Category: Business Entities

Business entity issues and transactions, including LLC, Corporation, Partnership, Limited Partnership and other entities

Business Entities, Employment Matters, General Litigation

THE ATTORNEY-CLIENT PRIVILEGE IS WORTH KNOWING ABOUT

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What is the Attorney-Client Privilege?

You have the right to have all of your communications with your Attorney, or prospective Attorney (yes, even before formally engaging them), be treated as confidential, whether regarding a legal matter for which you are seeking Attorney advice or involvement or discussion of matters for which the Attorney’s advice is helpful or necessary.

The Attorney-Client Privilege allows you to prevent disclosure of conversations, letters, e-mails, facsimiles and other forms of correspondence and communication between you and the Attorney and Law Firm staff representing or consulting you, in almost all circumstances. This information is held in confidence and should not be disclosed to others, except where you have directed the Law Firm to do so.

Why is this important?

The privacy of your confidential information, regardless of the form, has a value to you. Confidential information contains valuable, private information simply because it is non-public or possibly because it may be used against you if it becomes known by others. The law protects your right to limit disclosure of sensitive information, so that your discussions with your Attorney or prospective Attorney can be open and transparent.

Isn’t this just for litigation situations? No.

The Attorney-Client Privilege is important in a variety of contexts. Consider a new business or product idea that could be hijacked by others. Consider the timing and specifics of business plans and strategies you may be implementing. Consider your thoughts about actions against an employer or, on the flip side, the steps to be taken as an employer in dealing with the workers or vendors for your business. 

There are many, many reasons why protection of your communications with your Attorney and Attorney staff can and should be considered.

What do I specifically do?

Since the privilege is yours, you also have the power to maintain it and the authority to waive and forfeit the Attorney-Client Privilege.

Your own verbal communications with the Attorney or Attorney staff will usually be considered to be protected. However, whether as an individual or as an owner or employee of a business entity, be mindful of two things: You can lose or “waive” the Privilege if your private communications happen to include or happen even to be near others who are not within your protected circle and can see or hear your intended private information. Also, you can waive the Privilege if you are sharing or disclosing the contents of Attorney-Client protected communications with another who is not in a position to share the Privilege.  

If you are a business owner or management employee communicating with the business Attorney, keep in mind that circulating a privileged email, memo or the substance of the communication between you and the Attorney can later affect the ability of your business to prevent its use or disclosure.

Best practice: Start by protecting your privilege and your private information by doing the following:  

Include a header in written correspondence or the “regarding” line in your emails with your Attorney stating that the document or the information is expected to be part of an Attorney-Client Privileged Communication. Or, at a minimum, identify the communication as “Attorney-Client Communication” or similar words.

Of course, give thought to the persons that you join as recipients in the email or to whom you circulate your documents and correspondence. And, be thoughtful of where you are having your Attorney meetings or who is on the call or email chain with you.

And equally important, be sure that you are individually or for your business, keeping your eyes on the other available tools that you have under the Law for protecting your confidential information, trade secrets and the like.

If you are not sure, ask your Attorney. Marc Sherman can be reached at msherman@mshermanlaw.com for further explanation, if necessary.

Business Entities, Estate and Probate, Estates Planning And Probate, Trusts

Spring Cleaning: Gather Important Papers And Get Rid Of Others

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            In her Washington Post article on April 19, 2024, award winning personal finance columnist Michelle Singletary provides an excellent list of what she terms “forever documents” that should be saved in the midst of your Spring cleaning.

            Singletary’s list of “forever documents” includes her recommendation for keeping the following original documents in a safe place (save copies if the originals cannot be found):

            ~          Birth certificates and adoption papers

            ~          Death certificates

            ~          Marriage and divorce records

            ~          Social Security cards

            ~          Military service records, including discharge documents

            ~          Loan payoff statements

            ~          Year-end pay stubs

            ~          Retirement or pension records

            ~          Estate documents

            ~          Funeral programs for relatives (not just obituary) 

Singletary also reminds that some documents are worth retaining, depending upon the circumstances:

~          Loan documents (while Loan is pending; save payoff doc & release after)

~          Vehicle title: Keep the original as long as you own the vehicle

~          Receipts for big-ticket items (for insurance purposes, during ownership)

~          Home improvement receipts, canceled checks (until you sell the home)

~          Investment account statements that are not available to you online

~          Tax records (often 7 years is worthwhile for our clients)

~          Medical bills (3 to 7 years if you paid with HSA or flexible spending account)

~          Credit card statements (one year, unless disputes are pending) 

            All good thoughts to keep in mind. Are you scanning as a substitute for paper retention or as a backup? If so, be sure that your family knows where to find the important papers (particularly the persons who will act for you under a Power of Attorney, or your Trust, or your Last Will and Testament).

            Michelle Singletary’s Article can be found here:       https://apple.news/AvHB6FXx1S9mn7l9mxQo20Q

If you need assistance to scan materials for safekeeping, we can provide help or suggest resources for you.

If you would like to discuss your Estate Planning documents or your Estate Planning goals, reach out to Attorney Marc Sherman by phone to (847) 674-8756 or by email to msherman@mshermanlaw.com.

Business Entities, Employment Matters, Noncompete Agreements

REVIEW OF NONCOMPETE AGREEMENTS IS REQUIRED BY NEW FTC RULE

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There has been alot of buzz about the Federal Trade Commission’s recently approved final rule prohibiting noncompete provisions in most circumstances. A review of the agreements that you have in place and that are likely to be used in the future is worthwhile.

Why the concern?

Employers have traditionally looked for strong ways to protect trade secrets and other confidential information, and to limit employees from infringing on their business interests. Noncompetition covenants, whether in employee handbooks or in separate agreements, have been a useful tool. Often just the threat of enforcement is a deterrent.

Many noncompetition agreements are unenforceable under the FTC’s new rule.

The FTC rule prohibits all noncompete restrictions for employees, independent contractors, interns, volunteers, apprentices, and even sole proprietors who provide services to business entities. 

There are carve-outs for existing and future noncompetition restrictions that are created for sale of a business, and for current restrictions on senior “policy making” executives who meet a salary threshhold. However, new noncompete restrictions even for senior executives are not permitted.

Are all Employer protections gone?

No. But thoughtful drafing is going to be needed.

The “noncompete clause” prohibited by the FTC rule includes any “term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (a) seeking or accepting work in the U.S. with a different person or entity after the employment ends, or (b) operating a business in the U.S. after the employment ends.

Important restrictions on the activities of employees, independent contractors and others will remain and will be even more important to monitor and enforce.

Noncompete clauses that function during the term of work or employment are untouched. This may seem academic, but the specifics and enforcement will become more relevant. This is particularly true, since the implied threat of enforcement has traditionally been the strongest reason that an employee or contractor avoids future work that interferes with the former Employer.

Other worthwhile restrictions survive the FTC rule. For example, thoughtful use of Confidentiality Agreements and Non-Disclosure Agreements, including specifics for monitoring return of materials and information is necessary. These will become an essential Employer tool during and following a worker’s services in order to protect legitimate business interests.  And, of course, every business should review Trade Secrets guidelines and practices to see that they are tightly drafted, implemented and available for enforcement when necessary.

The Upshot? Take Action Without Delay.

Waiting until an issue arises to review your policies and agreements is like ignoring an annual trip to the dentist and waiting until the tooth begins to hurt. Preventive care of your business interests is good practice that can avoid significant legal costs and frustrations later.

Attorney Marc Sherman recommends that every business pull out and dust off existing policy manuals, internal agreements, and external independent contractor agreements for a critical review. Also, consider whether new focus on Trade Secret protections, Confidentiality Covenants and other restrictive clauses need to be implemented or whether current policies can be reasonably beefed up.

Clients who would like to review the FTC rule will find it here: https://ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf

Anyone who would like to discuss how this important topic affects their business and business interests can contact Marc Sherman by email to msherman@mshermanlaw.com.

Business Entities, Corporations, Limited Liability Company (LLC), Partnerships

Discuss Tax Issues For Your Entity Choice With Your Accountant [But Entity Formation And Planning Is Your Attorney’s Role]

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Your Accountant’s role in helping you select the appropriate business entity is key. Depending upon the nature of your business, the business relationships that you expect with partners, and other factors, the accounting and taxation considerations are going to be important for selecting the appropriate form of business entity.

However, we often see that some clients have engaged their Accountant to accomplish the business formation steps with the Secretary of State. Perhaps the client and Accountant were thinking that there is a fee savings. Perhaps the Accountant encouraged this additional step to be more involved in the entity setup. For many clients, it was not the best or the most cost-effective decision.

Focusing on the legal aspects of business creation and guiding you through the issues for consideration is an important role for your Attorney. When the Accountant begins the entity creation process, this implies that the Attorney’s involvement is a lesser concern or, worse, is not necessary. The client loses out.

The Attorney’s experience and training in a variety of legal areas provides an opportunity to consider much more than taxes and accounting elements relevant to you and your new business. Some examples bring home the point:

Considerations Of Potential Claims Can Guide Entity Choice.

What is likely to happen if someone tries to enforce a claim against the business? The business entity choice can provide limited liability in many instances. Still, there are some types of claims and business obligations that can be brought against owners or managers despite trying to protect themselves with the “corporate veil of limited liability.” Industry laws and regulations, some business laws involving labor and operations, and vendor and customer agreements and activities may provide unique considerations for your business model and your personal decisions.

Discussing your business entity choice and your business plan with your Attorney should take into consideration your personal assets (and obligations), and your Estate Planning that has been created or can be developed for you, and consideration for options that may become important if the business doesn’t go as planned.

For many entrepreneurs, the first time being involved with a significant claim in or out of court is an eye opener; particularly when the legal claim prompts the question: “How could this affect me personally and my family?” There are planning opportunities that are purposeful and useful. Considering those opportunities early and adapting to changes in the business in a timely manner are important.

Consideration Of Business Partner Activities And Disputes Can Guide Entity Choice.

The relationship between you and your business partners will frequently have many layers — even if your business partners are family or friends.

What are your expectations of the amount of time you will each give to the business? What expectations do you each have for investing funds for the business or for willingly participating in financing the business with loans or with a personal guaranty? What happens if your business partner can no longer provide their time, guidance and financing?

Are there consequences of having to unwind the business entity if things do not go as hoped, and how is that done? Should you be concerned if your business partner becomes disabled and can no longer participate or passes away and their interest in the business may go to their spouse or children?

The Attorney’s role? Discussing entity selection and its impact on business relationships. Creating a Shareholder’s Agreement or incorporating terms of future transfer of the business ownership interest in a Partnership Agreement or LLC Operating Agreement. Helping the business owners create and express their expectations.

Get Your Attorney Involved Early And Often.

From a tax and accounting standpoint, your Accountant will surely be adding value. Including your Attorney in the business planning early and often is equally and sometimes more valuable. Engaging your Attorney to assist with your business entity planning and business entity creation not only adds value, but also helps you make good decisions to preserve that value and to accomplish your business goals.

If you have questions about the cost of Attorney time to assist with business planning and business entity creation, you can reach out to Marc D. Sherman & Colleagues PC. If you have already set up your business entity, but you have not reviewed the considerations discussed here with an Attorney, we can also assist you and your business partners.

Business Entities, Contracts, Corporations, Limited Liability Company (LLC), Partnerships

How You Draft Your Business Contracts Is Important; Speak With Your Attorney

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A new decision from the Illinois Appellate Court reminds both attorneys and clients alike that attention to all aspects of business contract drafting should be a priority.

In the case of Nord v. Residential Alternatives of Illinois, Inc., 2023 IL App (4th) 220669, published on November 3, 2023, the Court was presented with a case asserting negligent nursing home care against Manor Court of Freeport Illinois. Naomi, a former resident of the nursing home passed away, and her Executor sought damages for the nursing home’s alleged treatment that the Executor insisted was the cause of or a contributing factor in Naomi’s death.

Manor Court moved to dismiss the case, directing the Judge’s attention to an arbitration agreement in the Manor Court contract materials. Businesses with potentially significant exposure to lawsuits will frequently include arbitration clauses in their contracts. These clauses require that claims be brought by disgruntled clients in an arbitration setting that is often less public and sometimes more favorable than state or federal court. There is a significant body of law outlining when and how those arbitration clauses can be enforced.

Considering Manor Court’s motion, the trial court held that the arbitration clause was unfair and unconscionable because it was buried in some 27 pages of documents included with the Manor Court resident admission materials. Also, reviewing the agreement to arbitrate, the court found that its terms essentially shifted all of the costs (potentially thousands of dollars) of the arbitration expenses to the resident. The trial court denied Manor Court’s motion to dismiss.

When the nursing home appealed, the Illinois Appellate Court considered another important aspect of the Resident Admission Agreement: Naomi’s Executor argued that all of the language of the resident contract should be read together, and here the agreement stated that the “term” of the contract terminates on the day that the resident is discharged from the facility. As a result, the resident contract, including the arbitration provision, terminated on the date of the resident’s death. The arbitration clause, Naomi’s Executor urged, was no longer enforceable. The Appellate Court agreed and the Court permitted the claim by Naomi’s Estate to continue in the Illinois court.

What should attorneys and business owners take away from the Court’s decision? 

Choose the language of your contracts carefully. The Appellate Court pointed to the fact that the arbitration clause did not state that it applied to claims filed after the termination of the resident contract. The Manor Court nursing home and its attorneys could have clarified the concept of termination, the definition of the “term” of the contract, and what provisions were intended by the parties to survive the conclusion of the contract — all important considerations that could have significant impact upon the enforcement of the contract. Eyes on the contract language can support the client’s enforcement of the contract later, both in and out of court.If you are concerned about the enforceability of your contracts, or are preparing for new or revised agreements for your business, Marc D. Sherman & Colleagues P.C. can help.