Rush on Business : Iowa Corporate Lawyer & Attorney : Rush Nigut of Brick Gentry Law Firm : Serving Des Moines, Cedar Rapids, Davenport, & Sioux City

DES MOINES UTILITY FRANCHISE TAX CASE HEADED TO TRIAL

Last week, the Iowa Supreme Court reversed a lower court ruling on a franchise tax issued by the City of Des Moines on utilities. Des Moines had been sued in District Court by Lisa Kragnes seeking to declare the utility franchise tax illegal. She won in district court when the judge granted her motion for summary judgment. The City of Des Moines appealed and the Iowa Supreme Court reserved the summary judgment decision.

The Supreme Court reversed the case because it ruled a geniune issue of material fact exists as to whether all or part of the franchise fees are reasonably related to the City's administrative expenses. The Court ruled there is no question the grant of the franchises to the utility causes the City to incur some ongoing administrative expenses in the exercise of its police power. These expenses would include the reasonable costs of inspecting, supervising and otherwise regulating the gas and electric utility franchises.

The Court has now remanded the case to the district court for a trial on the merits. The critical issue is whether the fees charged by the City of Des Moines bear a relationship to the cost to the City of the utility's occupancy of public areas in the City. The Court said the case record is replete with references that the City of Des Moines used a portion of the franchise fees for purposes other than administrative expenses. The Supreme Court, however, ruled that this fact alone does not mean Des Moines is not using other streams of revenue to cover the administrative expenses it incurs as a result of granting MidAmerican the gas and electric utility franchises.

The upcoming trial will determine if the franchise fees are in fact reasonably related to the City's administrative expenses. If not, the district court will then issue an order disallowing the franchise fees as contained in the ordinances. If the franchise fees are reasonably related to the administrative expenses, the court shall enforce the ordinances up to an amount equal to the fees reasonably related to the City's administrative expenses in exercising its police power.

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FACTORS IN FORMING YOUR IOWA BUSINESS

You are considering forming an Iowa small business. What type of business structure should you choose? In Iowa, your choices generally are a sole proprietorship, S corporation, C corporation, or a limited liability company.

Some of the factors to consider in choosing a business structure are:

1) Personal liability protection;
2) How profits are taxed;
3) Ability to take advantage of fringe benefits;
4) Ease in raising capital.

A sole proprietorship is the easiest to set up (you generally do not need to take legal action) but you have unlimited personal liability. In today's sue happy society it is probably a good idea to consider a form of business that provides you with personal liability protection like a corporation or LLC.

Traditionally, most small business owners selected the S corporation as their form of business. The S corporation is often a good choice because it provides you the limited liability you need but you avoid double taxation because all business profits are taxed to you as an individual. The limited liability company has become popular over the past decade and also provides you limited liability and avoidance of double taxation.

The C corporation has traditionally been used for larger businesses but accountants will often recommend it because the owners can take advantage of certain fringe benefits. Also if you need outside capital, a C corporation may make it easier to attract investors.

So which business structure should you choose? Before choosing a business structure it is wise to talk with an accountant. The accountant can review your financial situation with you and advise you on the best strategy for your business. In my view the choice of a business structure usually boils down to tax treatment. So talk to your accountant first and then go to the business lawyer to set up the business entity.

Click here for more information on forming your Iowa business.

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Importance of Trademarks

Des Moines Iowa patent and trademark attorney Brett Trout recently wrote three good articles on the importance of trademarks. With the Internet, even the smallest of companies should become familar with trademark issues in order to protect their business names and logos.

Go to http://blog.bretttrout.com for more information.

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Are you looking to purchase a franchise business in Iowa? If so, you should consider having the Franchise Uniform Offering Circular and Franchise Agreement reviewed by an attorney to make sure the documents comply with applicable federal and state laws. There are a number of specific Iowa law provisions relating to transfers, jurisdiction, application of state law, renewal and selling your franchise which are often not contained in typical out-of-state franchisor agreements. A review can help point out those applicable Iowa franchise law provisions which may be helpful if you end up in a dispute with a franchisor.

A common misperception is that franchisors are unwilling to negotiate their franchise agreements. In fact, many franchisors are willing to negotiate certain terms with prospective franchisees. A review by an experienced franchise attorney can point out the areas for possible negotiation with the franchisor.

Overall, a franchise attorney review can also help give you a better understanding of your obligations as a franchisee and the duties of the franchisor. It is good idea to fully understand these issues before making the substantial investment required by most franchisors.

Click here for more information about franchise UFOC and agreement review when buying an Iowa franchise.

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ASSET PROTECTION IS NOT JUST FOR THE RICH

There is a often a misperception that asset protection is only for rich. This is not the case. Every business owner should give consideration to asset protection. In fact, asset protection strategies are generally inexpensive compared to the potential liability.

The best time to consider asset protection is when you start your business. The first way to protect your assets is through insurance. Two typical and necessary business policies are general liability insurance and workers' compensation insurance. In certain instances you may need other coverages, endorsements or riders depending on your particular situation. On the personal side you may also want to consider an "umbrella" policy in addition to your home and auto insurance.

The second way to protect your business is through business structures such as a corporation, limited liability company (LLC) and limited partnerships. These business structures are generally afforable for almost every business owner. In fact, if you cannot afford to set up a limited liability structure for your business you should perhaps give a second thought as to whether you have enough capital to be in business. Certain advantages these structures provide include:

1. Protect Your Personal Assets From Business Liabilities

You can conduct your business while protecting your personal bank accounts, home and other personal assets from claims against the business. Sole proprietorships and partnerships do not offer such protection.

2. Protect Your Business From Personal Liabilities

You can also protect your business from personal liabilities. Imagine you lost a significant personal judgment. Having a business structure with limited liability will separate your business assets from your personal finances. This makes it more likely that you will be able to continue your business operations without interruption even though you have a personal judgment. Without a limited liability business structure in place your business assets are left open to the creditors of the personal judgment.

Please click here for more information on protecting your assets by incorporation or LLCs.

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RULES OF BUYING A BUSINESS: RULE NO. 3: WRITE A CAREFUL OFFER

Once you have decided to move forward with buying a business you should write a careful offer. First, I recommend you consult a lawyer to assist you in writing the offer. The cost is often not as much as people might imagine and it could help you from making a major mistake. For example, do you want an asset or stock purchase? There is a big difference in the legal and tax consequences between the two types. Second, you will want to draft the offer with certain contingencies in mind. A nonexhaustive list of such contingencies may include:

1) Due diligence including, but not limited to, financial review, taxes (income, sales and employment), corporate structure review, inventory issues, asset lists, lawsuits, real estate or lease issues, contracts review, employment matters, etc.;

2) Financing;

3) Necessary approvals from governing or regulatory bodies;

4) Environmental issues (if applicable);

5) Obtaining agreements on non-competes for owners and key employees;

6) Representations and warranties;

7) Continuation of the normal operation of the business with no material changes;

8) Penalty provisions in case the owner sell or negotiates with another person after accepting the offer;

9) Other issues specifically related to the situation.

I also highly recommend contacting an accountant before making an offer. It is important to gain enough financial information up front in order to make a reasonable offer based upon your own financial situation. Keep in mind that if you have a loan or other debt you may need a significant cushion to make the payments and support yourself too. DO NOT BUY ON EMOTION - SEE RULE NO. 1. Unless you are a financial expert you should have the accountant review the financials in order to help you understand how much you can reasonably pay for the business.

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RULES OF BUYING A BUSINESS - RULE NO. 2: BECOME AN EXPERT

Buying a business at a great price takes work and preparation. If you are not currently an expert in the industry you are considering you should become one. Interview several people in that industry, read books and articles or take classes. Perhaps you should even consider taking a temporary or part-time job in the industry.

Taking the time to understand the industry could help you avoid a major mistake. For example, are there any trends or regulations that mean the business may experience declining sales in the future? Perhaps the current owner realizes these factors and sees the opportunity to cash out.

If you are considering a franchise I recommend you interview as many current franchisees as possible in order find out all you can about the industry and the business. I am amazed by the number of franchisees you fail to do this and some regret it later. Why else would they put all those names in the offering circular? Make sure to take advantage of the available information.

Also, do not be afraid to find someone in the industry who will mentor you. Many business people are more than willing to help out business owners who are just getting started.

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Casey Blake Taking the Majors by Storm

As my loyal readers know I am a huge baseball fan. I follow the box scores every morning of Indianola, Iowa native Casey Blake. As of this morning, Casey was leading the American League in hitting. He also now owns a 13 game hitting streak while hitting .366 with 7 home runs. He is putting up All-Star numbers indeed.

Go Tribe!

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Joe Cooney of Frannet will hold a seminar for those interested in franchising. The seminar is this Thursday, May 18, 2006 from 6:00 to 8:00 p.m. The seminar is located at the Mid-Iowa - SBDC office at 10861 Douglas, Suite B, Urbandale, IA 50322. The telephone number for reservations is 515-331-8954.

Topics covered will include:

- How to know you can get into business safely;
- How to find a business asset you can afford;
- How to identify the right business for your personal talents, skills and lifestyle needs

For more information email Joe Cooney at jcooney@frannet.com

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RULES OF BUYING A BUSINESS: NO. 1: DO NOT BUY ON EMOTION

Many of us dream of owning our own business and making a fortune. Instead of starting from scratch many people opt to buy an existing business. While it may be less risky to buy an existing business you still need to carefully consider what you are buying.

Many individuals are so excited about the dream they forget about reality. Do not fall in love with the deal itself. Make sure to take a step back and take the emotion out of the deal. Talk with an accountant to determine if you are getting a fair price or maybe even a discount. A first step towards success is to make sure you buy the business at an attractive price.

Sounds easy, right? If so, why do the majority of businesses fail?

So be a good shopper. Buy at a discount if possible. Be patient and wait for the right opportunity.

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Rush on Business Blawg to Allow Comments

One of the things that makes blogs unlike traditional Web sites is that readers can leave comments and stimulate discussion. Up to this point Rush on Business has refrained from leaving comments. Well, I have decided to give it a try. But there are a few ground rules:

1) All comments must be clean;
2) No defamation;
3) Any questions or request for legal information must be general in nature and the editor specifically disclaims any attorney/client relationship unless there is a fee agreement between the parties. The editor will not answer questions governing specific circumstances on this blog.
4) Brett Trout can only comment once per day.
5) No spam.
6) These rules may be revised without notice.

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How to Hire the Right Attorney for Your Business

There are four professionals that your business will likely need for start-up and beyond.

1) Attorney,
2) Accountant,
3) Insurance Agent, and
4) Banker.

Recently I read article which quoted fitness video guru Billy Blanks as saying he learned how it important it was to hire the right lawyer after his law firm committed malpractice and cost him millions. So how do you hire the right lawyer for your business?

First, lawyers have become highly specialized. Hiring an attorney that does primarily non-business work is probably not best for your business. A business attorney will likely have a better understanding of contracts and business organizations. In the beginning you will need a lawyer that can help you understand whether a corporation or limited liability company is right for your business.

Second, does your lawyer understand intellectual property issues? With the Internet, intellectual property is becoming increasingly important. Your business lawyer should at least have a basic understanding of these issues. Intellectual property is also a highly specialized area of the law but a good business lawyer should have a close working relationship with an intellectual property specialist.

Third, your lawyer should be able to understand and negotiate real estate leases and other related contracts. Having a business lawyer review your lease can pay big dividends. Many business owners assume leases are not negotiable but most landlords are willing to negotiate in some manner and often on key points.

Fourth, how experienced is your lawyer? Do not be afraid to ask your lawyer direct questions about their experience level. Has the lawyer previously peformed the work you need completed.

Fifth, is the lawyer and the law firm well-situated to handle many type of business law issues? Because of specialization no lawyer is able to handle every issue that comes up in your business. Your lawyer should be able to get you to the right person when different legal issues come up. You should not have to go looking for a new lawyer with each different issue.

Sixth, has the lawyer worked in your industry? It is helpful if the lawyer has worked with other businesses in your industry. At the very least the lawyer should be willing to learn about your industry. Better advice will come from attorneys that understand your industry.

Seventh, is the lawyer willing to educate you? Part of lawsuit prevention is education. Your lawyer should be able to train you to spot issues and enable you to implement preventative practices to avoid lawsuits and other problems.

Eighth, is your lawyer fair with billing practices? For routine matters is your lawyer able to quote flat fees. If not this may be an indication the lawyer does not have appropriate experience. In litigation situations the lawyer may not be able to quote flat fees but should be able to give you a range of the expected costs. If you are asked to pay money up front please make sure that lawyer first deposits the money into a trust account for disbursement to the lawyer only when the work is done.

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Lawyers Beware!

A recent Forbes article pointed out that lawyers are increasingly subject to lawsuits - not from their clients - but from third parties who may have been injured from the lawyer's legal advice. The article said, "It has become routine for lawyers to sue lawyers."

Traditional malpractice suits are holding steady although the awards appear to be growing. Many of the largest verdicts stem from conflict of interest cases.

The Equal Opportunity Commission even sued a 1,600 lawyer law firm claiming it demoted 31 shareholders because of their age.

The cloak is apparently off lawyers who were once treated as the gatekeepers of the courthouse. One thing is certain - lawyers will not receive any sympathy cards from doctors.

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Sullivan & Ward, P.C. Celebrates Open House Tonight

The Sullivan & Ward law firm has an open house tonight for clients and friends to celebrate the move to its new location. The law firm consists of sixteen lawyers and maintains a general civil practice in state and federal courts--trial and appellate level. The firm primarily represents businesses and their owners.

The firm serves as general counsel for many of the rural electric cooperatives and their associations throughout the state. In addition, Sullivan & Ward acts as general counsel for a number of other businesses involved in technology, communications, manufacturing and retailing. In our capacity as general counsel we advise the companies and the boards on issues of corporate governance, general business functions and operations, labor relations and litigation matters. In the context of litigation we represent these entities directly or indirectly with their insurance carriers. In conjunction with their operations we represent them before various administrative and governmental entities on a variety of issues that include, among other things, compliance with statutory and regulatory matters.

Sullivan & Ward, P.C. is located at 6601 Westown Parkway, Suite 200, West Des Moines, IA 50266. The telephone number is 515-244-3500. Click here for more information about Sullivan & Ward, P.C.

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Watch Out for Resume Fraud

Recent news stories show resume fraud presents a big problem for your business. Recently, the Minnesota Vikings Director of Player Personnel was fired for inaccuracies on his resume. Iowa State University has had multiple cases where coaches and faculty have lied on their resumes. Could this happen to you?

Chances are it could. The numbers in a study I read are astounding:

44% of job applicants lied about work experience
41% of job applicants lied about eduation
23% fabricated credentials or licenses

Some things you might do to prevent resume fraud include:

1) Conduct background checks;
2) Have a fraud/ethics policy;
3) Communicate policy to employees and prospective employees;
4) Monitor compliance with the policy;
5) Enforce the policy consistently.

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TouchPlay Dead

Yesterday a Polk County District Court judge rejected Plaintiffs' request for an injunction in the TouchPlay lottery cases. A federal court judge previously ruled in a similar manner. The Plaintiffs had requested an injunction to lift the legislative ban of the machines which goes into effect today at 8:00 a.m. The court ruled the Plaintiffs were not likely to show that the legislature exceeded its authority. Further, the Court found there was nothing in any documents or agreements that bound the State of Iowa to maintain its business relationship with the TouchPlay vendors.

The legal battle may continue if the Plaintiffs' appeal but TouchPlay is apparently dead.

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Are You Motivated?

Yesterday I attended the Get Motivated Seminar in Des Moines. Here are some sample tidbits from the seminar. Most are common sense but as someone once said, "Common sense is not all that common."

Here are five cornerstones of success as told by Suzie Orman.

1) Think Great Thoughts - have a positive mental attitude
2) Say Great Things - do not speak negatively.
3) Take Great Actions.
4) Wish Others Greatness
5) Love Yourself and Each Other.

Here are a couple of tips from Zig Ziglar.

1) People will not buy until they know how much you care.
2) If someone asks you how you are doing say, "Better than good!"

Phil Town - Successful Investor

1) The best tipoff that a stock is going up - "Insider Buying" (Peter Lynch)
2) The best tipoff that a stock is going down - "Insider selling" (Peter Lynch)
3) Warren Buffett's rules of making money - #1. Do not lose money. #2. See rule #1.

Peter Lowe

1) Our words control our mind.

Overall I enjoyed the seminar and would recommend it the next time it comes to Des Moines.

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