Iowa Company Choice Energy Powers Toward Top of Inc. 5000 List

A big congratulations to client Choice Energy for its inclusion on the Inc. 5000 list of fastest growing company debuting at No. 40 on the list and No. 1 for Iowa companies! The company has experienced incredible growth for their operations posting a 6,021% growth over a 3-year period. The company supplies electricity to residential and commercial customers, and is currently licensed to conduct business in Connecticut, Ohio, New Jersey, Pennsylvania, Illinois, Massachusetts, and Maine.

You can check out the company’s profile on the Inc. 500 list here.

Iowa Company Bawte CEO Discusses TechStars

I wanted to share a recent interview from the Des Moines Register with John Jackovin of Bawte. Bawte landed a spot in the prestigious business accelerator, TechStars of Boulder.

John’s worked hard throughout his career as an entrepreneur. It was interesting to hear him say that one of the biggest lessons he’s learned is the right way to ask questions. Asking questions is an art. If you really want to learn about your business, rather than leading people to YOUR answer, it is much better to phrase questions in a way that gets people to give honest answers.  Asking leading questions is not helpful if you are looking for answers to help improve your business. Hearing what you want to hear isn’t going to get you there.

Congratulations to John and Bawte on the honor of participating in TechStars and best wishes for continued success!

Rush Nigut Receives Recognition by Peer Review Publications

Rush Nigut has been selected by his peers for inclusion in the 2015 Edition of the Best Lawyers in America© in the practice areas of Business Organizations (including LLCs and Partnerships) and Franchise Law.

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers is based on an exhaustive peer-review survey. Over 52,000 leading attorneys cast more than 5.5 million votes on the legal abilities of other lawyers in their practice areas. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

Additionally, Rush was selected as a Top Rated Lawyer in Labor and Employment for 2014 by American Lawyer Media and Martindale-Hubbell™ . This is the second year in a row Rush has been recognized as top rated in the Labor and Employment practice area.  He holds an AV Preeminent Rating® from his peers which is the highest rating in legal ability and ethical standards.

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Please note:  The fact that a lawyer has been voted by his or her peers into Best Lawyers in a legal practice area does not signify that the lawyer has been certified by a state board of legal specialization in that practice area or specialty. A listing in Best Lawyers does not guarantee a desired legal result. – Best Lawyers

Martindale-Hubbell™ is the facilitator of a peer review rating process. Ratings reflect the confidential opinions of members of the Bar and the judiciary. Martindale-Hubbell™ ratings fall into two categories – legal ability and general ethical standards. – Martindale-Hubbell™.

 

Lessons from an early Long John Silver’s Franchisee

Recently I reviewed a restaurant franchise offering for a client. One of the things I pointed out is the franchise agreement is freely assignable by the franchisor. This means the franchisor could sell its franchise to another entity and the original franchisor could disappear. If a sale occurs it is difficult to predict whether it will be good or bad for the franchisee. As discussed in a recent Business Record article written by David Elbert, it definitely was not favorable for a long time Des Moines family who owned 31 Long John Silver’s restaurants in Iowa, Illinois, Arizona and South Dakota.

According to the story, there were ups and downs but no serious problems occurred with the restaurants until Yum Brands (also owners of KFC, Taco Bell and Pizza Hut) decided to sell the franchise to a private equity group in 2011. Under the new owners, mistakes were made that alienated longtime customers including changing the tartar sauce and other problems occurred with the cole slaw. Then more changes occurred when Long John Silver’s was called out for using trans fat oils. A non-trans fat substitute had taste and consistency issues which caused significant drops in business. Eventually, the franchisee elected to close 16 of its 31 stores.

The assignability of the franchise agreement is something that you need to consider when looking at any franchise. A new franchisor may have a very different plan than the original franchise owner. They may not handle problems in the same manner and may not be as experienced in the industry as the former franchisor. (It also shows that people’s tastes can change rather quickly in the food industry but that is a topic for another blog post). In the case of the Long John Silver’s franchisee, it is apparent they had a nice run over at least a few decades. But I am sure that it didn’t make the decision to close 16 stores and lay off 200 people any easier. It sounds like they definitely ‘longed’ for the good ‘ole days.

 

Zoom Past Legal Zoom – Revisited

Years ago now I wrote a post called Zoom Past Legal Zoom. For years it has been one of the most read posts on this site and no post on the site has more comments. In that post I talked about how Legal Zoom does NOT give out legal advice and how the company’s documents are not guaranteed to be correct, complete, or up-to-date. I also talked about how many people may be surprised at the expense comparison between Legal Zoom and business lawyers, particularly here in Iowa. I think most prospective clients would find that many Iowa lawyers charge comparable fees to Legal Zoom in setting up a corporation or LLC.

Of course that has not stopped millions of Americans who have engaged in using Legal Zoom’s "self-help" services and I’ll be the first to admit that the company has done a great job at marketing. Legal Zoom has also withstood several challenges in various states alleging the company engages in the unauthorized practice of law. One such challenge occurred in South Carolina where recently a judge found that the company did not engage in the unauthorized practice of law and the Supreme Court of South Carolina signed off on his recommendation. But the judge’s words are very telling and actually should serve as a warning to consumers:

“LegalZoom’s software acts at the specific instruction of the customer and records the customer’s original information verbatim, exactly as it is provided by the customer,” Newman wrote in the report, adding that its “does not exercise any judgment or discretion, but operates automatically in the same fashion as a ‘mail merge’ program.” 

I know many lawyers are upset about the inroads that Legal Zoom has made into many areas of the practice of law, not just business law. But the judge’s words above are stinging to Legal Zoom in my opinion. Does a software that offers no judgment or discretion, but operates automatically in the same fashion as a ‘mail merge’ program protect the public? There is no doubt people who use Legal Zoom are missing out on three key areas of knowledge that lawyers bring to the table. (Hat tip to Jay Shepherd as he explained what lawyers really sell in his talk at Ignite Law 2011).

  1. Substantive knowledge – this is the knowledge about the law. 
  2. Procedural knowledge – this is knowledge about the rules. What do you file? Where do you file? Where else do I need to register? Do I need licenses? Do I need to register with other state agencies? Do I also file at the county level? There is more to setting up a business than simply filing articles of incorporation or a certificate of organization. 
  3. Judgment – this is most important. This is why lawyers will always have a job in my opinion. Unlike Legal Zoom lawyers don’t sell documents. We sell judgment. Should you form a corporation or LLC? S corp or c corp? Should you just stay a sole proprietorship? What are the tax consequences? Is the name I am considering for my business one that won’t get me in a lawsuit from the outset? These and dozens of other questions are why it is important to hire a lawyer. Plus, it is critical to form relationships with professionals that can help your business including reputable accountants, bankers and insurance representatives. Lawyers can help you make these contacts. Legal Zoom does not.

So again I say:

Use LegalZoom if you must but I highly recommend talking to an attorney before you go that route.  You might be surprised by the expense comparison, and even if the cost is slightly more, the legal advice is usually worth it.  As the saying goes, you can pay now or pay later.  The choice is up to you.

 

 

Listening Could Help Avoid Business Lawsuits

A blog post came to me after talking with an acquaintance last night. The acquaintance initially asked me a question but he really didn’t want to hear my answer. Instead, he wanted to tell me his news. Rather than listen to me he just wanted to talk. That was fine and I let him do so. He never really acknowledged the answer I had given to him to his question because he was too busy talking.

It seems to me the lack of truly listening is why a lot of business litigation occurs. And all that talk can be costly. Studies have shown that litigation transaction costs (excluding judgments and settlements) is on the rise every year to the tune of several billion dollars. And remarkably this isn’t because of increased hourly rates on the part of law firms as the data shows that there has been little change in legal hourly rates over time.

How can a business control these costs? I’ll go with listen more and talk less. Mediation (where both sides sit down with an impartial third party to hopefully settle differences) is a great example of a process that often works to reduce the costs and risks of going to trial. But all too often mediation doesn’t occur until a long ways into the litigation process. As a case nears trial the parties become more willing to negotiate because the risk of trial (and potentially losing) begins to loom. But rarely are cases settled by mediation prior to litigation.

So why not mediate earlier in the process? What I often hear is that the parties "are not ready" to mediate. The parties "don’t understand" the other party’s position. Or, they don’t understand or fail to acknowledge the "downside" to their own cases early in the litigation process. Is this really so? I don’t think so. If we spent more time listening, and I mean truly listening rather than just waiting to talk, parties could be ready to mediate and/or resolve their differences at an early stage and could save lots of money in the process.

Don’t get me wrong. There are times when you need to litigate. Particularly when the other side isn’t willing to listen. But try this in your next dispute. Pick up the phone and call the other side at the very outset of the process. (Don’t email). See if they are willing to meet and discuss the dispute. Go with the intention to listen and see if there is a middle ground. Perhaps consider mediation initially rather than waiting until the parties have spent an arm and a leg on pleadings, motions and discovery.

As Abraham Lincoln said,

"Discourage litigation. Persuade your neighbours to compromise when you can. Point out to them how the nominal winner is often a real loser – in fees, and expenses, and waste of time. As a peace maker, the lawyer has a superior opportunity of being a good man. There will still be business enough. Never stir up litigation. A worse man can scarcely be found than one who does this."

 I could not have said it better myself, except by adding listening to the equation.

Asset Purchase Sale? Check out Unemployment History of Seller

Business buyers enter into asset purchase sales to avoid taking on the liabilities and debts of the seller. In Iowa, asset purchase buyers may be surprised to learn that under many circumstances the buyer will have successor liability with respect to the seller’s reserve account for the purposes of unemployment. This means the buyer inherits the unemployment history of the seller, good or bad, and is essentially responsible for unemployment benefits to employees, even if those employees were terminated just prior to the buyer taking over.

Seem strange? Well, it runs against the typical notion that purchasing business via an asset purchase and setting up a new business entity as a buyer insulates you from the liability of the seller. But, the Iowa Administrative Rules read:

Whenever any employing unit in any manner succeeds to or acquires from an employer either the organization,trade or business or substantially all the assets thereof, and continues such organization, trade or business such employing unit shall notify the department for the purpose of accomplishing the transfer or the reserve account of the predecessor employer to the successor employing unit. Such notification must be in writing on Form 60-0126, Report to Determine Liability, and include the name and address of the predecessor, the date of acquisition, and the name and address of the successor. When such notice has been received or in the absence of the notice when necessary information establishing that the acquisition occurred has been received by the department, the actual contribution and benefit experience and taxable payrolls of the predecessor shall be transferred to the successor employing unit for determining its rate of contribution, Thereafter, benefits chargeable because of employment for such transferred organization, trade or business shall be charged to the account of the successor.

So if you are purchasing a business from a seller, be sure to check out the seller’s unemployment compensation history, even if you are setting up a new corporation and buying only the assets of the business. If the history is poor, you may want to use this as a negotiating chip in determining the purchase price. You will also want to make sure all unemployment debts have been paid by the seller so that you are not hit with a surprise bill as soon as you take over.

You should consult your business attorney and/or accountant regarding these and other matters when entering into an asset purchase of a business.

 

5 Reasons to Hire a Franchise Attorney

 It goes without saying considering I am a franchise lawyer, but I agree completely with the Franchise King who offered his Top 5 Reasons to Hire a Franchise Attorney in a recent post.

In my experience a lot of prospective franchisees skimp on hiring a franchise lawyer to review their FDD and franchise agreement. Many of those people seem to have serious misunderstandings about their rights and exactly what the franchise agreement says. I’ll never understand how someone can invest their life savings in a business without legal advice. Interestingly, people tend to get legal advice when they buy independent businesses but the lure of franchising seems to gives prospects a comfort level that should not exist. Franchised businesses tend to fail at the same rate as independent businesses. Don’t buy a franchise without legal representation. It’s a big mistake!

Thanks to The Franchise King, Joel Libava, for the post.

 

Prospective Franchisees Need to Research Further Than FDD for Details

I read an interesting article from Entrepreneur on the Key to Understanding a Company’s FDD (franchise disclosure document). It’s an article I’d recommend prospective franchisees read but they better be prepared to go deeper if they really want to understand a Company’s FDD. The author recommends checking three key sections of the FDD:

  1. Item 3 – Litigation;
  2. Item 19 – Earnings Claims;
  3. Item 20 – Turnover. 

While I agree in principle that these are three key areas of the FDD to understand, the reality is that these areas (particularly the items regarding litigation and earnings claims) often shed little light on the franchise offering. The problem is most FDDs provide very little detail regarding litigation and many franchisors still refuse to make earnings claims although according to the article it appears franchisors are increasingly providing earnings claims at least among the Entrepreneur Franchise 500.

Consequently, if you hope to learn more about the franchise offering you’ll need to research further than just the FDD. You’ll need to have in depth discussions with management and other franchisees. Come loaded with detailed questions. The FDD should not be your ending point in your research. It is really just the beginning. 

Selling or Buying a Business: Pay Attention to Why Deals Don’t Close

Steve Sink wrote recently wrote a blog post on IowaBiz covering Why Deals do not Close. I recommend buyers and sellers of businesses to read the post. Fortunately, most of the deals I work on tend to close but from time to time there are issues with a deal or perhaps even litigation after a deal closes.

One of the biggest reasons I’ve seen that hampers a deal is when a buyer or seller has an unrealistic view of the sales price. This is particularly true for a seller. While I understand the notion that you want the best price possible, a seller should understand that it is important to have the transaction be a win/win. A Seller should want the buyer to be successful (particularly if seller financing is involved). Unfortunately there are lots of times that the seller, or maybe the Seller’s advisors, don’t understand this concept.  Even if your deal closes, you may run into litigation issues if the business is priced too high which will eat into the proceeds of the sales price.

Want your deal to close without litigation on the back end? Don’t be greedy. Be sure to read the rest of Steve’s list

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