1. 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 Eres STAHL COWEN CROWLEY ADDIS, LLC 55 W. Monroe Street, Suite 1200 Chicago, Illinois 60603

2. OVERVIEW 1. 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?

3. Sole Proprietor  Existence  Single person  Often d/b/a  Only filings are a business license  Attractive to borrower because: No cost Easy No formalities

4. 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

5. Sole Proprietor  Taxes  All profits and losses are reported on the borrower’s personal tax return

6. 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

7. 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

8. Partnership No Filings Full Liability – Joint and Several Pass Through Taxation General Partner is signatory General Partnership

9. Partnership File with Secretary of State Full Liability – Joint and Several Pass Through TaxationGeneral Partner signs Limited Partnership

10. Partnership What 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

11. 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

12. 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

13. 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

14. 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

15. Corporations Review Bylaws for Authority Provisions Is Shareholder Vote Required? Unanimous Consent Certificate of Incumbency Resolutions/Consent should state who has authority to sign

16. 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

17. 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

18. Limited Liability Company Articles of Organization & Operating Agreement Personal assets of Borrower protected Pass Through Taxation Resolutions for Manager or Member, as applicable LLC

19. 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

20. Limited Liability Company Operating Agreement Manager 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

21. Limited Liability Partnership Statement of Qualification and Partnership Agreement Liability is limited – one partner is not liable for another partners acts Pass Through TaxationGeneral Partner signs LLP

22. Authority Documents  Certification of Organizational Documents  Formation Documents  Entity Documents  Resolution  Incumbency  Good Standing  Authority to Do Business

23. Layered Entities Borrower ABC, LLC 10% Investor A 30% Investor B 60% Investor C Manager DEF, Inc.

24. Jurisdiction  Illinois  Delaware  Nevada  California  Florida