Tag Archives: Chicago business lawyer

LLC Member Buyouts

LLC Member Buyouts

What are this risks in LLC member buyouts? Chicago business lawyer Brian J. Thompson cautions LLC members considering a membership interest buyout to consider the risks involved when the buyout agreement provides for money to be paid in the future.  Agreeing to accept payments in the future exposes the separating member of an LLC to several forms of counterparty risk.  This counterparty risk has 2 components:

1) Default risk – the counterparty simply chooses not to perform as agreed in the buyout or separation agreement; and

2) Credit risk/bankruptcy risk – the counterparty is unable to perform due to insolvency or bankruptcy.

Corporate shareholders take on the same risks noted above when they agree to accept payment at a later date.

Chicago business lawyer and CPA Brian J. Thompson strongly encourages those considering an LLC member buyout to consider the default risk and credit risk.  For these reasons, it is important to receive as much of the proceeds of the LLC buyout in cash at closing.

Chicago Business License

Chicago Business License

Where to I get a Chicago business license?  The City of Chicago’s Department of Business Affairs and Consumer Protection (BACP) issues Chicago business licenses.

Do You Need a Chicago Business License?

If you are starting a business in Chicago, you probably need a business license.  As a general rule, the City of Chicago requires a business license to conduct, engage in, maintain, operate, or manage any business in Chicago.  However, there is an exception to this rule for professions regulated by the Illinois Department of Financial and Professional Regulation.  The City of Chicago does not require a business license for such professions unless the business offers additional services not covered by the State of Illinois license.  Finally, check the City of Chicago’s Small Business Center if you require further details.

Also, consider whether to set up an LLC or corporation for your business.  Retain Chicago CPA and business lawyer Brian J. Thompson to set up your Illinois LLC. Brian@BrianThompsonLaw.com.

Resolving Partnership Disputes

Resolving Partnership Disputes

Resolving partnership disputes is often contentious and expensive. Sometimes disputes among limited liability company members arise which result in one or more of the LLC members wanting to exit the LLC.  If a member wants to exit the LLC by selling his interest but does not have a ready buyer of his membership interest, the LLC operating agreement may provide that the exiting member will assign his interest to the current members. Therefore, a value must be placed upon this membership interest before it is assigned.

What if the exiting member and the remaining members do not agree on a value?  First, carefully review your LLC operating agreement for provisions regarding the assignment and valuation of membership interests. The operating agreement often provides that a business valuation expert will appraise the value of the member’s interest. In addition, hire a corporate lawyer or business lawyer for advice. Furthermore, each LLC member should retain their own lawyer to advise them regarding the LLC’s operating agreement.

Chicago CPA and small business lawyer Brian J. Thompson can reach an affordable solution and resolve you partnership dispute via negotiated or litigated settlement.  Brian@BrianThompsonLaw.com

Passive Activity Loss Rules

Passive Activity Loss Rules

Passive activity loss rules may limit use of rental real estate losses. Can I deduct losses related to rental real estate for federal income tax purposes?  Maybe.   Losses from rental real estate may or may not be deductible in the current taxable year.  It depends upon the application of the passive activity loss rules to the particular taxpayer’s situation.

General Passive Activity Loss Rule

Generally, the passive activity loss rules permit deduction of passive activity losses to the extent of passive activity gains.   “Passive activity” means any activity— (A) which involves the conduct of a trade or business, and (B) in which the taxpayer does not materially participate.  Material participation means involvement in the operations of the activity on a (A) regular, (B) continuous, and (C) substantial basis. Federal law provides that the term “passive activity” includes any rental activity, except as provided in Section 469(c)(7).

Material Participation Exception

Section 469(c)(7) of the Internal Revenue Code provides the material participation exception.  A taxpayer can materially participate in real estate as a real estate professional if a) more than 50 percent of the personal services performed by the taxpayer are performed in real property trades or businesses in which the taxpayer materially participates, and b) the taxpayer performs more than 750 hours of services within the real property trades or businesses in which the taxpayer materially participates.  The term “real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.

Rental real estate activity is not a passive activity if a taxpayer meets both of the foregoing tests of material participation.  Therefore, deductions for losses related to the rental real estate activity are not subject to the general rule disallowing losses in excess of income from passive activities.

Active Participation Exception

Finally, Section 469(i) of the Internal Revenue Code provides an additional exception to the general rule.  It allows deduction of up to $25,000 of rental real estate losses per tax year related to rental real estate activities if the taxpayer “actively participated” during such taxable year.  Active participation requires less participation than “material participation.”  Active participation may be shown by participating in management decisions such as approving new tenants, deciding on rental terms, approving capital or repair decisions, or similar decisions.

However, the $25,000 passive activity loss deduction phases out by 50 cents per dollar as Adjusted Gross Income exceeds $100,000.  The loss deduction allowance phases out completely at AGI of $150,000.  Carry forward disallowed passive activity losses to the next taxable year.

Report passive activity losses limitations on Form 8582.  Finally, click here for the full text of the section 469 rules.    Retain a Chicago CPA for further advice regarding passive activity loss rules.

Governor Quinn Proposes Lowering Illinois LLC Filing Fee to $39

In what may be good news for those planning to start a small business in Chicago or Illinois generally, Gov. Pat Quinn said in his recent address to the State that he will introduce legislation to reduce the filing fee to create an Illinois limited liability company from $500 to $39:

http://www.wbez.org/news/gov-quinn-addresses-business-yearly-speech-109598

Which social network is best for your small business?

Small business owners who’ve recently launched a new business venture or are looking to raise their profile and find new customers often turn to social media, but which social network is best for your business?  Chicago small business lawyer and CPA Brian J. Thompson wants to direct your attention to this helpful article courtesy of CNNMoney:

http://money.cnn.com/gallery/smallbusiness/2013/10/30/social-media-network/index.html

Government Shutdown Delays Start of Tax Filing Season to Jan. 31

Itching for your federal income tax refund?  You’ll have to wait an extra 10 days to file your 2013 tax reutrn this year.  The IRS says that the 16-day government shutdown in October has delayed the start of tax filing from Jan. 21 to Jan. 31:

http://www.nbcnews.com/business/shutdown-delays-tax-filing-season-10-days-2D11765785

2013 Marginal Income Tax Rates and Standard Deduction Amounts

If you are getting ready to file your 2013 federal income taxes, you may be wondering about your 2013 marginal income tax rates and standard deduction amounts.  Here’s some of the info you’ll need courtesy of the IRS and Forbes:

http://www.forbes.com/sites/kellyphillipserb/2013/01/15/irs-announces-2013-tax-rates-standard-deduction-amounts-and-more/

Qualify Foreign Corporation

Qualify Foreign Corporation in Illinois

Qualify foreign corporation or LLC.  A corporation or LLC formed under the laws of another state or country is a foreign business entity.  A foreign corporation or LLC may do business in Illinois. However, such foreign corporations or LLCs must first qualify or register to do business in Illinois.

Contact Chicago business lawyer and CPA Brian J. Thompson to qualify your corporation or LLC  to transact business in Illinois.

Brian@BrianThompsonLaw.com.

Starting Your Own Company? Officers, Directors and Controlling Shareholders Beware

Starting your own Limited Liability Company or corporation?  Chicago business lawyer Brian J. Thompson wants you to know that officers, directors and controlling shareholders who leave one corporation to start a competing enterprise need to beware of the corporate opportunity doctrine.   A corporate opportunity refers to any business opportunity that becomes known to an officer or director of a corporation due his position within the company.  The corporate opportunity doctrine holds that the directors, officers and controlling shareholders have a duty of loyalty to the corporation and cannot to take such opportunities for themselves without first disclosing the opportunity to the board of directors of the corporation and getting permission from the board of directors.  Failure to follow this procedure can be a violation of the duty of loyalty.  As a result, the corporation may be entitled to a constructive trust of all profits obtained from the violation of the corporate opportunity doctrine.   Contact Chicago business lawyer and CPA Brian J. Thompson for to form your Illniois LLC or Illinois S-Corporation.