Chicago Code Violations: How to Navigate the Administrative Hearing Process

Chicago Municipal Code Violations often times carry a potential fine. Know the process, know your rights!

Much like the federal government or state governments, local municipalities in Illinois are permitted to enact and enforce laws. In Chicago these laws are codified in the Chicago Municipal Code, and prescribe: building codes, business licensing, taxing authority, and many more.

While many of these laws are related to “public health, safety, welfare, morals and quality of life of the residents of the City of Chicago”, a violation may result in costly fines. Furthermore, as in the case of building code violations, or violations relating to the care of property, if those fines go unpaid, they may result in a lien against the real property.

For example, the current fine for not cutting or controlling weeds to the required length (§ 7-28-120) can range from $600 to $1,200. Each day the violation exists is a separate offense, which means that the fine can be multiplied by the number of days, and could potentially grow to an even larger amount, much like rapidly growing lawn weeds.

Does the City of Chicago always seek the maximum fine permitted by law? No, but the City could-and would-be within its legal right to do so.

Let’s say you have a neighbor that notices out of control weeds growing on your front lawn, and that person decides to report this alleged violation by dialing 311. The Department of Streets and Sanitation can send out an inspector to make a determination if a violation exists. If there is an alleged violation observed, the violation can be referred to the the City’s Corporation Counsel to prosecute and enforce the Chicago Municipal Code.

The prosecution of the ordinance violation(s), in many cases, is filed at the Chicago Department of Administrative Hearings (DOAH), a ‘quasi-judicial body’, and heard before an Administrative Law Judge (ALJ). ALJs are licensed attorneys, contracted to hear Administrative cases; they are not elected judges.

The rules for prosecuting Administrative Law cases are not as stringent as those in Circuit Court or Federal Court. One difference is that the City need not obtain personal jurisdiction over the individual or business being sued. In most civil cases, personal jurisdiction can be obtained through service of process, whereby the Sheriff or a special process server physically delivers a copy of the summons and complaint to the individual or entity being sued. When the City prosecutes an ordinance violation through the DOAH, it can serve the notice of the violation and hearing by regular mail.

On the date of the hearing, you (or your attorney) will likely file your appearance a-one-page form with your case information and contact info. Typically you (or your attorney) will meet with the Assistant Corporation Counsel (City Attorney), that will be prosecuting your case. During this meeting the City may request that you agree to an order to be entered on that day. Critically, you do not have to agree to the order being requested by the City and you have the right to be represented by your own lawyer at this meeting.

Depending on the nature of the case and what the City is seeking, your first hearing may be the last, and the case may conclude on that date. However, in instances where corrective action is sought, such as building code violations, there may be a return date, or dates, to ensure that the corrective action was taken. The case is called by the ALJ, and if an agreement was reached with the City Attorney, the ALJ will likely enter that order. If no agreement is reached, a hearing will likely be conducted by the ALJ, in which both the City and you will have the opportunity to present evidence, and argue the case. The ALJ will ultimately make a determination as to whether a violation existed and enter a judgement. If the judgment is not entered in your favor, you will have an opportunity to appeal that decision to the Circuit Court, but there are time constraints and specific requirements for filing an appeal.

What happens if you miss the notice by mail, and do not attend the hearing? Likely a default judgment will be entered against you, and the notice of the default judgment will be mailed. Does that mean you have to pay that amount? Not necessarily, you (or your attorney) can file a motion to set-aside the judgment, but there is a time limit to file this motion, in order for it to be considered timely.

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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.

Home Buying: Can the other party reject Attorney Proposals?

In 2018 the Illinois Real Estate Lawyers Association (IRELA) released the newest version of the Multi-Board Residential Real Estate Contract, version 7.0. The contract is a template that many Illinois real estate brokers use to enter into a contract for the sale and purchase of a residential property in Illinois. Using a template such as the 7.0, brokers typically fill out the form, and negotiate the terms with the other party, prior to any attorney review. 

After the contract is accepted there is usually an Attorney review period, which is when the Attorneys for either side may propose modifications, accept/reject modifications, and review the contract, to ensure conformity with the client’s wishes. 

One of the updates to the 7.0 from the prior version is the section that applies the Attorney Review, paragraph 10. The Attorney Review paragraph provides that within five (5) business days after date of acceptance, the attorneys for the respective parties, by notice, may: 

  • Approve the contract; or
  • Disapprove the contract, which disapproval shall not be based solely upon the Purchase Price; or
  • Propose modifications to this Contract, except for the Purchase Price, which proposal shall be conclusively deemed a counteroffer notwithstanding any language contained in any such proposal purporting to state the proposal is not a counteroffer. If after expiration of ten (10) Business Days after Date of Acceptance written agreement has not been reached by the Parties with respect to resolution of all proposed modifications, either Party may terminate this Contract by serving Notice, whereupon this Contract shall be immediately deemed terminated; or
  • Offer proposals specifically referring to this subparagraph d) which shall not be considered a counteroffer. Any proposal not specifically referencing this subparagraph d) shall be deemed made pursuant to subparagraph c) as a modification. If proposals made with specific reference to this subparagraph d) are not agreed upon, neither Buyer nor Seller may declare this contract null and void, and this contract shall remain in full force and effect.

Prior to this change, it was common for attorneys to include language in the proposed modifications that limited the other side’s ability to reject the Contract based on the proposals, such as the following:

“Terms contained herein are only suggested or proposed modifications and should not be construed as a counteroffer, buyer reserves the right to withdraw any or all of these proposed modifications and to proceed under the terms of the original contract.” 

This language purported to not permit the party receiving the modification letter to cancel the contract without responding to the proposed modifications, based solely on the proposals. 7.0 changed this practice.  

Under the new Contract, the parties may designate under which provision the proposed modifications are made.  If the modifications are made pursuant to 10(c), language indicating that the proposals are mere proposals and not counter-offers will be disregarded. 

If the proposals are made pursuant to 10(d), they are treated as mere proposals, and may be ignored or address. However, if they are not addressed or only partially addressed, neither party may declare the Contract null and void. 

It is therefore important to designate under which provision your proposals are being made.  Proposals which are must have, should be made pursuant to paragraph 10(c), however other less significant proposals, that a party may not need, may be made pursuant to 10(d).

Christian Francis BlumeReviewsout of 5 reviews

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.

Understand whether it’s fraud in fact or fraud in law

In Illinois, the Uniform Fraudulent Transfer Act, 740 ILCS 160/1 (the “UFTA”), permits creditors to reach fraudulent transfers and conveyances made by a debtor with intent to defraud, hinder, or delay a creditor, or place property out of a creditors reach.  A violation of the UFTA requires either ‘fraud in fact’ or ‘fraud in law.’

Fraud in Fact: Fraud in Fact occurs when “the debtor made the transfer or incurred the obligation…with (1) actual intent to hinder, delay, or defraud any creditor of the debtor.”  It’s unlikely a debtor would ever admit actual intent, so circumstantial evidence is necessary to demonstrate actual intent (or fraud in fact).  The UFTA provides (11) factors which may be given consideration in determining whether actual intent is established.  These factors include:

  • Whether the transfer or obligation was to an insider:An insider can be broadly defined as someone with a close relationship (personal or professional) or control over the debtor.  A full list of “insiders” is set forth in 740 ILCS 160/2(g).
  • Whether the debtor retained possession or control of the property transferred after the transfer:  For example, a debtor might have transferred title to his automobile to a friend, but he is still driving it, parking it in his garage, and treating it as his own vehicle.
  • Whether the transfer or obligation was disclosed or concealed: If the transfer was concealed from the creditor, this factor weighs in favor of fraud in fact.   If the transfer was disclosed to the creditor, however, this factor weighs in favor of no fraud in fact.
  • Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit: If the debtor makes the transfer after a lawsuit was filed against the debtor, this suggests that the transfer was made with actual intent to commit fraud.
  • Whether the transfer was of substantially all the debtor’s assets: A debtor knowing it has substantial liabilities to a creditor or creditors may try to transfer everything of value, knowing that it would likely be obtained or liquidated to satisfy debts if it remained in the debtor’s possession.
  • Whether the debtor absconded: The debtor leaves hurriedly and secretively.
  • Whether the debtor removed or concealed assets.
  • Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred: If the value received for the assets was reasonable, this would weigh in favor of no actual intent to commit fraud.  
  • Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred: A debtor is considered insolvent when the sum of the debtor’s debts is greater than all of the debtor’s assets at a fair valuation.
  • Whether the transfer occurred shortly before or shortly after a substantial debt was incurred: This factor considers both the timing of the transfer, how close it was to incurring the debt, and the substance of the transfer.
  • Whether the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

Fraud in Law: If Fraud in Fact cannot be established, the UFTA provides a creditor with an avenue for recovery if it can establish “Fraud in Law.” 740 ILCS 160/5(a)(2).  Fraud in Law occurs when an asset is transferred, or an obligation is incurred, and the debtor does not receive a reasonably equivalent value in exchange, and:

  • The debtor was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
  • The debtor intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due. 

Determining the “Reasonably Equivalent Value” is a fact specific inquiry, and courts will compare the value of what was transferred to what was received in exchange, whether the asset was transferred or the obligation was incurred for fair market value, and whether the transaction was at arm’s length between a willing buyer and a willing seller. See Barber v. Golden Seed Company, Inc.)

In People ex rel. Hartigan v. Anderson,the defendant transferred a beneficial interest in his marital residence to his wife less than one month prior to being indicted by a grand jury but many months after receiving a subpoena to appear before a grand jury and produce tax documents.  Eventually, the criminal charges were dropped and the state brought a civil suit against the defendant.  A civil judgment was entered, and the state filed an action to set aside the real estate transfer, alleging that is was a fraudulent conveyance.  The Court applied a three pronged tests to determine if the conveyance was fraudulent in law: (1) there must be a transfer made for no or inadequate consideration; (2) there must be existing or contemplated indebtedness against the transferor; and (3) it must appear that the transferor did not retain sufficient property to pay his indebtedness.

The defendant and his wife argued: (1) the wife’s decision not to divorce the defendant, after discovering he had an affair which produced children, was adequate consideration for the transfer, and (2) the defendant did not contemplate a civil judgment at the time of the transfer.  The court conducted a hearing on the matter and found the transfer to be fraudulent.

Bankruptcy Code and Fraudulent Transfers: Debtors who fraudulently transfer assets to avoid turning them over to creditors may be tempted to use bankruptcy as a shield by discharging the debt owed to those creditors. The Bankruptcy Code, however, provides creditors with protection against dishonest debtors. Bankruptcy trustees have the power to avoid fraudulent transfers made within two years before the bankruptcy filing. The standard for proving a fraudulent transfer under that section is the same in many respects as the standard for proving fraud under the UFTA. If a transfer is avoided, then trustees have the power to recover the property or its value and then distribute the recovery to creditors. The trustee’s “look back period” may often exceed two years depending on several factors, including the method and recipient of the transfer and the applicable state law.

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.

Buying or Selling Real Estate in Illinois: What Does a Lawyer Cost and Do I Need One?

For Illinois residential real estate closings (buying or selling a home), attorneys typically charge their clients (buyers or sellers) a fixed-fee for the entirety of the representation.  It is common for residential real estate closing attorneys to collect their fee only if the closing actually takes place; or a lessor portion if the closing does not take place. 

When representing sellers in residential real estate closings, attorneys will often act as title agents as well.  Sellers typically deliver a title commitment for a title insurance policy, which covers potential defects/issues with title that may appear after closing. Most of the work preparing the title insurance is done by an agent of the title insurance company.  If an attorney is representing you in the sale of your home and is also acting as the title agent, then your attorney is required to disclose this to you and the other party.  Attorneys generally collect a portion of the title insurance premium, which sellers and buyers pay to the title agency, for their work as title agents.  

For commercial closings, attorneys in Illinois might charge a flat fee or an hourly fee, depending on the Attorney and the transaction.  Commercial closings may include more time and resources than a residential transaction.  

As a buyer or seller of real estate in Illinois, you are not required by law to have an attorney; however, there are many legal technicalities and issues a trained and experienced attorney may be able to spot, that you may not. In many cases, a real estate purchase may be the first time an individual or couple ever hires a lawyer.

A residential real estate attorney can draft the contract, but the contract is often drafted by the listing or buying broker and signed by the client prior to any discussion with an attorney.  After a contract is drafted and signed, an attorney will review the contract and discuss the content of the contract with the client.  An attorney can determine if the contract aligns with the client’s understanding and objectives.  Based on experience and each client’s unique situation, attorneys propose modifications to the contract during the attorney review period.  Attorneys also review modifications proposed the other party (seller/buyer).  Common modification requests can include: property tax proration amounts, mortgage contingency deadlines, inspection defects (either to be repaired or a resolved with a credit at closing); and the closing date.

After the review period is complete, attorneys will make sure deadlines are met and proper documents are prepared correctly.  This can include mortgage contingencies, pre-closing inspections, surveys, pay-off letters, transfer documents, title commitment documents, transfer tax stamps, and compiling and reviewing closing numbers.  At closing the Attorneys will review the closing documents and explain the significance and meaning of the documents to their respective clients.  When representing buyers, attorneys walk their clients through complicated mortgage loan documents.  Additionally, the Attorneys may resolve disputes that arise at closing. 

*Christian is an Illinois business and real estate lawyer and is happy to speak with you and assist with your start-up or small business. Call (773-706-7514) or email (christian@attorneyblume.com)

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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.

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.

Illinois Creditor Law: Can you pierce the corporate veil after a final judgment?

As I discussed in a previous blog-post (DON’T PIERCE THE CORPORATE VEIL – 11 mistakes to avoid for small-businesses), piercing the corporate veil is an equitable remedy and a means to impose liability from an underlying claim. It is not a stand-alone cause of action; it must be merged with an underlying claim/cause of action.

A party can pierce the corporate veil as part of the underlying case, allege facts to support an alter-ego theory, and impose liability on the individual or entity attempting to be shielded by the corporate liability limits. However, in some cases a litigant may not have the facts necessary to allege an alter-ego theory until after final judgment before learning that the judgment debtor is unable to satisfy the judgement.

So, how can a creditor pierce the corporate veil after a final judgment against a debtor corporation?

In many cases, after a judgement is entered, supplementary proceedings may be commenced to collect on the judgment, including the filing of a citation to discover assets. (735 ILCS 5/2-1402). Language in 1402(c)(3), permits a judgement creditor to:

“Compel any person cited, other than the judgment debtor, to deliver up any assets so discovered, to be applied in satisfaction of the judgment, in whole or in part, when those assets are held under such circumstances that in an action by the judgment debtor he or she could recover them in specie or obtain a judgment for the proceeds or value thereof as for conversion or embezzlement. A judgment creditor may recover a corporate judgment debtor’s property on behalf of the judgment debtor for use of the judgment creditor by filing an appropriate petition within the citation proceedings.”

This section permits a judgment creditor to determine whether a third-party is holding assets of the judgment debtor, BUT cannot be used to pierce the corporate veil and find the third-party personally liable. Psyhos v. Heart-Land Development Co.

In Pyshos, the creditor secured a judgment in the underlying case and attempted to pierce the corporate veil in a supplementary proceeding. The appellate court found this improper. The court reasoned that the allegations in a supplementary proceeding are limited to considering the allegation that the third-party is holding assets of the judgment debtor, but a supplementary proceeding may not determine personal liability against those shareholder and directors. The Pyshos court outlined two approaches a judgment creditor may take to recovery against a third-party: (1) supplementary proceedings, alleging the third-party is in possession of assets of the judgment debtor, or (2) initiating a new proceeding to pierce the corporate veil.

(1) Supplementary Proceedings – to obtain assets of the judgment debtor, held by a third-party. A supplementary proceeding, can determine whether a third-party is in possession of assets of the judgment debtor. Those assets may be used to satisfy the judgment.
A supplementary proceeding can determine whether a judgment debtor transferred assets to a third-party in violation of the Illinois Uniform Fraudulent Transfer Act (UFTA). (740 ILCS 160), which conforms with Pyshos and precedential interpretation of 1402(c)(3). If the UFTA has been violated, the judgment creditor may be able to avoid the transfer to satisfy the underlying debt, or seek an attachment or other provisional remedy against the transferred asset or other property of the transferee. (740 ILCS 160/8).

While a violation of the UFTA permits some relief pertaining to the assets held by a third-party, it does not provide for personal liability against that third-party.

(2) Initiating a new proceeding to pierce the corporate veil. “A new proceeding is proper because, where a party obtains a judgment against another party, the underlying claim merges with the judgment and the judgment becomes a new and distinct obligation of the [judgment debtor] which differs in nature and essence from the original claim.” Pyshos.

We can look at the case of Buckley v. Abuzir. The Plaintiffs in Buckley obtained a default judgment against a corporation, for violation of the Illinois Trade Secrets Act. Unable to recover from the corporation, the Plaintiffs sought to recover from an individual, in a separate chancery action, under a alter-ego theory. The Plaintiffs incorporated the underlying judgement as part-of the suit to pierce the corporate veil and alleged facts to support an alter-ego theory; thereby merging the judgement with a separate suit. The relief sought was equitable, the legal relief had already been obtained in the underlying case. The filing of the second case was a means to attach liability to the individual for the underlying debt of the corporation.

*Starting a business or running a closely held business in Illinois? Contact Attorney Christian Blume at 773-706-7514 or christian@attorneyblume.com.

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.

Don’t pierce the corporate veil: 11 mistakes to avoid for small-business owners

Christian Blume -December 21, 2018

Many business owners and entrepreneurs have likely heard the term ‘piercing the corporate veil’, but don’t understand the meaning, and how to take steps to avoid the ‘piercing.’

Generally, when we talk about piercing the corporate veil, it is holding shareholders (in the case of a corporation), directors, officers or employees liable for the debt of a corporation.  These owners can be individuals or even parent corporations/LLCs. Why might a creditor want to go after the individuals or another corporate entity? The entity may not have the resources to cover the liability, and the creditor is seeking money from someone with ‘deeper pockets.’

Piercing the corporate veil is considered an equitable remedy and a means to impose liability from an underlying claim, such as a breach of contract. To pierce the corporate veil, Illinois courts require a creditor demonstrate: (1) a unity of interest and ownership, such that the separate personalities of the corporation and the individual do not exist; and (2) circumstances must exist such that adherence to the fiction of a separate corporate existence would sanction a fraud, promote injustice, or promote inequitable consequences.

In Fontana v. TLD Builders, the Illinois 2nd District Appellate Court delineated the following (11) factors, ‘badges of fraud’, to determine whether the unity of interest and ownership has been met, and are insightful as to whether the second-element of the two prong test is met. Corporations should do their best to avoid these mistake.

inadequate capitalization: when the corporation’s ratio of capital to its obligations and business operations is too low.

failure to issue stock: corporations have the power to issue shares of stock, as per the articles of incorporation. However, a failure to issue those authorized shares demonstrates a unity of ownership and may support a piercing of the corporate veil.

failure to observe corporate formalities: not holding regular director and shareholder meetings, keeping minutes at corporate meetings, maintaining corporate records, or updating filings with the secretary of state.

non-payment of dividends: not all corporations pay dividends, and many don’t necessarily have to. However, if dividend payments are required or appropriate based on the circumstances, then they should be paid to the shareholders.

insolvency of the debtor corporation: if the corporation is regularly unable to satisfy its debts when becoming due.

non-functioning of the other officers or directors: if only one of the named officers or directors, when there are multiple listed officers or directors, exercises complete control over the corporation, this demonstrates that the corporation may be in-effect the alter-ego of that individual and not a distinct entity.

absence of corporate records: corporations are required to keep correct and complete books and records, and minutes of the proceedings of its shareholders and directors. Additionally, a record of a corporation’s shareholders must be kept, including the names and addresses, and the number of shares and class of shares held by each shareholder.

commingling of funds: when personal funds are used to pay corporate liabilities, corporate funds are used to pay personal expenses, or when one corporate entity pays the liabilities of another. This can be avoided by maintaining separate and distinct bank accounts for the business entity, and not using one account to pay for the liability of another. This practice may also help in maintaining accurate accounting.

diversion of assets from the corporation by or to a stockholder or other person or entity to the detriment of creditors: when the corporation transfers assets or money, to shareholders or third-parties to prevent creditors from collecting. Additionally, these transfers may violate Illinois Uniform Fraudulent Transfer Act (740 ILCS 160).

failure to maintain arm’s-length relationships among related entities: when lawyers use the term “arm’s-length relationship”, it is typically in reference to a more formal relationship, where each party is independent, well informed, and looking out for their own interest. The opposite would be an “arm-in-arm relationship,” one in which the parties are more intimate, closely related, or familial. An example of this would be a corporation leasing office space/commercial space from another closely held entity below market rent and without any formal leases, or without periodic rental payments.

whether, in fact, the corporation is a mere facade for the operation of the dominant stockholders: when the corporation is set-up as a ‘sham’ or ‘dummy’ corporation. While it is good practice to avoid as many of these mistakes as possible, there is no concrete formula that courts use to determine whether to pierce the corporate veil, and each is determined based on the particular facts.