MY BORROWER IS A ____________________*WHAT DO I NEED TO KNOW? AND WHO HAS THE AUTHORITY TO SIGN?*CORPORATION, PARTNERSHIP, LLC…OTHER COLORFUL ADJECTIVES WELCOME, BUT ARE NOT COVERED IN THIS PRESENTATION

Elizabeth O’Brien/Andrew EresSTAHL COWEN CROWLEY ADDIS, LLC55 W. Monroe Street, Suite 1200Chicago, Illinois 60603

OVERVIEW1. Existence – how are each created?2. Liability – who is on the hook?3. Taxation – how does the government

get their money?4. Takeaway

a. What is lender exposure?b. What should I be looking for?

Sole Proprietor Existence

Single person Often d/b/a Only filings are a business license Attractive to borrower because:

No cost Easy No formalities

Sole Proprietor Liability – FULL

The borrower is responsible for all claims, lawsuits, debts of the business

A creditor can attach to personal and business assets

This is good for the bank, bad for the borrower

Sole Proprietor Taxes

All profits and losses are reported on the borrower’s personal tax return

Sole Proprietor Takeaway

This form of business is the easiest way to access borrower’s full assets in the event of default

Financial reporting will consist of tax returns and personal financial statements

No guarantor Borrower can sign individually

Partnership Law – Uniform Partnership Act Existence

Oldest in history. Identified by L.P. or G.P. Profits and losses are allocated equally unless otherwise set forth by

agreement General Partnership vs. Limited Partnership

General Partnership Limited Partnership

General partner has the idea, limited partner has the money and cannot be involved on day-to-day operations

Partnership Agreement Helpful, not required

Filings – Secretary of State -Limited Partnership only Liability – FULL; joint and several Taxation

“Flow Through” A partnership files a tax return, but is not taxed on a state or federal level

Partnership

No FilingsFull Liability –

Joint and Several

Pass Through Taxation

General Partner is signatory

General Partnershi

p

Partnership

File with Secretary of State

Full Liability – Joint and Several

Pass Through Taxation

General Partner signs

Limited Partnershi

p

PartnershipWhat

Authority Documents should be signed at Closing?

What Entity Documents

Should I Review?

Who Can Sign?

Partnership

Partnership Agreement

Obtain Copy, confirm signatory

Resolutions should state that Partnership

Agreement still in place and has not been

modified, and confirm that the signor has the

authority to sign

No Partnership Agreement

Resolutions should state that no Partnership

Agreement exists, and confirm that the signor

has the authority to sign

Corporations Law – Illinois Business Corporations Act Existence – INC., Incorporated

Documents File Articles of Incorporation with Secretary of State Bylaws Shareholder Agreement Meeting Minutes File Annual Reports Consents / Resolution

Structure Owners = Shareholders Directors = Managers Officers = President, VP, etc., day-to-day operations

Corporate Formalities

Corporations C Corp vs. S Corp

C Corp Large companies More flexibility on growing / expanding business due to lack of restriction on investors

S Corp Less than 100investors

Must be US citizens Can have only one class of stock Cannot be owned by C Corps, other S corps, LLCs (cannot create tiered/layered ownership)

Liability – Protected – no personal liability for SH – GET A GUARANTOR Some exceptions

Taxation C Corp

Double taxation, taxed on income at entity level, then dividends taxed again at individual level

S Corp Not taxable as an entity, but very complicated

Corporations

Articles of Incorporation

& Bylaws

Shareholders protected from

liability

Double taxation – entity level and individual level

Resolutions and Incumbency

Certificate should be obtained for signor

C Corp

Corporations

Articles of Incorporation &

Bylaws

Shareholders protected from

liability

No double taxation, but complex accounting is required

Resolutions and Incumbency

Certificate should be obtained for signor

S Corp

Corporations

Review Bylaws for Authority Provisions

Is Shareholder Vote Required? Unanimous Consent

Certificate of Incumbency

Resolutions/Consent should state who has authority to sign

Limited Liability Company Law – Illinois Limited Liability Act

Existence – LLC, L.L.C. Documents

File Articles of Organization with Secretary of State Operating Agreement Changes - Articles of Amendment and / or Amendments to LLC Agreement, Resolution

Structure Can be one person Small business, few shareholders

Owners are members Member-managed or Manager managed Profits and losses are shared pro rata based on membership interest (see waterfall

provision of LLC Agreement) Have the ability to create preferred classes SPE Series LLC

Limited Liability Company Corporate Formalities

No meetings required Liability

Limited to assets of entity, members are protected except for piercing

Taxation Pass through (i.e., partnership), but they can elect

to be taxed as an S corp. where profits in excess of member salaries are taxed at a corporate level

Limited Liability Company

Articles of Organization &

Operating Agreement

Personal assets of Borrower protected

Pass Through Taxation

Resolutions for Manager or Member, as applicable

LLC

Limited Liability Partnership Law – Illinois Uniform Partnership Act Existence (LLP)

Documents File for Certificate of Existence with Illinois Secretary of State Partnership Agreement

Structure General Partner and Limited Partner, each share equally in decision making Must be 2 or more people Manage the business directly Uncommon in general, but most common amongst professional organizations

(doctors, lawyers, accountants)

Liability Partners are protected from each other’s negligence, torts, etc., but not their

own actions that lead to lawsuits Taxation

Pass through

Limited Liability Company

Operating AgreementManager Managed

Major Decision?

Yes – Resolution must be signed by members, and

must specifically state that transaction is approved and Manager can sign

No – Resolution approving transaction can be signed

by Manager alone

Member Managed

Confirm in Operating Agreement which

members need to sign – Resolution should

authorize the transaction

Limited Liability Partnership

Statement of Qualification and

Partnership Agreement

Liability is limited – one partner is not liable for another

partners acts

Pass Through Taxation

General Partner signs

LLP

Authority Documents Certification of Organizational

Documents Formation Documents Entity Documents Resolution Incumbency Good Standing Authority to Do Business

Layered EntitiesBorrowerABC, LLC

10%Investor

A

30% Investor

B

60% Investor

C

ManagerDEF, Inc.

Jurisdiction Illinois Delaware Nevada California Florida