horse-racing enterprise on his federal income tax returns for 2005 and 2006 erroneously because the enterprise was a hobby rather than a business. The court assessed tax deficiencies.  But it also ruled that the business had ceased to be a hobby, and had become a bona fide business, in 2007. He challenged the assessments for 2005 and 2006.

The Tax Court’s ruling that the horse-racing enterprise was a hobby in 2005 and 2006 but became a business in 2007 and remained so in 2008, and every year thereafter (the IRS failed to challenge any deductions for any year after 2008) was held by the Seventh Circuit Court of Appeals to be “untenable; it amounts to saying that a business’s start-up costs are not deductible business expenses-that every business starts as a hobby and becomes a business only when it achieves a certain level of profitability.”

The Seventh Circuit then cited what it felt to be a “goofy regulation” (Treas.Reg. § 1.183-2) and addressed the various factors used to determine whether an activity is engaged in for profit:

(1)  Manner in which the taxpayer carries on the activity.
(2)  The expertise of the taxpayer or his advisors.
(3)  The time and effort expended by the taxpayer in carrying on the activity.
(4)  Expectation that assets used in activity may appreciate in value.
(5)  The success of the taxpayer in carrying on other similar or dissimilar activities.
(6)  The taxpayer’s history of income or losses with respect to the activity.
(7)  The amount of occasional profits, if any, which are earned.
(8)  The financial status of the taxpayer.
(9)  Elements of personal pleasure or recreation.

The Court went on to note, “a business will not be turned into a hobby merely because the owner finds it pleasurable; suffering has never been made a prerequisite to deductibility. Success in business is largely obtained by pleasurable interest therein.”

This case recognizes that every start-up business is not a hobby just because there is no profit at the beginning. Here that Tax Court seemed to take the position that the taxpayer started in the horse racing business as a hobby and then turned it into a business. The Appellate Court rejected this and held for the taxpayer.

If you have any questions regarding start-up businesses, please contact:

Morris R. Saunders at:

(312) 368-0100 or msaunders@lgattorneys.com

Website Accessibility

Most businesses, including banks and financial institutions, have websites.  It would be fair to say that today a business without a website is an anachronism.  Now, most businesses must face a new regulatory framework regarding website accessibility, something that has been on the horizon for years but as of late is coming to forefront.  Not only must websites be easily navigable, simple to operate and robust — for obvious business reasons — now they need to be accessible to people with disabilities.  And, the issues raised here can also be considered in the context of employee use of websites and computer access generally.

What is Web Accessibility?

People who use the web have a growing variety of characteristics. Any business with a website cannot assume that all users are accessing content using the same web browser or operating system or using a typical smartphone, common computer, or traditional monitor, keyboard or mouse. The following circumstances must now be considered:

  • Individuals who are blind may use audible output such as screen readers that read web content using synthesized speech or refreshable Braille devices.
  • Individuals with learning disabilities may use audible output, along with software that highlights words or phrases that are read aloud using synthesized speech.
  • Individuals with physical disabilities that affect the use of their hands may be unable to use a mouse, and instead may rely on the use of assistive technologies such as speech recognition, head pointers, mouth sticks, or eye-gaze tracking systems.
  • Individuals who are deaf or hard of hearing and unable to access audio content may need video output that is captioned or audio that is transcribed.

The U.S. Department of Justice (“DOJ”) recently presented its viewpoint in “Statements of Interest” filed in June 2015 in two lawsuits originally brought by the National Association of the Deaf (NAD) against two universities about the alleged inaccessibility of videos on their websites. DOJ filed Statements of Interest in these lawsuits brought by the NAD against Harvard and MIT under Title III of the ADA and Section 504 of the Rehabilitation Act alleging that they had failed to caption the thousands of videos posted on their websites.  Both of those cases are pending in court, and DOJ stated that a proposed regulation is scheduled for publication in Spring 2016.  There is little doubt that there will be more website accessibility cases across the country.

In the meantime, though, DOJ continues to pressure businesses into making their websites accessible by threatening enforcement actions.  In light of these developments, it may be wise to assume that the obligation to make websites accessible exists now — even prior to the publication of new regulations.

Making Your Website Accessible.

The international website standards organization, World Wide Web Consortium (also known as WC3), has published version 2.0 of the Web Content Accessibility Guidelines, commonly known as WCAG 2.0 AA.  WCAG 2.0 AA has been endorsed by DOJ and federal courts.  It would be wise to review these standards and consult with a web content consultant familiar with these standards and website accessibility generally. As a starting point, there are also free online tools that will check web pages for accessibility.

The key takeaway for now is that the law is far from fully developed in this new arena, but in order to stay ahead of the curve and avoid potential costly litigation and, more importantly, to adequately serve customers with disabilities, consider web accessibility issues now.

If you have any questions in this area, please contact:

Jonathan M. Weis at:

jweis@lgattorneys.com or 312-368-0100.

There Is No Way I Am Giving Up Control Of My Business!

This is how many business owners feel. Mary started the ABC Manufacturing Company forty years ago when she was twenty-five.  She worked long and hard.  She raised three “fine” children, her son Mark, her daughter Joanne, and the business.  All her children prospered and her daughter joined her in the business ten years ago.  Joanne has been instrumental in expanding the business internationally and as a result of her efforts, the business has doubled in sales and profits.

While Mary has often asked Mark to join her and Joanne in the business, Mark has repeatedly said no.  He has never been involved in the business.  He lives nearby and is a partner in an investment banking firm.

One day Joanne told her mother that she’d like to discuss what her future role in ABC was to be and who would own and manage it when her mother retired.  Mary told Joanne that she had no intention of retiring any time soon and that “Joanne would be taken care of” when the time came.  When Joanne pressed her to make plans for the future that would protect Joanne and her family, Mary replied:  “There is no way I am giving up control of my business.”

Unfortunately, by not facing the “what ifs” and planning for them, the business owner is giving up control over the business.  Planning enables the owner to exert control over the business even after she is unable to physically or mentally continue to do so.  For example, without proper planning, what would happen to ABC if Mary became disabled?  With planning, she could provide who was to take over management of the Company.  Suppose Joanne decided that she was going to leave ABC, since her future was not “guaranteed”?  With proper planning, Mary could “guarantee” Joanne’s future in the business without giving up any control.

The business, and all those who count on it for their livelihood, deserves to be given the best chance for success, even after you are no longer involved in it.  If you fail to plan for the “what ifs” (some are not “what if”, but “when”), then you may give up control, or be forced to give up control, at a time not of your choosing.

The attorneys at Levin Ginsburg have helped many business owners plan for the possible and the inevitable.  Those business owners have found that rather than giving up control, they were able to retain control until such time as they no longer desire to retain control. To discuss succession planning, please contact:

Morris R. Saunders at:

msaunders@lgattorneys.com or (312) 368-0100

REMINDER: New Illinois Law Limits an Employer’s Ability to Inquire Into Job Applicant’s Criminal History

The Illinois “Job Opportunities For Qualified Applicants Act”, which took effect on January 1, 2015, prohibits employers from inquiring about or into, considering, or requiring disclosure of the criminal record or criminal history of an applicant on a job application. In passing the Act, the Illinois legislature found that “it is in the public interest to do more to give Illinois employers access to the broadest pool of qualified applicants possible, protect the civil rights of those seeking employment, and ensure that all qualified applicants are properly considered for employment opportunities and are not pre-screened or denied an employment opportunity unnecessarily or unjustly.” The Act applies to all employers with 15 or more employees. The Act specifically excludes three types of employers: (i) employers required by federal or state law to exclude applicants with certain criminal convictions; (ii) employers that require a standard fidelity or equivalent bond where one or more specific criminal convictions would disqualify the applicant; and (iii) employers that employ individuals licensed under the Emergency Medical Services (EMS) Systems Act. An employer may inquire into an applicant’s criminal background only after an applicant has been deemed qualified for the position and notified that he has been selected for an interview, or, if there is not an interview, only after a conditional offer of employment is made to the applicant. Employers that violate the Act are subject to civil penalties imposed by the Illinois Department of Labor. The Act does not, however, create a private cause of action for aggrieved job applicants.

To discuss any questions you may have about the effect of the Job Opportunities for Qualified Applicant Act on your business or how you can revise your employment policies to comply with the Act, please contact:

Kristen E. O’Neill at:

(312) 368-0100 or koneill@lgattorneys.com.

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