Buying or Selling a Business

You are considering buying or selling a business. This blog will briefly explain the basic considerations when buying or selling a business. The first legal consideration is liability. There are two types of sells when you purchase a business or you sell a business. The first type of sell is an asset purchase sell. This simply means that you are only purchasing the assets of a LLC or S corporation. Typically, an asset sale is good for buyers of a business. For example, Good, LLC is selling their business to Smith, LLC for $100,000. Smith, LLC is concerned or should be concerned about hidden liabilities that Good, LLC has not disclosed or does not know about. A good example of these hidden liabilities is payroll taxes. often times, these liabilities will not be found out until years after the payroll tax violations. With an asset purchase sale, the buyer only purchases the assets of the company or LLC and the seller assumes the liabilities. The advantage of an asset sale is each asset such as equipment, goodwill, and accounts receivable are given an asset purchase price. This means that you do not have to purchase all of the assets of a company or LLC. In most commercial transactions, an asset sale is common.

The second (2nd) type of transaction is a stock purchase sale or purchase of membership interests. In this example, a seller wants the buyer to assume all the potential liabilities. From the seller's perspective, the seller does not want any liability risks from their old business venture. Instead of purchasing and valuing each asset, the company is purchased for a specific dollar value. Any buyer must fully be aware of all potential and contingent liabilities. Again, stock purchase transactions are rare and most sellers and buyers understand that a buyer does not want the future or potential liability of a previous business owner.

Sean Robertson is a tax attorney concentrating in business law, tax planning, estate planning, and asset protection law. Sean Robertson graduated from DePaul University College of Law in 2003 and University of Illinois at Urbana-Champaign in 1997.

Sean Robertson can be reached at 312-498-6080 or 630-364-2318. Robertson Law Group, LLC has offices in Naperville, downtown Chicago, and Chicago Ridge, Illinois.

Top 6 Mistakes in Drafting LLC Operating Agreements

1. The top mistake that business owners make is having an LLC Operating Agreement drafted and all members/owners failing to sign the LLC Operating Agreement;

2. The second mistake is the LLC Operating Agreement is long and unclear. Keeping an LLC Operating Agreement short and simple is the best way to draft an LLC Operating Agreement. Standardized operating agreements are often times inadequate for an LLC's particular needs and is too long and unclear.

3. The third mistake is failing to maximize the benefits of an LLC Operating Agreement. An LLC is a hybrid between a corporation and LLC. From a tax perspective, an LLC is a disregarded entity, which means that you pay tax based upon your particular individual tax situation. Hence, the LLC does not pay a business tax. Rather, individual members provide their profit and loss on a schedule E, which is attached to their 1040. With an LLC, you can have non-voting and voting shares of stock. This is underutilized and is a great vehicle for asset protection.

4. The fourth mistake is LLC operating agreements must have a easy and simple buy-sell agreement for the Members. Often times, an LLC operating agreement does not clear articulate what the policy is upon a death, incapacity, divorce, or one party wanting to sell the company while the other member wants to continue the business.

5. The fifth mistake is failing to designate how disputes should be resolved. For instance, Member John and Member Jack live in different states or different counties, which county will govern in case of a dispute. Furthermore, the LLC Operating Agreement may require mediation before filing a lawsuit. These are a couple of examples of how to draft a good LLC operating agreement.

6. The top six mistake is failing to include a provision where if one provision is found invalid, this does not invalidate the entire LLC document. Sometimes, one provision can be found invalid and possibly, invalidate the whole LLC document. A provision should be drafted in the LLC operating agreement that if one provision is found invalid, this does make the entire LLC invalid.

Why LLCs are overrated?

I think LLCs are overrated for one major reason. This major reason is most people do not know how to utilize the benefits of an LLC. An LLC is similar to an I phone. An I phone may have great features, but if you do not know how to use those features, an I phone is only a liability. It is a liability because you pay more and get the same quality as a lesser phone.

With an S corporation, the incorporation and annual report fees are considerably less. For a new business, this costs savings is huge. Most small businesses (new) do not have enough capital. Selecting an LLC when you are low on capital creates a drain on your business's cash flow.

Both an S corporation and LLC provide you limited liabilty protection. Both are pass-through entities, which mean you pay taxes like an individual. Thus, you file a 1040 with appropriate schedules to account for your profit and loss.

Who are good candidates for an LLC? High growth businesses, business owners with investors, professional practices, and any business that expects to grow at a more rapid pace than small, micro businesses.

Robertson Law Group, LLC
(312) 498-6080 or (630) 364-2318
RobertsonLawGroup@gmail.com
www.RobertsonLawGroup.com

Advising Business During Economic Troubles

Yesterday, I spoke with one of my clients and we were talking about the economy. We both agreed that this is a tough business climate. If this is not a recession or worse, I hate to see what we would call it. Business revenues are down, expenses are flat or getting higher, and customer's habits and business pricing is down. For example, McDonalds is now offering $1 soft drinks (any size) and in my opinion, McDonald's realized quickly that customer's habits had changed and were changing.

My basic point is small to medium sized businesses are facing litigation possibilities that have never faced them. Yesterday, I was at the Circuit Court of Cook County with a client that has three (3) lawsuits. Two (2) lawsuits in the Circuit Court of Cook County-Municipal Division and one (1) lawsuit in the Circuit Court of Will County. His question is what do I do?

I believe a lot of small business owners are facing a similar issue. The first thing you do is make sure your personal residence and other investment properties are properly titled and secured. In Illinois, land trusts prevents liens from being placed on your residence. Land trust are also a great basic estate planning tool because you designate you is your beneficiary through a contract. This is similar to setting up a bank account. Second, tenancy by entirety is a good strategy for married couples coupled with a private land trust. Tenancy by the entirety is a way of titling your personal residence when you are married. Thus, one spouse's bills cannot force the sale of your personal residence. The downside is upon the first spouse's death, the surviving spouse has a probate issue because they do not automatically inherit their spouse's fifty (50) percent interest. This is very problematic for second marriages because often times step children and step parents do not like one another. This leads to family conflict. Third, irrevocable trust is a way of gifting your ownership of your real estate into a trust's name. Unfortunately, irrevocable means you do not have the ability to alter, amend, or change. This is a permanent gift where you do not have any control. You select a trustee, who is typically somebody that you trust. This trustee is the beneficiary as well often times. The key is the trustee manages the trust agreement, which is written by an attorney that you hire. This irrevocable trust is similar to transferring the property to your adult children (if any). Unlike quit claiming the property to your child, the Irrevocable Trust protects you in case of divorce or creditor issues by your child. You and your wife still maintain a life estate interest or not depending on your situation. Fourth, in the above example, we settle one (1) lawsuit at a time or at least make sure you are prepared and understand the time frame of a lawsuit. Many times we buy you more time, so you can settle. Other times, you want to know your credit exemptions, so you will know your legal rights.

In conclusion, this is a difficult time for business owners. We understand that and our concentration is asset protection. Asset protection is a legal niche where we assist and advise business owners on their business structure and options regarding lawsuits filed against them by vendors. Sean Robertson is the Principal of Robertson Law Group, LLC and he can be reached at (312) 498-6080 or (630) 364-2318. We practice in the Counties of Cook, Dupage, Will, Lake, Kane, Winnebago, and Kendall.

Motion to Vacate Default Judgment

There are two rules regarding a Motion to Vacate Default Judgment. The first rule pertains to Motions to Vacate Default Judgment that is filed within 30 days of the ex-parte default judgment or otherwise known as "default judgment". This Motion is a type of Motion that states the basic facts such as when the default judgment was issued and why you deserve to have the default motion vacated.

In contrasts, the second (2nd) type of default motion is a Motion to Vacate Default Judgment under 735 ILCS 2-1401. This type of Motion is a Motion to Vacate Default Judgment that has occurred over thirty (30) days ago but under two (2) years ago. This 2-1401 Petition must be an affidavit, which alleges that you were reasonably diligent in your efforts to overturn the default judgment and you have a defense against the Plaintiff's claim.

In the last several days, several clients have come to me with these issues. Therefore, I assume small business owners in the Chicagoland area are facing these issues. We also can help structure your assets in a manner where they will be protected.

Sean Robertson, Esq.
Robertson Law Group, LLC
(312) 498-6080 or (630) 364-2318
RobertsonLawGroup@gmail.com

Payroll tax and Small Business Owners

As a small business owner and attorney, I strongly recommend the use of payroll companies versus accountants. The reason is simple to avoid tax liabilities, which is a huge problem for small business owners. The payroll tax company such as ADP or Paycor, which have a power of attorney (limited) and assume the payroll responsibility such as filing out payroll tax returns. Your responsibility is to make deposits into a proper payroll account. The bottom line is payroll tax liability is a huge liability, which kills a lot of small business owners. Take words of wisdom and pay $40 to $50 per month and leave the payroll filings and payroll responsibilities up to the professionals. Accountants are not good because many small accountants do not have proper payroll policies and procedures in place unlike the bigger, more established payroll companies.

Robertson Law Group, LLC
(312) 498-6080 or (630) 364-2318
RobertsonLawGroup@gmail.com

LLCs and Real Estate Investors

Limited Liability Corporations (LLCS) are a favorite business entity for real estate investors. An LLC is a hybrid between a partnership and corporation. An LLC has partnership features because it has a lot of flexibility similar to a partnership. The downside to a partnership is no liability protection. On the other hand, an LLC has limited liability protection similar to a Corporation. Unlike a Corporation, an LLC does not have a double taxation feature. Thus, the LLC is a pass through entity where the owner(s) pay taxes passed upon their individual tax return. An individual fills out a 1040 tax return and prepares a schedule, which details their profit and loss from the LLC.

LLCs are favorite of real estate investors. Combining an LLC with a private residence trust is a powerful way for asset protection. It does not violate a due on sales clause, which mortgage agreements all have. Second, liens and judgments do not attach to a private residence trust. The legal title of the property is the name of a Trust, which the Client manages. The beneficiary title is a Asset Protection LLC, which provides the maximum creditor protection. Unlike a typical LLC, an Asset Protection LLC cannot be foreclosed like a regular LLC. This is important because a creditor typically has no way of accessing the real estate property.

For a free telephone consultation, please call Sean Robertson at 312-498-6080 or RobertsonLawGroup@gmail.com.

Litigation and Asset Protection for Distressed Business Owners

Everyday, we are getting increasing phone calls from business clients that are suffering as a result of this economy. Small business owners are facing extreme pressures from their creditors and on their business. Many small business owners are being sued by their vendors/creditors, employees, and many other liability concerns.

Often I hear how the business owner has one to three real estate properties and all of them are in their personal name or held jointly with their spouse. Business owners are facing revenue problems, which are causing them problems with their vendors, credit cards, mortgages, and many other liability issues. Today, I had a business owner visit me that has a couple of lawsuits and owns a total of four (4) real estate properties. Furthermore, this business owner had a judgment that was entered against him in California and he found out about this judgment three (3) days ago. Thus, we are getting this judgment overturned due to a lack of jurisdiction and notice. Moreover, we will set up structures where his creditors cannot access his investment real estate. This will buy him peace of mind and enable him to settle with his creditors for cents on the dollars when it is good for him to settle. Thus, unlike bankruptcy, this small business owner has too much equity in his real estate properties to file bankruptcy. Additionally, property ownership is vital because the real estate market will improve in the near future. Therefore, small business and real estate owners need time to address their affairs. Asset protection increases your bargaining power and protects your assets against liability threats.

How do we do this? We do this by using a private residence trust combined with a special type of LLC. This LLC makes it virtually impossible for a creditor to foreclosure or collect against a small business or real estate owner. Thus, your bargaining power with your creditors increase including your cash flow.

Sean Robertson went to DePaul University College of Law and received his juris doctor in 2003. Sean Robertson received his tax planning expertise by concentrating in tax and LLC tax planning, corporate and asset protection, and advanced estate planning. Our legal fees are extremely reasonable because we operate with minimal overhead. Sean Robertson can be reached at 312-498-6080 or 630-364-2318.

Robertson Law Group, LLC
www.RobertsonLawGroup.com
(312) 498-6080 or (630) 364-2318
RobertsonLawGroup@gmail.com

LLC and Growth

In today's blog, we will discuss why an LLC is a good business entity for growth purposes. First of all, an LLC is not the best entity for all business owners. An LLC is a good business entity if you are entrepreneurial and intend on building a company that is greater than four employees or owners. S corporations are great business entities for those that will have one to three employees and have big goals, but few owners or employees.

LLC and Flexibility

An LLC is the most flexible business entity other than a partnership. A partnership is two or more people coming together and forming a for-profit business. A partnership has no limited liability protection. In contrasts, an LLC adopts the flexibility of a partnership and the limited liability protection of a Corporation.

Flexibility is important because varying shareholders or owners have different interests. For example, angel investors or investors in general may want to be limited business owners because they do not want the risks inherit of a business. Furthermore, the angel investors or investors may want to be first in line to obtain their investment back in case of bankruptcy or corporate dissolution.

Flexibility is also important if you want to build a world wide company. An LLC can offer membership interests similar to stock options. Unlike stock options, the LLC can design a benefit's package where the employees get a percentage of profits or otherwise called "income partners". Stock options reward an employee when the business is sold. Unfortunately, most business owners have to find a way to pay the employees adequately enough until a business is sold. Therefore, an LLC is a good business entity for growth purposes.

In conclusion, an LLC embraces innovation and change. Whatever you can imagine can basically be drawn up with an LLC. In contrasts, an S corporation only allows voting shares. Thus, an S corporation is a horrible business entity for angel investors or investors.

Sean Robertson, Esq.
Robertson Law Group, LLC
(312) 498-6080 or (630) 364-2318
Serving Naperville, downtown Chicago, Cook County, Dupage County, Will County, Kane County, Kendall County

Liability and Foreclosure of a Corporation vs. LLC

Many people wonder whether an LLC or S corporation makes more sense. One advantage, which is a big deal is whether a creditor can foreclosure your shares of a corporation or your membership interests? Why does this matter to you? Simply put, it matters to you because your creditor will have an easier time putting you out of business during a bankruptcy or a creditor issue. In this economy, many business owners have had creditor issues.

S corporation

An S corporation is a type of corporation that is used for small business owners with less than one hundred (100) shareholders and who are U.S. citizens or residents. With an S corporation, one must file an election to be treated as a small business. The advantage of an S corporation is the corporation and shareholder do not both pay a tax. With an Corporation, the corporation and shareholder pay tax when income or a distribution are taken from the business. Thus, a Corporation has a double tax and public companies are one of the few businesses that should be in a C corporation. Another advantage of an C corporation is the payment of health insurance premiums are tax deductible. The disadvantage of this is small business owners are finding that health insurance premiums and the increase in premiums is a huge liability issue (if not addressed appropriately).

An LLC is a hybrid between a Corporation and a Partnership. An LLC is a relatively new business entity, which offers the flexibility of a partnership and limited liability status of a corporation. An LLC may have more than one type of shareholders unlike an S corporation. With an S corporation, you may only have one class of shareholders. In contrasts, an LLC may have voting and non-voting shareholders. The ability to have non-voting and voting members (owners) is a major attraction for an LLC. The remedy for a creditor against an LLC is a charging order versus a foreclosure. If structured the correct way, your creditor cannot foreclose your LLC. With an S corporation, your creditor can take your position as the shareholder. This is not the case with an LLC if structured with voting and non-voting membership interests. A charging order gives the business owner that is being sued a huge advantage of the plaintiff creditor. The most a creditor can claim is a garnishment of the distribution that the member or creditor is entitled to as a creditor. For example, ABC Construction, LLC has a creditor, which has a $50,000 judgment against ABC Construction, LLC in Illinois. With an LLC, ABC Construction could foreclose ABC Construction and take over the shares of the business. Foreclosure is vital because the creditor has voting power and can destroy any hiding of assets that has occured or may occur in the future. In contrasts, an LLC if structured as voting and non-voting shares has a different impact. The creditor only has a right to a charging order, which is an order allowing the creditor to garnish a percentage of the money distributed to the shareholder(s). Thus, as a business owner, you structure most of your ownership of shares in non-voting shares/stock. This way, you may avoid creditor concerns and avoid bankruptcy court. Unfortunately, any smart entrepreneur understands that business is a risky business and one must plan for the worst-case scenario.

Sean Robertson, Esq.
Robertson Law Group, LLC
(312) 498-6080 or (630) 364-2318
RobertsonLawGroup@gmail.com

Independent Contractor Agreements

An independent contractor agreement is an agreement between two parties. For instance, I had a client yesterday that wants to negotiate a business deal with another business. This client will get a finder's fee for introducing the other company to prospective customers in Illinois. Thus, an independent contractor agreement defines what the business relationship will be including the price terms, rights upon a dispute (how resolved), and who is responsible for payroll and other applicable taxes.

An independent contractor is responsible for filing their own taxes and it is important to deal with the issue of control. Often times, the difference between an employee and independent contractor is control. The IRS examines whether the employer essentially had control or whether the independent contractor had control. Items such as whether the employer provided an office space, who controlled the hours worked, whether the independent contractor has a business, and whether this type of position is normally an independent contractor or employee.

Well-drafted independent contractor agreements are essentially three to four pages and are clear and well-written.

Robertson Law Group, LLC
Sean Robertson, Attorney at Law
(312) 498-6080 or (630) 364-2318
RobertsonLawGroup@gmail.com

Asset Protection and Small Business Law

Asset Protection and Small Business Law

Nowadays, asset protection is vital because many business owners are facing an increasing amount of lawsuits, which threaten their business and personal assets. Unfortunately, setting up an LLC or Corporation and limited liability protection is often times becoming a myth.

How Do You Adequately Protect Yourself and Your Business?

First, your equipment should be under a different business entity than your LLC or Corporation. This is important because if you must dissolve your business entity, your equipment is your biggest issue. It is your biggest issue because you will lack additional start up capital and it is theft/fraud to take your equipment from your old company. You may subject yourself to personal liability because you have committed a fraud against your old company. If you have business creditors, they are looking for an excuse and way to file against you in your personal name.

Sean Robertson with the Robertson Law Group, LLC concentrates in estate planning, asset protection and business structure planning, and lawsuit protection. Sean Robertson has extensive experience in representing debtors with their Citation to Discover Asset's proceedings. Sean Robertson also counsels distressed business clients on their legal options especially when facing lawsuits. Today, individuals and business entities are being sued in breach of contract cases by their banks for bank loan guarantees, contract disputes, and other legal matters. Sean has the experience in representing new and established business owners and it is a passion of his. Sean is an experienced attorney and entrepreneur and loves assisting other entrepreneurs and small business owners.

Sean Robertson has the experience in working with Law Division cases in Will, Cook, and Dupage Counties. Sean Robertson can draft initial responses to lawsuits and counsel you on how to protect your assets in case of a judgment or otherwise called exemption planning. In Illinois, individuals enjoy $4,000 personal property exemptions, $15,000 homestead exemptions, and other exemptions from creditor's lawsuits.

For more information, call Sean Robertson at 630-364-2318 or check out our website at www.RobertsonLawGroup.com. Sean Robertson graduated from University of Illinois at Urbana-Champaign in 1997 and DePaul University College of Law in 2003.