All posts by Waltz, Palmer & Dawson, LLC

TOP 3 REASONS YOUR LLC NEEDS AN OPERATING AGREEMENT

Man Hand Pen Ledger

 

I JUST FORMED AN LLC, DO I REALLY NEED AN OPERATING AGREEMENT?

Starting a limited liability company (“LLC”) can be an exciting and challenging journey. There are a number of steps to take and documents to prepare. LLC’s can be formed with just one member (that’s what an owner of an LLC is called) or multiple owners.  Under the Illinois Limited Liability Company Act, a single member LLC is not legally required to have an operating agreement (though your bank may require one anyway).  But if the LLC will have more than one member, one of the most important documents to create is the operating agreement.

WHAT IS AN OPERATING AGREEMENT?

An operating agreement is essentially an agreement about how the LLC will be run but also talks about what happens if a Member dies or no longer wants to be a part of the LLC and other exit scenarios. The operating agreement can be as simple or as complex as the members of the LLC want it to be. But be warned – leaving the provisions of the operating agreement vague or very basic can create a number of problems down the road (i.e. cost you thousands of dollars more to fix than it would have cost to draft a solid agreement in the first place).

WHY DO I NEED AN OPERATING AGREEMENT?

  1. Avoid Future Disputes Between Members

The operating agreement functions as a rule book, setting forth the rules for the running the LLC, dictating how actions are taken and who can take them. A well drafted operating agreement will establish a system that will ensure the business runs smoothly and that the day to day activities of the business will be handled efficiently. If a member wishes to exit the LLC (or the other Member’s want to remove a member) a thoroughly drafted operating agreement will provide a process for this so it does not have to be negotiated later (i.e.$$$$). If it is well written, it can handle internal conflicts and resolve any issues that arise without a lot of effort or fuss.

The operating agreement needs to be specifically drafted for the LLC, giving special attention to the company goals and the relationship between the members. It is extremely important to understand how the power and votes are distributed throughout the operating agreement and the ways the majority and minority members can affect or override each other. Besides determining the structure, focus and operation of the business, the operating agreement can be used to validate the corporate identity and to show that the members have been conscientious in establishing a legitimate business.

  1. Customize Your Business Structure

One of the best reasons to use an LLC rather than a corporation is the advantage of being able to customize how you’ll split profits, losses, work-load, voting rights and more. S-Corps or C-Corps are much more rigid structures and don’t allow you this flexibility to choose the roles and rights of each business owner.

For example, in a S-Corp, if you have 20% of the shares in the company, you will receive 20% of the profits or losses. Not only that, if one shareholder gets a distribution, all shareholders must get a distribution at the same time.  An LLC allows you to set this up differently. For example, a 20% owner that actually does 80% of the work, can get 20% of the profits while getting a larger percentage of the voting rights (for example 51% or a controlling interest). Further a member that invests a large amount of money but wants a part of the contribution to be paid back before you begin to split distributions can get a preferred right to receive a certain amount (for example, Member A gets the first $50,000 of proceeds, after that all proceeds are split 50/50). While there are some limits to what you can agree to, for the most part the members are free to come up with their own arrangement as long as it is put in writing.  Why do you have to write it down? Well…

  1. Avoid Your State’s Default Rules

If you do not create a written LLC Operating Agreement, you will be subject to your state’s default LLC rules. These are structured rules that do not provide the flexibility discussed in #2 above.  It becomes “one size fits all” and not customized to your own arrangement.  No matter what you’re buying, selling, or trading, your company is unique. You want the ability to shape your rules to fit the goals and hopes of your business. An LLC Operating Agreement allows you to do so.

OK, SO WHEN DO WE DRAFT THE OPERATING AGREEMENT?

While an operating agreement can be drafted at any time as long as all the members agree, it is best to draft the operating agreement as early as possible during the establishment of the LLC. Why? Because in the beginning everyone is getting along and optimistic about the business. Typically, decisions made at this point are for the benefit of all – wait until someone is upset and the decisions and positions they take will be for their own benefit. So it will be more difficult to agree on terms that work for all the member – and if agreement can’t be reached, then you could end up needing a judge to resolve you disagreements.

Should you have any questions about Operating Agreements, please contact Waltz, Palmer & Dawson, LLC at (847) 253-8800 or contact us online.

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law, Collaborative Divorce & Mediation.

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.

To subscribe to our business e-newsletter, pleases send an email request to www.info@wpdlegal.com

 

BROKEN-HEART SYNDROME

He was the 41st President of the United States. He also served in the Navy, was a successful businessman, and held many other political offices during his life. But George Herbert Walker Bush was also a husband – a loving husband of 73 years to Barbara. Together they had six children and lived a very full life.

Barbara Bush died on April 17, 2018, and her widower, George, died less than 8 months later on November 30, 2018. This phenomenon, sometimes called “broken-heart syndrome” is more common than you may think. When one spouse in a couple that has been together for many, many years dies, the remaining spouse sometimes just cannot go on. They have spent the majority of their life together, and do not know how to live without the other. While the loss of the first parent is very difficult for the couple’s children, the loss of both parents in such a short time span can be devastating for their children and other family members.

What can make this already painful time for family even more difficult is having to handle two estates, rather than only one.

How does this happen? When a spouse dies, his or her Will or Living Trust, typically leaves everything to his or her spouse. Additionally, joint bank accounts, the jointly-owned home, life insurance, and IRAs will all pass to the widow or widower through joint ownership or beneficiary designations. When the surviving spouse then dies very soon thereafter, before having a chance to take further steps, such as probating their late spouse’s Will, adding joint owners or beneficiary designations to accounts, or better yet, transferring assets to his or her own Living Trust, the family is left with having to deal with the results.

The children or other beneficiaries of the couple will need to address and make transfers, first pursuant to the first spouse’s documents or account designations, and then will need to do the same for the second spouse, often leading to at least one, possibly two probate estates, which ends up costing the family more money and time.

When we work with a married couple in preparing their estate plan, we address this possibility of deaths in close succession, or even simultaneously. While this may not happen, you can take steps, utilizing carefully drafted Revocable Living Trusts and purposeful account titling and designation of beneficiaries, for this “just in case” scenario. By doing this planning now, the family will be able to administer the estates or trusts of both spouses in a more streamlined, and cost-efficient manner, which will make their lives easier at an extremely difficult time.

George H. W. Bush and Barbara Pierce met at a Christmas dance as teenagers and theirs became the longest presidential marriage in history. He often spoke of his love for her, and this particular statement may best sum it up:  “I have climbed perhaps the highest mountain in the world, but even that cannot hold a candle to being Barbara’s husband.”

Should you have any questions about Wills or Living Trusts, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law, Collaborative Divorce & Mediation.

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.

To subscribe to our business e-newsletter, pleases send an email request to www.info@wpdlegal.com

OUR LOCATION

Waltz, Palmer & Dawson, LLC

3701 Algonquin Rd. Suite 300
Rolling Meadows, Illinois 60008

Phone: (847) 253-8800
Fax: 847-253-8822

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CYBER SECURITY ATTACK PROTECTION STEPS

CYBER SECURITY ATTACK PROTECTIONS AND STEPS FOR YOUR BUSINESS TO CONSIDER AND IMPLEMENT

Cyber security is a hot topic involved in all aspects of our lives, especially in our work and businesses. Everyone wants to remind you that your data is at risk and that more data breaches come from employee activity than any other area. From executives, chief officers, controllers, and human resource employees, companies are writing strict employee policies trying to protect their data, information, including proprietary and/or confidential information. This article provides you some protections and steps to consider to put in place for your business to implement. Many of these steps will help you align your business with current industry standards. Basically, every business needs to consider and implement some basic security principles and practices due to constant threat of cyber security attacks in the on-line world that we all live and work in today.

  1. Train employees in security principles. Establish basic security practices and policies for employees, such as requiring strong passwords and establish appropriate Internet use guidelines, that detail penalties for violating company cybersecurity policies. Establish rules of behavior describing how to handle and protect customer information and other vital data. Follow best practices in having employees trained and execute confidentiality/non-disclosure agreements with employees as appropriate based on access.

IS YOUR BUSINESS PROTECTED AGAINST A CYBER SECURITY ATTACK? HAS YOUR BUSINESS TRAINED YOUR EMPLOYEES IN SECURITY PRINCIPLES AND CURRENT INDUSTRY BEST PRACTICES ON CYBER SECURITY?

  1. Protect information, computers, and networks from cyber- attacks. Keep clean machines: having the latest security software, web browser, and operating system are the best defenses against viruses, malware, and other online threats. Set antivirus software to run a scan after each update. Install other key software updates as soon as they are available.

DOES YOUR INTERNET CONNECTION HAVE FIREWALL SECURITY PROTECTIONS IN ACCORDANCE WITH INDUSTRY BEST PRACTICES?

  1. Provide firewall security for your Internet connection. A firewall is a set of related programs that prevent outsiders from accessing data on a private network. Make sure the operating system’s firewall is enabled or install free firewall software available online. If employees work from home, ensure that their home system(s) are protected by a firewall.

DO YOU HAVE A MOBILE DEVICE ACTION PLAN FOR YOUR BUSINESS?

  1. Create a mobile device action plan. Mobile devices can create significant security and management challenges, especially if they hold confidential information or can access the corporate network. Require users to password protect their devices, encrypt their data, and install security apps to prevent criminals from stealing information while the phone is on public networks. Be sure to set reporting procedures for lost or stolen equipment.

BACKUP AND MAINTAIN BACKUP COPIES OF IMPORTANT BUSINESS DATA AND INFORMATION.

  1. Make backup copies of important business data and information. Regularly backup the data on all computers. Critical data includes word processing documents, electronic spreadsheets, databases, financial files, human resources files, and accounts receivable/payable files. Backup data automatically if possible, or at least weekly and store the copies either in a secure offsite location or in a secure cloud.

CONTROL PHYSICAL ACCESS TO COMPUTERS AND CREATE USER ACCOUNTS.

  1. Control physical access to your computers and create user accounts for each employee. Prevent access or use of business computers by unauthorized individuals. Laptops can be particularly easy targets for theft or can be lost, so lock them up when unattended. Make sure a separate user account is created for each employee and require strong passwords. Administrative privileges should only be given to trusted IT staff and key personnel.

SECURE YOUR WI-FI NETWORKS!

  1. Secure your Wi-Fi networks. If you have a Wi-Fi network for your workplace, make sure it is secure, encrypted, and hidden. To hide your Wi-Fi network, set up your wireless access point or router so it does not broadcast the network name, known as the Service Set Identifier (SSID). Password protect access to the router.

EMPLOY BEST PRACTICES WITH PAYMENT CARDS.

  1. Employ best practices on payment cards. Work with banks or processors to ensure the most trusted and validated tools and anti-fraud services are being used. You may also have additional security obligations pursuant to agreements with your bank or processor. Isolate payment systems from other, less secure programs and don’t use the same computer to process payments and surf the Internet. Also, follow the recommended practices to avoid scams and business email compromises for your business.

LIMIT EMPLOYEE ACCESS TO DATA AND INFORMATION; LIMIT AUTHORITY TO INSTALL SOFTWARE.

  1. Limit employee access to data and information, and limit authority to install software. Do not provide any one employee with access to all data systems. Employees should only be given access to the specific data systems that they need for their jobs, and should not be able to install any software without permission. Further, your business should implement processes and practices in protecting all of its data, information, including all confidential and/or proprietary information. Limiting access is an important step in this protection process.

USE BEST INDUSTRY PRACTICES WITH PASSWORD SECURITY AND AUTHENTICATION!

  1. Passwords and authentication. Require employees to use unique passwords and change passwords every three months. Consider implementing multifactor authentication that requires additional information beyond a password to gain entry. Check with your vendors that handle sensitive data, especially financial institutions, to see if they offer multifactor authentication for your account.

 

The FCC’s Cybersecurity Hub  has more information, including links to free and low-cost security tools.

 

Should you have any questions about business law, including employment law, cyber security, technology contracts and licensing, and other intellectual property protections, or any other law that may affect business, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law, Collaborative Divorce & Mediation.

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.

To subscribe to our business e-newsletter, pleases send an email request to www.info@wpdlegal.com

 

CYBERSECURITY ACC REPORT

facebook social mediaEmployee error most likely cause of data breaches

The Association of Corporate Counsel (ACC) Foundation has released the largest study of its kind on corporate cybersecurity. The ACC Foundation: The State of Cybersecurity Report, released on Thursday, found that cyber security breaches were most likely to be the result of internal factors – employee error or an “inside job.”

Cybersecurity touches every aspect of consumer and corporate culture today. Preventing, preparing for and responding to data breaches in real time is a chief concern for individuals, corporate leaders and government regulators. The full report includes industry and regional trends, common preventative tactics, lessons learned from those who experienced a breach (including how the breach occurred and who was affected), the impact of regulatory requirements, insurance decision making and coverage information, and managing risk through outside support such as forensic and outside counsel retainers and more. A short summary of the report is found here.

The report includes insights on cybersecurity issues from more than 1,000 corporate lawyers at 887 organizations worldwide – most of whom hold the position of General Counsel (GC) or Chief Legal Officer (CLO). More than half of in-house counsel report that their companies have increased spending on cybersecurity. Still, the report indicated that many organizations are not taking basic precautions to prevent a data breach.

The State of Cybersecurity Report shows that:

  • One-third of in-house counsel have experienced a data breach
  • Employee error is the most likely cause of a breach; inside jobs are second
  • Worldwide, in-house counsel say reputational damage is the greatest concern, followed by loss of proprietary information, and economic damage
  • IT departments were how most corporate executives learned about a breach
  • Among in-house counsel whose companies have experienced a data breach, 47 percent said the breach occurred recently, in 2015 or 2014.
  • The health care/social assistance industry are almost twice as likely (56 percent versus 31 percent) to report that they have experienced a data breach; with insurance industry in-house lawyers (36 percent) coming in second.

When asked how the system was breached:

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Today’s general counsel, chief legal officers and external counsel, who are increasingly called on to guide their organizations (clients) and aid with thwarting such attacks, play a significant role in implementing best practices and regulations to prevent cybercriminals from acquiring protected information. Knowing common practices, what works and what your peers are doing is key in benchmarking and planning to protect your company from risk. Straddling business, IT and legal, today’s GCs/CLOs are uniquely positioned to engage the multiple stakeholders that a robust data protection regime requires.

Should you have any questions about how to protect your business from a Cyber Security breach, or what to do if you a breach occurs, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law, Collaborative Divorce & Mediation.

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.

AVOIDING OVERTIME AND FAIR LABOR STANDARDS ACT CLASS ACTION SUITS

THE BEST DEFENSE IS A GOOD DEFENSE

Although the number of wage and hour class-action lawsuit filings decreased last year, the settlement valuation has more than tripled over the last two years. As a federal law, in FLSA (Fair Labor Standards Act) it applies to all companies in all states, including Illinois.  Plaintiff attorneys view FLSA lawsuits as promising and lucrative class action suits.  Any unpaid time, no matter the amount, risks an FLSA lawsuit where the employee could recover $500.00 in unpaid wages but recover also $5,000 in attorneys’ fees from you.

 

No matter the size of the business, rest assured that creative plaintiffs’ lawyers somewhere are thinking about how to bring a FLSA action against your company. Don’t wait until you get a demand letter, a DOL auditor shows up on your doorstep, or you are served with a complaint to assess your risk profile and take remedial action. Create a good offense: build a credible FLSA compliance program, conduct regular audits (as outlined below), and take prompt steps to address any problems you find.

 

So what should a FLSA compliance audit look like?  It should consist of 2 parts – reviewing your employee classifications (exempt vs. nonexempt, W2 vs. 1099) and reviewing your policies on hours worked and actually paid.

IDENTIFYING EMPLOYEE CLASSIFICATIONS  

IS THIS POSITION EXEMPT (SO YOU DON’T HAVE TO PAY OVERTIME) OR NON EXEMPT (YOU DO)?

 

Much FLSA litigation involves low and mid-level employees which have been treated as as exempt from overtime pay.  Keep in mind that just because an employer classifies a worker as exempt from the FLSA does not mean that a Court cannot overrule that classification – entitling that worker to awards for unpaid past wages and over-time.

 

Under the FLSA, the burden is on the employer to demonstrate the applicability of a particular overtime exemption to a specific job or set of duties, under both the “salary” test and the “duties” test.  The former is easy to assess, but the latter requires a careful analysis. Most importantly, job duties change over time due to business reorganizations, the addition or modification of controls, or technological innovation—so make sure to reassess classification decisions every few years.  Given the FLSA statute of limitations is two years (three of the violations are willful), an employee’s job duties may change over time and the employee may obtain new duties and responsibilities.  Therefore, it is possible this same employee could be exempt in 2015, for example, but as his job duties change, non-exempt in 2016 and 2017.  A regular audit of employee’s classifications and written job descriptions will reduce the possibility of needing to re-classify a particular employee early and therefore before he or she is underpaid for months or years.

 

Don’t forget to consider whether any of those 1099s are actually W2 employees.  Incorrectly classifying an employee as a 1099 can lead to FLSA claims for unpaid overtime and withholding.

Your Take away – review those job descriptions and if you don’t have written job descriptions now is the time to write them.

 

AUDIT OF EMPLOYEE WORK-TIME AND OVER-TIME HOURS

 

 

WHAT IS “OFF THE CLOCK” WORK?

 

An audit is an excellent investigative tool to determine how much “off-the-clock” time is occurring and why it is occurring.

 

One of the biggest problems employers generally face is failing to identify small amounts of “off-the-clock” work-time which, when viewed collectively among all employees, become large amounts of work-time.  For manufacturers, that could be an employee arriving ten (10) minutes early to set up critical tools at his work-station before his schedule shift-start.  In an office setting, it could be the few minutes an employee takes to upload new software updates or listen to voicemail before the start of her work-day.  Work that benefits an employer, even for such mundane acts, is normally compensable and must be paid under FLSA.

 

With so many companies embracing new technology, employers face many potential “off-the-clock” pitfalls in the form of an employee using smart-phones, laptops and other WIFI devices.  Some companies avoid off-the-clock work by prohibiting non-exempt employees from using their company issued devices during off-hours. Other companies issue company owned wireless devices to not only allow usage but allow monitoring to manage off-the-clock work performed.  An audit will best identify how much and for what purposes these off-the-clock communications occur and if excessive, limiting such off-the-clock communications.  In addition, the audit can benefit a company’s bottom-line by eliminating unnecessary or redundant work that offers no short or long term benefit.

 

 

WHAT IS THE “REGULAR RATE OF PAY” FOR FLSA?

 

Many employers miscalculate the regular rate of pay (from which the overtime rate is derived) by excluding various forms of non-salary compensation.  FLSA does not calculate regular rate of pay based solely on hours worked on the job – other factors are included.  The FLSA states that all remuneration must be included in calculating the regular rate of pay unless it fits into one of several specific statutory exceptions. Exceptions include: gifts; payments not for hours worked, such as receiving payment on holidays and vacation time but not actually working on those holiday or vacation days taken; some discretionary bonuses; profit-sharing or savings plan contributions, employee benefit plan contributions, premium rate payments, and certain stock grants.

These limited exceptions don’t include a broad range of other forms of compensation, including but not limited to those which must be included under the FLSA’s pay calculation:

 

  1. unrestricted cash payments under a cafeteria plan,
  2. employee referral awards,
  3. shift differential pay,
  4. restricted stock grants,
  5. “gross-up” amounts (meant to cover the employee’s tax burden),
  6. payments for sick-leave not used for being actually sick but exercised by an employee as a cash payment to him/her,
  7. relocation stipends.

 

DOESN”T MY PAYROLL PROCESSOR CATCH THIS?

 

Auditing of employee time and wages is especially necessary when a company uses a payroll processing company, such as ADP and Paylocity.  Remember, a payroll processor simply cuts checks based on the raw employee data a payroll manager inputs into their system.  Many companies assume that a payroll processor will cross-check employee time for accuracy of wages earned when, in reality, that service may not be in your contract.  So, if you have been utilizing a payroll processor for months, or even years, without conducting an employee wage and time audit, performing an audit is even more critical as you may unknowingly have numerous under paid employees who will have the right to sue to collect their unpaid wages.

 

 

WHAT’S MY EXPOSURE?

The statute of limitations for a FLSA claim can be two or three years, depending on the facts of a case.  So regular audits can help minimize your exposure.

Keep in mind that when employees violate the rules by failing to report all time worked, or by failing to obtain advance approval of overtime work, you still must pay them for all hours worked even while you discipline them for violating the rules.        

 

SUMMARY

Audit, Audit, Audit!  Don’t rely on your payroll provider. Make sure you are up to date on what “off the clock” time means and keep your time tracking policies in compliance with the law.

 

Should you have any questions about Avoiding Overtime  and Fair Labor Standards Act Class Action Suits or any other laws that may affect your business, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.

 

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law, Collaborative Divorce & Mediation.

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.

 

To subscribe to our business e-newsletter, pleases send an email request to www.info@wpdlegal.com