Forming a Dental Partnership? Make Sure To Address These 4 Key Issues

Solo dental practitioners get to call all the shots, run their practice as they like, and control their own destiny. But going it alone also means paying all the bills, covering all overhead, assuming all management responsibilities, and competing with other practices that may have greater resources and reach. That is why many solo practitioners ultimately decide to join forces with one or more colleagues and form a dental partnership.

But for a dental partnership to succeed, the partners need to start on the right foot and be on the same page. As with marriages, the relationship between dental partners can deteriorate if they have different understandings of their roles and responsibilities, fail to communicate expectations clearly, or otherwise disagree on the management or direction of the practice. While no document can guarantee that a dental partnership will last forever, a well-crafted dental partnership agreement prepared with the assistance of experienced counsel can minimize the likelihood and fallout from conflicts and maximize the potential for a long and lucrative professional relationship.

As you contemplate your prospective partnership agreement, pay particular attention to these four key provisions:

Management Rights

Not all partnerships and not all partners are created equal. While an equal say in management may work for some, it may not be desired or optimal in other circumstances, such as when a more senior dentist joins forces with a more junior one.

A partnership agreement should specify who has the authority to make decisions, what decisions they are empowered to make, and how and when they can delegate decision-making authority. The agreement may also stipulate that certain, more significant management decisions require the approval of all or the majority of partners.

Non-Competition and Non-Solicitation Provisions

As much as a dental partnership may benefit all partners today, tomorrow may see one of the dentists decide to move on to greener pastures. When that happens, the remaining partner will want to ensure that those pastures don’t fill up with their existing patients and employees.

That is why dental partnership agreements frequently include non-competition and non-solicitation provisions. However, these provisions must be carefully tailored and not be overly broad or oppressive. Courts do not generally favor contractual provisions that limit the ability of someone to earn a living in their chosen profession, so judges carefully scrutinize these clauses, and deem them unenforceable if they are overly broad in scope or too vague.

Admission of New Partners

The partnership agreement should set forth if, how, and when new dentists may join the practice. Such provisions may include stating a minimum capital contribution that a prospective partner must make to join the practice or clarifying whether the decision to admit a new partner is subject to vote by the other partners. To ensure the new partner meets the partnership’s standards and qualifications, the agreement may include representations and warranties made by the incoming partner about their licensure status, malpractice history, and other matters.

Exiting the Practice

As noted, partners may decide to move on. The agreement should include provisions that establish a clear, orderly, equitable way for a dentist to leave the partnership. The contract may address whether a partner may dissociate before a set period and which events may be grounds for dissociation. It can also provide a buyout formula when a partner decides to leave according to the terms of the agreement or liquidated damages or other remedies if a partner dissociates in violation of the partnership agreement.

Serving The Dental Community For Decades

Over the past several decades, I have provided counsel and guidance for the dental community and other professionals licensed by the Illinois Department of Financial and Professional Regulation on a wide range of legal matters. If you are considering entering into a dental partnership, please give me a call at (312) 236-2433 or fill out my online form to arrange for your free initial consultation.

Faith v. Phony: How Should Employers Evaluate Employees’ Claimed “Religious” Objections to COVID-19 Vaccination Mandates?

Questioning the legitimacy of someone’s faith or religious beliefs is a tricky business. But employers across the country, from major corporations to local governments, have to deal with such deeply personal inquiries with increasing frequency as many employees and job candidates opposed to COVID-19 vaccine mandates seek “religious exemptions” from having to get the shot.

Recognizing the uncomfortable and somewhat perilous task faced by employers when such claims arise, the Equal Employment Opportunity Commission (EEOC) released new guidance on October 25, 2021, specifically addressing how employers should evaluate requests for religious exemptions from vaccine mandates. The new Section L of the EEOC’s omnibus COVID-19 page supplements previous direction about employer obligations regarding claimed religious objections to vaccinations.

The Basis for Religious Exemption Claims

The basis for religious exemptions to employer COVID-19 vaccine mandates is found in Title VII of the Civil Rights Act of 1964. Title VII requires an employer, upon receiving notice, to reasonably accommodate an employee whose “sincerely held religious belief, practice, or observance” conflicts with a job requirement, such as a company-wide vaccination mandate, unless providing the accommodation would create an undue hardship for the employer.

Accordingly, the threshold question for employers when an employee advises them of their request for a “religious accommodation” to an employer COVID-19 vaccine requirement is determining whether the objection to getting the shot is, in fact, based on a “sincerely held religious belief.”

What Is a “Religious Belief”?

The definition of “religion” under Title VII not only includes widely recognized faiths like Christianity, Judaism, Islam, or Hinduism, but it also protects nontraditional religious beliefs that may be unfamiliar to employers. However, as the EEOC clarifies, “social, political, or economic philosophies, as well as mere personal preferences, are not religious beliefs protected by Title VII.”

Therefore, employers are free to disregard exemption requests premised on concerns about “personal freedom,” the underlying legal legitimacy of vaccine mandates, or conspiracy-laden claims about microchips, magnetism, or other disinformation about COVID vaccines.

How To Determine Whether an Employee’s Religious Belief Is “Sincerely Held”

As the EEOC notes, “Whether or not a religious belief is sincerely held by an applicant or employee is rarely at issue in many types of Title VII religious claims.” But the reluctance of many workers to get vaccinated or their refusal to comply with employer or government vaccine mandates has made this very much an issue.

That’s because many employees who refuse to get vaccinated against COVID-19 for non-religious reasons are trying to incincerely and improperly shoehorn those objections  into Title VII’s religious protections. As the New York Times recently reported, “Vaccine-resistant workers are sharing tips online for requesting exemptions to the requirements on religious grounds; others are submitting letters from far-flung religious authorities who have advertised their willingness to help.”

This puts employers in the delicate position of questioning the sincerity of an employee’s faith and religion. According to the EEOC, an employee’s sincerity in holding a religious belief is “largely a matter of individual credibility.” When evaluating that credibility, the EEOC says that employers can consider the following “factors that – either alone or in combination – might undermine an employee’s credibility”:

  • Whether the employee has acted in a manner inconsistent with the professed belief (although employees need not be scrupulous in their observance).
  • Whether the accommodation sought is a particularly desirable benefit that is likely to be sought for nonreligious reasons; whether the timing of the request renders it suspect (e.g., it follows an earlier request by the employee for the same benefit for secular reasons).
  • Whether the employer otherwise has reason to believe the employee is not seeking the accommodation for religious reasons.

Employers can ask an employee to explain how their claimed religious beliefs conflict with a COVID-19 vaccine mandate. The EEOC advises that employers:

“Should not assume that an employee is insincere simply because some of the employee’s practices deviate from the commonly followed tenets of the employee’s religion, or because the employee adheres to some common practices but not others. No one factor or consideration is determinative, and employers should evaluate religious objections on an individual basis.

If you are a business owner and have questions about how to address religious or other objections to your company’s COVID-19 vaccination policies, please give me a call at 312-236-2433 or fill out my online form to arrange for your free initial consultation.

Illinois Sets New Limits On Non-Competes: What Medical Practice Owners Need to Know

Like many business owners, physicians who own medical practices often require employees, including associate physicians, nurses, and other critical staff members, to sign non-competition and non-solicitation agreements to protect their practice, patients, and personnel. But the ability of medical practice owners to use non-competes and other restrictive covenants in employment contracts will soon be curtailed under a recently passed law that Gov. JB Pritzker is expected to sign.

The legislature’s unanimous passage on May 31, 2021 of SB672 amending several provisions of the Illinois Freedom to Work Act dramatically transforms the landscape for these contractual provisions. If signed into law, the new restrictions on restrictive covenants will apply to all agreements dated on or after January 1, 2022.

For decades, courts have looked with a skeptical eye at non-competition and non-solicitation agreements, limiting as they do fundamental economic rights and the ability to make a living in one’s chosen occupation. Judges have not hesitated to hold such clauses unenforceable or modify them, especially if they are overly broad in time and geographic scope, are unsupported by sufficient consideration, or involve lower-wage workers.

The new amendments attempt to codify many aspects of courts’ analysis of restrictive covenants, establish clear limitations on when they can be used, and clarify the rights of employees when presented with such provisions.

Here is what physicians and medical practice owners need to know about the future of non-competition and non-solicitation agreements in Illinois:

Earnings-Based Limitations

Perhaps the most straightforward part of the new law is that it completely prohibits non-competes and non-solicitation agreements for employees below a specific income threshold. Specifically:

  • Employers cannot enter into non-competition agreements with employees who have expected annual earnings of less than $75,000. 
  • Employers cannot enter into customer/employee non-solicitation agreements with employees who have expected annual earnings of less than $45,000. 

These baseline income amounts will increase in 2027 and every five years after that. 

“Legitimate Business Interest” and Consideration of the “Totality of Circumstances” Required When Evaluating Restrictive Employment Covenants

One of the fundamental principles that Illinois judges have used to evaluate the enforceability of restrictive covenants is to look at the facts and circumstances surrounding the specific agreement and determine whether the limitations are tailored to protect an employer’s “legitimate business interests.”

The recent amendments reflect this fact-specific approach, explicitly stating that “the same identical contract and restraint may be reasonable and valid under one set of circumstances and unreasonable and invalid under another set of circumstances.” The law sets forth several factors that a judge may consider when determining whether the employer has a legitimate business interest, including:

  • The employee’s exposure to the employer’s patient relationships or other employees
  • The near-permanence of patient relationships
  • The employee’s acquisition, use, or knowledge of confidential information through the employee’s employment
  • The time restrictions, the place restrictions, and the scope of the activity restrictions.

Adequate, Independent Consideration Required

All enforceable agreements must be supported by adequate consideration, including restrictive covenants. Under the amendments, “adequate consideration” means:

  • The employee worked for the employer for at least two years after signing an agreement containing a covenant not to compete or a covenant not to solicit, or
  • The employer otherwise provided consideration adequate to support an agreement not to compete or solicit, such as a period of employment plus additional financial or professional benefits.

Opportunity to Review

Employers will need to provide employees 14 days to review a non-competition/non-solicitation agreement and advise them in writing at the same time to consult an attorney before signing it. 

Judges Can Revise Restrictive Covenants 

The new law codifies the discretion judges have to reform overly broad or otherwise legally deficient covenants –  a practice known as “blue penciling” –  rather than holding the entire covenant unenforceable.

Enforcement Limitations Related to COVID-19

An otherwise valid non-compete is unenforceable if the employee was terminated, furloughed, or laid off as the result of the COVID-19 pandemic unless enforcement of the covenant includes compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement minus compensation earned through subsequent employment during the period of enforcement.

As noted, the amendments will not be effective until January 1st of next year, so they will not apply to existing restrictive covenants. But medical practice owners who regularly use non-competition or non-solicitation agreements should consult with an experienced business attorney who can review such provisions in light of the new law.

If you are a medical practice owner and have questions about existing non-competes and non-solicitation agreements or how the new law affects your employment agreements going forward, please give me a call at 312-236-2433 or fill out my online form to arrange for your free initial consultation.

Small Businesses, Medical Practices, and Licensed Professionals That Don’t Prepare For Ransomeware Attacks Are Playing With Fire

Your small business doesn’t provide most of the fuel for the Eastern Seaboard or process and distribute a huge proportion of America’s meat supply. But that doesn’t mean you shouldn’t be worried about ransomware attacks or other cybersecurity threats. The recent attacks on the Colonial Pipeline and meat processor JBS are just two high-profile examples of what has become a significant threat to companies, medical practices, and licensed professionals across a wide range of businesses and professions. 

A Ransomware or Other Cyberattack Can Be a Deathblow To Your Business

Every minute of every day, sophisticated hackers attempt to gain access to trade secrets, personal customer or patient information, and all other data that makes a company run.  Sometimes, the data itself has value to cybercriminals, such as customer financial information, credit card numbers, Social Security numbers, and the like. Other times, as is the case in ransomware attacks, hackers hold a company’s entire information infrastructure hostage until they receive the eponymous ransom. The increasing complexity and frequency of ransomware attacks drove the average ransom payment from less than $5,000 in 2018 to over $233,000 in 2020

Such security breaches can cost companies millions of dollars in business disruption and remediation costs. Cyberattacks and the release of confidential information can cause customers to lose faith in the ability of the company to maintain the confidentiality of their payment and personal data.

Additionally, a complex patchwork of state and federal laws establishes notification requirements in the event of a breach. Failure to follow those laws can expose businesses to fines and adverse regulatory actions that only add to the pain of a cyberattack.

For business owners, physicians and medical practices, and licensed professionals, a robust cybersecurity program is no longer optional. Failing to implement a comprehensive strategy to protect valuable intellectual property and proprietary information is essentially business negligence. Failing to act swiftly and aggressively once a breach has occurred can be business and professional suicide.

Medical Practices Increasingly Under Threat

The threat to medical practices and other entities in the healthcare industry is of particular concern because the subject of the attacks usually includes protected health information (PHI). Cybercriminals hold that information hostage under the threat of “doxing,” meaning to publicly release documents containing PHI.

Guidance from the Department of Health and Human Services Office for Civil Rights, the federal body charged with enforcement of HIPAA, states that ransomware encryption of PHI is a per se unauthorized disclosure of PHI triggering the Breach Notification Rule. That rule requires HIPAA-covered entities and their business associates to provide notification following a breach of unsecured protected health information. The rule presumes a cybersecurity incident has resulted in unauthorized access to unsecured PHI, at which point the burden shifts to the practice or organization to show a low probability of the compromise of the PHI it maintains.

What You Can And Should Do Right Now To Protect Your Data and Your Business

The U.S. Small Business Administration has a wonderful website dedicated to helping business owners prevent and respond to ransomware and other cybersecurity threats. The site includes these ten key steps companies should take as part of a comprehensive strategy:

  1. Protect against viruses, spyware, and other malicious code
  2. Secure your networks
  3. Establish security practices and policies to protect sensitive information
  4. Educate employees about cyberthreats and hold them accountable
  5. Require employees to use strong passwords and to change them often
  6. Employ best practices on payment cards
  7. Make backup copies of essential business data and information
  8. Control physical access to computers and network components
  9. Create a mobile device action plan
  10. Protect all pages on your public-facing websites, not just the checkout and sign-up pages

I recommend that all small business owners and medical practices spend some time at the SBAs cybersecurity website (https://www.sba.gov/managing-business/cybersecurity)  and take all steps necessary to shore up this crucial aspect of their operations. A hack of your network may not attract national headlines, but it could repel customers and patients and cost you your business or practice.

If you have questions about protecting your business or medical practice from cyber threats, please give me a call at 312-236-2433 or fill out my online form to arrange for your free initial consultation.

It Doesn’t Take a Scalpel to Pierce Your Medical Practice’s “Corporate Veil”

As “Captain Obvious” would no doubt note: doctors get sued. Medical malpractice lawsuits are filed every day in which a patient alleges that a physician failed to adhere to the appropriate standard of care. But doctors get sued for other reasons and by folks other than those they treat. Medicine is a business as well as a profession, and like other businessmen and women, doctors can get sued by people or entities they do business with, including the government.

That is one of many reasons physicians form medical corporations, limited liability companies, or professional service corporations. These specialized entities can shield the personal assets of physicians who act as officers, directors, or shareholders when lawsuits by creditors or other liabilities confront their business. But that protection is not absolute, and doctors can find their personal assets in the crosshairs of a determined litigant if they fail to adhere to the requisite “standard of care” in managing their entity.

“Piercing the Corporate Veil”

“Piercing the corporate veil” is the term used to describe imposing personal liability on a company’s owner(s) for a corporate obligation. Plaintiffs often attempt to pierce the corporate veil when the company they are suing is insolvent or would be otherwise unable or unlikely to pay any judgment entered against it.

Veil-piercing allows a court to “impose liability on an individual or entity that uses a corporation merely as an instrumentality to conduct that individual’s or entity’s business.” Fontana v. TLD Builders, Inc., 362 Ill. App. 3d 491, 500 (2005)

Illinois courts use a two-prong test to determine whether to pierce the corporate veil:

  1. there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist; and
  2. circumstances must exist such that adherence to the fiction of a separate corporate existence would sanction a fraud, promote injustice, or promote inequitable consequences.”

In determining whether the “unity of interest and ownership” prong of the test is met for a medical business entity, a court will consider many factors, including:

  • inadequate capitalization;
  • insolvency;
  • failure to follow corporate formalities
  • commingling of funds;
  • diversion of assets from the entity by or to a member to the detriment of creditors;
  • failure to maintain arm’s-length relationships among related entities; and
  • whether, in fact, the entity is a mere facade for the operation of the dominant members.

Medical Entities Do Not Shield Doctors from Malpractice Liability

While a properly organized and managed entity can protect a doctor’s personal assets from creditors and business-related claims, it affords no such protection against medical malpractice claims. The Illinois Medical Corporation Act specifically provides that it “does not alter any law applicable to the relationship between a physician furnishing medical service and a person receiving such service, including liability arising out of such service.”

Similarly, the Illinois Professional Service Corporation Act states that physician officers, shareholders, or directors “remain personally and fully liable and accountable for any negligent or wrongful acts or misconduct committed by him, or by any ancillary personnel or person under his direct supervision and control, while rendering professional services on behalf of the corporation to the person for whom such professional services were being rendered.”

If you are a physician who has an interest in an Illinois medical practice, it is critical that you understand that the protections afforded to your assets aren’t set in stone just because you formed a corporate entity. I work closely with physicians and their entities to implement programs and protocols designed to minimize risks, including the risk of personal liability for their business obligations. If you need assistance with your medical practice’s legal obligations, please give me a call at 312-236-2433 or fill out my online form to arrange for your free initial consultation.

Bad Online Reviews Can Hurt Your Business – But Responding in Kind Can Too

If you own a small business or are a professional and have customers and clients, there is a good likelihood that someone has published an online review of your company and its goods or services. From Yelp to Angie’s List to TripAdvisor to any number of websites tailored to particular interests or industries, online reviews can have a profound impact on your business.  Even one negative review can be devastating.

You can find a lot of tips and do’s and don’ts online about how to handle such negative reviews from a strategic and business perspective. On more than one occasion I have had a panicked and apoplectic client ask me whether he can sue the author of a negative review for defamation.

The answer is, of course you can sue “IHateYourBusinesss123”” or whomever made the post. But the reality is that much of what is written in even the most scathing negative review will likely not qualify as actionable defamation. Furthermore, such lawsuits themselves can open up the business owner to further scorn, ridicule, and bad publicity in the fickle social media world.

As a preliminary matter, most online review sites and other platforms (Facebook, Yahoo, Google+, etc.) where comments may appear are immune from liability for defamatory comments in reviews as a matter of federal law. Section 230 of the Communications Decency Act shields such sites from claims based on comments posted by third parties.

What is Defamation in Illinois?

In Illinois, in order to prove defamation, including a claim based on an online review, a plaintiff has to prove:

  • the defendant made a false statement about the plaintiff;
  • there was an unprivileged publication to a third party;
  • fault by the defendant amounting to at least negligence; and
  • the publication damaged the plaintiff.

There is a special category of defamation that does not require a plaintiff to prove actual damages. Defamation per se, as it is called, involves specific statements that are deemed inherently damaging. These statements include ones which assert that the plaintiff:

  • is infected with a “loathsome communicable disease” (e.g. a sexually transmitted disease, HIV, hepatitis, etc.)
  • has a lack of ability to perform their professional duties, or otherwise harms the plaintiff in their professional reputation
  • lacks integrity in their professional duties
  • has committed fornication or adultery
  • has committed a criminal act

Provable Fact v. Opinion

The most common issue that distinguishes an actionable defamation claim based on online reviews from one likely to fail is the issue of whether or not a statement was false. Only false statements of fact can be the basis of a defamation claim, not opinions. A statement of fact has to be able to be objectively proved or disproved. Consider the two following hypothetical restaurant reviews:

“That was the most disgusting and flavorless meal I have ever had in my life.”

“The waiter spit in my food.”

The former is non-actionable opinion, as it cannot be objectively proven that the meal was the “the most disgusting and flavorless” one the reviewer ever had. Conversely, the latter is a statement of fact; it can be proven (perhaps not easily) whether or not the waiter spit in the diner’s food.

Additionally, Illinois courts emphasize the context in which an allegedly defamatory statement has been made in determining whether the statement can be the basis of a claim. Even if a single statement in a long rant is arguably a statement of provable fact, it may not constitute defamation if a reasonable reader would see it simply as invective.

Consider Brompton Building, LLC v. Yelp, Inc., a 2013 Illinois Appellate Court decision in which a building management company sued an anonymous former tenant who had posted a hyperbolic, scathingly negative, and extremely lengthy online review. Even though the rant contained a few objectively verifiable statements, the court found that it could not support a defamation claim because in context they would not be understood to be actual factual allegations. As the court noted, “The context of the defamatory statements is critical in determining its meaning. In determining the context of the defamatory statements, we must read the writing containing the defamatory statement ‘as a whole.'”

Careful How You Respond – Especially if You’re a Physician

The bottom line for business owners and professionals is that a lawsuit in response to outrageous internet reviews and comments that make their blood boil and their businesses suffer may not be the best course of action.  While certain false statements of fact in such comments can be the basis of a defamation claim, business owners and professionals should carefully consider how to proceed lest their response make a bad situation worse.

This is especially true if you are a physician. Doctors and other health care professionals are regularly reviewed online, and some of those reviews come from disgruntled patients who may publicly criticize the treatment they received. The problem is that in an effort to defend the care they provided, some doctors have revealed confidential patient information in comments they have posted in response to negative reviews. Such HIPPA violations, as with other online professionalism mistakes, have serious licensing and regulatory consequences. Any doctor wanting to post an online response to a patient complaint should think long and hard about how they do so – and whether they should respond at all.

6 Key Provisions to Consider in a Commercial Lease

When you make the decision to rent commercial space for your business, the considerations involved go far beyond location, term, and rent. Failure to take into account a number of other important issues, or ignorance of the detailed terms of your lease, can come back to haunt you with devastating consequences for the continued viability of your business.

You should always retain and consult with an experienced commercial real estate lawyer before signing any commercial lease or agreeing to any terms. Boilerplate legal documents are rarely a good solution. Your business is unique; your legal documents should be unique as well. As you are evaluating your options for your business’s new home, here are some crucial issues that you should keep in mind as you make your decision:

  • Build-out. Most often, the space to be rented will require significant work to make it suitable and desirable for your business.  You of course will want to spend as little as possible on the build-out so you will want to negotiate a significant tenant improvement allowance.  In a “turn-key” build-out, the landlord covers all of the costs of the improvements and factors those costs into the agreed-upon rent. Alternatively, the landlord can agree to contribute a set amount to the build-out.  Either way, you need to ensure that you maintain as much control over the build-out process as possible.
  • Use Provisions. Use provisions within commercial leases are designed to prevent similar or competing businesses from renting and occupying nearby space in the same building. This is obviously more of a concern for retail space, but it is important that your efforts are not undermined by other leases, and that you have ensured that all of your intended uses for the space are allowable under the lease terms.
  • Assignment and Subletting. At some juncture, you may wish to assign or sublet your space to a third-party. Commercial leases almost always require that the landlord give prior approval before you can do so. Make sure that the landlord cannot unreasonably withhold its consent to a sublease and be careful to note that you will still likely be fully liable for all rents even if the lease is assigned or property sublet to another party.
  • Property and Facility Maintenance. It is critically important to define which party is responsible for maintaining the building and its interior. Although it may seem obvious that a landlord is in charge of repairing things like broken HVAC systems and leaking roofs, other items aren’t so clear-cut. If you bear the cost of new carpeting, shelving, and electrical wiring, is the landlord still obligated to fix these items if something fails? What if you install new signage? Who is responsible for repair costs pays for broken neon in one of the sign’s letters? These are all items that have the potential to create serious and costly conflicts if not addressed in the commercial lease agreement.
  • Gross v. Net Rent. Just like airlines tag on all kinds of fees on top of the base fare, your true monthly rental costs could be hidden if you don’t pay attention to whether you are signing up to pay “gross” or “net” rent. Gross rent is the rent calculated inclusive of all building costs. Net rent is the rent calculated excluding building costs. Make sure you understand what costs you will be on the hook for every month.
  • Default: Notice and Opportunity to Cure. You don’t want a technicality or an unexpected delay in making a rent payment to be an excuse for terminating your lease. You should seek to include provisions allowing for notice of default and an “opportunity to cure” before the landlord may begin exercising remedies.

These are just a handful of the issues that you need to consider as you engage in one of the most fundamental and impactful choices you can make for your business. With so much riding on the terms of a commercial lease, don’t make the mistake of thinking that form documents or your experiences as a residential tenant are sufficient to protect all that you have worked for. Meet with an experienced Chicago commercial real estate lawyer who can provide you with the guidance and peace of mind that will allow your business to thrive in its new home.

Louis R. Fine: Chicago Commercial Real Estate Lawyer

I invite you to learn more about how I might be able to help you with your business or real estate questions, issues, and concerns. Please give me a call at (312) 236-2433 or fill out my online form to arrange for your free initial consultation. I look forward to meeting with you.

Political Hack is a Stark Reminder of the Importance of Cybersecurity to Small Businesses

The hate and hope, hysterics and history of the political conventions are over. These editions of our quadrennial pageants put a great many things in stark contrast, even more than they typically do. But while many things were familiar – booming speeches, delegates in outlandish outfits, and thousands of balloons falling from the rafters – there was something new this year. The hacking, likely by Russians, of Democratic National Committee computers in order to undermine the Democratic candidate is a stark reminder of how vulnerable all of us are to cyberthreats. While this hack had serious political and national security implications, the threat to small businesses is no less real and can be no less devastating.

Companies big and small find themselves repeatedly under attack by sophisticated hackers who seek to gain access to trade secrets and personal customer information to use for their own gain. Such security breaches can cost companies millions of dollars in business and remediation costs and cause customers to lose faith in the ability of the company to maintain the confidentiality of their payment and personal information.

For small business owners, a robust cybersecurity program is no longer optional. Failing to implement a comprehensive strategy to protect valuable intellectual property and proprietary information is essentially business negligence. Failing to act swiftly and aggressively once a breach has occurred can be business suicide. A complex patchwork of state and federal laws establish notification requirements in the event of a breach and failure to follow those laws can expose businesses to fines and adverse regulatory actions that only add to the pain.

The U.S. Small Business Administration has a wonderful website dedicated to helping business owners prevent and respond to cybersecurity threats. The site includes these ten key steps companies should take as part of a comprehensive strategy:

  1. Protect against viruses, spyware, and other malicious code
  2. Secure your networks
  3. Establish security practices and policies to protect sensitive information
  4. Educate employees about cyberthreats and hold them accountable
  5. Require employees to use strong passwords and to change them often
  6. Employ best practices on payment cards
  7. Backup copies of important business data and information
  8. Control physical access to computers and network components
  9. Create a mobile device action plan
  10. Protect all pages on your public-facing websites, not just the checkout and sign-up pages

I recommend that all small business owners spend some time at the SBAs cybersecurity website (https://www.sba.gov/managing-business/cybersecurity)  and take all steps necessary to shore up this crucial aspect of their operations. A hack of your network may not attract national headlines, but it could repel customers and cost you your business.

The Law Offices of Louis R. Fine

As an experienced Chicago business lawyer, I know how important it is to get a deal done. I also understand how crucial it is to get a deal done right. That is why I take a balanced approach to business transactions, one that is meticulous and detailed, but that does not delay a closing or consummation of a deal. My role is to facilitate, not stand in the way. Please give me a call at 312-236-2433 or fill out my online form to arrange for your free initial consultation.

When It’s Business and It’s Personal: Small Business Ownership and Divorce in Illinois

If you own your own business, you know that it can be hard sometimes to not take things personally. With so much cash, sweat, and tears invested in your company, its successes or struggles will impact you in ways far beyond what is reflected on a balance sheet.

Just as your business can impact your personal life, your personal life can have a huge effect on your business, especially if you are going through a divorce.

The ownership, valuation, and division of small business interests in a divorce can be a major source of conflict. Whether you own your business by yourself or with other partners or members, it is important to understand how the end of your marriage will affect your business, your ownership interest, and your wallet.

In an Illinois divorce, property is divided into “marital” property and “non-marital” property. The former is property acquired during the marriage and will be equitably divided between the spouses. The latter is the property of the spouse who owned it prior to the marriage and will be awarded to that spouse.

As such, if one spouse owned a business prior to the marriage, it will generally remain their business after the divorce. But this is where things get complicated.

Businesses aren’t pieces of furniture; they don’t just sit there stagnantly. During the course of a marriage, businesses grow; businesses pay salaries and make distributions; businesses incur debt; businesses obtain capital and investments from the owners; businesses may add owners, including a spouse.

Much of what happens to the business while a couple is married means that both spouses may be entitled to an interest in the value of the business. For example, the following will be counted as marital property to be equitably divided:

  • Business ownership interest acquired during the marriage
  • The gain in value in the ownership interest of a business established before the marriage which accrued by personal effort of the owner spouse during the marriage
  • Discrete, distinguishable assets acquired by a non-marital business during marriage

Furthermore, a non-owner spouse may be entitled to a right of reimbursement for contributions made toward a non-marital business during the marriage.

When a business or an interest in a business is deemed to be marital property, the valuation of the business or ownership interest becomes a big issue. Each spouse may wind up retaining accountants or other experts to establish the value of the business such that the cash value can be allocated as part of the larger division of assets. Rather than force a divorcing couple to remain business partners, courts will often offset the value of the business interest by awarding other assets to the non-owner spouse.

Of course, a valid pre-nuptial agreement that addresses the issue of business ownership upon divorce can take all of this out of the court’s hands and bring clarity to both the divorce process as well as business operations going forward.

Louis R. Fine: Chicago Business Division and Valuation Attorney

Illinois business division and valuation issues are complicated and can have a long term impact on the financial well-being of both spouses. As an experienced Chicago divorce lawyer, I understand the complexities and challenges involved in dividing business interests as part of divorce. I work to ensure that every client receives what they are entitled to while minimizing conflict and acrimony throughout the process.

If you have questions or concerns about how your business may be impacted by your divorce, please give me a call at (312) 236-2433 or fill out my online form to arrange for a consultation. I look forward to assisting you.

How to Lose Your LLC’s Personal Liability Protection in Two Easy Steps

Whether you are just starting a new venture or growing your business beyond a sole proprietorship, you will inevitably reach a point where you want to ensure that your personal assets will not be vulnerable in the event that lawsuits or other liabilities confront your business. In the world of small business, there are two clear vehicles to accomplish that goal: a limited liability company (LLC) or an S-corporation (often shortened to S-corp).

As I discuss here, both LLCs and S-corps do what sole proprietorships do not, and that is remove your personal assets from the reach of your business creditors. However, if you are an Illinois LLC owner and you fail to maintain and treat the LLC as a separate entity or engage in fraudulent conduct, you expose yourself and your partners to the very personal liability for corporate obligations that led you to form the entity in the first place.

“Piercing the Corporate Veil”

“Piercing the corporate veil,” – though the concept applies to LLCs as well – is the term used to describe imposing personal liability on a company’s owner(s) for a corporate obligation. Plaintiffs often attempt to pierce the corporate veil when the company they are suing is insolvent or would be otherwise unable or unlikely to pay any judgment entered against it.

Veil-piercing allows a court to “impose liability on an individual or entity that uses a corporation merely as an instrumentality to conduct that individual’s or entity’s business.” Fontana v. TLD Builders, Inc., 362 Ill. App. 3d 491, 500 (2005)

Illinois courts use a two-prong test to determine whether to pierce the corporate veil:

  1. there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist; and
  2. circumstances must exist such that adherence to the fiction of a separate corporate existence would sanction a fraud, promote injustice, or promote inequitable consequences.”

When You and Your LLC Are One and the Same

In determining whether the “unity of interest and ownership” prong of the test is met for an LLC, a court will consider many factors, including:

  • inadequate capitalization;
  • insolvency of the debtor LLC;
  • commingling of funds;
  • diversion of assets from the LLC by or to a member to the detriment of creditors;
  • failure to maintain arm’s-length relationships among related entities; and
  • whether, in fact, the LLC is a mere facade for the operation of the dominant members.

Failure to Follow Formalities Isn’t Enough

One of the reasons business owners form LLCs rather than S-Corps is that there are fewer corporate formalities that need to be followed. In some states, failure of LLC owners to follow corporate formalities can be a basis for piercing the veil.

In Illinois however, the state’s LLC Act specifically provides that “the failure of a limited liability company to observe the usual company formalities or requirements relating to the exercise of its company powers or management of its business is not a ground for imposing personal liability on the members or managers for liabilities of the company.” 805 ILCS 180/10-10(a), (c).

Failure Doesn’t Necessarily Equal Fraud

If a court finds that an LLC and its members were one and the same – “that there was a unity of ownership and interest” – it still must find that failing to pierce the veil would “sanction a fraud, promote injustice, or promote inequitable consequences.”

Simply because an LLC goes under doesn’t mean that shielding the owners from personal liability would be inequitable. Sure, it would be unfortunate for the suing creditor, but without an intent to defraud or other conduct that makes it clear that the owners were acting in bad faith, a court will not pierce the veil.

The Law Offices of Louis R. Fine

If you are an Illinois LLC owner, it is critical that you understand that the protections afforded to your assets aren’t set in stone just because you formed an LLC. I work closely with my small business clients to implement programs and protocols designed to minimize risks, including the risk of personal liability for their business obligations. If you need assistance with any small business legal matter, please give me a call at 312-236-2433 or fill out my online form to arrange for your free initial consultation.