All posts by Waltz, Palmer & Dawson, LLC

DOES YOUR FACEBOOK CONTEST VIOLATE ILLINOIS LAW? PART I

facebook social mediaWith the prevalence of social media growing every day, many companies are taking advantage and offering sweepstakes or giveaways through social media sites as promotional tools. However, what many business owners don’t realize is that there are laws and rules that must be followed when conducting these promotions, whether through social media or otherwise.

Before using a sweepstakes or giveaway as a means of promoting your business, you need to be familiar with both: (1) the laws in the state(s) in which the promotion is taking place; and (2) the policy and/or terms of service of the social media site you intend to use, if any. This article will address point 1 only. A Part II of this Article will address the second point.

For a contest directed at people nationally, a business must be sure that the promotion complies with laws in all states. Careful consideration should be taken for national promotions, as certain states may have more stringent requirements (for example, certain states require registration for prizes of $5,000). You must exclude states which your promotions don’t comply or otherwise risk legal trouble in those states.

Here in Illinois, there are a number of laws you much take into consideration before running your promotion. While this article does not address each law, two of the primary laws to take into consideration are listed below.

As a preliminary matter, you must make sure that you are not running an illegal lottery prohibited by the Illinois Criminal Code. A “lottery” consists of 3 elements: (1) a prize, (2) a chance to win the prize, and (3) the payment of consideration for that chance, such as payment of an entry fee or purchasing a product. While often used interchangeably, there are precise differences between a “contest” and “sweepstakes”. A “contest” chooses a winner based on an objective or stated criteria, thus eliminating number 2 (the element of chance). A “sweepstakes” has winners chosen randomly but does not require an entry fee or purchase, thus eliminating number 3 (the element of consideration). So as a result, a business can charge a fee for entry in a “contest” without violating the Illinois Criminal Code but cannot charge for entry into a “sweepstakes”.

You must also take into account the Illinois Prizes and Gifts Act (the “Act”), which has broad application and applies to any written promotional offer that is: (1) made to a person in Illinois; (2) used to induce/invite a person to come to Illinois to claim a prize or conduct business in Illinois; or (3) used to induce/invite a person to contact an agent in Illinois. Failure to abide by the law can result in your liability to each affected person of the greater of $500 or twice the amount of pecuniary loss.

The Act forbids requiring payment as a condition of winning, and further prohibits a business from representing that an person has won or unconditionally will win a prize unless that person is: (1) actually given the prize; (2) notified within 15 days of winning the prize; and (3) the representation is not false, deceptive or misleading.

Further, a written promotional offer must contain nine particular disclosures, written in a clear and conspicuous manner. These are: (1) the true name and business address of the sponsor; (2) the retail value of each prize; (3) a disclosure that no purchase is necessary to enter; (4) a disclosure that purchase will not improve a person’s chances at winning; (5) a statement of the odds of winning; (6) any requirement, and the amount, of shipping or other charges that a person must pay; (7) s description of restrictions on receipt of a prize, if any; (8) a description of eligibility limitations; and (9) additions required statements if a sponsor represents that a person is a “finalist,” in “first place” or makes other similar statements.

If you indicate to a person that they have won a prize, the Act requires that, not later than 30 days after the representation, you provide that person with either: (1) the prize; (2) a voucher or other document giving the person the prize; or (3) the retail value of the prize, as stated in the written prize notice, in the form of cash, money order or certified check.

Please see Part II for a discussion regarding promotions on social media. Be aware this is a brief discussion of just a few laws and provisions that may govern promotions, and prior to running a promotion, you should be sure that the concept complies with all governing rules. If you have questions about promotions run by your business or compliance with other laws governing your company, 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, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce Family Law, and 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

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DOES YOUR COMPANY USE ITS OWN CONTRACTS? IT SHOULD.

contractWhile many business owners are negotiating acquisitions, purchases or other business opportunities, lost in the importance of fundamental deal terms is the determination of which party’s contract will be used to memorialize the agreed relationship. When seems like something trivial could go a long way to making sure your company benefits the most from the business relationship. Even if both companies have a version of a given agreement on hand, such as a distribution agreement or purchase agreement, you should make sure that you insist on using yours.

The major reason why a company should use its own agreements, assuming they were properly drafted by the corporation’s attorney, is that the company’s agreement should immediately put them at an advantage over the prospective business partner. When drafting your agreement, your attorney will know what deal points are priorities, and will be able to craft language to make sure the agreement covers those points to your benefit. Your attorney will also draft your form agreement so the rest of the terms tilt in your favor, for example, indemnification, limitation of liability, and warranty clauses.

For the same reasons that using your own agreement is advantageous, using the other party’s agreement could put you at a disadvantage. Even when your company, and your attorney, has a chance to review and revise the other company’s agreement, the base points for negotiation begin in favor of the other party. The give and take of contract negotiation rarely results in a company getting every favorable term, so you’ll undoubtedly have to sacrifice certain points in order to gain others; the initial terms can go a long way to ensuring the other party is the one making more sacrifices. Another issue to consider is that you may incur higher legal fees to negotiate the other party’s agreement rather than reviewing proposed changes to your form.

If circumstances require that you use the other party’s agreement, it is critical that you have that agreement reviewed and negotiated by an experienced attorney. Failing to review and negotiate the agreement can leave you in a situation where each term of the agreement is stacked against you. It is in your company’s best interest to remove as much of the advantage gained by the other company using their agreement as possible. If modifying terms is not possible due to the leverage the other party may have, it is still important to have legal counsel review the agreement and flag any key issues that could prove problematic. Signing an agreement without having it reviewed by your attorney is a risky practice than can end up hurting your business.

This article is a brief explanation of the rationale behind using your own agreements when entering into a business relationship. Many other factors must be considered before entering any agreement. Should you need assistance with preparing form agreements for your company to use, reviewing and negotiating another party’s contract, or otherwise need help with any aspect of 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, Litigation and general Business Law services.  Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.

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

 

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NEW IRS REVENUE PROCEDURE MAKES FILLING LATE S-CORP ELECTION EASIER

contract formFor many people who are starting a new business, organizing an S-Corporation (“S-Corp”) offers the business owners many advantages. In addition to limited liability and protection of personal assets, among other things, stock holders have the benefit of pass-through, single-level taxation.

In order to obtain status as an S-Corp, after incorporation with a particular secretary of state, the corporation must elect to be treated as an S-Corp by filing the appropriate paperwork with the IRS. However, for various reasons, whether the owners forgot, thought an accountant was doing it, or merely wasn’t aware that an election needed to be made, a corporation may fail to make an S-Corp election. In an effort to provide relief to corporations that make late elections, the IRS has instituted a new revenue procedure for taxpayers to apply for relief from late elections. This new revenue procedure is effective September 3, 2013. While the revenue procedure applies to other similar elections, such as a Qualified Subchapter S Subsidiary election, this article will only focus on S-Corp elections.

For an S-Corp election be timely for a particular tax year, the corporation must file for the election on or prior to the 15th day of the 3rd month following the start of the year. So, for a company already in existence that wants to elect S-Corp status for a particular year, the election must be made on or prior to March 15 of that year. For a newly formed company, the corporation has until 75 days from the incorporation date to make the election.

Failure to file the election by the appropriate deadline would result in the IRS not treating the corporation as an S-Corp. Late, or nonfiling, corporations could remedy that situation by following what was previously a maze of procedures. The new revenue procedure supersedes the previous procedures and simplifies the method for taxpayers to apply for relief from a late election.

Under the new procedure, corporations that failed the make a timely S-Corp election may file their election within 3 years and 75 days after the date the election was intended to be effective. For example, if a corporation intended to elect to be taxed as an S-Corp on January 1, 2013 but failed to file its election, the corporation can obtain late relief by filing the election any time before March 15th, 2016.

Additionally, the new procedure provides that S-Corps that meet the following requirements are not subject to the 3 year 75 day deadline, but instead of have no time limit on requesting relief:

  • The corporation is not seeking a late corporate entity classification;
  • The corporation fails to qualify as an S-Corp solely because its election was not timely filed;
  • The corporation and all of its shareholders reported their income consistent with S-Corp status for the year the election should have been made and all later years;
  • At least 6 months have passed since the corporation filed its first S-Corp year tax return;
  • The IRS did not notify the corporation and the shareholders of any problem with the S-Corp status within 6 months after the return was filed; and
  • The completed election form includes statements from all shareholders from the date the election was to have been effective to the date of the filing stating that they have reported their income consistent with S-Corp status.

In basic terms, this means that there is no time limit on how far back a corporation can make a late S-Corp election effective, provided it has always filed taxes as an S-Corp, the shareholders have reported the income as if the corporation was an S-Corp, and the IRS had not notified the corporation that its election was never filed.

Please not that this is article is not intended as tax advice, and is merely a brief summary of one change to the IRS procedures for election by a corporation to be treated as an S-Corp.

Should you need assistance with your company’s tax election 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, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.

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

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WHAT EVERY BUSINESS NEEDS TO KNOW ABOUT EVERGREEN AGREEMENTS

Evergreen AgreementsThere are many advantages to evergreen provisions for a business. An evergreen provision is an optional portion in a contract that makes is renew automatically, usually on a yearly basis. It usually provides that the contract will be renewed at the end of each year unless one of the parties notifies the other party or parties in writing during the 30 days before automatic renewal. This 30 day window is important, because it is the only time each year when the contract can be cancelled without paying damages to the other parties.

These provisions can benefit a company by essentially allowing them to have one contract that can be cancelled after one year if needed or can be continued indefinitely. In other words, it creates a long-term contract, while leaving some room to get out of the contract if things do not work out. But there is a downside. The window to get out of the contract is usually very short, and if you miss it, you can be stuck for another year until it comes back around.

What if you want to get out of a contract with an evergreen provision? In Illinois, evergreen provisions are generally enforceable if the contract is for a reasonable period of time. So if the contract is renewable each year automatically, but the whole contract automatically terminates after 5 years, the evergreen provision will most likely be enforced. However, if the contract does not have an end date (it could potentially go on forever), evergreen provisions are generally not enforced beyond a reasonable period of time.

So if you or your company is stuck in a contract like the ones discussed here, you may need to take another look to see if there really is no way out. Also, if you are a distributor, specific federal and state laws may affect your rights in regards to evergreen agreements, as well, potentially causing a different result.

Be aware this is a brief discussion of just a few laws and provisions that may govern evergreen provisions and contracts. Prior to entering into any evergreen provision or contract, you should be sure that the concept complies with all governing rules.

Should you have questions about your business contracts or compliance with other laws governing your company 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, Litigation and general Business Law services.  Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.

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

ARE YOU LIABLE FOR SELLING A COMPANY’S LIABILITIES? SUCCESSOR LIABILITY IN ILLINOIS

selleing companyIf you are considering buying another company’s assets, one important consideration is: what liabilities of the seller will I be taking on? This question generally only arises in an asset purchase, as a stock purchase will typically result in liability on the part of the successor company.

Whether a company that purchases the assets of another company can be held responsible for the seller’s pre-transfer obligations is the crux of the successor liability issue. In Illinois, the general rule is that a company that purchases the assets of another company is NOT responsible for the debts or liabilities of the selling company. However, several exceptions to this general rule exist.

Illinois case law recognizes four exceptions to the general rule of non-liability: (1) where there is an express or implied agreement of assumption; (2) where the transaction amounts to a consolidation or merger of the purchaser or seller corporation; (3) where the purchaser is merely a continuation of the seller; or (4) where the transaction is for the fraudulent purpose of escaping liability for the seller’s obligations. As the third exception is the most common and the most concerning for many businesses, this article will focus only on that exception in detail.

When considering the third exception, continuation of the seller, a court will focus on whether the purchaser company is merely a continuation or reincarnation of the selling company, or whether the purchaser maintains the same or similar management or ownership, but is merely wearing “different clothes”.

The test used most often is whether there is a continuation of the corporate entity of the seller – not whether there is a continuation of the seller’s business operation; meaning a court considers the ownership and management of the purchasing company compared to the ownership and management of the selling company, rather than merely asking if the purchasing company sells the same products or provides the same services as that of the predecessor. Courts emphasize whether the officers, directors and stock ownership of the purchasing company are similar to that of the selling company as the key element of a determining whether there is continuation. Absent continuity of stock ownership, courts typically determine that a finding of continuation is not warranted. Continuity of middle management employees absent a showing of common ownership has been previously decided by the courts not to be enough to establish a continuation.

Because of the viability of a purchasing company can hinge on whether that company is responsible for debts and/or liabilities of a seller, carefully structured transfers are prudently worded purchasing documents are necessary. While Illinois courts have provided much guidance regarding successor liability of purchasing companies, the analysis is often fact specific. A business owner would be wise to seek the guidance of an experienced attorney before commencing the purchase of the assets of any company.

Be aware this is a brief discussion of one aspect of successor liability as treated under Illinois law, and each circumstance can dictate different results. In some situations, companies should also consider implications under federal law. For example, the US Court of Appeals for the 7th Circuit recently decided that, despite language in a purchase agreement specifically stating the purchaser was not assuming the liabilities of the seller, absent a compelling reason to rule otherwise successor liability is appropriate in suits to enforce federal labor or employment laws.

If you have questions regarding successor liability 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, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.

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