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When Is An LLC Needed

When Is An LLC Needed

When Is An LLC Needed

Want to Get your LLC Drafted?

When is an llc neededWe want to help you out on your business journey and explain to you when a corporate liability shield, like an LLC or corporation is needed or not.

As small business owners it can be extremely valuable to find guidance in what you should be doing for your business and when.

We are going over when you need to get a liability shield for your business.

There is no requirement that you create an LLC before you go into business, it can be a smart move and highly recommended sometimes but is not necessary to have your business running.

You can just start sending out invoices and creating value from your labor or sales of goods. Start helping people and charge appropriately.

Needing or not to create an LLC will depend on the type of business you own and its structure.

If you are wondering if you should have an LLC for your business and if the benefits will outweigh the cost and hassle of setting one up, this will definitely interest you:

 

Want to Get Your LLC Drafted?

What is an LLC

 

LLC stands for limited liability company. It’s a business structure that provides a business with limited liability. Although the structure is similar to corporations, the LLC is easier to establish and simpler to maintain.

The key aspect of LLCs is that it  provides protection to the LLC owners by limiting the owner’s personal liability

Meaning that debts owed by the business, and other claims, like liens and lawsuits, are limited to the assets of the business itself, and in no case to the owner’s.

Therefore the personal assets of the business owners, under most circumstances, are protected and cannot be pursued.

Be careful, that does not mean owners are protected from negligence or  illegal acts committed in the name of the LLC.

 

What would an LLC do for your business?

 

An LLC gives your business a legal identity on it own. It becomes a separate “person” in the eyes of the law and it can own money, have a bank account, make agreements, buy property, sue and be sued.

Not having an LLC means that you and your business aren’t legally separate, and everything you own is at risk if your business is facing liens lawsuits or others

 

Does My Business Need an LLC?

The first thing you should do to see if it is time to start an LLC is: examine your business. Ask yourself these questions:

 

  • Do you have partners?
  •  Do you have high risk transactions?
  • Do you sell food?
  • How about anything where you have locations that could be sites of slips and falls?

 

If you need to form an LLC yet or not will mostly depend on your liability and taxes.

when is an llc needed

Many businesses are sole proprietors, so they cannot have all the disputes that partnerships can. Therefore, they are less likely to need an LLC until we look at what they are doing and how much they are making.

 

How about your blog that you have monetized with advertisements and merch, or online courses.  Does that business need an LLC?  Not until they are making tens of thousands of dollars a year.

 

In that case the transactions are all at a low price point.  A few dollars for online ads and some sales of merchandise money. There is not much risk there. Someone is not going to have a slip and fall on your website. No one is going to get food poisoning from your online course. There is no liability benefit from splitting the cash flows away from the owner.

 

In this situation, it does not make sense to form an LLC until you get enough money each year to get hit on taxes so much that it makes more sense to become an s-corp so that you can work for yourself and get a paycheck from your own company and earn lower tax on the dividends. But that’s a tax question that can change over time.

 

What if you are the sole proprietor of a bar & restaurant? You need an LLC immediately. You have huge risks. Slip and falls, food poisoning, over serving a customer that gets in a car accident on the way home from your place. An LLC allows the owner to be a legally separate person than the cash flows.

 

How about an independent contractor that does home improvements? Then you want the liability shield because your job to redo a kitchen and bath could be 40 grand or more. You want that to be the company’s problem, not the owners. Large transactional liability is another reason to form the LLC. So if you are in enterprise sales, get an LLC.

 

Finally, partners complicate things far more. When you break up the ownership all sorts of things arise. How do partners exit the business; how do new people get into the business; what duties do the owners have to the business; and much more. Multiple owners of any business, as far as I’m concerned, always should have an LLC.

 

Want to Get Your LLC Drafted?

Key Points to consider when doubting to create or not an LLC

 

  • You need an LLC when you have premises liability, brick and mortar stores.
  • You need an LLC when you have transactional liability. Protect the big fat contract checks.
  • You need an LLC when the tax man says you earn too much as a sole proprietor so get an accountant.
  • You need an LLC when you have partners. Be smart, have an exit plan before you start with any partners.

 

How to Start an LLC 

Now that you know when you need an LLC – let’s talk about how to form one.  Make sure you you follow us for future content! 

Filing with the State

If you are a small business, it would probably make more sense to start your LLC in your home state.

But you should know that there are other states to fill your LLC that may be more favorable  due to beneficial tax laws and business infrastructures. 

If you serve a local demographic you should file in that state, but for cyber or internet type of business the location has no real importance and you could research the state regulations that fit your business model best.

Each State has its own process when it comes to filing the articles of organization for an LLC.

Most of them offer to file online making the process easier, otherwise, you’ll have to fill out the articles of organization by hand and send it to your Secretary of State’s Office.

 

Determining If You Want To Be Manager or Member Managed

There are two forms of management for an LLC, it can be managed by the members or managed by a manager:

manager-managed LLC: Creates a manager role separated from the ownership. The manager has the authority to decide on the day to day operations. But the owners have authority for higher level decisions.

Member-managed LLC: the owner or one of the owners is the manager and handles operations accordingly.

 

Getting a Registered Agent

A Registered Agent is a person that could be a member of the LLC, or a third-party who acts on behalf of the LLC to collect legal notices from the State or other. 

The registered agent needs a physical address in the State in which the company is registered. 

If you do decide to incorporate an LLC in a different state from where you live, you will need to find a Registered Agent that resides in the same state where you incorporated your business. 

 

Drafting an Operating Agreement 

Next step is to draft your LLC Operating Agreement which is intended to be kept for internal record-keeping. This is where the ownership percentage of the company is outlined. Here are a few important things you should include in your LLC Operating Agreement:

  • Names of all Members and all their signatures
  • Members’ Percentage Interests and Capital Contributions
  • Date of Annual Meetings

Once your LLC Operating Agreement is complete, each Member should have a copy.

 

Getting an FEIN Number

A FEIN is a Federal Tax Identification Number, also heard of as an Employer Identification Number (EIN), is issued to companies that do business in the United States. It iis a unique nine-digit ID number, like a security number but for companies. 

  • A FEIN is a way for government entities to identify and track businesses tax and financial activities.
  • A FEIN is required to file tax returns, and to set up accounts to offer benefits to employees

Not every small business needs a FEIN, but the following do:

  • Any business with employees.
  • Any business that operates as a corporation or a partnership.
  • Any business that pays employment, alcohol, tobacco or firearms tax returns.

You can apply for a FEIN

  • By phone.
  • By fax or mail:
  • On the IRS website

Even if your business is not required to have a FEIN, you may decide to get one. There is no charge, and you never know when your business circumstances change.

 

Thomas Howard

Thomas Howard

Real Estate Lawyer

Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale

Need A Business Lawyer?

Call our law offices with your legal questions for help on:

  1. real estate contracts
  2. business contract disputes
  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
  6. mechanic's liens

 

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    How To Stop Check Kiting Scams

    How To Stop Check Kiting Scams

    How To Stop Check Kiting Scams

    How To Stop Check Skitting ScamsCheck kiting is one of the many ways your financial securities can be violated.

     

    It constitutes a type of bank fraud very popular in the early 2000’s, that was in its majority shut down by a regulation called check 21 act. 

    Even though not as common as it used to be, check kiting is still present in many fraudulent transactions. Here we explain to you everything there is to know about this illegal procedure 

     

    Definition of Check Kiting

    Check kiting is the fraudulent procedure of deliberately issuing  a check for which there is not sufficient money to pay the stated amount.

    The scheme usually involves several checking accounts at different banks. In effect, a bank deposits accessible money into an account while waiting for cash to be processed from an account at another bank when in actuality the other account holds no money.

    Check kiting is always intentional. Those engaged in kiting have a detailed understanding of the bank’s timing, and will take advantage of it to withdraw cash just before the bank discovers that there is something wrong,  keeping ahead of the funds-clearing mechanism.

    Check kiting schemes have resulted in multi-million dollar losses.

    Elements to Check Kiting:

    • Having checking account A, and checking how to stop check skiting scamsaccount B from different banks,
    • Writing a check from checking account A, for which there is not sufficient cash in the payer’s account.
    • Deposit the fraudulent check in checking account B.
    • Withdraw the funds from checking account B.

     

    Examples of Suspicious Circumstances That could lead to check kiting

     

    This examples have been provided by regulatory agencies to help the identification of suspicious transactions that may indicate check kiting:

    •  Several accounts with similar names, owned or controlled by the same individual
    •  Regular or excessive drawings against uncollected funds
    •  Frequent daily negative ending balances or overdrafts
    •  Deposits of large checks drawn on nonlocal banks or foreign banks
    •  Frequent, large deposits drawn on the same institution
    • A large number of check deposits each day
    • A large proportion of cash in an account that has not yet cleared the paying bank
    • Deposits being made through multiple bank branches
    •  A low average daily balance in relation to deposit activity
    •  A low collected funds balance in relation to the book balance
    •  A volume of activity or large debits and credits inappropriate in relation to the nature of the business

    Is check kiting the same as playing the float.

     

    You may have heard of the expression playing the float, and don’t worry it’s not the same as check kiting.

    Float refers to the amount of time it takes for money to move from one account to another. Meaning, Playing the float is the process of writing a check with no bank balance covering it, expecting the fund to be in the bank when the check clears.

    In the past, it was easier to play the float, because the period of time between when a check was written by the payer and when the funds were transferred to the payee was longer. The Check 21 law had the practical effect of shortening that opportunity.

    There is a fine line between playing the float and actual check kiting. Check kiting is the illegal act of knowingly writing a check from a bank account without sufficient funds and depositing it into another bank account. While playing the float is taking advantage of the funds-clearing time period to have to receive the sufficient funds to cover the check.

    Check kiting is a fraud, playing the float is not. Playing the float doesn’t result in harsh penalties, while check kiting does.

     

    Check 21 Act

     

    Check 21 law, is a federal law to combat check kiting that became effective on October 28, 2004.

    The Check Clearing for the 21st Century Act, or Check 21, is designed to enable banks to handle more checks electronically, instead of moving the original paper checks from the bank where the checks are deposited to the bank that pays them, making check processing faster and waymore efficient.

    Check 21 act may seem like a very subtle and expected change, but its consequences are enormous.

    It meant that not only could banks exchange the images between themselves, customers could deposit an image instead of a paper check as well.

    Since its passing, the services have evolved exponentially, and the necessary computer hardware has improved and become less expensive and more available for all americans.

    More importantly, Check 21 has allowed us to receive and have access to our funds sooner.

     

    How to prevent Check Kiting

     

    The entity harmed by check kiting is mostly the bank that has allowed funds to be withdrawn from the new checking account without first waiting for funds to arrive.

    Banks fight  this by not allowing funds to be withdrawn from an account until a certain number of days have passed, by which time the lack of funds in the payer’s account will have been discovered.

    But any individual could be subject to check kiting, as well. Here are some tips to prevent becoming a victim of check kiting:

    1 . Only accept checks for the exact amount owed to you.

    • If a customer offers you a check for more than the amount they owe, then asks you to give them cash for the difference, and you accept and then the check is returned by the bank, you can become a participant in a check-kiting scheme unintentionally .
    • For online transactions a check kiter might send you payment, then inform you that they “accidentally” overpaid you. They’ll ask for you to pay the difference by wiring transfer or cash.

     

    2. Wait until the check clears to refund the overpayment.

    • If someone overpays you with a check and wants a refund, tell them that you’ll gladly do it after the check clears.
    • Refuse to pay any refund until the check no longer says “pending” in your bank account.

     

    3. Look into checks that clear your bank account out of sequence.

    • Checks out of sequence might indicate that someone has stolen a checkbook and is using your bank account for a check-kiting scheme.
    • Checks out of sequence could also indicate that someone has ordered checks on the account starting at a different number than the ones you’re currently using.

     

    4. Restrict access to company checks if you’re a business owner.

    •  A check kiter can use your company checks for its check-kiting scheme without your knowledge
    • Keep all blank checks in a locked safe with restricted access.

    How To Stop Check Skitting ScamsPenalties to Check kiting

    Penalties for check kiting always vary depending on the case, but millions of dollars cases can end with sentences of more than 10 years in prison and enormous  fines. Smaller or first-time infractions can result in harsh penalties.

     

    Thomas Howard

    Thomas Howard

    Real Estate Lawyer

    Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

    Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
    R. Martindale

    Need A Business Lawyer?

    Call our law offices with your legal questions for help on:

    1. real estate contracts
    2. business contract disputes
    3. Shareholder litigation
    4. cannabis business
    5. fraud actions
    6. mechanic's liens

     

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      Fiduciary Duty Litigation

      Fiduciary Duty Litigation

      Fiduciary Duty Litigation in Corporate Law

       

      Fiduciary Duty LitigationA fiduciary duty is an obligation that exists in a relationship in which one of the parties has the best interest when acting on the other party/es behalf. 

      There are multiple types of fiduciary duties. Some examples can be the obligations between lawyers and clients; shareholders and directors; between business partners; and many others where special trust is part of the nature of the relationship, or a reliance on the one party exists to exercise its expertise or discretion on behalf of the others. 

      Breaches to fiduciary duties are extremely common, especially in corporations. Here are all the details you should know about fiduciary duties and what to do when you have to appeal to litigation because a breach has occured.

       

      Fiduciary Obligations

      A fiduciary duty consists of two main fiduciary obligations.  

      • Duty of loyalty, the fiduciary prefers the beneficiary’s interests to his or her own 
      • Duty of care,  the fiduciary acts as a reasonably careful person would act under the same or similar circumstances safeguarding the beneficiaries’ interests.

      Depending on the state’s legislation other duties such as the duty of good faith and the duty of acting according to law can also be considered. The failure of either of these duties may result in fiduciary duty litigation.

       

      Who Is Part Of This Relationship

       

      • Fiduciary: The person who holds the obligation that exists in the relationship, Fiduciary Duty Litigationhaving best interest when acting on the other partiy/es behalf
      • Principal: The person to whom the fiduciary owes the duty

      Who has fiduciary duties?

       

      These are the persons the law denominates as fiduciaries, keep in mind states may differ in these considerations:

      • Partners: Business partners in a partnership owe each other a fiduciary duty. Some of these duties are to account for profits, property, opportunities, or other benefits derived by the partner, and to abstain from competing with the partnership.
      • LLC Managers: A duty to account to the LLC, and hold any property, profit or LLC benefit, as a trustee for the LLC; and, A duty to abstain from competing with the LLC; to refrain from negligent or reckless conduct, intentional misconduct, or knowingly violating the law.
      • Corporate Directors: The board of directors of a corporation owes duties to the corporation itself, and the shareholders. Directors must act in the best interest of the corporation and the shareholders
      • Corporate Officers: the fiduciary duty requires officers to apply their best business judgment, to act in good faith, and to promote the best interests of the corporation.
      • Controlling Stakeholders: As Someone who has a legitimate interest in serving the company so that the company performs well overall their duties are similar to the corporate officers one, as they may take decisions in the name of the company.

      Breach of Fiduciary Duty Fiduciary Duty Litigation

      Breaches of fiduciary duty happen when a binding fiduciary relationship is in effect and actions that are counterproductive to the interests of a specific client are taken, to benefit the fiduciary’s interests or the interests of a third party instead of a client’s.

      A breach can also come from a failure to provide critical information that may lead to misunderstandings, or misinterpretations. Identification or disclosure of any potential conflicts of interest is important in fiduciary relationships because all types of conflicts can be a source for undesired intentions.

      Elements Of a Breach Fiduciary Duty 

      To be sure you have a case of breach of fiduciary duty, you must look for three essential elements: 

      • A duty existed, You must determine if the specific relationship in question created a fiduciary duty under the law
      • A breach of the duty occurred: You must prove that a breach occurred and that the defendant acted on his own behalf instead of in the best interests of the other parties. 
      • Damages were suffered: You must prove that the breach caused harm and compensation is available. 

      Most common breaches of fiduciary duty

      There are many ways in which fiduciaries may breach their duties. The most common breaches of fiduciary duty include:

      • Self Dealing, through conflict of interest business, transactions for personal gain or personal economic profits.
      • Usurpation of business or corporate opportunity
      • Misappropriation of corporate funds and property.
      • Neglect, business imprudence, or lack of necessary business skill.
      • Deficiently acting in the business owners, shareholders, or members best interest.
      • Failure to provide accurate corporate information.
      • Breach of confidentiality.
      • Misuse of superior knowledge.
      • Giving inappropriate advice or counsel 
      • Abusage of superior or influential position.

      Fiduciary Duty Litigation

      When a fiduciary duty has been breached, those affected can consult with a corporate litigation attorney about filing a lawsuit. 

      If you believe you have a case for breach of fiduciary duty,  you should really know all your options, don’t forget litigation could worsen the situation.

      While these types of disagreements need to be resolved, there are other alternatives, such as mediation. Be sure you consult it with an expert before making a final decision. 

      Going to court can be time consuming, stressful and expensive and private disputes will become a matter of public record. All litigation processes are complex, and fiduciary duty litigation is not the exception.

      You do not want to spend time and money going to court only to be unable to prevail and obtain the legal remedy you seek because you were unprepared, a fiduciary duty litigation attorney could make a difference in the result.

       

      Key Points Of Fiduciary Duty You Should Know

      • A fiduciary is legally obligated to put their client’s best interests ahead of their own.
      • Fiduciary duties appear in a range of business relationships, including a trustee and a beneficiary, corporate board members and shareholders, and executors and legatees, but also in many civil relationships.
      • You may have heard the term investment fiduciary before, and it is anyone with legal responsibility for managing someone else’s money.
      • Fiduciary duties are both ethical and legal. 
      • A fiduciary must avoid any conflicts of interest between his own interests and the interests of the principal, as well as to avoid any conflicts that may arise between different clients of the fiduciary.

      If you are looking for a Fiduciary Duty Attorney don’t hesitate to contact us.

       

      Thomas Howard

      Thomas Howard

      Real Estate Lawyer

      Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

      Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
      R. Martindale

      Need A Business Lawyer?

      Call our law offices with your legal questions for help on:

      1. real estate contracts
      2. business contract disputes
      3. Shareholder litigation
      4. cannabis business
      5. fraud actions
      6. mechanic's liens

       

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        Justifiable or Reasonable Reliance Under Section 523 of the Bankruptcy Code

        Justifiable or Reasonable Reliance Under Section 523 of the Bankruptcy Code

        Exception to Discharge Section 523 of the Bankruptcy Code

        Reasonable Reliance Section 523 Bankruptcy

        Sometimes a debtor is less than honest, that’s when you bring an adversary action in bankruptcy

        Was your reliance justifiable  or reasonable when lending money to a dishonest debtor that. later ends up in bankruptcy. Collateral Base Attorney Tom Howard recently helped our client win a $1.8 million dollar verdict in a bankruptcy case out of the Central District of Illinois. The case, liura v. Brady (In re Brady), concerned several novel issues of law, including the standard for “justifiable” or “reasonable” reliance under §523(a)(2) of the Bankruptcy Code.

        Exceptions to Bankruptcy Discharge under Section 523 –

        Bankruptcy discharge is the value most debtors that petition for relief under the Bankruptcy Code are after.  The discharge of their debts can wipe away thousands or millions of dollars of debt holding down a debtor in order to give him or her a fresh start.  But not all debtors are honest but unlucky – some are lying about their debts, which is why you can file an action to except certain debts, usually obtained fraudulently, from discharge. Section § 523(a)(2) of the Code is the authority for such adversary proceedings, which provides, in relevant part:

        • (a) A discharge under section 727, 1141, 1192, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
        • (2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
        • (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
        • (B) use of a statement in writing—
        • (i) that is materially false;
        • (ii) respecting the debtor’s or an insider’s financial condition;
        • (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
        • (iv) that the debtor caused to be made or published with intent to deceive[.]
        • 11 U.S.C. § 523(a)(2)(A), (B).

        Pliura v. Brady – Justifiable or Reasonable Reliance under Section 523

        The case concerns the Chapter 7 Bankruptcy of Bob Brady (Debtor), a prominent home builder in Central Illinois. After earning his MBA and spending several years in banking, Bob Brady joined Brady Homes, the family business. Brady Homes has built over 1,500 homes in the Bloomington/Normal area, and has also built and managed apartments and condominiums. The Debtor also participated in several other real estate businesses, including Pinehurst Development (Pinehurst) and Brew of Illinois, LLC (Brew). In other words, the Debtor was a very experienced and sophisticated real estate professional, and knew all about holding and transferring title of property.

        As our Central Illinois readers might know, the Debtor is the brother of State Senator Bill Brady. At the time of the loan, Senator Brady was running for Governor of Illinois as the Republican Party nominee (he went on to narrowly lose the race to incumbent Governor Pat Quinn). Bob Brady needed the loan to pay subcontractors, who were threatening to file liens and go public with the Bradys’ ongoing financial woes. Naturally, this would have been embarrassing for Senator Brady’s campaign.

        In 2010, Dr. Thomas Pliura (a lawyer and a physician) and his wife loaned Brady and his brother $1,000,000 at an interest rate of 6%. The note was accompanied by a Security Agreement, giving the Creditors security in several properties own by Brady and identifying each property, including the address and tax identification number. The Security Agreement stated that the Bradys were the “sole, legal and equitable owners” of the properties. In the interest of Brady’s political ambitions, Dr. Pliura agreed not to record a mortgage against the properties which secured the $1,000,000 Note. He simply relied on the promises and written representations of the Brady Brothers, whom he had known for twenty years.

        In fact, all of the properties were owned by Pinehurst and Brew, not by Brady and his brother. Additionally, all of the properties were encumbered by mortgages to Busey Bank. The properties had actually been cross-collateralized to other loans, and the Bradys were underwater on their various loans by approximately $3 million dollars.

        The Bradys made one payment to Dr. Pliura- a check that bounced. They never tendered any additional payments. Dr. Pliura retained an attorney to look into collecting on the Note, and discovered that the Properties were not owned by Brady, and were further encumbered to Busey Bank. Soon, Brady filed for bankruptcy, and Dr. Pliura filed his lawsuit.

        Section 523: Two Ways to Recover

        Normally in bankruptcy, a debtor’s outstanding debts are discharged, and creditors have their rights to collect curtailed or outright eliminated. Under Section 523 of the Bankruptcy Code, there are a few ways to prevent this, or have a debt declared “non-dischargeable.” Section 523(a)(2) again provides:

        (a) A discharge under section 727, 1141, 1192, 1228(a), 1228(b), or

        1328(b) of this title does not discharge an individual debtor from any

        debt—

        . . .

        (2) for money, property, services, or an extension, renewal, or

        refinancing of credit, to the extent obtained by—

        (A) false pretenses, a false representation, or actual fraud,

        other than a statement respecting the debtor’s or an insider’s

        financial condition;

        (B) use of a statement in writing—

        (i) that is materially false;

        (ii) respecting the debtor’s or an insider’s financial

        condition;

        (iii) on which the creditor to whom the debtor is liable for

        such money, property, services, or credit reasonably

        relied; and

        (iv) that the debtor caused to be made or published with

        intent to deceive[.]

        • Under 523(a)(2)(A), the Pliuras had to show “(1) the Debtor made a false representation or omission; (2) the Debtor knew the misrepresentation was false or made the representation with reckless disregard for the truth; (3) the Debtor made the misrepresentation with intent to deceive; and (4) they justifiably relied on the misrepresentation in making the loan.”
        • In contrast, under 523(a)(2)(B) the Pliuras were required to prove that the Debtor submitted to them, as part of their loan transaction, a written statement “(1) that was materially false; (2) that included information respecting the Debtor’s financial condition; (3) that they reasonably relied on in extending the loan; and (4) that the Debtor made or published with intent to deceive.”

        The two sections have previously been held to be mutually exclusive. Under the recent Supreme Court case of Lamar, Archer & Cofrin, LLP v. Appling, the reasonable reliance bankruptcyCourt found that “a statement about a single asset” could be a “statement respecting a debtor’s financial condition.” That is, if the Bradys made a statement about a single one of their assets, the Pliuras would be in Section 523(a)(2)(B) and the “reasonable reliance” standard. The Court briefly addressed this issue, and found that Brady had made written representations about his financial condition, so the Pliuras would have to recover under 523(a)(2)(B).

        Was There Reasonable Reliance?

        There was no real dispute that Brady knowingly made materially false statements about his ownership of the Properties, and that the money was, in fact, owed to the Pliuras. There was a mountain of evidence that Brady knowingly and intentionally deceived Pliura to induce him to make the loan. But the bigger question was: did Dr. Pliura reasonably rely on Brady’s representations?

        The Court began its analysis by noting that usually, reasonable reliance is determined based on the lender’s lending standards. However, “[h]ere, of course, the Pliuras are not traditional lenders and have no standard practices or any relation to the lending industry; it would be unfair and inappropriate to evaluate their reliance as though they were commercial bankers.” As the court further explained, while “reasonable reliance does not generally require creditors to conduct an investigation prior to entering into agreements with prospective debtors[.]” In re Morris, 223 F.3d 548, 554 (7th Cir. 2000). But, at the same time, creditors cannot ignore “obvious red flags.” Harris N.A. v. Gunsteen (In re Gunsteen), 487 B.R. 887, 902 (Bankr. N.D. Ill. 2013).

        The Court looked at the various statements made by parties to the Note. However, at the end of the day, it was not just that the parties has discussed ownership of the properties, but that “Dr. Pliura put the information they were relying on in writing, and the Debtor signed that writing.” It was unrebutted that Brady read the representations in the Note at closing, and did not raise any objections at the time. The court also relied on Dr. Pliura’s personal relationship with the Bradys in assessing his reliance. “He knew that William Brady was a state senator and a candidate for governor and, apparently, he held Sen. Brady in high regard. He knew the Bradys as successful businessmen in the community, and, despite also knowing of their current financial distress and urgent need to borrow money, he had no reason to think that any of the Bradys, including the Debtor, would look him in the eye and lie.”

        This case provides significant guidance for creditors who are proceeding under 523(a)(2)(B). Even sophisticated individuals can be misled and lied to by people they know and trust. This case clarifies that for debtors who are betrayed by people close to them, the law is still on their side.

        The full opinion of the Court is available here.

        David Silvers

        David Silvers

        Regulatory Lawyer

        Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

        Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
        R. Martindale

        Need A Business Lawyer?

        Call our law offices with your legal questions for help on:

        1. real estate contracts
        2. business contract disputes
        3. Shareholder litigation
        4. cannabis business
        5. fraud actions
        6. mechanic's liens

         

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          LLC Operating Agreements

          LLC Operating Agreements

          LLC Operating Agreements

          LLC Operating Agreements in Illinois

          What to Put Your Illinois Company’s Operating Agreement

          LLC Operating AgreementAn Operating Agreement is the contract of your Illinois company’s life – which it really does not have. However, your company is a legal fiction of a person that has a beginning, called articles of organization for LLCs, and even an end, called a dissolution. The Operating Agreement is a long contract that explains how your company is managed, how new owners come into the business, how existing owners leave the business, and more.  Here’s an article all about operating agreements for your cannabis company.

          Illinois Company Operating Agreements are Flexible

          We have done scores of operating agreements, many for Illinois companies.  Illinois companies often require additional care in drafting their operating agreements because of the amount of money and free cash flows that they kick out during their operations. Therefore, it is very important to review and understand your cannabis company’s operating agreement.  Please read yours with a lawyer or advisor that is experienced in them and ask questions until you understand everything about how your cannabis company operates – hence the term Operating Agreement.

          What are the elements of an Illinois LLC Operating Agreement

          Operating agreements, for any company – not just Illinois businesses – have different sections, or articles. Like chapters in a book, articles in an operating agreement break down the contract into logical subgroups where specific things are discussed.  The common sections, or articles, in operating agreements that we use include:

          1. Recitals
          2. Formation of Company
          3. Members & Units
          4. Management of the Company
          5. Rights & Obligations of Members
          6. Actions of Members
          7. Contributions to the Company and Capital Accounts
          8. Allocations, tax and distributions
          9. transferability
          10. Issuance of Membership Interests
          11. Dissolution and Termination
          12. Books and Records
          13. Miscellaneous Provisions

           

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          Illinois Company Operating Agreements Basics

          You may not know it, but your business is just a ball of contracts with all the rights of a person, from owning property, to entering into contracts, and even suing in court, but does not include the right to vote in public elections, but you can spend money on supporting the people running for office.  Don’t be so upset, America itself is basically a large corporation – most municipalities are actually corporations. See these useful informational tidbits? – everything you’ve come to expect from…

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          learn all the differences between corporations and LLCs that may have huge impacts on your business if it raíces money, or just its day-to-day operations. 

          This is another of our Fundraising.  If you are getting into the Illinois industry and you are under a million dollars for your dispensary team, or under 4 million for your craft or micro grower team – then this is the content for you,

          You may not know it, but if you are in an LLC for your Illinois company, or on its application, then this is how your company as a legally fictional person literally operates.  It is the owners’ manual for your company – which basically means it is like the one for your car – in the glove box and probably not really read too closely. 

          That is a mistake – corporate entities – whether LLCs or corps – can only do what their contracts say they can do. So it is not only quite crucial – but expletive deleted important to know how your company runs its operations and distribution’s of profits – to raising capital – to diluting your shares. 

           

          Want a Custom Operating Agreement

          Why are LLCs so popular now instead of corporations?

          Because LLCs are flexible – you can have an operating agreement between the owners, called members of the LLC, that literally governs the whole life trajectory of the business.  We are going to discuss several different permutations of operating agreements depending on the goals of your business venture. 

          Remember that LLCs are flexible? What does that mean? 

           from reading you Illinois company’s operating agreement I can tell:

          1. If it was set up to be sold to the highest bidder
          2. If it was to be a family business for generations
          3. If it was to operate a real estate business
          4. If it was to operate a big one time deal and then have parties part ways
          5. If the parties did not care what the other owners did
          6. If the the parties wanted specific duties to the business
          7. If it was to hold control in very specific ways – this could be a social equity operating agreement.
          8. If it was to be taxed as the business owner, an s-corp or a c-corp. 
          9. If the profits interest went to different things despite the ownership percentages
          10. How it would die – dissolution
          11. How the owners get in or out
          12. And that’s more than enough points to tell you about how flexible this contract is.

          Isn’t that amazing one contract can be set up in almost any number of ways for your unique business situation – so please get your tax guy involved immediately and your corporate consultant and lawyer and discuss it to suit your company’s needs.  We can talk about your company’s needs to see what your objectives are – what your exit is – a big check list of things that if you want to get. LLCs are great because not only do they have the flexibility to do whatever your business really needs, they also have relaxed formalities and greater restrictions on transferability of ownership interests. 

          You probably know that corporation’s ownership is referred to as “shares” in the company while LLCs have “units” of membership in the company. 

          So why are these LLCs so popular – because about 50 years ago some business people in Wyoming asked, “Wouldn’t it be great if you can get all the protections of the corporate shield but not have to follow all the rules?”  Heck Yeah – it would. Only in America.

          In an LLC you can set it up so that owners, shareholders in corporate speak, or members in LLC jargon, have no duty to one another.  Just be like – I did this – deal with it. That could be a part of the business. We have an operating agreement that we like to call the fugghetaboutit – because not only does it allow you to have the least amount of duties to your partners as a matter of law, but the freedom to leave the business on a moment’s notice, dissolve the business and leave it in the past. It’s the LLC for the deal when you got just one little thing to do.

          Then you got the protect yah neck, son – that’s just a single member LLC – The operating agreement basically gives the liability shield and very little else.  I have seen these be just a few pages, but you get more people involved and watch the operating agreement grow into the dozens of pages, maybe over 100 depending on the exhibits attached. 

          Then we have another operating agreement that I like to call the flip – this company is basically on a mission to be sold – the LLC comes with an exit so you are almost for sale from the day you go into business on the terms set by the operating agreement. In this format, we use the tag-along-drag-along clause as a term of the operating agreement to provide protections to the minority owner of the company the “tag along” to be “dragged along” in the full sale of the company, or substantially all of its assets. So you can see, both the minority owner and the majority owner are in agreement as to what will happen when the offer to buy comes along.

          Then I have one called the generational wealth – where you have the business being able to have rights of first refusal to retain ownership – often inside a family owned business. It is a sticky wicket to get into or out of – and that’s the point.

          There are so many variants that we can make up a new type of operating agreement that we could make, like a ‘give it to the people’ where the company agrees to an ESOP to become an employee owned company at a certain point in time in the future.  I guess we could set that one up for you. We’d have to research it though.

          Remember that your company is just a ball of contracts related to a statute – a legally fictional person that gets to generate you money – but you’re responsible for bearing the risk as the entrepreneur. 

          The reason you need an operating agreement when raising capital is because it tells your prospective investors exactly what your company is legally obligated to do.

          That  is the plan – the operating agreement spells out how it will all go down.  From management, to new owners, to getting out of your ownership, dissolution of the company, everything. 

          can you run your LLC like a corporation?

          In corporation terms, an operating agreement blends shareholder agreements and bylaws all together – but in theory, an LLC could do bylaws separately – in theory.  And as we get to the intersection of these two different type of corporate entities businesses have at their disposal, we can finally answer of the question, can an LLC be run like a corporation?

          So you can see that – yes, you can structure a LLC like it is a corporation – but it will be much more expensive than the couple page single member LLC operating agreement.  The operating agreement has to blend agreements about new owners, types of owners, officers and directors, voting rights, tax consequences – so many things.  

          Conclusion on LLC Operating Agreements

          So why not just start with a corporation?  You can, but they have greater formality, less flexibility, and easier exchange of your shares. An LLC can become a corporation – so if your first 5 years are expected to be you and your core team operating the business before it is geared up and sold, or who knows.  Then you can start to set up the corporation as best you can, but borrower the flexibility and lack of formality that the LLC has, plus get more restrictive ownership, to keep your team together until you are ready to become a full on corporation that ends up getting sold for stock – a corporation can still buy an LLC. 

          Thomas Howard

          Thomas Howard

          Real Estate Lawyer

          Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

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          Call our law offices with your legal questions for help on:

          1. real estate contracts
          2. business contract disputes
          3. Shareholder litigation
          4. cannabis business
          5. fraud actions
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            RegTech – How it helps companies with compliance

            RegTech – How it helps companies with compliance

            Regulatory Technology

            What is Reg-tech?

            RegTech, short for regulatory technology, is a new industry that takes complex regulatory frameworks and creates software from them so businesses can more easily comply with the laws and regulations their industries face.

            In this page, we will profile three sectors and provide examples of the new RegTech space, discuss some upcoming conventions, and provide insights on how regtech is helping everyday businesses reduce costs, while increasing compliance with complicated regulatory requirements.

            Regtech Landscape

            RegTech has the most practical application to industries fraught with regulations at all four levels of government – federal, state, county, and municipal.

            Several RegTech companies use novel business models that create governmental relationships to save taxpayers money, and pass the cost onto their business customers that still see cost savings from reduced compliance costs internally.

            If you think combining regulations and technology is boring, we will start with the most interesting, and heavily regulated, industry – cannabis.

            Call tech Attorney Thomas Howard at (309) 740-4033.

            Thomas Howard

            Thomas Howard

            Peoria Tech Lawyer

            Tom Howard started his first techology company in 2014, this website was built by his current one, Stumari – ask him about your company’s technology today.

            Peoria Office Address

            Examples of RegTech Helping Business

            Let’s get to our examples – we will throw in a bonus 4th example, which is the website that I worked on until spinning it off for helping with applying technology to immigration procedures.

            Key Takeaways

            • RegTech is the subsector of technology that streamlines compliance for financial, insurance, healthcare, cannabis, or any industry that has to deal with cumbersome regulations.
            • RegTech mostly works for help companies in compliance, reports, or monitoring business practices to ensure regulations are met.
            • The internet and connected devices have spurred development in RegTech and this trend is new, fast growing and likely to continue.

            How RegTech Helps Cannabis Compliance

            Cannabis laws have not been as complicated as they are now in decades. Each state has its own laws, each city, and increasingly the federal government treats cannabis differently, whether it is hemp, medical, or adult use marijuana.

            Long story short, cannabis is the perfect industry for RegTech.  Enter the business helping new cannabis businesses comply with the new laws the various state governments are passing, and the evolving federal landscape: Adherence Compliance.

            Stared in 2014, Adherence Complaince begain as Adherence Colorado, but as legalization spread across the US, more businesses needed help complying with the various legislative frameworks.

            Today, Adherence Compliance helps not only businesses, but also state and local governments, keep their license holders in compliance.  One of their business models is to get the contracts with governments, but pass the costs for their services to the cannabis-related legitimate businesses, which ends up to be a savings for their complaince.

            For more, please visit their website:

            How RegTech Helps Healthcare.

            The Health Insurance Portability and Accountability Act, better known by its acronym, HIPAA, is a very complex and difficult system designed to help people keep their healthcare information private.

            Most companies in the healthcare space fail to comply with it, or have to pay expensive lawyers, or full time staff, to comply.  Failure to comply with HIPAA carries very oppressive penalties that drive the consolidation in the industry due to the risk and the cost of the compliance.

            An expensive and cumbersome regulatory framework required for healthcare providers, this is exactly the use case for RegTech.  Some compliance software helps not only what is known as a “Covered Entity” under HIPAA comply, but also what is called their “Business Associates.”

            Healthcare is huge business, and gaining access to the sector often means facing HIPAA compliance. As such, what is the startup supposed to do when trying to get their company off the ground in the healthcare sector? Pay tens of thousands for a compliance officer’s salary?  Dump it onto their general counsel?  Or, pay a software company a fraction of that for a license to use their software for a year?

            Companies like Compliancy Group can offer something besides the software to help keep companies in compliance with HIPAA’s regulations, it can also help optimize their offerings with the data of its users. A RegTech company has a treasure trove of data about their clients and the problems that they may face in staying compliant.  This provides the basis for new features and updates, but also leverages the best practices that humans on an individual scale simply cannot do.

            A general counsel for a healthcare company that doesn’t use a RegTech company to cover their HIPPA complaince faces worse outcomes and higher costs.

            RegTech Helping Governments Issue Permits

            One of the startups that is trying to fix the problem of issuing licenses and permits is CivicServ.  After I made my first app, I turned toward building software for lawyers that I thought could be coded and I settled on immigration applications. When looking for examples and coders, I found the people beind DevBright, which founded CivicServ.

            My Work Visas Solutions, regtech for immigration applications and compliance after the visa holder has been issued, is waiting for my practice to grow to include an immigration lawyer that can fulfill the orders we would get with our SEO services and amazing marketing.  Some of the companies miss that aspect, but their value is clear.

            RegTech helps companies comply with the law so they can focus on their business.

            The RegTech companies we discussed:

            • Adherence Complaince
            • Compliancy Group
            • CivicServ
            • Work Visas Solutions

            If your company has compliance issues, or is facing another technology issue, feel free to call us. 

            Our experience in the technology space is beyond what 99% of other business lawyers can provide – plus our SEO is way better so we can help you get more leads.

            RegTech Conventions

            Unsurprisingly, Germany hosts the mother of all RegTech conventions, but many popular ones are held in the US. While they tend to gravitate toward the FinTech umbrella.  Here’s a list of the industry RegTech Events.

            1. Bearing Point
            2. Comply 2019
            3. know 2019
            4. Global List

            Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.

            R. Martindale

            Need A Business Lawyer?

            Call our law offices with your legal questions for help on:

            1. real estate contracts
            2. business contract disputes
            3. Shareholder litigation
            4. cannabis business
            5. fraud actions
            6. mechanic's liens

             

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