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Business Succession Planning with Trusts

Business Succession Planning with Trusts

Business Succession Planning with Trusts

Free Strategy Session?

For a quick assessment of your needs – let’s talk to discuss how Trusts can help your business. 

Business Succession Planning with TrustsBusiness Succession Planning with Trusts

Understanding how a trust can help with your business succession is key to assuring your financial stability, both in planned transitions and unplanned transitions of your business. 

You may be looking ahead to retirement and wondering how best to transition out of your business and smoothly turn it over to a successor or want to ensure that at your death your legacy continues.

Start anticipating the future of your business. Here is all the information you need to start planning your business succession with trusts.

What is a Trust

Before understanding how business succession planning with Trusts works, you have to know what a trust is.

A trust is a fiduciary arrangement that allows a third party, called a trust, to hold assets on behalf of one or more beneficiaries.

The terms of a trust decide exactly when and how the assets that have been placed into a trust, which is referred to as “funding the trust”, will pass to the named beneficiary or beneficiaries of the trust.

Parts of the trust:

A trust generally consists of the following:

  • A grantor: The one to create the trust.
  • A trustee, acts as the legal owner of the assets that are placed into the trust. The trustee has other important duties, such as filing taxes for the trust, and distributing the assets of the trust in accordance with the terms of the trust.  You can have more than one person act as trustee, choose your trustee wisely
  • One or more beneficiaries: The person or group of people that the trust is meant to benefit. The beneficiary of the trust does not have to be a person, it can be a business or even a charitable organization.
  • Trust assets: Are what is used to fund the trust, whether it be cash or real estate or anything else of value.
  • Purpose: The intent behind creating it, whether it be tax avoidance, creditor protection, asset management or another purpose.

Free Strategy Session?

For a quick assessment of your needs – let’s talk to discuss how Trusts can help your business. 

Why Do You Need a Trust For Y Business

Without a trust, your business could come to a screeching halt in your absence. You’ve likely poured blood, sweat and tears and a lot of money into creating your successful business. The last thing that you want is for it to fail in your absence.

Let’s look at this scenario:

If you were to pass away from a catastrophic illness, such as cancer, or after a lengthy battle  in the hospital with COVID, money from your business, meaning both liquid assets (such as cash in the business checking account) and non-liquid assets (such as real estate) owned by the business could have to be used to pay your outstanding medical bills. 

Properly protecting business assets in a trust can keep your business from having to satisfy your personal debts as a properly established trust can protect your business assets from creditors.

A trust is an important part of a business succession plan, and its importance should not be overlooked. Trusts have played an important part of business succession planning for years. A trust can provide tax avoidance, protection from creditors, probate avoidance and management of business assets.

Some business owners wish to avoid probate- the process of probate is public record. By establishing a business trust, you can protect your business’ privacy, which could be crucial in some industries.

Related Link: Cannabis Business Plan

Free Strategy Session?

For a quick assessment of your needs – let’s talk to discuss how Trusts can help your business. 

What is a business succession plan

Now that you understand how a trust can protect your business, let’s talk about how a trust can help with your business succession plan.

A business succession plan is just that- A plan, preferably, a written one, that lays out a plan for your business to continue after you retire, or after you sell it to a new owner or business partner, or even after you pass away.


Why do you need a Business Succession Planning with Trusts-3business succession plan? 

A well-thought business succession plan can assist in a smooth transition from one business owner to another. A comprehensive business succession plan can help with that smooth transition by minimizing taxes, transition costs and interruptions to the business which could easily lead to lost revenue.

About 40% of businesses end up being run by 2nd generation owners. A business succession plan that includes a trust can help the business stay successful throughout the second, third, fourth or more, generation of owners.

Types of Trusts

  • Revocable trust or 
  • Irrevocable trust. 

A revocable trust will allow you, as grantor, to control the assets that are used to fund the trust. Remember, you have to place some sort of asset into the trust in order to fund the trust. Whether that is deeding a piece of real estate from your name into the trust, depositing cash or investments into an account in the name of the Trust, or even some other type of asset, like a vehicle, you must fund the trust. 

A revocable trust keeps these assets in your control, and you will be able to “dissolve” or end the trust at any time that you desire to. Once you die, a revocable trust will generally become irrevocable. Assets in a revocable trust do avoid probate however, they generally do not avoid taxes nor do they generally provide protection from creditors as these assets are still in your control.

An irrevocable trust is one that once it is established any assets put into the trust will be out of your control and you will not be able to change the terms or dissolve the trust at will.

Assets that have funded an irrevocable trust also avoid probate just as assets used to fund a revocable trust, but by putting your business assets into an irrevocable trust, the trust will be able to avoid taxes at your death, and they will be protected from claims by creditors, creating a better outlook for your business. 

There are many different types of trusts. Some are better for business succession planning than others. You should consult an attorney before deciding what type of trust is right for your situation. Every situation is unique. However, common types of trusts used in business succession planning include:

  • Irrevocable life insurance trust (ILIT)
  • Grantor Retained Annuity Trusts
  • If your business is set up as an S Corp, The Qualified Subchapter S Trust, or “QSST” 
  • Electing Small Business Trust (ESBT).

An ILIT keeps the proceeds from the decedent’s taxable estate while providing liquid assets to the beneficiary of the trust. This cash infusion could be used to continue day to day operations of the business during the transition period from decedent to the new owner. 

A Grantor Retained Annuity Trust is an irrevocable trust that will transfer your business assets upon your death, and this transfer would not be subject to estate taxes. During your lifetime, the assets that have been used to fund this trust will pay you an annuity income. This effectively passes on rapidly growing business assets to your children. The grantor retains control of these assets during the term of the annuity, which is usually 2-5 years. However, if you die during the annuity terms ends, because you retained control over them, the assets are considered part of your estate and subject to taxation. 

A Qualified Subchapter S Trust, or QSST, and is a way to pass ownership of S Corporation Stock. This can allow for the owner of a business to control the business even after death through the directions left for the Trustee. There are several specific requirements in order to establish a QSST. Among those are: 

  • there must only be one beneficiary of this type of trust, 
  • the beneficiary must receive all of the trust income annually
  •  any principal distributed must be distributed to the beneficiary.
  •  A grantor of a QSST should appoint a non-beneficiary trustee for the purposes of making trust distributions.

And the other type of trust that can hold S corporation stock is the Electing Small Business Trust (EBST). An EBST is more flexible than a QSST in that it can have more than one beneficiary, and the trustee has discretion in making distributions.  There are differing tax treatments for QSST and EBST, so consult an attorney when establishing these trusts. 

We hope this Business Succession Planning with Trusts post has helped you to see a few of the varying ways that as a business owner you need a trust as part of your business succession plan. Here at Collateral Base we have an estate planning attorney that is ready to help you plan for the successful transition of your business.



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


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


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


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


Why Do You Need a Buy Sell Agreement Lawyer

Why Do You Need a Buy Sell Agreement Lawyer

Buy Sell Agreements

Buy Sell Agreement Lawyer

Why Do You Need a Buy Sell Agreement Lawyer?

A buy-sell agreement is a legally binding contract between the owners of a business where they agree on what happens to a partner’s shares in the event of life-changing situations that may result in chaos that could potentially ruin the business and bankrupt its owners, assuring the remaining owners that the business will carry on successfully.

A Buy Sell Agreement Lawyer Helps Transition the Business Ownership.

The Buy Sell agreement is also heard of as a buyout agreement, a business will, or a business prenup. Comparing a buy sell agreement with a prenuptial agreement is the most accurate comparison: In a prenuptial agreement, you can get out of the marriage under certain conditions. 

At the same time, you can protect your financial operations. A buy sell agreement offers the same rights, just with one small difference. In a Buy Sell agreement you can cover all the financial transactions between the business partners. This makes a buy sell agreement more reliable and more effective in terms of financial stability.

A buy sell agreement defines your rights when it comes to difficult situations.

Your partner can fall ill or become unable to operate the business the right way. In that case, a buy-sell agreement lowers your financial risks of bankruptcy or debt. You can protect yourself by signing an agreement that will keep your business intact.

Two Common Types of Buy Sell Agreements Are:


  • Cross-purchase agreement, and
  • Redemption agreement
  • A cross-purchase agreement happens when the remaining owners decide to purchase the shares of the business that is for sale. In this matter, it is important to know that the mechanism relies on a life insurance policy.
  • A redemption agreement is another form of a buy sell agreement. Here, we have a situation when the business entity buys the shares of the business. With a redemption agreement, the contract limits the ability of business owners to sell or transfer their ownership stakes in the business.

Some businesses decide on a mix of the two forms of agreements, with some portions available for purchase by individual partners and the remainder bought by the partnership. The importance of a buy sell agreement covers most of the financial risks that may occur in the business.

How to Know If a Buy Sell Agreement Is Right for Me

If you plan to start a business with a partner, a buy sell agreement can offer many protective points that can change your business perspective.

Many life situations are inevitable and we can rely on this kind of contract when the official regulations are necessary for business operations.

Your business partner may go ill or die, and that is when a buy sell agreement comes into effect. Your business capital will be protected and you can continue all the future business operations.

Here are some potential situations that a Buy Sell Agreement would prepare you for:

  1.  Personal Bankruptcy of one of the owners;
  2.  Business owner’s retirement;
  3.  Disability of one of the owners;
  4.  Irreparable disagreement between partners;
  5. Death of one of the owners.

Cross-purchase buy and sell agreements contribute to the rights of the business owners.

As a remaining business owner, you can buy the interests of the selling owner. This applies when a selling owner is no longer capable of maintaining their business obligations. 

Buy and sell agreements are also important in the method of determining the overall business value at the beginning of the business as well as when one of the business owners remains the only owner.

Careful drafting of a buy sell agreement can also eliminate or lower any potential estate taxes that apply at your death.

In the situation when you want to pass your ownership interest to one of your family members at your death, avoiding the estate tax is one of the possible outcomes.

What Can I Get From A Buy Sell Agreement?

A Fair Value Price for Shares

A Buy Sell Agreement is a perfect way to establish the Fair Value of your business individual stake. This agreement sets the figure ahead of time, preventing disagreements between partners about whether a buyout is or not fair.

Facilitates the break up of the partnership 

The Buy Sell Agreement minimizes the stress of the disintegration of the partnership, having designed a legally binding strategy to be followed in the case a partner exits the company 

Lets owners decide on the future of the shares

The Buy Sell agreement specifies who is entitled to your stake if you exist, preventing owners fighting over shares or third parties deciding on the future of your company. The uncertainty can be avoided with a well-crafted agreement.

Do I Need a Buy Sell Agreement Lawyer?

A buy sell agreement lawyer is necessary if you want to avoid state taxes and protect your business capital and operations. With a buy sell agreement, you will be able to buy shares of the business and prolong your business perspective.

A good buy sell agreement lawyer can help you draft the buy sell agreement that protects both your business partner’s interests and your interests. You will have the right to continue the business operations even in the case of illness or death of your partner. 

It is possible to stay protected and define a new business strategy with a buy sell agreement. A good buy and sell lawyer can help you craft and improve the right contract that protects you in the case of inevitable circumstances.


When Should I Make a Buy Sell Agreement?

The perfect moment to create a Buy Sell Agreement is way before the ownership transition, when all the owners are equally involved and an orderly transition can be planned for. 

Since at the time the buy sell agreement is being executed the owners may not even know who would be bought out, when and why. Hence, relationships between the owners would be presumably good so they would most likely come to an objective consensus on the terms.

If you wait for the triggering events to occur, relationships may be strained, and not having a solid buy sell agreement may result in conflict, potentially becoming extremely expensive for all the parties. 

Making sure that the terms of the buy-sell agreement are in writing and having the owners agree to those terms beforehand helps to eliminate the potential conflict. 

The buy sell agreements doesn’t need to be a separate document. It could be included in the company’s shareholders agreement or in the partnership agreement. 

The important thing is not to assume that you have one, and always make sure to keep it updated and clear in what your specific intentions are, amending the existing agreement or creating a new one if necessary. 

Do I Need a Buy Sell Agreement if I Am the Sole Proprietor of My Business?

Even if you are the only shareholder in your business, you should still consider to have a Buy Sell agreement to make sure your assets are protected in the face of any eventuality. 

The Buy Sell Agreement is a clear outline of your intentions for the future of your company that will be taken into consideration once you no longer have the power to voice it. You certainly would be saving your heirs, and employees unnecessary trouble.

What Important Things Should I Consider in My Buy Sell Agreement?

Avoid the use of Ambiguous Language

Since the purpose of your Buy Sell Agreement is to prepare for any possible eventuality involving one of the owners, you should make sure the statements in the agreement are the clearest possible so you prevent conflict between the stakeholders the moment the sale is executed. 

Unclear language in contracts tends to represent further conflict between the parties involved, which can only mean negative financial repercussions for you.  

Worst Case Scenarios Must be Considered

It doesn’t matter if probabilities are very low, you should have a Buy Sell Agreement that takes into consideration all the possible scenarios. You want to have every precautionary clause possible to assure you the best outcome.

Set the Objectives Of Your Business Straigh

All of the owners should not only understand, but also agree with the short and long term objectives of the company. If this concordance doesn’t happen and the owners have varying objectives it may be difficult to outline a good Buy Sell Agreement.

Beware of Taxes

You should get assessment on the tax consequences of shares exchanging, to prevent you and your business from losing a lot of money. A good Buy Sell Lawyer can guide you to make the right moves when it comes to avoiding getting wrecked by taxes.

If you are looking for a Buy Sell Agreement Lawyer 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


Victory for Hemp

Victory for Hemp

Hemp Ban Overturned

Hemp is completely legal to grow in Illinois with the proper state license.

Illinois Hemp Ban Overturned in Rural Oakland

The City of Oakland tried to ban hemp farming inside its city limits by claiming authority under the Illinois Municipal Code section regarding Urban Agricultural Areas. Collateral Base represented the prejudiced farmer and had the municipal ordinance tossed by an Illinois Court. Because the City of Oakland is not a home rule community Dillion’s Rule in Illinois barred the City from banning hemp due to its lack of authority. 

Let’s touch on what is a “home rule” or “non-home rule” municipality in Illinois. 39 States follow “Dillion’s Rule” – including Illinois – and it allows municipalities to allow themselves to govern their community with greater detail than the state law applies, but first they must become a “home rule” unit of government.

Q: What is “home rule,” why would a community want to become a home rule unit, and how?

A: In Illinois, home rule is the State constitutional authority of local governments to override the state and self-govern provided the General Assembly did not explicitly limit that power or maintain the exclusive exercise of authority in a specific area, for example the CRTA limited home rule communities from banning home grow cannabis for medical marijuana patients.

Home rule municipalities explicitly have police powers.  Article 7 of the Illinois Constitution regarding home rule provides that they “may exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax; and to incur debt” without specific statutory authority.


Hemp Questions?

How home rule is different than non-home rule

Non-home rule basically bows to the state laws, unless the municipality has a statute or enumerated constitutional powers that enable it to create new ordinances. However, a home rule municipality can go beyond state regulations unless expressly pre-empted by statute and can rely on its police powers.  Here we will examine the differences between the language from the Illinois Constitution on home rule units. 

The City of Oakland went beyond its non-home rule powers when making its hemp farming ban.

Ill. Const. Art. 7, § 7 for Non-home Rule Municipalities

  1. to make local improvements by special assessment and to exercise this power jointly with other counties and municipalities, and other classes of units of local government having that power on the effective date of this Constitution unless that power is subsequently denied by law to any such other units of local government;
  2.  by referendum, to adopt, alter or repeal their forms of government provided by law;
  3.  in the case of municipalities, to provide by referendum for their officers, manner of selection and terms of office;
  4.  in the case of counties, to provide for their officers, manner of selection and terms of office as provided in Section 4 of this Article;
  5.  to incur debt except as limited by law and except that debt payable from ad valorem property tax receipts shall mature within 40 years from the time it is incurred; and
  6. to levy or impose additional taxes upon areas within their boundaries in the manner provided by law for the provision of special services to those areas and for the payment of debt incurred in order to provide those special services.

These are the only powers a non-home rule municipality in Illinois may have – so the City of Oakland had to try and find another statute that enabled them to ban hemp farming throughout its city limits.  We will get to that soon, but we note that the City of Oakland then argued that the statutory authority did not matter because they could ban hemp under its police powers – but non-home rule municipalities do NOT have police powers.  As you can see from the powers of the Home Rule Units under Section 6 of  Article 7 of the Illinois Constitution below.


(a) A County which has a chief executive officer elected by the electors of the county and any municipality which has a population of more than 25,000 are home rule units. Other municipalities may elect by referendum to become home rule units. Except as limited by this Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax; and to incur debt.

We put the police powers in bold.

What are Police Powers in Illinois?

They are: the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax; and to incur debt.

Urban Agricultural Areas in Illinois

The City of Oakland went to the Illinois Municipal Code and found a restriction against urban agricultural areas that a city can regulate if it bears a direct relationship with the public health, safety or welfare.

The only problem was – this law did not exist until 2019 and Oakland had no urban agricultural area. The City of Oakland tried to find any method they could to ban the hemp farming inside its city limits.  The City argued that its zoning laws from 1968 qualified as an urban agricultural area.  This is not how law works, as statutes do not operate retroactively.

Division 15.4 of the Illinois Municipal Code, titled Municipal Urban Agricultural Areas

The cited statute, 65 ILCS 5/11.4-30(a,) provides in full:

(a) A municipality may not exercise any of its powers to enact ordinances within an urban agricultural area in a manner that would unreasonably restrict or regulate farming practices in contravention of the purposes of this Act unless the restrictions or regulations bear a direct relationship to public health or safety. (Emphasis Added).

The City of Oakland skipped over all the regulatory hurdles to get to its objective of banning hemp.  Illinois amended the Illinois Municipal Code in 2019 to provide for urban agriculture and provided protections and procedures for farmers to establish an “urban agricultural area.” We must review Article 11, Division 15.4 of the Code regarding Municipal Urban Agricultural Areas. The City looked straight past the controlling provisions of the Code in search of its desired ends – banning hemp farming in its City limits. The City skipped right over numerous Sections of the Code that requires prior to adopting an ordinance designating an urban agricultural area, the municipality must:

  1.  receive an application for establishing an urban agricultural area [65 ILCS 5/11-15.4-15(a)]; 
  2. establish an urban agricultural area committee after receiving an application to so establish one [65 ILCS 5/11-15.4-10(a); 
  3. elect a chair for that committee [65 ILCS 5/11-15.4-10(b)]; 
  4. fix a time and place for a public hearing and notify each taxing unit of local government [65 ILCS 5/11-15.4-20]; 
  5. publish notice of this hearing in a newspaper of general circulation for days before such hearing [65 ILCS 5/11-15.4-20]; and 
  6. hold the public hearing; allow any interested person – like the Plaintiffs in this case – to appear and voice objections and comments with respect to the hearing [65 ILCS 5/11-15.4-20].
  7. Only after such public hearing, and in compliance with the procedures as provided in the Code, may the municipality adopt an ordinance establishing and designating an urban agricultural area [65 ILCS 5/11-15.4-20].

The City of Oakland did none of these things in banning hemp farming from its City limits. Instead, it just said that it did, which the court pointed out that it clearly did not and had no ‘urban agricultural area’ to regulate. Therefore, the City’s ban on hemp failed under judicial review.  The City of Oakland may try to appeal the decision, but that won’t fix the problems with its hemp ban. 

Illinois hemp bans may not be possible in home rule municipalities either because of the State’s comprehensive hemp licensing program, but that issue remains for another day.  

Thomas Howard

Thomas Howard

Cannabis 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