Archives for September 2019

Preparing for a Data Breach: Tabletop Exercises

mckenna · September 26, 2019 ·

Incident response planning, including tabletop exercises, is vital to the data breach preparedness of any organization. Data breaches can have a crippling effect on a business. Although data breaches at large companies dominate the headlines, data breaches occur at small and medium-sized businesses as well. [Read more…] about Preparing for a Data Breach: Tabletop Exercises

Small Business Formation Guide: By-laws, Operating Agreements, and Partnership Agreements

mckenna · September 24, 2019 ·

When acquaintances or family members decide to go into business together, to save money, they generally forgo formalities that are not legally required. They assume matters can easily be resolved amongst family or friends. However, it is often the case that once a business starts turning a profit or failing, people start looking out for their own interests. Tenuous handshake agreements are no longer honored and there is no clarity on how the business should proceed or cease operations. A solution to preventing or easing problems when ownership interests are held by multiple people is to have a formal written agreement such as by-laws, an operating agreement, or a partnership agreement that regulates the operation of the business. Without by-laws, operating agreements, and partnership agreements the relationship between owners of the business is regulated by the applicable state laws that may differ from the intended arrangements of the owners.

Businesses also should draft written by-laws, operating agreements, or partnership agreements during the formation stage as the documents may be needed when conducting the initial business of the entity or in seeking financing. Best practices dictate that lenders will want to review entity documents to determine who has authority to act on the business’ behalf. Lenders or investors will want to review these documents even if they are not required to be written under state law, especially for multi-member companies. Therefore, a small business will want to be prepared when seeking financing and have the documents in order when approaching lenders or investors.

Corporate By-laws

Similar to the Illinois Limited Liability Act, the Business Corporation Act of 1983 (805 ILCS 5/ et seq.) governs the formation of Illinois corporations. A business seeking to incorporate should start with:

deciding on a corporate name and the purpose of the corporation;
determining who will serve as a registered agent;
defining what shares will be authorized; and
identifying who will serve on the initial Board of Directors.

Once these matters are determined, file Articles of Incorporation with the Secretary of State. The Articles of Incorporation should include the names of the initial Director(s) chosen for the business.

The next steps should include holding a shareholder meeting to establish by-laws. By-laws just like operating agreements, are not required under Illinois law but they are strongly recommended especially for closely held corporations. If the by-laws are established by the shareholders, the corporation’s initial directors also may adopt by-laws (805 ILCS 5/2.25) and (805 ILCS 5/2.30).

By-laws of a corporation should cover, at minimum, the following:

The purpose and corporate powers
Corporations name, place of business and registered agent
Regulation of shares: authorization, issuance, classes, redemption, etc.
Regulation of shareholders: liability, meetings, voting, preemption rights, and informal actions
Distribution
Amendments of by-laws or articles
Election, removal or resignation of directors and officers
Liability and duties of the officers and directors
Indemnification of officers, directors, and agents

If a business has designated itself a close corporation under 805 ILCS 5/2A.45, then it will need to make sure to follow Article 2A of the Business Corporation Act to define shareholder duties when the business is managed by said shareholders and not a Board of Directors.

Limited Liability Company Operating Agreement

The Illinois Limited Liability Act provides that members may enter into an operating agreement. Yet, it is advantageous for an LLC with more than one member to enter into an operating agreement to regulate the affairs of the business and management of the business to prevent unnecessary problems down the line when questions arise such as who has authority to do to what on behalf of the company.

Under Illinois law, it is recommended that an operating agreement includes the following:

Designation of the management structure, e.g., manager-managed or member-managed
How to elect, remove or replace a manager
Relations of managers and members to third parties and each other
Contribution, Membership interest, and distributions
Admission, removal, and disassociation of members
Dissolution of the company

It is important to note, that the Illinois Limited Liability Act requires all members of a company, irrespective of the percentage of their contribution or interest holding, to consent to the following actions that cannot be altered in an operating agreement:

amendments to Articles of Organization or Operating Agreement;
certain matters dealing with contributions and redemption;
admission of the new members dissolution of the company; or
disposition of substantially all of the business’s property.

Moreover, An operating agreement should not place burdensome restrictions on members, i.e., restrict their ability to disassociate, or eliminate obligations of good faith and fair dealing by managers and members. The agreement may also define or restrict fiduciary duties other than the duty of care. However, specific duties explained in Section of 180/15-5(b)) (c) and (d) of the Act cannot be altered or waived.

Partnership Agreement

Finally, small business partners also are encouraged to formalize the scope and procedures of their operations in partnership agreements under the Illinois Uniform Partnership Act (805 ILCS 206). At a minimum, partnership agreements should include the following:

Scope and nature of partnership – general or limited
Management of the partnership
Procedures for admitting or removing, and withdrawal of partners
Partner contributions and distributions
Dissolution of the partnership

If you are in the process of forming a small business or are already operating and need assistance with creating or amending your by-laws, operating agreement, or partnership agreement, you may contact McKenna Storer at 312.558.3959. Contact Jaime Dowell for questions about this article or related matters.

The Equitable Restrooms Act to Take Effect in Illinois

Kristin Dvorsky Tauras · September 15, 2019 ·

Illinois has passed a law that requires all single-occupancy public bathrooms be labeled as gender-neutral. The Equitable Restrooms Act, which takes effect on January 1, 2020, mandates that all single-occupancy restrooms “in a place of public accommodation or public building” to be identified as “all-gender and designated for use by no more than one person at a time or for family or assisted use…” and “[e]ach single-occupancy restroom shall be outfitted with exterior signage that marks the single-occupancy restroom as a restroom and does not indicate any specific gender.”

Illinois Statute – All Gender Restroom

Relevant portions of the text of the law include:

This Section applies to any existing or future places of public accommodation or public buildings.
Notwithstanding any other provision of law, every single-occupancy restroom in a place of public accommodation or public building shall be identified as all-gender and designated for use by no more than one person at a time or for family or assisted use. Each single-occupancy restroom shall be outfitted with exterior signage that marks the single-occupancy restroom as a restroom and does not indicate any specific gender.
During any inspection of a place of public accommodation or public building by a health officer or health inspector, the health officer or health inspector may inspect the place of public accommodation or public building to determine whether it complies with this Section.

Importantly, the Act does not require that building occupants/owners modify existing multi-stall bathrooms to create single-occupancy bathrooms or address any changes in the labeling or permissible use of multiple-occupancy restrooms.

Under the Illinois Human Rights Act, places of “public accommodation” is broadly defined. It includes, but is not limited to:

an inn, hotel, motel, or other place of lodging, except for an establishment located within a building that contains not more than 5 units for rent or hire and that is actually occupied by the proprietor of such establishment as the residence of such proprietor;
a restaurant, bar, or other establishment serving food or drink;
a motion picture house, theater, concert hall, stadium, or other place of exhibition or entertainment;
an auditorium, convention center, lecture hall, or other place of public gathering;
a bakery, grocery store, clothing store, hardware store, shopping center, or other sales or rental establishment;
a laundromat, dry-cleaner, bank, barber shop, beauty shop, travel service, shoe repair service, funeral parlor, gas station, office of an accountant or lawyer, pharmacy, insurance office, professional office of a health care provider, hospital, or other service establishment;
public conveyances on air, water, or land;
a terminal, depot, or other station used for specified public transportation;
a museum, library, gallery, or other place of public display or collection;
a park, zoo, amusement park, or other place o recreation;
a non-sectarian nursery, day care center, elementary, secondary, undergraduate, or postgraduate school, or other place of education;
a senior citizen center, homeless shelter, food bank, non-sectarian adoption agency, or other social service center establishment; and
a gymnasium, health spa, bowling alley, golf course, or other place of exercise or recreation.

Designation of a Gender-Neutral Single Occupancy Restroom Law Falls Short of Requiring Gender Neutral Bathrooms

While initially seen as an attempt to resolve the issue previously addressed in my earlier blog, “The Hot Employment Law Issue That You Can’t Ignore: Which Bathroom?”, McKenna-law.com, June 20, 2016, it merely provides an option to use a single-occupancy gender-neutral restroom. It does not address the rights of transgender individuals to use the public restrooms designated to the gender with which they identify.

As with my earlier blog on “Which Bathroom”, the best practice is to permit a person to use the public restrooms designated to the gender with which they identify.

A new regulation such as the Illinois Equitable Restrooms Act is likely to trigger a host of decisions and policies that Illinois businesses will need to grapple with, including whether they are creating a gender neutral discrimination-free work environment.

As an employment litigation attorney at McKenna Storer, I help companies anticipate and address the implications of federal and local employment laws such as Illinois’ Equitable Restrooms Act. Please contact me if you have any questions about this topic or any employment law matter where we can be of help.