Not every limited liability company lasts indefinitely. No matter how much time and effort you put into building your business, there may come a time when you decide it’s the right time to close it. However, it’s important to understand that there are certain steps that must be followed when it comes to dissolving an LLC. Failure to complete the dissolution process and wind up the company’s affairs can ultimately mean the business continues to exist under Illinois law — leading to tax problems and liability issues in the future.

Reasons for Dissolving an LLC

When you file the necessary paperwork to start an LLC in Illinois, your business is officially registered with the state. But while you may have started the company with a purpose or specific vision in mind, there can be many reasons to close an LLC. To end the company’s existence and stop the state from recognizing it as an entity, you will need to go through the dissolution process and wind up the company’s affairs.

Specifically, the reasons for dissolving an LLC should be addressed in the company’s operating agreement. In the event the company is no longer profitable, or members cannot agree on important decisions concerning business operations, it might be time to close the company. Other reasons for dissolving an LLC can include disagreements concerning the future of the company or how to distribute profits. In addition, an LLC might also be dissolved due to the death of the owner, decreasing demand for the LLC’s products or services, or another reason that makes it impossible to run the business.

What are the Steps for Winding Up an LLC?

For effective LLC dissolution, seek guidance from Litico Law Group in Rolling Meadows. We offer dependable representation for various business needs across Illinois. Schedule a consultation and explore how we can help your business.

An LLC can’t simply be closed by shutting the doors of the business — there are specific dissolution and wind-up procedures that must be followed. If you’re considering dissolving an LLC, it’s vital to review the operating agreement. This document should address the LLC’s dissolution process and specify the triggering events that can lead to dissolution.

The steps in winding up an LLC include the following:

• Vote to dissolve the LLC — The first step that must be taken to dissolve an LLC is for the members to officially agree to close the company. In many cases, the operating agreement will specify how the vote will happen, when the meeting will occur, and how members will be notified regarding the vote. Under Illinois law, an LLC can be dissolved with a unanimous vote by all members.
• File final tax returns — As you close the LLC’s financial affairs, all required state tax returns must be filed, including the following if applicable: the Illinois Withholding Income Tax Return, the Sales and Use Tax Return, and the Corporation Income and Replacement Tax Return. The Illinois Secretary of State requires an LLC to obtain tax clearance before a company can be closed, showing that you’ve paid all taxes that are due. You will also need to file the required final federal tax returns.
• Inform creditors — Creditors of the LLC must be notified that the company is being dissolved. Illinois law also requires a minimum of five years notice be given to unknown creditors.
• Wind up business affairs — The wind-up process may look different for every business, depending on the type of operation. Typically, winding up includes satisfying remaining invoices, distributing employee severance packages, notifying customers, closing bank accounts, canceling any business licenses, and negotiating the remaining terms for any finance agreements. Steps must also be taken to settle any debts that are owed.
• Distribute remaining assets to members — Once taxes, debts, and other obligations have been paid, the remaining assets can be distributed to the LLC’s members. The operating agreement should specify how the funds are split.
• File Articles of Dissolution — The last step in closing an Illinois LLC is filing dissolution paperwork. In order to officially dissolve the LLC, an Illinois Statement of Termination must be submitted to the Secretary of State after winding up the business. However, an LLC must be in good standing to be voluntarily dissolved. The company’s status must not have been revoked or expired, and the LLC must not have been administratively dissolved.

LLC dissolution and completing the wind-up process can be complex — but it is necessary to ensure these procedures are carried out properly to avoid incurring liability and unintended consequences. Critically, as long as a company still exists, it must file annual reports, pay taxes, and satisfy its legal obligations. It’s essential to have a skillful business attorney by your side to help ensure you comply with the necessary requirements for closing your LLC.

Contact an Experienced Illinois Business Attorney

If you are considering dissolving an LLC, it’s important to have the guidance of an experienced business law attorney to help you navigate the process. Located in Rolling Meadows, Litico Law Group provides reliable representation to LLCs and entrepreneurs throughout Illinois for a wide array of business matters. We welcome you to contact us by filling out our online form or call 847-307-5942 to schedule a consultation to learn how we can assist you.

What is Self-Dealing?

Self-dealing occurs when a fiduciary acts in their own best interest while conducting a business transaction, rather than in the interest of the business. In other words, the individual who self-deals is essentially on both ends of the transaction and disregards their duty of loyalty to the company. One of the most common examples of self-dealing is using business resources for a direct personal benefit.

There are many different ways self-dealing can arise. Other examples of self-dealing can include the following:

If you have been accused of self-dealing, or your company has been financially harmed by it, contact an experienced business litigation attorney at Litico Law Group. We can advise you regarding your options and help you achieve a successful outcome.

• Using company funds for a personal loan
• Engaging with a connected company without making proper disclosures
• Failing to share knowledge of a business opportunity with partners
• Seizing corporate opportunities for a personal benefit
• Diverting corporate opportunities
• Engaging in a transaction that involved company assets and receiving a kickback
• Paying oneself an excessive amount of compensation
• Insider trading
• Using corporate assets to pay for personal expenses
• Purchasing a controlling interest in a competing company

For those who do not have a direct fiduciary duty, self-dealing can also refer to situations where a person buys or sells stocks before relevant information is made public.

Is Self-Dealing Ever Permitted?

The business judgment rule acknowledges that there are risks when it comes to making business decisions. This rule insulates corporate directors and other fiduciaries from liability for making decisions on behalf of the company, as long as they were made in good faith. However, it is important to understand that the rule does not protect corporate officers and other fiduciaries from liability when it comes to self-dealing. Fiduciaries must act in good faith at all times and disclose any conflicts of interest.

Nevertheless, engaging in a conflict of interest may not always lead to liability. While the fiduciary duty of loyalty prohibits self-dealing, it may be permitted in limited instances where the conflicting transaction has been fully disclosed and approval has been given by the other partners or shareholders. Self-dealing is also allowed if the fiduciary can show that the transaction was fair to the company and its shareholders. While it’s best to avoid self-dealing entirely, a transaction involving a conflict of interest can be cured subsequently through ratification — this means obtaining approval from the disinterested shareholders after the transaction has already been completed.

When Does Self-Dealing Constitute a Breach of Fiduciary Duty?

Self-dealing can have a substantial economic impact on a company. If an LLC member, corporate officer, director, or other party in a fiduciary relationship engaged in self-dealing, it may constitute a breach of fiduciary duty. In such cases, the party could be held responsible for any harm they caused the company or its shareholders to suffer as a result.

There are a number of both legal and equitable remedies that a court may impose in cases involving self-dealing. For instance, a court may order an award of compensatory damages, disgorgement of profits, a constructive trust, or an injunction to prevent further harm. A judge might also order the appointment of a receiver or order an injunction that requires the fiduciary to take certain actions.

Disputes involving self-dealing don’t always need to be resolved in litigation. In some cases, alternative dispute resolution methods such as mediation or arbitration can successfully resolve business conflicts involving self-dealing and other breach of fiduciary duty matters. These methods can offer a flexible, cost-effective, and efficient way to settle business disputes outside the courtroom with less disruption to business operations.

Contact an Experienced Illinois Business Attorney

If you have been accused of self-dealing, or your company has been financially harmed by it, an experienced business litigation attorney can advise you regarding your options and help you achieve a successful outcome. Located in Rolling Meadows, Litico Law Group provides reliable representation for a variety of business and corporate matters throughout Illinois. We welcome you to contact us by filling out our online form or calling 847-307-5942 to schedule a consultation to learn how we can assist you.

The process of selling or purchasing a business can be complex. While there are many legal documents that may be involved in the transaction, the terms, conditions, and provisions that go into a business purchase agreement are critical. Whether you’re the buyer or seller, a well-drafted purchase agreement can protect your interests, safeguard your legal rights, and ensure a smooth transaction.

When it comes to buying or selling a business, there’s a lot at stake — and it’s important to have an experienced business attorney who can help you navigate this complicated process. At Litico Law Group, our legal team has extensive knowledge regarding business acquisition matters, and is committed to helping business owners meet their objectives. From small companies to franchises and large commercial operations, we possess the insight, knowledge, and experience necessary to assist you every step of the way.

Skillful Counsel for Business Sales and Acquisitions

Selling or purchasing a business can often feel overwhelming. If you’re the seller, you must ensure you’re adequately compensated for the asset you’ve worked so hard to build. In the event you’re looking to purchase a business, it’s crucial to make certain you fully understand not only the advantages, but also the potential liabilities involved. The attorneys at Litico Law Group provide comprehensive legal services to entrepreneurs and prospective business owners to help them avoid the pitfalls that can arise during a business purchase transaction — and maximize their financial benefits.

At Litico Law Group, our trusted attorneys provide representation to both buyers and sellers for business acquisitions. We assist clients with all aspects of a pending business purchase or sale, including the following:

• Drafting a letter of intent
• Drafting purchase and sale agreements
• Negotiating the terms of a purchase agreement
• Ensuring the purchase agreement is legally sound
• Working with business appraisers to obtain an accurate valuation
• Procure any necessary documentation
• Conducting due diligence
• Representing our client’s interests at closing

Our legal team can also provide a risk assessment, advise you regarding the potential risks, and develop strategies to minimize them. Litico Law Group has the expertise, insight, and acumen to handle even the most complex business purchase transactions. Offering personalized attention to every client, we take the time to gain a deep understanding of your objectives and work closely with you to identify your needs.

Knowledgeable Counsel for Reviewing, Drafting, and Negotiating Purchase Agreements

No two businesses are alike — and your purchase agreement should be specifically tailored to meet your unique needs. A business purchase agreement shouldn’t be boilerplate. Rather, the terms should be carefully negotiated and customized to avoid unintended legal consequences and potentially devastating financial outcomes. At Litico Law Group, we work diligently to create and negotiate purchase agreements that not only safeguard your rights at the closing table, but will also protect your long-term interests.

A solid business purchase agreement is vital to your business and its bottom line. It outlines the terms and conditions of the deal to which the parties are agreeing and can be highly nuanced. Specifically, the content of a well-drafted business purchase agreement should include detailed provisions regarding the following:

• The financial terms regarding the transfer, including the purchase price, the deposit amount, and other details
• A description of the assets that are being transferred, such as physical assets, equipment, intellectual property, customer lists, etc.
• Warranties, representations, and contingencies
• A confidentiality agreement and non-disclosure provision
• Non-compete and non-solicitation covenants
• Details regarding how the transfer of ownership should be carried out
• Liabilities assumed by the buyer
• A provision regarding third-party brokers, if applicable
• The closing logistics

The terms, conditions, and provisions in your business purchase agreement can have ramifications on your company for years to come. It’s essential to have a skillful business attorney by your side who can negotiate, review, and draft a purchase agreement that will help ensure the transaction is successful and your business goals are satisfied. When you work with Litico Law Group, you can be confident in knowing you have discerning counsel on your side who is dedicated to negotiating a fair deal — and securing the best possible terms regarding the purchase or sale of your business.

Contact an Experienced Illinois Purchase Agreement Attorney

If you are considering buying or selling a business, an experienced business attorney can advise you throughout the process, work with you to mitigate risks, and create a strategy for success. Located in Rolling Meadows, Litico Law Group offers high-quality legal services to individuals, entrepreneurs, and business owners in Illinois for a wide variety of business matters. We welcome you to contact us or give us a call at (847) 307-5942 to schedule a consultation to learn how we can assist you.

If your business has prevailed in a lawsuit and you were awarded a judgment against a supplier, customer, or another company, the next step is to collect the amount you are owed. But you might be wondering how to collect on a judgment if it was issued in another state. In these cases, enforcing the judgment can be more complex — and require additional steps. Importantly, under the full faith and credit clause of the United States Constitution, foreign judgments rendered in other states must be treated the same as local judgments.

What Is a Judgment?

A judgment is a court order that entitles you to collect a specific amount of money from the judgment debtor. It puts a lien on certain property, such as real estate, in the jurisdiction where the judgment was rendered. But the judgment is simply the court’s decision in a lawsuit — it is not the vehicle that collects the money for you. Additional steps may need to be taken to enforce the judgment and obtain the money that is rightfully yours.

Domesticating an Out-of-State Judgment in Illinois

An out-of-state judgment allows you to pursue a variety of collection efforts — but only in the state where it was entered. In the event a judgment debtor has assets in Illinois and the judgment was not issued within the state, you must take measures to register and “domesticate the judgment.” This is a separate legal process from obtaining a judgment and is permitted under Illinois law pursuant to the Uniform Enforcement of Foreign Judgments Act (UEFJA).

To domesticate a judgment in Illinois, you must file an authenticated copy of the judgment, along with a detailed affidavit, a notice of filing, and a cover sheet with the clerk of the court. Once it has been properly registered, the foreign judgment will be recognized as an Illinois judgment. This means it can be enforced in the state and will have the same effect as any judgment that was originally rendered in Illinois. Generally, you can begin collection efforts immediately after the judgment has been domesticated.

For judgments that were entered outside of the United States, the Uniform Foreign Money Judgments Recognition Act (UFMJRA) applies. To register a judgment rendered in a foreign country in Illinois, the judgment must be final, enforceable, and conclusive. If it satisfies this criteria, it is entitled to the same full faith and credit as a judgment rendered in another state.

How to Collect on a Judgment After it Has Been Domesticated

It’s essential to have a skilled business attorney by your side who can help you navigate the judgment collection process. Litico Law Group’s business attorneys provide diligent representation and knowledgeable counsel for judgment enforcement in Illinois. Call (847) 307-5942 to schedule a consultation to learn how we can help.

Knowing how to collect on a judgment can be crucial to the success of your business and its bottom line. Critically, once an out-of-state judgment has been registered and domesticated, it becomes a lien on certain property owned by the debtor. There are a number of legal measures you can take to enforce a judgment and collect the amount you are owed.

Judgment collection efforts can include the following:

• Wage garnishment — Wage garnishment allows a creditor to satisfy their judgment by collecting it from the debtor’s wages. This is done by filing the necessary documentation with the court and serving proper notice on the debtor’s employer. Under Illinois law, a creditor can recover 15 percent of a debtor’s nonexempt wages until the employee either leaves their employment or the judgment is paid in full.
• Citation to discover assets — A citation to discover assets can be an essential judgment collection tool if you are collecting from a business entity or an individual. It allows you to demand that the debtor provide a variety of documentation regarding their assets, income, and debts. When a citation is served, it also creates a citation lien. This freezes the debtor’s assets and allows for other remedies, such as asset turnovers and charging orders. Failure to comply with the citation can result in contempt charges.
• Non-wage garnishment — In addition to wage garnishment, non-wage garnishment can allow you to seize non-exempt assets from the debtor, including the funds in their bank account. In order to seize a debtor’s bank account funds, you must first serve a garnishment summons to the financial institution, as well as notice upon the debtor. Once the summons has been received, the bank will freeze the debtor’s accounts, which prevents them from withdrawing any funds until a resolution has been reached in the case. Importantly, the court order authorizing the asset seizure will specify a certain dollar amount. A creditor cannot recover more than the amount specified in the order.

Pursuant to Illinois law, a judgment must be enforced within seven years of its entry. While a judgment is not extinguished after that time, it becomes dormant. A dormant judgment can be revived within 20 years of the original entry — once it has been revived, it must be enforced within seven years.

Contact an Experienced Illinois Business Attorney

Enforcing a foreign judgment after you’ve prevailed in a commercial lawsuit is often complicated. If you are wondering how to collect on a judgment that was issued in another jurisdiction, it’s essential to have a skilled business attorney by your side who can help you navigate the judgment collection process. Located in Rolling Meadows, Litico Law Group’s business attorneys provide diligent representation and knowledgeable counsel for judgment enforcement in Illinois, including those involving out-of-state judgments. We welcome you to contact us at (847) 307-5942 to schedule a consultation to learn how we can help.

Shareholder oppression occurs when the majority shareholders or directors of a nonpublic corporation act in a manner that is oppressive, fraudulent, or illegal toward the minority shareholders. Such actions can be detrimental to individual minority shareholders and the company as a whole. In such cases, the aggrieved parties are afforded a number of remedies under the Illinois Business Corporation Act. In some instances, the minority shareholders may also be able to obtain an award of attorneys’ fees from the defendants personally, even in the absence of a contract or statute.

What Is Shareholder Oppression?

Shareholder oppression can take many forms in a corporation. Typically, it occurs when the majority shareholders act in a way that prejudices the minority shareholders. A common example of this is a “squeeze out.” This term refers to situations where the majority shareholders develop a plan to force the minority shareholders to sell their interest in the corporation at an unfair price. Shareholder oppression may also take the form of a “freeze out,” where the majority shareholders try to deny the minority shareholders their rights and benefits.

Additionally, shareholder oppression can arise when the majority shareholders deprive the minority shareholders of stock ownership, drain profits by inflating salaries for the majority shareholders, and fail to notify minority shareholders about meetings. It can also occur when a majority shareholder tries to physically lock a minority shareholder out of the premises, denies them the opportunity to inspect business records, or terminates their employment.

What Remedies Are Available in Shareholder Oppression Cases?

Typically, a lawsuit commenced by a shareholder who has suffered a direct injury as a result of shareholder oppression will be brought as a “direct action.” In contrast, if a controlling shareholder harms the company by breaching its fiduciary duties toward it, the shareholder must bring a claim derivatively on behalf of the company since it was the corporation that suffered the injury.

Shareholder oppression can be detrimental to individual minority shareholders and the company as a whole. It’s vital for the shareholders who suffered injury to take the appropriate legal measures. Schedule a consultation with Litico Law Group to learn how we can help.

There are a wide range of remedies available to minority shareholders under the Illinois Business Corporation Act for shareholder oppression. Under 805 ILCS 5/12.56, the remedies awarded by the court in matters involving shareholder oppression can include the following:

• The performance, prohibition, alteration, or setting aside of any action of the corporation or its shareholders, directors, officers, or any other party to the action
• The cancellation or alteration of any provision in the company’s articles of incorporation or bylaws
• Removal of any director or officer from office
• Appointing any individual to serve as a director or officer
• Requiring an accounting regarding any matter in dispute
• Payment of dividends
• Appointing a custodian who will manage the corporation

Depending on the circumstances of the case, a court may also order the corporation, or one or more shareholders, to purchase all the shares of the petitioning shareholder at fair value. If no other remedy would resolve the matter in dispute, a judge may order dissolution of the corporation.

Attorneys’ Fees in Shareholder Oppression Cases

While shareholders who bring a direct action are generally responsible for their own attorneys’ fees and expenses, Illinois courts have long recognized that a plaintiff who prevails in a derivative suit may also be awarded attorney’s fees. In such cases, the courts reason that a party who has conferred a benefit upon another due to litigation may obtain a share of attorneys’ fees from those who would receive the benefit — this is known as the “common fund” doctrine. The doctrine is an exception to the “American Rule” which requires that each party incur their own costs associated with litigation, including attorneys’ fees.

Importantly, a plaintiff may be able to recover attorneys’ fees from the defendants individually, rather than from the common fund. In fact, the Appellate Court of Illinois in the First Judicial District decided a case last year that addressed this specific issue. In Tsai v. Karlik, the court held that its broad powers granted under the common fund doctrine permitted the imposition of attorney fees against an unsuccessful defendant in a derivative suit. The court determined that it had the authority to order such an award, regardless of whether it is specified by contract between the parties or in a specific statute.

Contact an Experienced Business Litigation Attorney

Shareholder oppression can result in serious harm to a company — and its minority shareholders. It’s vital for the shareholders who suffered injury to take the appropriate legal measures. Located in Rolling Meadows, Litico Law Group’s business litigation attorneys provide high-quality legal services in Illinois for a broad scope of business disputes, including those involving shareholder oppression. We welcome you to contact us at (847) 307-5942 to schedule a consultation to learn how we can help.

During the course of doing business, disputes are not uncommon. Whether it’s a breach of contract, intellectual property matter, conflict between partners, or disagreement over finances, a commercial dispute can be time-consuming and costly. However, there are a few steps business owners can take if they believe litigation is anticipated.

Take Immediate Action

If you have received a cease and desist or demand letter, you should take immediate action. Although these types of letters are not legally binding, they usually indicate the party’s intention to bring a lawsuit. If you don’t respond, you could end up receiving a summons and complaint, along with a temporary restraining order. By acting swiftly, you can work to resolve the dispute before litigation is commenced.

Notify Your Insurance Carrier

If your business has insurance that protects you from certain types of commercial claims, it’s crucial to notify your insurance carrier promptly. Some insurers will only provide coverage if claims are reported immediately, so they should be contacted the moment litigation is anticipated.

Retain a Business Litigation Attorney

As a business owner, your focus should be on building your company and expanding your bottom line. By hiring a good business attorney from the outset, you can keep your eye on your business endeavors — rather than your legal issues. A commercial litigation attorney who concentrates in commercial law can help guide you through the business litigation process and work to protect your interests. They can also assess whether there are viable alternatives to litigation that can help save you time and money and determine the best course of action based on the facts of your case.

Preserve Evidence

The moment litigation is anticipated, you should take steps to preserve evidence. It is vital to identify the information and documentation that will support your position early on. In addition, be sure to comply with any retention policies your company has in place to avoid inadvertently destroying evidence that may be relevant such as contracts, emails, letters, invoices, and text messages. Importantly, do not intentionally discard any evidence — a court can impose severe sanctions for doing so.

Identify Custodians Who May Have Necessary Information

If you are facing a business dispute, you need a commercial litigation attorney by your side who can help you navigate the litigation process. Litico Law Group provides reliable representation to business owners and entrepreneurs throughout Illinois. We welcome you to contact us to learn how we can assist you with your commercial matter.

Part of preserving evidence is identifying data custodians and locating where the information is stored. Interview people in your company who are likely to possess information about the facts of the dispute. You should also instruct them not to destroy any documentation they may have. The information you gather can be essential to help develop a legal strategy in your case.

Remember That Evidence Can Be Stored Electronically

Evidence isn’t only that which is in tangible form. It’s vital to understand that you also have an obligation to preserve electronic data stored in computers, tablets, cellphones, and other devices. It’s a good idea to work closely with your IT team to make sure this data is properly saved and stored. This data will also have to be organized for review and production, which can take a considerable amount of time.

Limit Communication With the Other Party

If you have reason to believe business litigation is anticipated, it’s best to limit any verbal or written communication with the other side unless your attorney has approved it. Any letters, emails, or conversations you have may be used in court. Once you have retained counsel, all communication should go through them. Importantly, the other side’s attorney is not permitted to speak with you directly — they can only communicate through your attorney.

Choose a Strategy

Your attorney can help create a legal strategy based on the information gathered and the facts of your case. In some cases, mediation or arbitration may be used to resolve a dispute outside of the courtroom. Depending on the circumstances, settling out of court can be more cost-effective and help to protect your company’s reputation. However, if the other side refuses to discuss settlement, you may have no option other than proceed through the business litigation process.

Continue Business as Usual

Many commercial lawsuits take years to resolve. However, your business does not have to stop operating and growing during this time. It’s vital that you don’t allow a pending lawsuit dictate the success of your company or the relationship you have with your clients, customers, and employees.

Contact an Experienced Business Litigation Attorney

If you are facing a business dispute, it’s critical to have an attorney by your side who can help you navigate the business litigation process. Located in Rolling Meadows, Litico Law Group provides reliable representation to business owners and entrepreneurs throughout Illinois. We welcome you to contact us by filling out our online form or call (847) 307-5942 to schedule a consultation to learn how we can assist you with your commercial matter.

When people think of business theft — also referred to as embezzlement — criminal activity is usually what comes to mind. While embezzlement is typically a white-collar crime that can come with serious legal ramifications, including jail time and substantial fines, a business partner who embezzled or stole money can also be held civilly liable for their wrongful act. If you or your business suffered financial harm due to the embezzlement of a business partner, you may be entitled to commence a civil lawsuit, in addition to filing any applicable criminal charges.

Suing for a Partner’s Theft or Embezzlement in Business

Unfortunately, occurrences of theft and embezzlement in business are not uncommon. If you have discovered that your business partner was embezzling or stealing money, physical property, intellectual property, or other assets, you may be wondering whether you have any legal recourse. Even if you file criminal charges for embezzlement in business, you may still be able to hold the individual liable in a civil lawsuit — and recover your damages.

Depending on the facts and circumstances of the case, there are several grounds upon which you may be able to base a civil lawsuit. For instance, if your business partner committed the theft through fraudulent conduct, you may be able to pursue a civil claim for fraud. You might also be entitled to commence a claim for a breach of fiduciary duty, breach of contract, misrepresentation, or other grounds. In doing so, you may be able to recover your monetary damages — including compensatory, incidental, consequential, and liquidated damages.

You might also be entitled to punitive damages in limited cases where the defendant’s conduct was particularly egregious.

Commencing a Civil Action for Fraud

There are various types of fraud that can occur in business. For instance, a business partner may wrongfully take and use business funds to satisfy a personal debt or purchase goods for personal purposes. They might also use business funds for unauthorized business activity. To prove that your business partner committed fraud, you must satisfy each of the following elements:

• Your business partner made false statements of material fact;
• Your business partner knew the statements were false, believed them to be false, or made the statements in reckless disregard of the truth;
• Your business partner made the statements to induce you to act;
• You reasonably and justifiably relied on the false statement; and
• You suffered damages because of the false statement.

If you suspect that your business partner has committed fraud, it’s important to take immediate action to prevent further harm to the company. However, it’s crucial to have sufficient evidence that fraud occurred — this can come in the form of receipts, fraudulent invoices or financial transactions, bookkeeping records, and other documentation.

Suing a Business Partner for Breach of Fiduciary Duty

Unfortunately, embezzlement in business is not uncommon. A well-drafted partnership agreement can help to resolve conflicts in advance, specify authorized behavior, limit partners from taking funds out of accounts for personal use, and prevent partners from making significant purchases.

If your business partner committed fraud or embezzled money from the company, they have also breached their fiduciary duty. Under Illinois law, a business partner has three primary duties. These include 1) accounting for profits, property, opportunities, or other benefits derived by them; 2) refraining from dealing with the partnership as a party with an adverse interest or on behalf of a party with an adverse interest to the partnership; and 3) refraining from competing with the partnership.

Notably, a business partner’s fiduciary duty also encompasses the duty of honesty, loyalty, fair dealing, and good faith. A breach of fiduciary duty in a business relationship is a serious matter for which the aggrieved party may be able to commence a lawsuit to recover their damages.

Preventing Embezzlement in Business With a Partnership Agreement

Although a partnership agreement is not required by law, it is crucial to have one in place to safeguard the company. A well-drafted partnership agreement can help to resolve conflicts in advance, specify authorized behavior, limit partners from taking funds out of accounts for personal use, and prevent partners from making significant purchases. A partnership agreement should also include a provision for dissolution procedures and the circumstances under which the partnership can be dissolved.

In the event a partnership does not have an agreement in place, it can sometimes be more difficult to demonstrate that a partner’s alleged misconduct constitutes fraud. If there is no written partnership agreement that specifies what qualifies as unauthorized conduct, it will be necessary to rely on other documentary evidence to prove embezzlement in business. A skilled business litigation attorney can investigate your case and assist you with uncovering the evidence necessary to establish your claim.

Contact an Experienced Illinois Business Litigation Attorney

If you have reason to believe your business partner embezzled assets or stole from the company, it’s critical to have an experienced business law attorney on your side who can advise you regarding your legal recourse. Located in Rolling Meadows, Litico Law Group provides reliable representation to business owners and entrepreneurs throughout Illinois for a wide variety of business matters. We welcome you to contact us by filling out our online form or call (847) 307-5942 to schedule a consultation to learn how we can assist you.

A business dispute can be seriously disruptive to your company’s operations and bottom line. One of the first questions you might have if you’re facing litigation is how long your case will take to resolve. Importantly, every commercial case is unique and involves a different set of facts and circumstances. There is no specific timeline that can be applied to business dispute litigation — cases may be resolved in as little as a few months or they might take years, depending upon the complexity of the issue. However, there is a certain legal process that is followed for every matter.

Factors Affecting the Timeline for Business Dispute Litigation

The litigated business dispute timeline can depend upon many factors, including the parties’ willingness to mediate, discuss settlement, and resolve the matter outside of court. If you’re facing a business dispute, an experienced business law attorney can help you navigate the litigation process.

It is not possible to give a precise timeline when it comes to commercial litigation. The litigated business dispute timeline can depend upon many factors, including the parties’ willingness to mediate, discuss settlement, and resolve the matter outside of court. Other factors that can impact how long business dispute litigation might take can include the following:

• The complexity and number of issues in the case
• The amount of discovery to be conducted
• The court’s calendar and scheduling
• The number of witnesses and their availability
• The commitment of the parties to resolve the dispute
• The experience of the attorneys in the case

When something goes wrong during the course of doing business or a transaction does not go as planned, it’s essential to tackle the matter early on. In the event both sides begin settlement talks as soon as possible, the litigation process might only take a few months if an agreement can be reached. But when a business dispute involves a large quantity of evidence and requires multiple appearances in court, a case can go on for years.

The Business Dispute Litigation Process

There are a wide variety of conflicts a business owner can face. These can include breaches of contract or fiduciary duty, partnership disputes, misrepresentation, non-solicitation matters, deceptive trade cases, fraud, and more. Although the issue in each case might be different, the business dispute litigation process typically follows the same structure for every type of dispute.

Generally, an attorney will first investigate the facts involved with a commercial case. Once they have heard your position and reviewed any relevant documents, they can make a determination regarding whether litigation is the best course of action to pursue. Business dispute litigation usually follows the following sequence:

• Pleadings are filed — The business dispute litigation process is commenced when a complaint is filed with the court. The plaintiff then has a certain amount of time to serve it on the defendant. The defendant can either answer the complaint, file a motion to dismiss, or make counterclaims.
• The discovery phase — Discovery in business litigation is when evidence is exchanged by both sides. This is often the longest phase of the litigation process and can involve subpoenas, depositions, interrogatories, and other tools to gather information.
• Settlement discussions are held — While settlement discussions can be held at any point during the litigation process, both parties may attempt to resolve the case once they have obtained information through the discovery process, before proceeding to trial.
• The trial phase — If the parties do not reach a resolution, the trial phase of litigation will begin. From preparation to verdict, this phase of litigation can last several months. Trial includes several different components, including jury selection, opening arguments, questioning witnesses, and closing arguments.
• Settlement or a verdict — The parties are free to reach a settlement at any point in the case. It’s not uncommon for a case to settle on the eve of trial. However, if the case is decided by a jury, they will return a verdict after hearing the evidence and deliberating.
• Appeal — A jury’s verdict isn’t always the end of a commercial case. If a mistake of law or procedure was involved that would have rendered a different outcome, the non-prevailing party might choose to file an appeal.

Sometimes, a business contract might specify that mediation or arbitration must be attempted to settle a dispute before a lawsuit is commenced. Arbitration is a form of alternative dispute resolution that can sometimes be used to help resolve a commercial conflict efficiently and cost-effectively. In addition, if less than $50,000 of monetary damages is in dispute, the court might require that the case go to arbitration.

Contact an Experienced Business Dispute Litigation Attorney

If you’re facing a business dispute, it’s critical to have an experienced business law attorney on your side who can help you navigate the litigation process. Located in Rolling Meadows, Litico Law Group provides skillful representation to business owners and entrepreneurs throughout Illinois. We welcome you to contact us by filling out our online form or call (847) 307-5942 to schedule a consultation to learn how we can assist you.

Many companies have trade secrets that they have invested a significant amount of time and money into developing. Trade secrets are an essential form of intellectual property protection — and can sometimes be an easier alternative to securing patent protection while having the benefit of no expiration date, as long as it remains a secret. Like other forms of intellectual property, a trade secret can be infringed upon — and it may be necessary to take legal action if a trade secret has been misappropriated.

What Is a Trade Secret?

A trade secret is any type of confidential information that provides a business or enterprise with an economic advantage over the competition. They can include commercial, industrial, and manufacturing secrets. Trade secrets can also be formulas, programs, patterns, devices, techniques, financial data, customer lists, processes, and compilations. These things have actual or potential economic value to a company because they are not generally known to the public.

In addition, to qualify as a trade secret, reasonable steps must be taken by the rightful owner of the information to help ensure it is kept confidential — such as with a confidentiality agreement. Illinois courts will evaluate several factors to determine whether information constitutes a trade secret, such as the extent to which the information is known outside of the business and the amount of effort expended to develop the information. A judge will also look at the value of the information to the business and its competitors and the ease or difficulty for others to acquire or duplicate the information.

What Is Trade Secret Infringement or Misappropriation?

If you can demonstrate that your information was a trade secret, and someone has misappropriated it and is now using it for their economic gain, you can bring a lawsuit against them. A trade secret can be infringed upon — and it may be necessary to take legal action.

Trade secrets are protected under the Illinois Trade Secret Infringement Act from misappropriation — which is sometimes referred to as “infringement.” Misappropriation occurs when a trade secret has been wrongfully taken without consent or disclosed without permission. It can also happen if an individual knew or had reason to know the trade secret was derived from improper means at the time it was acquired.

Some examples of the ways in which trade secret misappropriation can happen may include the following:

• Breaches of non-disclosure agreements
• Industrial espionage
• Fraud, theft, or bribery
• Publication

Trade secret misappropriation isn’t always intentional. It can happen as a result of carelessness or negligence. Unfortunately, once a trade secret has been misappropriated and has been widely disseminated, trade secret status is typically lost and the information is no longer protected. This is why it is crucial to take steps to safeguard the information that constitutes a trade secret.

Pursuing a Lawsuit for Trade Secret Infringement

Trade secret misappropriation can involve a nuanced set of facts and circumstances — and lawsuits surrounding these matters are often complex. To determine whether you have a claim for trade secret misappropriation, a court will have to consider (1) whether the information is actually a trade secret; (2) whether the trade secret was stolen; and (3) the damages associated with the misappropriation. If your claim meets these three elements, you may be able to recover a remedy by filing a lawsuit.

Under Illinois law, actual or threatened misappropriation may be enjoined. An injunction is an equitable remedy that may be issued to eliminate the commercial advantage that would otherwise be derived from the misappropriation and stop the defendant from using the trade secret. A plaintiff in a trade secret infringement suit may also request monetary damages to cover the costs associated with their economic losses. Such damages can include the aggrieved party’s own losses, as well as the profits the defendant made through misappropriation of the trade secret.

There are several defenses an alleged wrongdoer may assert in a trade secret infringement lawsuit. For instance, they may argue that they developed the trade secret independently. Or, they might assert that there was no trade secret to misappropriate because reasonable steps to keep the information confidential were not taken.

What Measures Can Be Taken to Protect Trade Secrets?

Companies should implement strict protocols to help ensure their trade secrets are protected from misappropriation. This can mean protecting files, keeping the secrets in a locked area, or similar measures. A business should also ask employees who have access to the trade secrets to sign a non-disclosure agreement, an agreement protecting confidential information, or a non-compete agreement. Significantly, the measures taken to protect trade secrets must be reasonable and taken within a reasonable time period.

A company must also take reasonable measures to continue to ensure trade secrets are safeguarded from misappropriation after the initial protective steps have been taken. If a business becomes aware that a current or former employee is disclosing a trade secret, a cease-and-desist letter should be issued immediately. Depending on the circumstances, immediate injunctive relief might also be necessary.

Contact an Experienced Illinois Trade Secret Litigation Attorney

It’s important to take every possible measure to safeguard your company’s trade secrets — and take legal action in the event they are threatened by misappropriation. Located in Rolling Meadows, Litico Law Group is committed to serving the legal needs of business owners and entrepreneurs in Illinois for a wide variety of matters, including those involving trade secret misappropriation. We welcome you to contact us by filling out our online form or calling (847) 307-5942 to schedule a consultation to learn more about our legal services.

Restrictive covenants, such as non-compete and non-solicitation clauses, are becoming increasingly common in employment contracts. These types of clauses are meant to prevent an employee from offering the same services as their former employer or poaching clients and co-workers from their previous company. While such provisions in a contract can look very similar to each other, they serve two distinct purposes. If you are an employer who uses restrictive covenants or you have been asked to sign an employment agreement that contains one, it’s important to know the difference.

What Is a Non-Compete Agreement?

A non-compete agreement is a clause that prevents an employee from competing with an employer’s business after they leave their current employment relationship. Non-compete agreements can restrict an employee’s ability to either work for themselves or a competitor in the same field for a specific period of time. They are most common in industries where an employee is expected to build up a client list or where highly confidential proprietary information is involved. A non-compete can also be included in an agreement when a business is sold.

In determining whether a non-compete agreement is enforceable, a court will consider whether the employer has a legitimate business interest that needs to be protected. A judge will also consider the geographic scope and duration of the restraint, as well as the specific industry to which it applies.

What Is a Non-Solicitation Agreement?

While non-solicitation and non-competes in a contract can look very similar to each other, they serve two distinct purposes. If you are an employer who uses restrictive covenants or you have been asked to sign an employment agreement that contains one, it’s important to know the difference. We welcome you to contact us to schedule a consultation to learn how we can assist you.

A non-solicitation agreement is a provision in an employment contract where an employee agrees not to solicit their former employer’s clients, customers, or employees after the end of the employment relationship. Such agreements may apply whether the employee leaves to work for a competitor or they form their own company. These provisions will usually specify a certain amount of time during which the solicitation is prohibited after the employee’s departure.

Courts will enforce non-solicitation agreements only if they are reasonable. Generally, a non-solicitation provision will be deemed reasonable by a judge if it is no broader than necessary to safeguard the legitimate business interests of an employer. If such a clause would place an undue burden on a former employee and affect their ability to work in the same type of employment, it may be unenforceable.

Differences Between a Non-Compete and a Non-Solicitation Agreement

Some employment agreements contain non-compete clauses. Others might include a non-solicitation clause — or both types of restrictive covenants. Regardless of which type of restrictive covenant is used, employers should take care to ensure the terms are not ambiguous, overly restrictive, or too broad. Employees who are presented with such a contract at the beginning of employment or with a severance package must also be careful that the terms to which they are agreeing do not impact their ability to earn a livelihood.

Some of the differences between non-compete and non-solicitation agreements that should be noted include the following:

• A non-solicitation agreement is typically less restrictive than a non-compete.
• A non-solicitation agreement has the narrow purpose of prohibiting client or employee solicitation.
• Non-compete provisions prohibit working for a competitor, while a non-solicitation clause only prevents an employee from soliciting clients or workers for them.
• Unlike non-compete clauses, non-solicitation clauses typically do not impose restrictions on the right of an employee to work.
• With a non-solicitation agreement, an employee can immediately begin work in the same field and geographic area.
• A non-compete prevents an employee from competing with the employer’s business in any manner.

Just because an employment agreement contains a restrictive covenant does not mean that it’s enforceable. Both non-compete agreements and non-solicitation agreements should be balanced to protect a company’s legitimate business interests with the employee’s ability to pursue employment. However, in the event of litigation, a non-solicitation agreement is more likely to be upheld in court since it does not impose as harsh restrictions on an employee’s right to earn a living in their chosen field.

Legal Considerations for an Employer’s Use of Non-Compete and Non-Solicitation Agreements

In addition to ensuring that a non-compete or non-solicitation agreement isn’t overly restrictive or burdensome for an employee, employers must take note of new legislation that went into effect at the beginning of 2022. The Freedom to Work Act prohibits employers from entering into a non-compete agreement with an employee who earns less than $75,000 a year. This amount will increase by $5,000 every five years until 2037.

The new Illinois law also applies to all non-solicitation agreements executed after January 1, 2022. Employers cannot enter into these types of agreements with employees earning a salary of less than $45,000 a year. This amount will increase to $50,000 in 2027 and go up to $52,500 in 2032. If an employer enters into any type of “covenant not to compete” with an employee who satisfies the monetary threshold, the agreement will be unenforceable.

The Freedom to Work Act does not apply to confidentiality agreements, trade secret agreements, or restrictive covenants regarding business acquisitions.

Contact an Experienced Illinois Business Litigation Attorney

Whether you’re an employer who uses restrictive covenants, or you’re an employee who is subject to one, it’s essential to have an experienced business law attorney by your side who can advise you regarding these matters. Located in Rolling Meadows, Litico Law Group serves the legal needs of business owners and entrepreneurs throughout Illinois. We welcome you to contact us by filling out our online form or calling (847) 307-5942 to schedule a consultation to learn how we can assist you.

Trade secrets are some of the most valuable assets a business can possess. Critically, the Illinois Trade Secrets Act offers a broad scope of protection to businesses when it comes to their confidential trade secret information. While one of the most famous — and well-protected — trade secrets is the formula for making Coca-Cola, trade secrets can come in a variety of forms. Whether your business has a proprietary process, method, instrument, pattern, or practice that gives it a competitive edge over others, it’s essential to understand the legal protections it is afforded.

What Is a Trade Secret?

A trade secret is a type of intellectual property that has value because it is not generally known by others and reasonable measures are taken to keep it secret. The Illinois Trade Secrets Act defines a trade secret as information that includes, but is not limited to, the following: technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, and lists of actual or potential customers or suppliers.

In addition, the information must be sufficiently secret to derive actual or potential economic value as a result of not being generally known to those who can obtain monetary value from its disclosure or use. It must also be the subject of reasonable efforts to maintain its confidentiality. The most crucial factor in determining the existence of a trade secret is whether and how the owner acts to ensure the information is kept secret.

How Do Illinois Courts Determine What a Trade Secret Is?

It’s vital to take every possible measure to protect your company’s trade secrets — and pursue the necessary legal action if they are threatened by misappropriation. Litico Law Group is dedicated to serving the legal needs of business owners and entrepreneurs in Illinois for a wide variety of matters, including those involving trade secrets. We welcome you to call (847) 307-5942 to schedule a consultation to learn more about our legal services.

Under the Illinois Trade Secret Act, the existence of a trade secret is a question of fact. Illinois courts look to several factors to determine whether information constitutes a trade secret. Specifically, a court will consider:

1. the extent to which the information is known outside of the business
2. the measures the business took to safeguard the information
3. the value of the information to both the business and the competition
4. the amount of effort or money spent by the business to develop the information
5. the ease or difficulty with which other parties can acquire or duplicate the information

Courts have found trade secrets to include computer software source codes, financial data related to profits, research and marketing plans, product formulations, production methods, and circuitry schematics. Things like mailing lists, phone books, trade publications, and directories are not classified as trade secrets. However, Illinois courts have recognized customer lists and pricing information as trade secrets.

What Is Trade Secret Misappropriation?

Trade secret infringement is referred to as “misappropriation.” Trade secret misappropriation can arise in several different ways. For instance, it can occur when someone improperly acquires a trade secret, discloses it, or uses it without consent. Trade secret misappropriation can also arise through the use of a trade secret without express or implied consent by a person who acquired it under circumstances giving rise to a duty to maintain its secrecy.

To pursue a cause of action for trade secret misappropriation in Illinois, three elements must be proven in court. A plaintiff must demonstrate that (1) a trade secret exists; (2) the trade secret was misappropriated; (3) damages were incurred. Unlike with patents, there are no time restrictions on trade secrets. A trade secret can potentially be protected indefinitely — as long as a business takes reasonable efforts to keep them confidential, the Illinois Trade Secret Act safeguards them from misappropriation.

What Damages Can a Plaintiff Recover for Trade Secret Misappropriation

Under the Illinois Trade Secret Act, there is a five-year statute of limitations to bring a claim for trade secret misappropriation. If a plaintiff can establish trade secret misappropriation, they may be entitled to a wide variety of damages, including the actual monetary losses suffered, unjust enrichment damages, the profits made by the defendant’s misappropriation, and the cost of development. They may also be eligible to recover exemplary damages which are punitive damages meant to punish the wrongdoer.

Injunctive relief may also be granted in some cases, when applicable. This type of relief can bring an early resolution at the beginning of the case by ordering the defendant to stop engaging in certain activities. For instance, the judge might issue an order to cease production of an item that uses a process constituting a misappropriated trade secret.

Trade secret litigation can be lengthy and costly. If the plaintiff prevails in the lawsuit, they may be awarded their attorneys’ fees. However, in the event that the defendant prevails, the court may award them attorneys’ fees if it finds the plaintiff pursued the action in bad faith.

Contact an Experienced Business Litigation Attorney

It’s vital to take every possible measure to protect your company’s trade secrets — and pursue the necessary legal action if they are threatened by misappropriation. Located in Rolling Meadows, Litico Law Group is dedicated to serving the legal needs of business owners and entrepreneurs in Illinois for a wide variety of matters, including those involving trade secrets. We welcome you to contact us by filling out our online form or calling (847) 307-5942 to schedule a consultation to learn more about our legal services.

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Are Non-Compete Agreements Allowed in Illinois?

Options for Resolving Partnership Disputes

Companies that use non-compete agreements and restrictive covenants should be familiar with several recent changes that occurred in Illinois law. While the Illinois Freedom to Work Act previously only applied to non-compete agreements for low wage workers earning less than $13 per hour or minimum wage, a new amendment has created a higher compensation threshold. Notably, the changes impose various new challenges for employers and can significantly limit their ability to bind employees to these types of agreements.

What Is a Non-Compete Agreement?

If you own a company, it’s crucial to ensure all your employment contracts comply with the new laws. It’s best to have an experienced business law attorney by your side to advise you regarding these matters. Litico Law Group is dedicated to serving the legal needs of business owners and entrepreneurs in Illinois. We welcome you to contact us to schedule a consultation to learn how we can assist you.

A non-compete agreement is a contract entered into between an employer and employee where the employee agrees not to work for a competitor during their employment with the company, or for a period of time thereafter. These types of agreements are typically entered into at the beginning of an employment relationship.

The contents of a non-compete agreement can vary, depending on the type of company. However, it usually prohibits an employee from working for a competing company, forming a competing company, or developing competing products. Additionally, such an agreement might prevent an employee from recruiting their former coworkers and colleagues to join the new business — this can also be addressed in a non-solicitation agreement.

What Is the New Illinois Law Regarding Non-Compete Agreements?

Business owners should be aware of a new law that went into effect in the beginning of 2022 that restricts the use of non-compete agreements in Illinois. Pursuant to the Freedom to Work Act, employers are prohibited from entering into a non-compete agreement with an employee, unless their annual earnings exceed $75,000. This amount will increase to $80,000 in 2027 and will continue to increase by $5,000 every five years until 2037. The law specifies that any “covenant not to compete” entered into that fails to meet the earnings threshold will be deemed void and unenforceable.

Under the terms of the Act, a “covenant not to compete” is one that restricts an employee from performing work for another employer for a specified period of time or in a specified geographical area. The definition also includes work performed for an employer similar to work for the employer who is a party to the agreement — and any terms that would impose adverse financial consequences on the former employer for engaging in competitive activities after termination.

The updated law also imposes restrictions on non-solicitation agreements entered into after January 1, 2022. Non-solicitation agreements are restrictive contracts that prohibit an employee from soliciting their former company’s employees or clients. Critically, Illinois employers are now prohibited from entering into these types of agreements with employees who make a salary of less than $45,000 per year. This threshold increases to $50,000 in 2027 and goes up to $52,500 in 2032.

Considerations for Employers

Although the amendment to the Freedom to Work Act has resulted in some sweeping changes for employers, it’s important to understand that the new law does not apply to certain agreements. The Act is not applicable to confidentiality agreements, agreements prohibiting the disclosure of trade secrets, or restrictive covenants in connection with a business acquisition. In addition, non-compete agreements are generally prohibited in the construction industry and individuals covered by collective bargaining agreements. However, individuals who are shareholders or partners in a construction company may be asked to sign a non-compete.

Illinois employers should also be mindful of the following when drafting non-compete and non-solicitation agreements:

• A restrictive covenant must be supported by a legitimate business interest based on the totality of the facts and circumstances. Factors that might support the use of a non-compete can include the employee’s exposure to the employer’s relationship with customers, the near permanence of these relationships, and the employee’s knowledge of confidential information.
• Employers may not enter into a non-compete or non-solicitation agreement with any employee terminated due to COVID-19 unless the agreement provides compensation equal to the employee’s base salary at the time of termination for the enforcement period — minus any compensation earned through their subsequent employment.
• Courts may have the discretion to reform or sever non-compete and non-solicit provisions instead of rendering them wholly unenforceable. Accordingly, using a blue penciling provision is critical in any restrictive covenant agreement.
• Employees must be given at least 14 calendar days to review a non-compete or non-solicit agreement and consult with counsel if they wish. If an employer fails to comply with this requirement, the agreement will be considered illegal and void.

Non-compete and non-solicit agreements are illegal and void if the employee does not receive adequate consideration and the agreement is not supported by a valid employment relationship. The covenant must also not be greater than required to protect a legitimate business interest and cannot impose an undue hardship on the employee.

Contact an Experienced Illinois Business Law Attorney

If you own a company, it’s crucial to ensure all your employment contracts comply with the new laws. It’s best to have an experienced business law attorney by your side to advise you regarding these matters. Located in Rolling Meadows, Litico Law Group is dedicated to serving the legal needs of business owners and entrepreneurs in Illinois. We welcome you to contact us by filling out our online form or calling (847) 307-5942 to schedule a consultation to learn how we can assist you.

You may also be interested in:

Trade Secret Protection in Illinois

Options for Resolving Partnership Disputes

The Smith case, pending in the U.S. District Court for the Eastern District of Michigan, involves issues that regularly present in shareholder oppression cases. First, despite corporate success and the controlling shareholders receiving millions through compensation and self-dealing, the minority shareholder receives nothing of value. Second, the controlling shareholders provide inadequate information for the minority shareholder to recognize the controlling shareholders’ actionable conduct and take legal action.

Judge Mark A. Goldsmith recently issued an opinion touching on these themes in the course of ruling on the parties’ motions for partial summary judgment in Smith. This paper synthesizes the parties’ positions and the court’s analysis of those positions, which provide an illustration of how minority shareholders, majority shareholders, and courts address common issues in shareholder disputes.

Martin Smith, the plaintiff, is a 48.5% shareholder in E&E Manufacturing Corporation, Inc. 2020 U.S. Dist. LEXIS, 81240 at *2. Wallace Smith and his wife, Joan Smith, own 51.5% of E&E’s stock. Id. Wallace and Joan are E&E’s sole directors and Wallace is E&E’s president, secretary, and treasurer. Id. Martin is not employed by E&E. Id. at *28.

Between 2012 and 2018, E&E generated annual net income of approximately $3.5 million to $5.0 million. Id. *3. Despite the considerable profits, Wallace and Joan did not make any dividend distributions to E&E’s shareholders. Id. Martin alleges that Wallace and Joan also caused E&E to enter into various transactions, including leases in which E&E paid millions, to companies owned by Wallace, Joan, and their children. Id. at *3-4. Martin also alleges that Wallace received, on average, approximately $1.8 million dollars annually in compensation. Id.*28.

Martin filed suit against Wallace, Joan, and others for shareholder oppression, breach of fiduciary duty, and other statutory relief under Michigan’s corporate statutory scheme. Id. at *5. He seeks a buyout of his shares in E&E, payment of dividends, removal of Wallace and Joan from management, an accounting, profit disgorgement, and damages. Id.*28

The defendants argued that Martin’s claims should be subject to Michigan statutes of limitations of two and three years. Id. at *9-10. The court held that only Martin’s damages claims were subject to those statutes whereas his equitable claims, i.e. all relief other than money damages, were subject to a six-year statute of limitations. Id. at 10-11.

Crucially, the court reserved for trial the issue of whether any application of the statute of limitations should be tolled based on fraudulent concealment. Id. *17-18. Under Michigan law, “fraudulent concealment must be manifested by some affirmative act or misrepresentation, an exception to this rule applies when there is an affirmative duty to disclose material information by virtue of a fiduciary relationship.” Id. at *15. As directors and majority shareholders, Wallace and Joan owed Martin fiduciary duties. Id. at *16.

Martin alleged Wallace and Joan failed to disclose “information bearing on his present claims”, including the sum of Wallace’s compensation, the terms of self-dealing lease agreements, and the value of distributions Wallace, Joan, and their children received through entities receiving rent from E&E. Id. at *16. Additionally, Martin alleges the defendants provided incomplete annual financial reports that excluded information that would have provided notice to Martin of some of his claims. Id. The court agreed with Martin, concluding that “[i]f Wallace and Joan had a fiduciary obligation to disclose this information to Martin—including the information in the full balance sheets—their failure to do so would be consistent with fraudulent concealment.” Id. at *19.

In essence, the court decided which statutes of limitations apply to Martin’s claims with the caveat that whether the statute of limitations are offset by fraudulent concealment for trial. This being a pretrial decision on summary judgment, the final result of the Smith case is as yet undetermined. The opinion nevertheless provides shareholders a case study in the legal issues that arise in what is a remarkably typical shareholder oppression case fact pattern.

Within ten days of a member’s demand, the company is required to either: 1) produce the requested documents; or 2) respond in writing describing the documents that will be provided and stating a reasonable time and place at which the documents will be provided. Additionally, if a member demands to inspect company records, the company must designate a reasonable time and place for the member to do so, and the member may make copies of documents. If the company refuses to make requested records available, it must provide the member its reasons for refusing in writing. 180 ILCS 180/10-15(a), (b). If the reasons for withholding are spurious or asserted in bad faith, a member may need to seek relief from a court.

While the LLC Act does not define “proper purpose,” Illinois courts have interpreted the meaning of “proper purpose” in the context of shareholder demands for records under the Business Corporation Act. Seeking information to protect the interests of a member or the company are proper purposes, and a member is “entitled to know anything and everything” reflected in the company’s books and records relevant to protecting her interest. See Weigel v. O’Connor, 57 Ill. App. 3d 1017, 1025 (1st Dist. 1978) (interpreting Business Corporation Act). Evidence of mismanagement or wrongdoing is not necessary to establish proper purpose. See id.

An LLC member may demand company records such as QuickBooks files, bank account statements, credit card statements, and tax returns in order to determine whether the company is being appropriately managed and whether profits are being recorded and distributed fairly.

The defendants owned 52% of the business at issue, Twin Bay Village, and the plaintiffs owned 48%. The plaintiffs’ involvement in the business was limited, at least recently, and the defendants ran the business, which had been in the family since 1957.

The defendants:

• held a shareholder meeting in 2001 without notifying the plaintiffs and passed a corporate resolution awarding themselves $80,000 per year bonuses, untied to their performance or that of the company, despite the fact the corporation had not paid dividends to its shareholders since 1995;
• issued 100 shares of stock in 2004, in addition to the 100 shares then outstanding, and then divided those purported shares between themselves without permitting the plaintiffs an opportunity to purchase additional shares, diluting the minority shareholders;
• claimed to have issued $750,000 in loans to the corporation between 2005 and 2013, which their financial evidence did not support; and
• amended the corporation’s bylaws in 2009 to state that a shareholders who had ceased to be active participants in the business could be forced to sell their shares by a majority of shareholders (such as the defendants).

In 2009, the defendants determined that the fair value of the corporation’s shares was $1,139 and demanded that the plaintiff’s sell their shares. The plaintiffs instead filed suit for shareholder oppression in the form of a breach of fiduciary duty and statutory action.

The New York court applied the reasonable expectations standard and found that the plaintiffs’ reasonable expectations that the defendants would protect the interests of all shareholders had been frustrated. The Appellate Court affirmed.

The takeaway of Chomiak is, as in many shareholder or “partnership disputes”, that when your business is organized as a corporation, you are not acting for yourself, but for the corporation and its shareholders. The fact that the controlling shareholders operate or manage the corporation does not diminish the rights of the minority shareholders.

This article addresses members’ rights to wind up a LLC’s business post-dissolution as well as the liabilities and rights during winding up of a LLC. Aside from administrative winding up of a LLC’s affairs under judicial supervision, individuals can wind up the LLC’s business. The individuals who have the right to wind up a LLC’s business after dissolution are: (a) members who have not wrongfully dissociated from the LLC; and (b) legal representatives of the last surviving member of the LLC. 805 ILCS 180/35-4.

The persons winding up a LLC’s affairs may preserve the company’s business or property for a reasonable time as well as prosecute and defend actions and proceedings on behalf of the LLC. These persons may also settle and close the company’s business, dispose of and transfer the company’s property, discharge the company’s liabilities, distribute the assets of the company, settle disputes by mediation or arbitration, and perform other necessary acts. 805 ILCS 180/35-4(c).

Although members of LLCs are generally not personally liable for the debts or obligations of the company, courts in some states have held that a LLC member or manager may be held individually liable during the winding up process post-dissolution. 49 A.L.R. 6th 1 §64 (2009). Examples of winding up situations in which LLC members can be held individually liable include:

• Members of an LLC fraudulently attempting to use the provisions of the state’s Limited Liability Companies Act to avoid liability;
• Members who wind up an LLC and do not comply with the provisions of the Act governing distribution of a dissolved LLC’s assets; and
• Members who, with knowledge of the dissolution, subject an LLC to liability by an act that is not appropriate for winding up for the company’s business. 49 A.L.R. 6th 1 §64 (2009).

\u200bDissolution of an LLC, on its own, however, does not make members personally liable for debts, obligations, or liabilities of the LLC. That is, solely being a member or manager of the LLC or having the authority to wind up the company’s business following its dissolution does not place the individual under any obligation or liability. 49 A.L.R. 6th 1 §65 (2009).

Section 12.30 mandates that a dissolved corporation shall not carry on any business other than what is necessary to liquidate its business and affairs, including:

1. Collecting its assets.
2. Disposing of its assets that will not be distributed to its shareholders.
3. Giving notice in accordance with Section 12.75 and discharging or making provisions to discharge its liabilities.
4. Distributing its remaining assets among its shareholders according to their interests.

A dissolved corporation may bar known claims against it, its directors, officers, employers or agents, or its shareholders or their transferees. If the dissolved corporation wishes to discharge or make provisions to discharge its liabilities, it must send a notification to the claimant within 60 days of the effective date of dissolution, relaying the following information:

1. The corporation has been dissolved and the effective date of dissolution.
2. The mailing address to which the claimant must send its claim and the essential information to be submitted with the claim.
3. The deadline, not less than 120 days from the effective date of dissolution, by which the dissolved corporation must receive the claim.
4. A statement that the claim will be barred if not received by the deadline.

If the dissolved corporation complies with the above procedures and then chooses to reject the claim entirely or in part, the corporation must notify the claimant of the rejection. The corporation must also notify the claimant that the claim shall be barred unless the claimant files suit to enforce the claim within a deadline not less than 90 days from the date of the rejection notice.

To employ this section of the Business Corporation Act, corporations should identify potential claimants and give them notice under the aforementioned procedures. A 12.75 notice is not required, but if it is given, it must be given to all known creditors, or else the director of the corporation will be at risk of personal liability in accordance with Section 8.65 of the Act. Kennedy v. Four Boys Labor Serv., Inc., 279 Ill. App. 3d 361, 664 (2d Dist. 1996); Lin Hanson, The Business Corporation Act’s “Quickie” Claim Bar Dissolving Corporations Can Use This Technique to Sharply Reduce the Period During Which They Remain Liable for Claims Against Them. But Beware Its Risks and Limitations, 96 Ill. B.J. 480 (2008).

The most important factor to keep in mind is that Section 12.75 is not a “catch-all” claim bar. A “claim” under Section 12.75 does not include contingent liability, claims arising after the effective date of dissolution, claims arising from the failure of the corporation to pay any tax or penalty, and claims arising out of criminal law violations. Nonetheless, Section 12.75 gives corporations an inexpensive option to bar known claims.