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.

When you own a small business, nothing is as important as your bottom line — and when clients or other parties owe you money, it can significantly impact the success of your business and your cash flow. While small businesses may not have the same resources as larger companies and corporations to collect a debt, there are still a number of strategies you can utilize to enhance your debt collection strategies.

Here are several debt collection practices to implement in your small business:

Review Your Invoices

In some cases, clients may not have made payment simply because your invoices may not have specified that payment is due within a certain number of days. Be sure to include an invoice date, the contact information for both parties, and the payment terms on your invoices. You should also specify what payment methods are accepted, along with an itemized list of the goods or services you provided. In addition, as part of your debt collection strategies, you might want to reconsider how often you bill clients — depending on your cash flow, you might send invoices monthly or bimonthly.

Consider Implementing New Invoicing Technology

If you’re using excel spreadsheets or Word documents to generate invoices, you may think about shifting your practices to using new invoicing technology. By using certain types of technology, you can minimize the risk of error, save time, and be more efficient in your invoicing practices. These programs can also deliver invoices automatically and follow up regarding unpaid invoices.

Streamline Your Payment Process

Sometimes, late payments can be due to a small business’s payment process. If the procedures are confusing, clients and other businesses may simply push off making payments. Streamline your payment process by establishing clear procedures and offering different payment options, such as credit card payments, online payments, or check.

Determine How You Will Handle Clients Who Are Consistently Late

Every small business has at least one client who is consistently late in their invoice payments. This can place a burden on your cash flow. While you might make exceptions for some clients and extend the payment terms, you may sometimes need to implement stronger debt collection strategies and penalties for late payments. In addition, you might want to offer stronger incentives for early payment, such as an early pay discount. It’s best to follow up immediately with clients concerning any late payments.

Take Proactive Measures Before Working With Another Business

Small businesses that are conducting business with another entity should do their diligence before entering into any contract. For instance, it’s a good idea to look into a company’s debt history and identify any warning signs that indicate there will be a problem with getting paid in a timely manner. You should also conduct a reference check to learn more regarding how the business handles accounts.

Be Sure to Keep Good Records

When you’re attempting to collect a debt that is owed on a past-due account, you should record each collection attempt. As part of your debt collection strategies, it’s essential to keep good records of each date you contacted the client, including details about the call or other type of collection effort. Retain copies of all payment reminders, past due payment notices, final notices, and demand letters. In the event it is necessary to take legal action, these documents can serve as crucial evidence in your case.

Enter Into a Settlement

In certain situations, the best option to collect payment is to enter into a settlement with the client. If the client or other company with whom you are conducting business is not financially capable of paying the full invoice amount, offering to settle for a small amount can ensure you collect at least some of the debt owed. You may also consider agreeing to a payment plan to collect the debt over time.

Know What Debt Collection Tools Are Available

Small business debt collection strategies can include sending reminder emails, making phone calls, sending demand letters, and negotiating. But if all else fails when it comes to collecting a debt owed to your small business, you might need to consider hiring a debt collection agency, using the small claims court process, or filing a lawsuit. While each method can result in your business incurring additional expenses, the cost may be well worth it depending on the amount you are owed and the likelihood of success in collecting it.

However, it’s just as important to know what types of actions you legally cannot take to collect a debt — the Fair Debt Collection Practices Act imposes strict communication guidelines. It also prohibits collection practices that constitute harassment. It’s a good idea to consult with an experienced business attorney when it comes to the debt collection strategies you should implement.

Contact an Experienced Illinois Business Attorney

If your small business is facing debt collection issues, a knowledgeable Illinois business law attorney can help you implement effective debt collection strategies. Located in Rolling Meadows, Litico Law Group serves the legal needs of small businesses, LLCs, and corporations throughout 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.

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.

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.

If you’re an entrepreneur, selecting an entity type for your company is one of the most important decisions you will make. For many small business owners, a limited liability company (“LLC”) is the ideal business structure due to the flexibility, tax advantages, and liability protection it can offer. However, there are certain legal and procedural requirements that must be met under Illinois law if you are considering forming an LLC.

Here are the steps that must be taken to start an LLC in Illinois:

Select a Name for Your LLC

The first thing you must do to start an LLC is to choose a name. Importantly, the name you select must be different from those that are already on file with the Illinois Secretary of State. You can determine whether the name you are considering is already taken by searching the Secretary of State Business Services database. In the event you aren’t ready to register your LLC yet, you can hold a business name for up to 90 days by filing an Application to Reserve a Name.

To comply with Illinois law, an LLC name must contain the words “limited liability company,” “L.L.C.,” or “LLC.” But it’s important to understand that you do not need to use the LLC’s official legal name when conducting business. You may drop the “LLC” and use an assumed business name — also referred to as a trade name — by filing a “DBA” (doing business as).

Appoint a Registered Agent

If you are starting a business, it’s crucial to select an entity type that meets your objectives. At Litico Law Group, our business attorneys are dedicated to serving the needs of business owners in Illinois for a broad scope of legal matters, including LLC formation.

Every LLC in Illinois must designate a registered agent for service of process. Any individual who is at least 18 years old and an Illinois resident can serve as a registered agent. A company can act as a registered agent if it is authorized to conduct business in Illinois and maintains an office address there.

Prepare and File Articles of Organization

To register an LLC in Illinois, you must file Articles of Organization with the Illinois Secretary of State Department of Business Services. This document must set forth a variety of information regarding the LLC including the LLC’s name, the address of the LLC’s principal place of business, the date the Articles take effect, and the LLC’s purpose. It must also include a statement regarding the LLC’s duration and whether it will be member-managed or manager-managed.

Prepare an LLC Operating Agreement

Although an LLC operating agreement isn’t a legal requirement in Illinois or filed with the state, the document can establish the foundation of the LLC and specify how it will be run. An operating agreement outlines financial decisions, the rights of its members, and the responsibilities of its managers. If there are any conflicts concerning finances or the roles that each member will play, the operating agreement can address how these issues should be resolved in advance.

Obtain an EIN and Open a Business Bank Account

An IRS Employer Identification Number (EIN) must be obtained if an LLC has more than one member — regardless of whether it has employees. If you are the sole member of your LLC and do not have employees, you are exempt from this requirement. However, a single-member LLC must secure an EIN if it elects to be taxed as a corporation rather than a sole proprietorship. An EIN can be obtained through the official IRS website.

Once you have your EIN number, you should open a business bank account. This can help to ensure that your personal and business funds remain separate — and you sustain liability protection.

Comply With the Ongoing Requirements

Once you have set up an LLC, you must comply with the ongoing requirements. This means filing an annual report with the Secretary of State each year the LLC is in existence. The report is due before the first day of the LLC’s anniversary date every year. If you fail to file the annual report, the LLC will be dissolved and lose its limited liability protection.

To bring a company back into good standing after it has been dissolved, you must file for reinstatement with the Secretary of State. In addition, you must file an annual report and pay any accrued penalties, interest, and franchise tax due for each year the company did not file an annual report.

Contact an Experienced Illinois Business Attorney

If you are starting a business, it’s crucial to select an entity type that meets your objectives. At Litico Law Group, our knowledgeable business law attorneys are dedicated to serving the needs of business owners in Illinois for a broad scope of legal matters, including LLC formation. 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.

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.

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Trade Secret Protection in Illinois

Options for Resolving Partnership Disputes

Section 12.56(f) allows the corporation or shareholders being sued to purchase the petitioner’s shares if it is requested as relief by the petition. The corporation or one or more shareholders can choose to purchase all of the shares owned by the petitioning shareholder for their fair value either within 90 days after filing the petition under Section 12.56 or within a length of time the court finds to be equitable. 805 ILCS 5/12.56.

The provisions regarding a buyout of the petitioner’s shares pursuant to Section 12.56(f) are as follows:

• The amount the electing party will pay for the shares must be in writing. This notice of election can be a formula for determining the purchase price, rather than a specific numerical figure. Midkiff v. Gingrich, 355 Ill. App. 3d 857, 863 (2005);
• The election to purchase shares is irrevocable unless otherwise determined by the court that it is equitable to set aside or modify the election;
• If the election to buy shares is filed by one or more shareholders, the corporation must give notice to all shareholders within 10 days. The notice must state the name and number of shares owned by the petitioner, the name and number of shares owned by each electing shareholder, the amount each electing party will pay for the shares, and advise the recipients of their right to join in the election to buy shares. Shareholders have 30 days after the date of notice to file notice of their intention to join in a purchase. Shareholders who file a notice of their intention to participate in the election become parties and must participate in the purchase in proportion to their ownership of shares at the time the first election was filed. If the corporation does not give notice to all shareholders within 10 days, the corporation or non-petitioning shareholders cannot purchase the petitioning shareholder’s shares in lieu of corporate dissolution. Lohr v. Havens, 377 Ill. App. 3d 233, 235 (2007).
• The court can allow the corporation and non-petitioning shareholders to file an election to purchase the petitioning shareholder’s shares at a higher price. 805 ILCS 5/12.56(f).

If the parties reach an agreement on the fair value and terms of the buyout within 30 days of filing the election to purchase, then the court will enter an order directing the purchase upon the terms and conditions agreed to by the parties. 805 ILCS 5/12.56(f)(5). If the parties are unable to reach an agreement within 30 days of filing, the court will determine the fair value of the shares as of the day before the date the petition was filed or as of another date that the court deems appropriate. 805 ILCS 5/12.56(f)(6).

Section 12.56(a) does not define “fair value” but simply states that the negative impact the complained of conduct had on the value of the petitioner’s shares should be factored into the determination of “fair value.” Section 11.70(j) of the Business Corporation Act defines “fair value” as “the value of the shares immediately before the consummation of the corporation action to which the dissenter objects excluding any appreciation or depreciation in anticipation of the corporate action, unless exclusion would be inequitable.” 805 ILCS 5/11.70.

Illinois case law also demonstrates that the Illinois legislature wanted to give courts broad discretion in determining fair value and that it should be distinguished from “fair market value,” although fair market value may be used in a fair-value determination. John T. Schriver & Paul J. Much, Determining Fair Value for Minority Shareholders Who Sue for Corporate Wrongdoing, 91 Ill. B.J. 199, 200 (2003). Thus, there is broad latitude given to the court and parties when determining the shareholder buyout price.

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.