Chicago Small Business Lawyer Blog

By: Amit Bindra

It is that time of year again, National Small Business Week. Starting in 1963 with President John F. Kennedy, the President of the United States has issued a proclamation announcing National Small Business Week. [http://www.sba.gov/nsbw/about] The week is supposed to recognize the important contributions of small business owners.

According to the U.S. Small Business Administration ("SBA"), "[m]ore than half of Americans either own or work for a small business, and they create about two out of every three new jobs in the U.S. each year."

Events are planned across the nation to honor and help small businesses. The events are focused on providing workshops and mentorships for small business owners. Some of the events are available online through a live stream. Visit the SBA website for more information. [http://www.sba.gov/nsbw/events-schedule]

By: Poonam K. Lakhani

Thousands of young and eager college students will be hitting the pavement looking for some work experience. Hiring interns can be mutually beneficial. Many employers, however, misunderstand the rules regarding hiring interns and mistakenly believe that they can hire interns for free.

This misconception is pervasive and exists among even large corporations. Recently, a Federal District Court in New York found Fox Searchlight Pictures liable under the New York Minimum Wage Laws for failing to pay their production interns.

The Department of Labor has issued guidelines for employers who wish to hire an unpaid intern:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff;

4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

http://www.dol.gov/whd/regs/compliance/whdfs71.pdf

If you are considering hiring an intern, consult an experienced employment attorney to determine if you meet the Department of Labor's guidelines and protect your business from potential liability.

By: Amit Bindra

There can be a lot of challenges when starting a new business. The company has to create a business plan and find some start-up money. A company also has to attract new employees. Often, new business owners think it will be difficult to attract talented job candidates because of limited funds.

However, there are many opportunities that a new business can offer potential employees. New companies can provide a better work/life balance by offering flexible work schedules, the ability to work from home, and a variety of work experience.

New companies also provide job candidates with the opportunity to help shape the company and help it grow. When a new company describes its long term goals to potential employees, those employees can feel part of the company's vision. Building a culture in which new employees are involved in the business model can increase moral, and attract talented individuals.

The key is to create a welcoming environment. While another company might provide a higher salary, a new company should create a culture in which employees feel invested in the company's long term success.

By: Poonam K. Lakhani

A lot of times, it makes more sense to lease your business space than buy. You are already dealing with a lot to keep your business going; having to manage the property is often an unnecessary headache. However, before you sign a commercial lease, there are a number of issues you must be wary of. In Illinois, commercial leases, and your rights as a commercial tenant, are not the same as those of a tenant to a residential lease. Here are some unique terms to look out for when reviewing a commercial lease.

1. Right of first refusal

Commercial leases sometimes contain a clause which allows the tenant to have the right of first refusal. This is important because without this clause a landlord could decide he wants to lease his space to another tenant. All the hard work you put into establishing your business and creating goodwill may be lost if you have to move overnight.

2. Common Area Maintenance (CAM) fees

Many commercial tenants focus on the rent rate so much that they overlook CAM fees. Almost all commercial leases charge a monthly CAM fee, which can range from a few hundred to a few thousand dollars. Be sure to factor this in when budgeting. Sometimes CAM fees are negotiable.

3. Repairs and Maintenance

Often times, commercial tenants are liable for repairs and maintenance to the property, even when paying CAM fees. So if a pipe bursts or tiles break, you will be responsible for the costs to fix these issues. If your particular business requires that you comply with certain building codes, or have certain fixtures installed, it will be wise to negotiate this with the landlord or be sure the space passes inspection before signing the lease.

Commercial leases are unique and have a number of clauses that are foreign to a first time business owner. It's a good idea to speak with an attorney before signing a commercial lease so that you can ensure that you fully understand what you will be liable for.

By Poonam K. Lakhani

When you begin a small business, you will be inundated with contracts. You will likely have contracts related to all aspects of your business, everything from your lease, agreements with vendors, to even agreements with your customers. But do you know what you are signing?

Although business owners will often review contracts to make sure that they are accurate in relation to money, quantities, responsibilities, etc., but boilerplate language is often overlooked. Boilerplate clauses generally consist of clauses such as notice provisions, governing law, venue, attorneys' fees, arbitration, severability, and others. Although these clauses are fairly standard in all agreements, their substance can vary, which can result in serious consequences for your business.

Owning a business is exciting and a lot of work at the same time. It's important to thoroughly review each and every contract you sign, or consult an attorney, so that you can ensure that your business is protected.

By: Poonam K. Lakhani

So you have an employee whose performance is just not up to par anymore. What do you do? Disciplining an employee can be just as stressful for a business owner, as it is for the employee. Not only do you want to be careful that you don't irreparably harm the relationship but you also want to be sure that your message is heard clearly and that you don't inadvertently open yourself up to a lawsuit.

First, expectations should be clear from the start. It's important to make sure you communicate exactly what you expect from your employees when they begin their employment. Follow-up by conducting semi-annual performance reviews. This way, an employee won't be blindsided when they are disciplined.

Speak-up at the first instance the employee fails to meet expectations or violates a policy. Too often, employers ignore when an employee first fails to meet expectations or violates a policy. Unfortunately, this can lead to the employee repeating the conduct or issues getting out of hand.

It is also important for an employer to establish clear disciplinary guidelines. It is generally good to have progressive steps, such as a written warning, suspension, and then termination - but be careful not to lock yourself into this system in case you have to adapt to an unexpected situation.

As a business owner, you will likely have to have that uncomfortable conversation at least once. However, developing a plan beforehand will help protect your business - and when it does come time to have that conversation, it will be much easier for both you and your employee.

The caption may sound a bit obvious. Clearly you do not plan to hire employees until you really need to hire employees. However, there is more to this issue than what immediately may come to mind. Employees are a large expense, and most new businesses try to avoid incurring large expenses. However, employees are also valuable resources that are required for certain business launches.

When I say "don't hire until you are prepared to hire," I mean that you better make sure you have the systems in place to pay your employees and all required taxes and insurance (including unemployment insurance and workers' compensation). The penalties associated with failing to follow the rules can literally put a start-up out of business.

Saving a few dollars by hiring "independent contractors" that you know to truly be employees is definitely a penny wise approach. It's one of those areas that many new businesses try to skirt because it seems unlikely to be a problem. But, when it is a problem, it's a big problem. Doing things the right way might seem like a hassle, but, in reality, it's called "the right way" for a reason.

Registered under the laws of a foreign state (such as Delaware for example), does not eliminate your obligation to register your business in Illinois if you plan to operate in Illinois. And, even within Illinois, cities and townships can have different regulations regarding business licensing and operations. Failing to follow your local rules could inadvertently cost your business its limited liability protections.

And the horror stories you may have heard about violating federal employment laws are exacerbated when you factor in local laws and regulations. Many state and local laws have broader application than their federal counterparts and some have stricter enforcement provisions. It doesn't give a business owner any solace to know he/she followed the federal rules when a state agency comes in and assesses penalties.

By: Poonam K. Lakhani

An employee handbook is one of those things that new and growing companies often forget. Even when companies do remember to create a handbook, they often let it sit at the bottom of their file cabinet collecting dust. As a result, employees are often confused about workplace policies and sometimes employers inadvertently open themselves up to liability.

A good handbook has a number of benefits which can help your business. Handbooks ensure that important information is communicated to each employee in the same manner. They also provide answers to many employee questions, particularly regarding holidays, leave, dress code, etc. More importantly, a handbook will communicate expectations and consequences to employees. If properly utilized and actually enforced, a handbook can provide you with some protection from legal disputes.

However, just creating a handbook is not enough. You must actually use and enforce the policies outlined in your handbook. A good handbook, will incorporate your business' culture and practices, and will prove to be an invaluable tool.

With all the time and money that is invested in a new business it seems like it should go without saying that entrepreneurs should put some thought into their entity formation before going on line and setting up a corporation or partnership. However, the fearlessness that can make for a great entrepreneur can easily morph into impulsiveness in decision making.

There are tax and legal implications associated with each business entity type. Make sure that you choose an entity that accommodates your business operations. If you know you want to distribute profits based on factors other than ownership or you know you will struggle with keeping up with corporate formalities, you may want to consider an LLC over a corporation. If you plan to have fast growth and require significant outside investment, you may want to consider a C-corporation. Cookie cutter answers are only good for cookie cutter businesses.

By: Poonam K. Lakhani

Background checks can be a smart idea when screening potential employees. A simple background check can save your business thousands of dollars by ensuring that your employees are honest in their representations and to protect against any potential negligent hiring law suits. For some positions, such as those involving financial information or providing care to other individuals, businesses may be required by law to conduct background checks.

However, conducting background checks in an improper manner can also open an employer up to liability. There are certain federal, state, and local laws associated with conducting background checks that employers must follow. These laws and regulations generally specify:
• How notice is to be given to the applicant;
• How written permission is to be obtained from the applicant;
• How any information obtained and used must be relevant to the job both as to how old the information is and how the specifics relate to job performance; and
• How the confidential information is to be handled and disposed of.

Depending on the nature of your business and the position, the rules regarding background checks may be different. An attorney can review your background check process to ensure that you are following the law while obtaining the most through information possible.

By: Amit Bindra

Across the U.S., employment related lawsuits rose during 2012. Illinois is an at-will state, so an employer can terminate an employee for any reason, as long as the reason is not illegal. However, Illinois businesses still face lawsuits regarding discrimination. Litigation can be expensive for a business, so certain policies can help minimize legal risks.

We have already covered the benefits of a severance agreement, and factors businesses should consider when drafting employee handbooks.

Another way a business can avoid costly litigation is to start a practice of annual performance reviews. Performance reviews can prevent an employee from being surprised when he or she is terminated. Annual reviews also ensure that a company has a documented performance related issues.

An effective performance review should be direct and clear. A business should communicate to an employee the specific job duties, and how the employee can be successful. It is important that reviews maintain a level of objectivity. Reviews cannot be based upon an individual's gender or race, but instead should be based on job-related matters. Someone with distinct knowledge of the position should conduct the review.

While performance reviews can be awkward or increase short term costs for a business, reviews can be helpful in the long run by managing an employee's expectations and documenting specific work-related problems.

By: Poonam K. Lakhani

There is a lot to think about when you start a new business. One major issue which new business owners often overlook are business license requirements. Whether you are selling goods or providing a service, chances are you will be required to obtain one or more business licenses to operate.

Business license requirements can differ based on state and municipal area. Not obtaining the necessary licenses can have serious consequences, including expensive fines and even suspension of business operations. Business owners often make the mistake of thinking that they have obtained all necessary licenses, or that their business does not require a license. In order to determine which licenses you need it is best to consult an experienced attorney. An attorney can also provide assistance and guidance with the process of obtaining licenses

Before quitting my stable firm job, I sought advice from lawyers I respected, business owners I saw as successful, and my accountant. They all emphasized relationship marketing. But it was my accountant who told me that I needed to know where I would get business before making the leap.

He didn't tell me to write up a business plan or create a marketing road map. Instead, he simply advised that I put together a quick spreadsheet detailing where I expected to get clients, how much revenue I considered "for sure" and how much more I thought I could get.

Having revenue goals pushed me to create a marketing plan that could meet those goals. Knowing that you have business in the pipeline allows you to have an air of confidence. And, no matter what anyone else tells you, no one likes to do business with desperation. Business is just like dating, everyone wants the seemingly unattainable.

Most businesses fail within the first year, but it's not usually because of a lack of good ideas. The fact is that most entrepreneurs overvalue their ideas. They underestimate the time and finances required to get the business off the ground and they overestimate potential revenue.

One of the biggest financial issues associated with starting your business will be how you survive without any income. Before you launch your business, plan for the following:

• A capital investment. The old adage that "it takes money to make money" is not just a cliché. Rarely can an individual launch a business without putting up any money. Plan out your initial expenses and then double the amount. Everything always costs more than you think; and
• A year without income. Even if your business starts generating revenue quickly, revenue does not always equate to profits. There are unforeseen costs associated with every business and to cover those costs you may need to go without income.

Great success is often preceded by repeated failure.