Category: Food Law

How to Limit Personal Liability When Starting a Home Based Business

Have you thought of starting a home based business, as a side-hustle or maybe even full-time? Maybe you have a great product idea that you could sell from your home, or a service you can offer. Are you concerned with the potential liability? Limiting liability through business insurance is an option that should be explored, but this article focuses on entity selection.

By failing to form a separate business entity, you are by default operating as a sole-proprietor (individual) or partnership (more than one individual). Depending on the business, it may be a wise choice to form a separate entity for your home based business (such as selling homemade foods).

Sole-proprietor:

Operating as an individual with no separate legal entity.  It is the default classification if you operate as an individual.  A sole-proprietorship is simple to maintain, but offers no liability protection for the owner.

Partnership:

Illinois recognizes several distinct partnerships, but generally a partnership is “the association of two or more persons to carry on as co-owners a business for profit…whether or not the persons intend to form a partnership.” Similar to a sole-proprietor, a partnership may be formed without the partners’ specific intent to form a legal partnership and without any specific filing by the partnership.  That means, if you meet the statutory definition of a partnership, you are a partnership. Partners generally remain personally liable for the debts of the partnership, but are taxed as individuals.

Limited Liability Partnership:

A Limited Liability Partnership (“LLP”) is a recognized form of partnership covered by statute An LLP requires a filing of a statement of qualification with the Illinois Secretary of State.  LLPs, unlike general partnerships, limit the personal liability of partners for the partnership’s obligations.  (805 ILCS 206)

Corporation:

A separate legal entity, defined by statute, and permits different classes of stock and shareholders, and provides liability protection of shareholders.  However, requires more detailed filing requirements.  To form a Corporation in Illinois you must comply with the Illinois Business Corporation Act of 1983 (805 ILCS 5).  The Act requires keeping of corporate records, minutes of proceedings, and other requirements.   For tax treatment purposes, a corporation can elect to be treated as a C Corporation, or as an S Corporation.  A Corporation is subject to double taxation (tax of both the corporate entity and distributions to shareholders). 

An S Corporation is organized like a corporation and provides liability protection to its shareholders. S-Corporations are treated as a pass-through entities for tax purposes. S Corporations are restricted as to the number of shareholders (no more than 100), only one class of stock is permitted, and there are limits on the type of shareholders (must be individuals, with some exceptions).

Limited Liability Company (LLC):

LLCs are governed by the Illinois Limited Liability Company Act (805 ILCS 180).  It is a separate legal entity, and the filing requirements are less complex than Corporations. The current fee for filing Articles of Organization is $150, and the filing of an annual report is $75, which is a one-page form.  The simplicity of an LLC makes it an attractive option for many small-business start-ups. 

Corporations and LLCs need to list a registered agent with a physical address (cannot be a P.O. Box) in Illinois.  The registered agent may be served summons, notice and demands made on the entity.

Many home based businesses may choose to operate as an LLC, which permits limited liability protection of the members, and pass through taxation. Since the filing requirements in Illinois are less complex, and recently reduced filing fees, this is an attractive option.  However, each situation is unique and discussing your options with a business lawyer, may provide additional insight.

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This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

How to avoid listing your home address when operating a home based business in Illinois

By: Christian Blume – Illinois Business & Real Estate Attorney

Many individuals starting a home-based business may be concerned with listing their home address on public records, for any number of reasons.  A recent amendment to the Illinois Assumed Business Name Act, HB2528 carves out an exception for certain businesses to avoid listing their personal residence when personal safety is an issue.

The Assumed Business Name Act (805 ILCS 405) requires any person or persons transacting business under an assumed name (other than their real names) to file a certificate setting for the assumed business name in the county clerk of the county in which business is transacted.  The types of businesses that are required to register assumed business names include, sole proprietorships, general partnerships, and professional services corporations.  It does not require corporations, limited liability companies (LLC), or limited liability partnerships (LLP) to register their assumed name.

An assumed business name is any name other than that of the individual owner(s) of the business.  Example: Abraham Lincoln, P.C. would not need to register as an assumed name, but Lincoln Law would since it is not the actual name of the individual transacting the business as a professional corporation. 

In August 2019, the Assumed Business Name Act was amended, to add 805 ILCS 405/1a, effective January 1, 2020.  The amendment permits a person or persons transacting business under an assumed name at his or her personal residence, to list the county clerk as the default agent for service if listing their home address would put their safety at risk.  Certain conditions must be met in order to list the county clerk.  

  • The person reasonably believe that publishing his or her home address would put his or her safety at risk, and lists the reasons for that belief on a form submitted to county clerk, which shall be kept confidential;
  • The form is accompanied by a court order or police report;
  • The person provides the address of his or her residence to the county clerk, which shall be kept confidential.

The amendment further stipulates that the county clerk has a duty to notify the business of service of process on behalf of the business, and may charge a nominal fee for this service.  Therefore, effectuating service on an individual or individuals operating under an assumed name can be accomplished through the county clerk, like serving any other registered agent.  Whether the individual(s) receive(s) actual notice from the county clerk would not matter for purposes of jurisdiction, although this hasn’t been tested.

Lastly, the act does not list what the court order or police report must state in order, and leaves this question open for interpretation.  Must the police report or court order confirm there is a reasonable risk of safety for listing the home address?  

Additional Resource: Cook County Application to Register or Amend an Assumed Business Name

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This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem.  The information in this article is current as of the date indicated, and may not be updated to reflect future changes/developments.  Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

Free Donuts for Life!

 

The other day, while finishing off my coffee a donut and a couple donut holes with jimmies (look that one up) at one of the local donut shops near my office, I overheard the donut shop worker talking with a bike messenger about a bird stuck in the donut shop. 

My initial thought…this sounds like a job for a tall guy, like changing light bulbs, pulling down projector screens, or reaching objects from high places, reminiscent of my high school teachers’ requests.  I know makes tall people feel special. 

So I inquired to ask what was going on.  The worker said they were closed, while she was attempting to get the bird out from above the door, with a donut on a stick and with the bike messenger’s assistance.  Yeah that’s right, a donut on end of a stick, as if the bird was only there for a snack, maybe it was.  I offered to grab the distressed bird and the worker looked at me with confusion.   

In attempt to sweep the bird down, it flew across the store and eventually ended up landing in an empty donut box before flying to hide behind some coffee cups.  I asked the worker if I could go behind the counter to get the bird out, while she consented.  Through multiple attempts and without harming the little bird, I was able to trap it using two plastic coffee cups.  I took it outside, a few yards from the door, and released it.  It flew away unscathed.

Here’s where it gets interesting, after thanks, the woman working the store proclaimed “free donuts for life” and told me to come in the following day, when they were re-opened.  Wrong person to offer free donuts for life to, especially the good donuts (you know what I mean if you live in Chicago and appreciate donuts).

So am I to expect free donuts for life?  Does the shop owe me free donuts for life?  Short answer is probably not.   

This promise of “free donuts for life” can be looked at through contract law (i.e. whether we have an enforceable contract), specifically under Illinois contract law.  A contract requires mutual assent, by the parties to the terms of the agreement; the parties here being the donut business (assuming the worker had authority to bind the donut shop, without getting into agency law) and myself.  Mutual assent requires a “meeting of the minds” and typically includes an offer and acceptance.  Both parties must understand and accept the agreement they are entering into.  In addition to mutual assent there must be “consideration”, which is a bargained-for promise, act, or forbearance or the creation, modification, or destruction of a legal relation.

However, past consideration is not sufficient consideration to form an agreement, and would be treated as a gratuitous promise.  Which means since I had already provided the removal of the bird from the donut shop (performance and past consideration), the shop’s promise of “free donuts for life” was based on a prior conferred benefit, and not sufficient to form consideration for the promise.  Had the worker stated “if you get that bird out of here, you will get free donuts for life”, or “whoever gets the bird out of here gets free donuts for life” and I performed, this would satisfy the consideration element of a contract, but not the case here.    

I asked a lawyer friend to discuss and although willing to take my case for a third of the donuts, we both concluded that there was no exchange of consideration, “free donuts for life” for past performance was not enough.  But he did bring up the legal doctrine of promissory estoppel, based on the gratuitous promise of the donut shop. 

 “The restatement of contracts defines promissory estoppel as “A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.”     

Illinois requires the following elements to set out a claim for promissory estoppel: (1) there is a promise that is unambiguous in its terms; (2) there is reliance by the party to whom the promise is made; (3) the reliance is expected and foreseeable by the party making the promise; and (4) the party to whom the promise is made relies on the promise to his or her detriment.   These are all factual questions that must be established, and will hinge on the specifics of each case.

Applying these elements to the bird rescue and “free donuts for life”, one could argue the promise was ambiguous.  What does “free donuts for life” mean? A donut a day or a dozen?  It’s not clear, what the shop was promising, and what the promissee (myself) may be interepreting the promise to be, and this creates ambiguity.   However, a jury or judge may be able to determine what “free donuts for life” means, and give it more definite meaning.

Second, I would have had to rely on this promise, and in Illinois that reliance must be reasonable.  Let’s say I did rely on this promise and showed up every day to ask for a donut and let’s assume this was reasonable, that would satisfy the second element. 

The third element also requires reasonableness, and it would have to be reasonable for the donut shop worker to expect and foresee me rely on this promise; again for a judge or jury to decide.     

The fourth element, detrimental reliance, may be shown through my efforts in showing up at the donut shop day after day to receive my free donut, but it would be unreasonable for me to continue to show up, if after the first day I was told I only get one free donut and cannot continue to come back for free donuts.   

Let’s say I overcome these hurdles and prevail on a claim under the doctrine of promissory estoppel, what could I recover in damages?  Some courts have awarded actual damages (i.e. the detriment of the reliance) others have awarded the promise, “free donuts for life,” so long as necessary for equity to prevail. 

Free Donuts for Life.

*Although I am a consumer of delicious donuts, I am also a business and real estate lawyer and would be happy to speak with you and see how I can be of assistance with your start-up or small business.   Christian@attorneyblume.com

Selling Homemade Food in Illinois: legal considerations.

When I was an Attorney with the City of Chicago, I spent a considerable amount of time doing work at police stations. Some of my fondest memories were made working with Chicago Police Officers. Every so often a retired police officer would make his rounds selling delicious homemade cupcakes.  I will leave his name and company name out of this article, but if you are a south side police officer you may know who I’m talking about. We’ll call him the Cupcake Guy.

The Cupcake Guy would roll into the station with his travel cooler, and the Officers and workers would flock to him to buy an individually packaged cupcake.  These were some of the most moist and delicious cupcakes you could get, and at a very reasonable price.

He likely made these cupcakes in his home.  While not altogether a new concept, homemade goods have been around for much longer than I will even try to determine.  However, the laws that regulate homemade goods, for commercial sale, particularly in Illinois are relatively new, or recently updated.    

There are two statutes this article to focus on relating to home-made food, for commercial use: (1) Home Kitchen Operation (410 ILCS 625/3.6) and (2) Cottage Food Operation (410 ILCS 625/4).

Home Kitchen Operation (410 ILCS 625/3.6)

The Home Kitchen Operation law regulates the production of baked goods in a person’s residence for direct sale to consumers.  Specifically, to fall under the Home Kitchen Operation Statute: (1) monthly gross sales cannot exceed $1,000, (2) the food is a non-potentially hazardous baked good, (3) notice must be given to consumers that the food was produced in a home kitchen, and (4) a label must be affixed to the food package containing the name of the food, and allergen information.  Additionally, the food must be stored in the residence, in which it was produced. In 2018, changes to the statute modified the definition of “baked goods.”   

In order for the law to take effect in your municipality, township, or county, the local government must adopt an ordinance, authorizing home kitchen operations.  

Cottage Food Operation (410 ILCS 625/4):   

Unlike a Home Kitchen Operation, a Cottage Food Operation is not restricted to “baked goods,” but includes all foods other than those specifically banned in the statute, with exceptions.  A Cottage Food Operation permits the sale of home made food to the public, but limits the sale to farmers’ markets, or sold on the farm, where the main agricultural ingredient is grown or delivered directly to the consumer.  

There are several types of foods and ingredients that are banned from being produced by a Cottage Food Operation, unless properly licensed, certified, and compliant to sell these banned foods.  This list includes: meats, certain types of pies (pumpkin, sweet potato, custard, creme), cheese cakes, garlic in oil, and many canned foods.  Additional requirements include: proper labeling, registration with the local government, a food sanitation management certificate, and the placement of a placard with the following notice  “This product was produced in a home kitchen not subject to public health inspection that may also process common food allergens.” Local governments and the Department of Public Health may prescribe further requirements on cottage food operations, so it is important to check with your local municipality.

*Starting a small-business, running a closely held business or facing legal issues in Illinois? Contact Blume Law.

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This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC and the user or browser.