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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.

 

What are valuation caps?

What are valuation caps?

A valuation cap is a term of a convertible note or a SAFE. It is also a great way to attract investors to any startup, providing them with an incentive to invest. Starting a successful financing round for your business will expose you to a slew of new terms. It is...

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

What are valuation caps?

What are valuation caps?

A valuation cap is a term of a convertible note or a SAFE. It is also a great way to attract investors to any startup, providing them with an incentive to invest. Starting a successful financing round for your business will expose you to a slew of new terms. It is...

How to add a new member to an LLC

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Virginia Cannabis Lawyer

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Ohio Cannabis Lawyer Are you from the buckeye state and want to establish a cannabis business? Having a good cannabis lawyer in Ohio makes the difference between getting a license or not. Even though Ohio’s medical marijuana market had a bumpy start, the market has a...

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

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

 

Banking For Cannabis Companies in Illinois

Banking For Cannabis Companies in Illinois

Banking For Cannabis Companies in Illinois

Cannabis companies are notoriously tricky clients for banks and credit unions. An innovative program in Illinois hopes to fix that.

cannabis banking consulting

Cannabis is a classic example of an “underbanked” industry. The tangled and contradictory web of state and federal laws have convinced many banks that cannabis simply isn’t worth the trouble. Illinois hopes to fix that.

We’ve written many times before about the problems facing cannabis businesses as they try to get access to basic banking and payment processing services. Over the past couple of years, there has been a surge of legislative effort to try and help the chronically underbanked cannabis industry. Unfortunately, many of these efforts are being stymied by the ongoing COVID-19 crisis as states and Congress effectively grind to a halt.

Nevertheless, many states are still undertaking innovative programs to help their burgeoning cannabis companies get access to financial services. In this particular article, we’re going to look at the current state of cannabis banking, and look at one particularly promising initiative out of Illinois.

Cannabis and Banking: A Brief History

The first major crack in federal marijuana prohibition came in 2013 from the Obama Administration. Deputy Attorney General James Cole put out a memorandum entitled “Guidance Regarding Marijuana Enforcement”, known more commonly as the Cole Memorandum. Essentially, the Cole Memo set a policy at the Department of Justice to deprioritize enforcement of the Controlled Substances Act (CSA) in states which had legalized marijuana. The Cole Memo was rescinded in 2018 by then-Attorney General Jeff Sessions. However, the one-page memo from Attorney General Sessions effectively left CSA enforcement to the discretion of local prosecutors. As we’ve seen in Illinois, local federal prosecutors don’t seem to have any particular interest in enforcing the CSA in the face of a booming cannabis industry.

 

Shortly after the Cole Memo, the Federal Crimes Enforcement Network (FinCEN) issued guidance to financial institutions regarding their obligations under the Bank Secrecy Act (BSA). The FinCEN guidance notes that, due to the CSA, financial institutions are still required to file suspicious activity reports (SARs) when dealing with cannabis businesses. FinCEN creates three categories of SARs for financial institutions dealing with cannabis businesses: (1) “marijuana limited” SARs with limited information for otherwise legitimate banking clients; (2) “marijuana priority” SARs, for banking clients which implicate the Cole Memo concerns like non-cannabis crime, and; (3) “marijuana termination” SARs, where there’s clear criminal activity like money laundering. Cannabis clients operating legitimate businesses in legal markets, such as dispensaries and growers in Illinois, are likely to fall into the “marijuana limited” category. This is essentially a way for banks to comply with the BSA, while telling FinCEN that the client isn’t a priority.

Recent Developments in Cannabis Banking

cannabis banking consultingDespite the support provided by the Cole Memo and FinCEN, many banks are understandably extremely reluctant to enter into the cannabis market. After all, these documents are merely guidance memos, subject to the political winds of the day. As a result, there have been several major legislative efforts on behalf of the underbanked cannabis industry.

At the federal level, there is the “SAFE Banking Act”, which we’ve covered here in much greater detail. Essentially, the bill provides a safe harbor for credit unions and private banks to get a limited-purpose state charter to allow them to provide services to state-legal cannabis businesses. The SAFE Banking Act was introduced by Congressman Ed Perlmutter (D-CO) and co-sponsored by a bipartisan group of Congressmen. The bill passed the House of Representatives last September by a bipartisan 321-103 vote. It still has to make it through the Senate, where it has 33 co-sponsors including five Republican Senators. Of course, between the upcoming Presidential election and the COVID-19 near-shutdown of Congress, the SAFE Banking Act is unlikely to become law this year.

At the state level, there are some encouraging developments. In Colorado, Governor Polis unveiled his administration’s “Roadmap to Cannabis Banking & Financial Services.” Unfortunately, the Roadmap is little more than a series of goals and vague plans, with concrete policies to follow at some later date. California has provided some more robust guidance to help financial institutions develop the appropriate compliance protocols. Illinois has had some legislative proposals, which we have discussed elsewhere.

SUPPORT FOR CANNABIS IN ILLINOIS

The one major bright spot in Illinois is the “Community Invest Cannabis Banking Services” initiative put out by the Illinois State Treasurer. The idea behind Community Invest is fairly straightforward. The program provides investment capital at a reduced rate to qualified financial institutions so they can expand services to cannabis-related businesses. The capital comes in the form of two-year term deposits, with a variable monthly rate based on Federal Overnight Excess Funds. The application process is also fairly simple:

  1. Step 1:  Become an Approved Program Depository: depending on the total deposits and collateral pledged by the bank, there are different application forms. The applications focus on financial disclosures by the applicant so that they can get on the list of approved institutions to participate in the Treasurer’s Community Development Link Deposit and Access to Capital Programs. To get a better idea of the institutions involved, a full list of approved depositories is available here.

 

  1. Step 2: Review Eligibility and Submit Application: applicants need to fill out the form and provide a host of detailed information, including a business plan with information like risk assessment and mitigation strategies.

Unfortunately, the Illinois State Treasurer seemingly has not done much to promote this program. The State of Illinois has a robust opportunities for institutions looking to invest in historically underserved communities. Indeed, the Cannabis Regulation and Tax Act places special emphasis on “social equity” and Disproportionately Impacted Communities, or DIAs. The state will be announcing the winners of the most recent round of dispensary applications next month, so the need for cannabis banking services is about to increase tremendously in Illinois. Banks and other financial institutions would be wise to take a look options for serving cannabis businesses sooner rather than later.

What are valuation caps?

What are valuation caps?

A valuation cap is a term of a convertible note or a SAFE. It is also a great way to attract investors to any startup, providing them with an incentive to invest. Starting a successful financing round for your business will expose you to a slew of new terms. It is...

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

What are valuation caps?

What are valuation caps?

A valuation cap is a term of a convertible note or a SAFE. It is also a great way to attract investors to any startup, providing them with an incentive to invest. Starting a successful financing round for your business will expose you to a slew of new terms. It is...

Need A Business Lawyer?

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

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

 

Practicing Law Without A License

Practicing Law Without A License

Practicing Law Without A License

Practicing Law Without A License

Practicing law without a license is a terrible idea that happens to some professionals, consultants or real estate agents may go over the line.

Be careful when carrying out your professional relationships and know where the line is for what your jurisdiction considers the unauthorized practice of law.  

In this article – we cover when some professional may enter into the unlicensed practice of laws and how to avoid it.

Unauthorized Practice of Law

Illinois, like all states, prohibits the practice of law by individuals not admitted to practice in the state. Illinois sets this forth in the Attorney Act, 705 ILCS § 205/0.01 et seq. Section one of the Act provides that:

“No person shall be permitted to practice as an attorney or counselor at law within [Illinois] without having previously obtained a license for that purpose from the Supreme Court of this State[.]”

The Illinois State Bar Association provides a wealth of Ethics Opinions on this topic. 

The Illinois Supreme Court has long held that the practice of law involves giving advice or rendering of services which require the use of legal skills or knowledge. People ex rel. Illinois State Bar Assoc. v. Schafer, 404 Ill. 45, 87 N.E. 2d 773, 776 (1949). That is, the “practice of law” is much more than simply going to court or representing someone in litigation. Here are just a few samples of activity which constitutes the “practice of law” in Illinois:

  1. Representing someone in an arbitration, even if the arbitrators aren’t lawyers (ISBA Opinion No. 12-17)
  2. Assisting or advising someone in completing corporate documents, even documents provided by the Secretary of State (ISBA Opinion No. 95-7)

Representing someone in a property tax appeals in many Illinois jurisdictions (In re Yamaguchi, 118 Ill. 2d 417, 515 N.E.2d 1235 (1987)

What Crosses the Line for Unauthorized Practice of Law?

The line for unauthorized practice can get especially blurry with high volume practices like residential real estate and consumer bankruptcy, in which lawyers rely heavily on paraprofessionals to process a large volume of often duplicative paperwork. The important distinction for these kinds of practices is that non-lawyers can perform administrative tasks like simply filling out information (names, addresses, etc.), but once they start making changes to the forms themselves, they may be stepping over the line and into unauthorized practice. This risk is especially serious for lawyers working in high volume practices, and lawyers who work frequently with other professionals like accountants and financial planners.

Here are some simple tips for staying on the safe side of the law.

  1. ALWAYS ask first. If you have any questions as to whether sometimes constitutes the practice of law, then ask. Lawyers should foster a culture in which paraprofessionals never hesitate to err on the side of caution.
  2. Let your clients know. Make sure they are clear on what kind of services they are receiving, and make sure there’s no confusion as to who is and is not a lawyer. If you work with another professional services firm, make sure to use distinct letterhead.
  3. Create clear Roles, Responsibilities, and Expectations (RR&E, in business lingo). Administrative staff should understand that they’re doing administrative tasks. E.g., they might be filling out information in a form, but they should not be drafting forms.
What are valuation caps?

What are valuation caps?

A valuation cap is a term of a convertible note or a SAFE. It is also a great way to attract investors to any startup, providing them with an incentive to invest. Starting a successful financing round for your business will expose you to a slew of new terms. It is...

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

 

Illinois Cannabis Zoning Laws

Illinois Cannabis Zoning Laws

Illinois Cannabis Zoning Laws

Illinois Cannabis Zoning Laws

Illinois Cannabis Zoning Laws Illinois Cannabis Zoning Laws depend greatly on the local governments that are placing “reasonable” restrictions on their community’s cannabis businesses that may operated in their jurisdictional limits. Many communities require a “special use permit” for having cannabis business operations.  Then, there are certain set-backs to that limit the distance a cannabis company may be from certain sensitive businesses or schools, churches, and other things in the city that they want to keep the cannabis business away from by using their zoning authority.  Here’s a lot more on the Illinois Cannabis Zoning Laws. 

Can Your City Ban Cannabis?

At the beginning of this year, Illinois’ cannabis legalization bill, formally known as the “Cannabis Regulation and Tax Act” (the “Cannabis Act”), went into effect. The Cannabis Act creates a comprehensive licensure scheme for the cannabis industry, and allows for adult, recreational use of cannabis. Governor Pritzker kicked off the Cannabis Act by pardoning over 11,000 people convicted of marijuana crimes.

Still, plenty of local communities are approaching legalization with much more caution, and sometimes fear. Lake County, the third-most populous county after Cook and DuPage, intends to impose a one-year moratorium on cannabis in the unincorporated parts of the County. In a lengthy Report of the Recreational Cannabis Task Force, Lake County freely states that

“local government attorneys have differing interpretations of the Act on whether communities can enact separate licensing requirements. It is essential that every community consult with their own counsel prior to enacting a licensing mechanism.”

  1. WHAT DOES THE CANNABIS ACT SAY?

The Cannabis Regulation and Tax Act can be found at 410 ILCS 705/1-5 et seq. Certain parts of the Cannabis Act directly and explicitly preempt any state and local government from regulating cannabis. Section 55-90 of the Act reads:

Except as otherwise provided in this Act, the regulation and licensing of the activities described in this Act are exclusive powers and functions of the State. Except as otherwise provided in this Act, a unit of local government, including a home rule unit, may not regulate or license the activities described in this Act. This Section is a denial and limitation of home rule powers and functions under subsection (h) of Section 6 of Article VII of the Illinois Constitution.

That is, local governments are prohibited from regulating in the area of cannabis except when the Cannabis Act specifically allows it.

Illinois Cannabis Zoning Restrictions on Municipalities 

Note the reference to “home rule powers and functions” in the Illinois Constitution. Article VII, Section 6 of the Illinois Constitution sets forth the definition and rules governing home rule units. Basically, any County which elects a chief executive officer, or any municipality with over 25,000 people constitutes a “home rule” unit. Home rule units are given a great degree of authority to govern their internal affairs. If you’re reading this in Chicago or in the Chicago suburbs, you probably live in a home rule county and probably a home rule city or village as well. And as sub-section (m) of this part of the Illinois Constitution provides, “[p]owers and functions of home rule units shall be construed liberally.”

Conversely, Article VII, Section 7 of the Illinois Constitution covers non-home rule units of government. These units are essentially limited to a few fiscal powers in the Constitution, and then anything else granted to them by other laws. See, e.g., Hawthorne v. Village of Olympia Fields, 790 N.E.2d 832 (Ill. 2003) (striking down a zoning ordinance that had the effect of prohibiting an otherwise lawful home daycare center) If you are reading this from a rural, agricultural community, there is a good chance you live in a non-home rule municipality.

Need Help With Cannabis Zoning

David Silvers

David Silvers

Chicago Business Lawyer

David Silvers practices cannabis and corporate law with litigation experience and first-hand knowledge of start up operations.

What are valuation caps?

What are valuation caps?

A valuation cap is a term of a convertible note or a SAFE. It is also a great way to attract investors to any startup, providing them with an incentive to invest. Starting a successful financing round for your business will expose you to a slew of new terms. It is...

Zoning Ordinances For Cannabis In Illinois

So what is the status of zoning restrictions and moratoriums, like those out of Lake County? Section 55-25 discusses local ordinances. While Section 55-25 allows local governments to enact restrictions on the time, place, and manner of legal cannabis, they may not use zoning ordinances as a cover to effectively ban cannabis. Specifically, subsection (1) provides:

A unit of local government, including a home rule unit or any non-home rule county within the unincorporated territory of the county, may enact reasonable zoning ordinances or resolutions, not in conflict with this Act or rules adopted pursuant to this Act, regulating cannabis business establishments. No unit of local government, including a home rule unit or any non-home rule county within the unincorporated territory of the county, may prohibit home cultivation or unreasonably prohibit use of cannabis authorized by this Act.

Local governments like Lake County may be limiting cannabis under the guise of protecting the “health, safety, and welfare” of the community, or some similar phrase. Such justifications should be treated with skepticism, no matter what the issue is. But with respect to bans like Lake County’s, it’s difficult to see how they could possibly be within the bounds of the Cannabis Act.

Illinois Cities May “Reasonably” Restrict Cannabis Businesses with Zoning.

Section 55-25 limits zoning ordinances to those which don’t “unreasonably” prohibit legal uses of cannabis, and there’s nothing more unreasonable than a blanket prohibition or moratorium. For rural, non-home rule municipalities, they might totally lack the authority to enact such zoning ordinances with or without the authority granted by the Cannabis Act. See Hawthorne, supra. Municipalities that get in the way of the overwhelming public support and public demand for legal cannabis are putting themselves at a huge risk for litigation that they stand a strong chance of losing. In Lake County alone, there are roughly 700,000 residents (including your humble author), and many of them won’t be happy when they find out that the County Board is curbing their hard-won rights under the Cannabis Act.

Key Takeaways of Cannabis Zoning in Illinois

  • Illinois Zoning Changes Depending on What City Are Located
  • To find your cities zoning ordinance, Google: “(Your City) Cannabis Ordinance”
  • Illinois Cannabis Laws allow ‘reasonable’ zoning restrictions
  • Cities in Illinois cannot ban cannabis or home grow for medical cannabis patients.

How To Get Help With Your Cannabis Zoning Issues

Feel free to call our law firm with all your questions regarding cannabis zoning, there are many levels of interactions with local governments and we are experienced with assisting business clients in their real estate matters, whether related to cannabis, or not. 

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

 

Attorney Modification Clauses & Your Real Estate Sale Contract

Attorney Modification Clauses & Your Real Estate Sale Contract

Attorney Modification Clauses

They let you cool off.

Has it been 5 days Already?

 

Relax.  You probably blew the deadline & were none the wiser.

Chances are that you signed a real estate purchase contract and are having second thoughts.

Sometimes realtors like to confuse you and say you should put in an offer – well, that means a contract.

So see what Peoria Real Estate attorney, Thomas Howard has to say about a clause in the contract that allows for attonreys to disapprove.

You can call Attorney Thomas Howard at (309) 740-4033.

Questions?

Your case needs strategy – for the right case, we give a free one hour session. Get yours today.

Thomas Howard

Thomas Howard

Peoria Real Estate Lawyer

Whether you’re a bank or distressed asset purchaser, Thomas Howard can help you quickly recover on your loans.

Peoria Office Address

Boston Office Address

Public Policy Behind Attorney Modification

Sometimes people fall in love at first sight, but not just with people. A person shopping for a house may fall in love with a home, and put in an offer, but only to later realize she or he has been entered into a binding contract. 

Let’s run through the fundamentals of a contract in the context of a home sale & how an “attorney modification clause” can help you get out of the contract with some help.

A contract had 3 basic elements

Attorney Modification Disapprove

He Does Not Approve

  • Offer & Acceptance: When you put in that offer on the house, you actual began to form half of the deal.  If the seller accepts your offer on the house, you’re hooked.  So when shopping for a home and making an offer, lower your expectations – and increase the chance of your rejection so you can think it over better.
  • Consideration: This is money.  You offered to pay ‘x’ dollars for that house – if we assume that you offered to pay the statistical average price for the home – $199,200 is what you are going to pay because according to Google that pointed to a CNBC article claiming that is the median price for the home in the United States – believe it or not.
  • Meeting of the Minds: This is the most complex of the three basic contract elements.  It is where a lot of the disputes occur.  Some people think they are buying apples, when instead they are buying oranges – and they never would have bought an orange had they known.  Mistakes of fact happen fairly often.

Attorney Modification & Public Policy

Most people that buy a house and get in trouble are lacking in home buying experience.  So to protect these first-time and novice homebuyers, public policy has worked into many of the forms of residential sales contracts an Attorney Modification clause that gives each party the right to have their attorney review the contract.

If your attorney does not approve of the contract within a very limited period of time, in Peoria Illinois it is five days, then it can be canceled.  Often the price cannot change because the clause itself states the rights.

Your contracts mean what they say

A court of law does not exist to make the deal for you.  That is between the private parties that enter into lawful, legally binding contracts.  

Why one of the most American things you can do is make a deal.  But be careful when getting into them – because a deal rushed into may be a costly error.

In real estate law, there is a saying.  “There are no small problems when it comes to real estate.”  So be careful, and have your attorney consult with you immediately after you signed the deal to confirm you want the deal before the attorney modification period expires. 

If you have a contract dispute, call our offices at (309) 740-4033.

 

A commercial loan workout attorney with over ten years experence – Thomas Howard answers your questions in the video below.

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

 

What to Know about Good Faith or Bad Faith – an illustrated easy guide

What to Know about Good Faith or Bad Faith – an illustrated easy guide

Good Faith Is Business

What Does Good Faith Mean?

good faith

good faith

The implied covenant of good faith and fair dealing is implied in every contract.  The implied covenant of good faith and fair dealing is what makes business work.  It requires people to deal with one another fairly.  Businesses and people can trust each other to enter into contracts because good faith requires them to help them get the benefit of their bargain.

Attorney Thomas Howard has helped clients for years enforce their rights under contracts.  And each and everyone of those contracts had something in common – but it was not a term written into any of the contracts.  Our business attorney have helped countless clients with their contracts, below he explains good faith in an easy to understand and Illustrated way.   You can call him at (309) 740-4033.

General Duty of Good Faith and Fair Dealing

A duty of good faith and fair dealing is a tenant of contract law, which often comes up in insurance. Insurance is basically the business of selling contracts that protect against risk. Here’s some relevant case law regarding good faith insurance contract, a well litigated issue:

  • Therefore, an insurer has a duty to act in good faith and fairness to its insured, which requires that it not elevate its own self-interest above the interest of the insured. Monical v. State Farm Insurance Co., 211 Ill.App.3d 215, 569 N.E.2d 1230, 155 Ill.Dec. 619 (4th Dist. 1991).
  • “The insurer’s duty to deal fairly with the insured arises out of the contractual relationship, and thus an insured may sue his insurer for breach of that duty.” Garcia v. Lovellette, 265 Ill.App.3d 724, 639 N.E.2d 935, 937, 203 Ill.Dec. 376 (2d Dist. 1994).
  • While a fiduciary relationship exists between an insured and a broker who acts as the agent for the insured, Illinois law does not classify an insurer as a fiduciary of its insured. Robacki v. Allstate Insurance Co., 127 Ill.App.3d 294, 468 N.E.2d 1251, 1253, 82 Ill.Dec. 471 (1st Dist. 1984); Nielsen v. United Services Automobile Ass’n, 244 Ill.App.3d 658, 612 N.E.2d 526, 531, 183 Ill.Dec. 874 (2d Dist. 1993).
  • Thus, it is not the duty of the insurer to inform the insured of his or her duties. Foamcraft, Inc. v. First State Insurance Co., 238 Ill.App.3d 791, 606 N.E.2d 537, 539, 179 Ill.Dec. 705 (1st Dist. 1992).
  • Likewise, the law has not imposed on an insurer the duty of reviewing the adequacy of an insured’s coverage. Connelly v. Robert J. Riordan & Co., 246 Ill.App.3d 898, 617 N.E.2d 76, 79, 186 Ill.Dec. 837 (1st Dist. 1993).
  • A property insurer similarly has no duty to sell its insured full coverage. Nielsen, supra, 612 N.E.2d at 529.
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The Duty of Good Faith & Fair Dealings

Any party to a contract has an unwritten duty to help the other party obtain the benefit of their end of the bargain.  A benefit of the bargain is what you get out of the deal.  Let’s take a quick second to explain the very basics of what forms a contract.

A contract had 3 basic elements

Contract Basics Offer Consideration Acceptance

  • Offer & Acceptance: This is what you buy. Pizza, coffee, plumbing, Netflix, or even legal services.  The offer is what the seller in the contract brings to the table.  It brings the buyer in the door.  The Buyer is accepting the offer.
  • Consideration: This is often money.  In the picture, the coffee is $3.50.  The consideration is two-way, however.  The offer is a consideration as well.  The pizza is half the deal, so is the NetFlix subscription.  Very often the consideration is goods or services in exchange for payment of money.
  • Meeting of the Minds: This is the most complex of the three basic contract elements, and where Good Faith resides.  The intent of the parties to the contact is important. Both intended to get what is called the “benefit of their bargain.” This means you do not get tricked into the deal. You are not making a mistake regarding the terms of the contract.

Meeting of the Minds and Good Faith

Would you enter into a deal to buy a house if you knew every time it rains the basement floods with 3 feet of water?  Perhaps you would if you negotiate a discount for installing a dewatering system.

But would you buy the house with the leaky basement if you did not know about it?  That’s where people get into trouble because they feel as if they are tricked. 

They lacked the requisite meeting of the minds on the deal because if the buyer knew about the basement flooding, he never would have purchased the house.  That is a lack of meeting of the minds that gets to the heart of contract formation.

What if the seller knows about the water in the basement, and lies on the disclosures and says that to the best of his knowledge there is no water in the basement? 

That is fraud, a/k/a bad faith.  The Seller lying about the leaky basement injured the Buyer.  The Buyer can sue the seller for fraud and recover the damages.  The damages would be the cost of repairing the leaky basement.

Interference in the Contract – Bad Faith

The “duty of good faith and fair dealing requires the party vested with contractual discretion not to injure other parties to the contract by action or omission and not to act inconsistently with other parties’ rights.” Id, citing Brzozowski v. Northern Trust Co., 248 Ill.App.3d 95 (1993).

Sometimes contracts have certain rights that may spring into effect.  These are called contingencies. For example, take your employer’s stock price.

Imagine your job has a contract to that will pay you a bonus if you do a great job and the stock price rises above $100.  If that happens, your employer will pay you one-million dollars.

one million dollars

You have 3 months to get the stock price above $100, and you’re doing amazing!  But your company does not want to pay you. They notice that your contract requires their help. 

Instead of helping you maximize profits, the company sits back and waits and takes no action. If the company does not do their part, you will fail and not get your bonus.

The duty of good faith and fair dealing requires the company to help you hit your target when they must cooperate to do so. The company cannot interfere, not help, and put you in a position to fail, then say you did not earn your bonus. 

That is performing the contract opportunistically to deprive you of your one million dollars.

Good Faith Case Law Round up

  1. A party cannot take advantage of a condition precedent the performance of which he has helped render impossible. Barrows v. Maco, Inc., 94 Ill.App.3d 959, 966 (1st 1981).
  2. Bad faith, or opportunistic advantage-taking, is the lack of cooperation depriving the other contracting party of his reasonable expectation. Hentze v. Unverfehrt, 237 Ill. App.3d 606,(1992).
  3. A party that participated in the hinderance of the condition, and they may not now claim the benefit of the failure of the required event. Yale Development Co. v. Oak Park Trust & Savings Bank, 26 Ill.App.3d 1015 (2nd 1975).

Good Faith Means You Do What You Promised

To conclude, good faith helps our economy have trust in the trillions of dollars of contracts that we depend on in our daily lives. 

As the American Bar Association said in their blog,

The theory behind this principle is that a party cannot interfere with or fail to cooperate with your performance and then complain about it.

From the pension funds, to pizza orders, and everything in between, all depend on good faith and fair dealing in their contracts.

So if you ever get the advice to take a dive, or to not perform your end of the bargain – you may have to explain to the person that you have a duty of good faith and fair dealing to live up to your end of the bargain.

You may also want to avoid doing business with them. 

If you have a contract dispute, call our offices at (309) 740-4033.

 

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

What does Good Faith mean?| Good faith is for business| Tom Howard

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