Tag: Morris R. Saunders

Have You Looked At Your Buy-Sell Agreement Lately? Business Succession Planning

John, Alexandria, Mary, Martin, and Yvette, formed the Jammy Sleepwear Company over thirty-five (35) years ago.  They were equal partners and formed a corporation.  On the advice of their attorneys, the entered into a shareholders’ agreement that contained buy-sell provisions.  This type of agreement is sometimes referred to as a “buy-sell agreement”.

Their buy-sell agreement contained various provisions, including under what circumstances a departing shareholder’s shares would be purchased, what the purchase price of those shares would be, and the terms of payment.  Since the business was in its infancy, they agreed it would be valued at its “book value”, meaning that the value of the assets on its financial statements, less all obligations, would be the business’s value.  There was no adjustment for good will or other intangible assets.  Also, the increase in value of any assets would not be taken into consideration.  The purchase price to a departing shareholder was to be paid in twelve (12) months, in equal monthly payments.  The business was required to purchase a departing shareholders shares.

Since they formed the business in 1980, they acquired other businesses and purchased real estate through a separate LLC.  They did not think to have a buy-sell for the LLC.

John has announced he would like to retire, but he has objected to the purchase price as being “unfairly” low.  He has advised the other owners that he will keep his interest in the real estate, since it will provide him with a “good stipend” during his retirement.  Shortly thereafter, Mary announced her retirement.

The remaining owners are concerned that the business will not be able to support payments to John and to Mary.  Also, the remaining owners would prefer that John and Mary also sell their interests in the LLC.

Unfortunately, the shareholders (and LLC members) did not regularly review their buy-sell agreement.  As the value of the business grew, the amount of the payments increased and would put a strain on the cash flow of the business.  If more than one owner were to retire, it would cause a bigger strain.  Either the business would have to borrow money, the owners would have to make capital infusions, new investors would be needed, or the business would need to be sold.

Some buy-sell agreements address these types of situations, by limiting the amounts that must be paid out to departing owners on an annual basis.  For example, the payments cannot exceed a specific dollar amount or a percentage of gross profits.  Also, when the owners buy real estate to be used by the business, they might consider including the real estate as a part of the buy-sell process.

Buy-sell agreements should be reviewed periodically to ensure they continue to meet the needs of the business and its owners.  Levin Ginsburg has been advising business owners regarding legal aspects of their businesses, including buy-sell agreements for almost forty  years.

Please contact us with any questions you have regarding your business (including any buy-sell issues) at 312-368-0100 or Morris Saunders at msaunders@lgattorneys.com.

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

New Property Tax Incentive Classification to Stimulate Real Estate Development in Cook County

Cook County recently amended its real property assessment classification ordinance to add a new property tax incentive classification to stimulate real estate development in the County.  The new classification, known as “Class 7c – Commercial Urban Relief Eligibility (CURE)”, provides eligible commercial property owners with a five year reduction in property tax levels for: (i) all newly constructed buildings or other structures, (ii) the utilization of vacant structures which have been abandoned for at least 12 months, and (iii) all buildings and other structures which are substantially rehabilitated to the extent the rehabilitation adds to the value of the property.  The Class 7c classification also extends the assessment relief to the property value attributable to the underlying land.

Projects which qualify for the Class 7c incentive will receive a reduced assessment level of 10% of fair market value for the first three years, 15% for the fourth year and 20% for the fifth year. Without this incentive, commercial property would normally be assessed at 25% of its market value. This has the effect of reducing the assessment by 60% for each of the first three years, 40% for the next year and 20% for the fifth year.  For a newly constructed building with a $5,000,000 fair market value in the City of Chicago, the savings based on 2013 tax rates, would be approximately $136,000 for each of the first three years and approximately $546,000 over the five year duration of the incentive.

To be eligible for Class 7c, the property must be “real estate used primarily for commercial purposes”, which is defined as “any real estate used primarily for buying and selling of goods and services, or for otherwise providing goods and services, including any real estate used for hotel and motel purposes.” Qualifying property must meet four eligibility factors:

    • The property’s assessed valuation for three of the past six years has declined or remained stagnant due to the depressed condition of the property;
    • The proposed project development or redevelopment is viable, likely to proceed on a reasonably timely basis and result in an economic enhancement of the property if granted a Class 7c designation:
    • The Class 7c designation materially assists in the development of the property and the development would not have gone forward without the Class 7c designation; and
    • The designation is reasonably expected to result in an increase in property tax revenue and the creation of employment opportunities at the property.

An application for Class 7c designation must be submitted prior to the commencement of construction, rehabilitation or reoccupation.  The application must include a resolution or ordinance from the municipality in which the property is located supporting the project and stating that the municipality has confirmed the above-referenced eligibility factors and that the area in which the property is located is in need of commercial development.

For further information regarding the Class 7c incentive program, and real estate development and related issues, please contact:

Jeffrey M. Galkin:  jgalkin@lgattorneys.com or 312-368-0100

or

Morris R Saunders:  msaunders@lgattorneys.com or 312-368-0100

Attention Businesses: Improper Solicitations for Corporate Reporting Services

Businesses should be alerted to the following which was posted on the Illinois Secretary of State’s website….

Corporate Solicitation Alert— A firm called Annual Business Services is contacting Illinois businesses in an attempt to collect a $125 fee to fill out a corporation’s “Annual Minutes Form.” The Illinois Business Corporation Act does not require corporations to file an “Annual Minutes Form” or pay such a fee with the state or any private entity. If a business would like to file a complaint in relation to this solicitation, please contact the Illinois Attorney General’s Office Consumer Fraud Division at 800-243-0618.

Additionally, if you would like to discuss any corporate reporting correspondence from Annual Business Services or any other entity which you suspect may be improper, or to discuss the actual corporate reporting requirements for Illinois before year-end, please contact:

Morris R. Saunders at:

msaunders@lgattorneys.com or 312-368-0100

New Business Ventures: Register as a “New Business Venture” and Attract Investors Seeking to Take Advantage of the Illinois Tax Credit for Angel Investments

New business ventures can register with the Illinois Department of Commerce and Economic Opportunity (the “DCEO”) to qualify as “eligible” to participate in the Illinois Angel Investment Credit Program (the “Program”). If a new business venture is qualified by the DCEO to participate in the Program, then an angel investor who invests in the new business venture may claim an “Angel Investment Credit” against its Illinois income taxes in an amount equal to 25% of an “angel investment” made by the individual angel investor, as reflected on the Tax Credit Certificate issued by the Department of Commerce and Economic Opportunity (86 Ill. Adm. Code 100, eff. July 9, 2014), and subject to certain rules and restrictions. Therefore, the Angel Investment Credit is an incentive for investors to invest in your business.

Any business desiring to qualify as a new business venture must meet certain requirements, including but not limited to, being headquartered in Illinois, having at least 51% of the employees employed by the business employed in Illinois, having fewer than 100 employees at the initial time of registration, and the business has received not more than $10,000,000 in aggregate private equity investment in cash or $4,000,000 in investments that qualified for tax credits.

The Illinois Angel Investment Credit Program has allocated $10 million in tax credits annually, from 2011-2016, and the Angel Investment Credit is awarded on a first-come, first-serve basis. New business ventures and “angel investors” should act fast to either submit a registration application (for new business ventures) or claimant application (for investors). An investment is considered to be an “angel investment” if the investor invests in a “qualified new business venture” in exchange for an ownership interest, with such investment being at a risk of loss.

To discuss the “Angel Investment Program” generally, the benefits and procedures of registering your business as a new business venture, or how it can help reduce an investor’s Illinois income tax liability, please contact:

Morris R. Saunders at:

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

Important Notice to Privately Held Corporations: Compliance with Corporate Formalities Helps Stave Off Personal Liability

Many believe that by incorporating their business, they are shielding themselves from personal liability.

However, to avoid personal liability for the business’s actions, the business must have a separate identity apart from its shareholders, officers, directors, and employees. Strictly following corporate formalities, such as maintaining annual consents, maintaining corporate records, and meeting additional requirements can help maintain protection from liability.

The Illinois Appellate Court, in Buckley v. Abuzir, 2014 IL App (1st) 130469 (2014), recently held that while traditionally shareholders, officers, directors, employees, may be held liable if the business’s corporate formalities and additional procedures are not followed, now, even certain third parties, may face liability if such third parties exercise certain amounts of control over the business.

At a minimum, a corporation must have adequate capitalization, issue stock, observe corporate formalities, maintain corporate records, not commingle funds, not divert corporate funds from the business, and maintain arm’s-length relationships among related entities.

To protect shareholders, officers, directors, employees and now certain third parties from personal liability, business owners should review their books and records. If you have any questions regarding corporate law or business law matters, please contact:

Morris R. Saunders at:

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

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