In the last post I discussed incorporation and asset protection. An often overlooked area of asset protection is estate planning. My partner, Matt Gardner of Sullivan & Ward, P.C., has started a new Wealth and Estate Planning blog. In his blog Matt will discuss estate planning, probate, small business planning and asset protection. Matt's clients include business owners, farmers and even professional athletes.
Many advertisements on the Internet tout the benefits of forming a corporation. The first benefit typically mentioned is that a corporation provides "limited libility". Many of these companies would have you believe that if you form your own company for $99.00 you can magically protect your assets from creditors. But asset protection is more than that. It is true that limited liability is a major reason for incorporting your business. The overlooked issue by many of these online companies is that filing the articles of incorporation is only the very beginning in protecting your assets.
The basic concept of a corporation is that a creditor will not get to the shareholder's assets unless there is a reason to "pierce the corporate veil". One reason for piercing the corporate veil is the failure to follow corporate formalities. This may include the failure to hold shareholder and director meetings, documenting those meetings with corporate minutes, segregating corporate funds from personal funds and the failure to sign documents as a corporate officer. Managing your small business corporate governance is a key factor in maintaining your corporate limited liability.
If you are interested in learning more about asset protection you may want to check out the Asset Protection Blog.
I recently had some criticisms of a recent article published on Entrepreneur.com regarding advice for business contracts but I still believe the site is an excellent resource for the business start-up and beyond.
A recent article included the 11 pitfalls of start-up. The site regularly has information on the following topics:
2. Money;
3. Marketing;
4. Franchises (a sales approach to franchises but an excellent place to gather information on the costs and operations of franchises);
5. Human Resources and more.
The downside to this site is the number of ads you must sift through in order to read the materials. But overall, this is a site any entrepreneur should consider adding to their favorites list.
Do you have a favorite business resource? I would like to know about it.
Judge Scott Rosenberg delivered yet another blow to Microsoft in the Iowa consumer case when he refused to limit the size of the Iowa class-action lawsuit. Microsoft had argued the interests of volume buyers were not the same as consumers who made individual purchases. Microsoft also argued that the plaintiffs could not show "that all class members were injured by the alleged anti-competitive conduct".
Judge Rosenberg ruled that the Iowa Supreme Court already had addressed the issues raised by Microsoft. Rosenberg said the Iowa Supreme Court has ruled that as long as there was a "common nucleus of facts" the plaintiffs group can be broad-based and include different classes of plaintiffs.
The lawsuit is set to go to trial November 13, 2006. Microsoft had recently tried to have plaintiffs' attorney, Roxanne Conlin, removed from the case. Judge Rosenberg denied that motion as well.
Interested in more about the defense of class actions? Check out the Class Action Defense Blog.
An often neglected agreement in the formation of a small business is the buy-sell agreement. Every business that has multiple owners should consider having a buy-sell agreement. Such an agreement covers how an owner can sell shares and how to value those shares. Further, a good buy-sell agreement sets forth what happens in the event of death, disability, retirement, divorce, bankruptcy or other considerations.
Effective buy-sell agreements will generally require a right of first refusal. This means if one owner finds an outside buyer for his shares the owner must first offer those shares to the other existing owners. This protects the owners from suddenly running the business with someone they did not intend to have as a partner.
The time to enter into a buy-sell agreement is at the beginning of the business relationship when everyone is excited and getting along. It is often very difficult to negotiate a deal when something has gone wrong. Without a buy-sell agreement, owners may end up in court and the business may suffer. So in the formation of an Iowa business remember to include the buy-sell agreement.
The new federal electronic discovery rules become effective December 1, 2006. Fed. R. Civ. P. 26, 33, 34, 37, and 45 are being amended to take into account the importance of electronic records in the discovery process.
Here are the pending rules amendments.
Thanks to the Minnesota Business Litigation blog for the reminder.
Lawyers may also want to stay tuned for a panel discussion of the new electronic discovery rules with Dennis Kennedy, Tom Mighell and Ron Friedmann of Prism Legal Consulting.
Dennis Kennedy also has a helpful electronic discovery resources page you may want to check out.
Many companies have policies covering Internet use, email, cell phones and other technologies. But does your company have a policy covering blogs? If not, you need to consider it. Kevin O'Keefe of LexBlog posted an interesting article that appeared in Scotland's National Newspaper regarding the need for companies to rewrite their employment contracts to cover blogs.
In Iowa, most employers hire employees on an "at will" basis rather than through an employment contract. Accordingly, it is generally more applicable that Iowa employers consider rewriting their employee handbooks to cover blogs rather than employment contracts.
Like O'Keefe, I am not attempting to discourage blogging but it is definitely important for businesses to look before they leap with blogs. Another issue is what happens if an employee writes derogatory remarks on a Web site unrelated to the employer. It may cause nothing more than a minor embarrassment, but at worst, it has the potential to affect the company's entire corporate image.
You should consider contacting your employment lawyer to conduct a review of your employee handbook policies to see if you have adequately considered the issues involved with the blogging phenomenon.
In my last post I talked about my reluctance to recommend do-it-yourself solutions when it comes to business contracts, Wills and other documents. I know it is self-serving but I have just seen do-it-yourself solutions come back to haunt business people too many times to count. If you are a business person you can pay now or pay later. The paying later is the part you are likely to enjoy less.
Now I have come back to this issue because I saw two great blog posts directly on point.
New York business lawyer Imke Ratschko found the perfect example of a penny saved, pound foolish. Imke pointed to an Entrepreneur article which says that the way you need to protect yourself is with a strong contract. Good advice. The crazy part is that the author says you don't need to bring a lawyer in unless it is complex and worth millions. Now I don't know about you but most small businesses cannot necessarily afford to lose several thousand dollars, let alone over a million.
Compare this advice with what I found on Mindpetals:
"There is no substitute for a competent, motivated representation . . . Your lawyer can better represent your interests if you have a rudimentary understanding of the laws, not just in an abstract, "I read the contract" kind of way, but in a practical, applied fashion. Knowing how to ask the right questions and request the right services can make the difference between mere success and real triumph."
With every business contract, I recommend you at least talk to a business lawyer first to see how much it would cost to draft or review the contract. You actually may be surprised (in a good way) at the cost. Then you can make a cost benefit analysis. It is helpful to have a rudimentary understanding of the laws but unless you are in the business of writing contracts I strongly suggest you leave that part to the business lawyer.
As a business lawyer, I am reluctant to recommend do-it-yourself solutions. I have seen many business people run into problems with do-it-yourself contracts, Wills and other documents. With that caveat, the NOLO Web site is a great online resource.
The NOLO site covers several categories including:
1. Business and Human Resources;
2. Patents, Copyrights and & Art;
5. Family Law and Immigration;
Again, I think business people are sometimes surprised to learn that contracts and other documents do not necessarily cost an arm and a leg when you visit a lawyer who regularly practices in business law. By effectively using technology, many lawyers I know have been able to effectively reduce costs.
However, I do agree with a recent post on Mindpetals. There is no substitute for competent, motivated representation from a lawyer but the more you know about the law the better off you are.
Here is an update to the ongoing Iowa consumer case against Microsoft:
Polk County, Iowa District Court Judge Scott Rosenberg has ruled that Roxanne Conlin is allowed to try the case against Microsoft. Microsoft had filed a motion attempting to exclude Conlin on the basis that she had engaged in misconduct when she persuaded a Hewlett-Packard technician to give her internal documents from another case. Judge Rosenberg has found "no unethical or improper conduct by Ms. Conlin".
So it's game on. Trial is set for November 13, 2006.
Congratulations to Des Moines attorney Steven Zumbach for his induction into the Iowa Business Hall of Fame. In reviewing the list of inductees it looks like he is only the second practicing attorney inducted since 1975. Zumbach is a partner in the Belin Lamson McCormick Zumbach Flynn law firm, a past chairman of the Greater Des Moines Committee and the Greater Des Moines Partnership and is a former member of the Iowa Board of Regents.
Also inducted into the Iowa Business Hall of Fame this year:
Roland and Mary Kemin - founders of Kemin Industries. Kemin is a worldwide maker of animal and human nutritional products.
Russell Gerdin - founder of Heartland Express trucking company. The company went public in 1986 and now has more than $450 million in annual revenue.
Read the Des Moines Register article about the inductees.
A blog post by the New Jersey Law Blog discusses the recent trend of franchisors' attempts to expand the number of persons that will be covered under the non-competition clause in a franchise agreement. Litigator John MacDonald believes that franchisors must have reasonably limited expectations when seeking to enforce non-competition agreements against franchisee spouses and relatives.
I agree with MacDonald. I have reviewed franchise agreements on behalf of franchisees that sought non-competes against spouses. But if the spouse is not involved in the franchise business I believe it raises serious questions about whether such a non-competition agreement is enforceable. Some franchisors have been willing to take out the clause in negotiations while others have insisted the clause remain in the franchise agreement. It will be interesting to follow this growing trend from franchisors and I would attempt to negotiate such a provision out of any franchise agreement you are considering if you are a prospective franchisee.
I recently read an excellent reminder on corporate governance issues written by business and real estate lawyer Traci D. Ellis.
Ellis wrote that good corporate governance is essential to running and growing a business. Here are some of her examples of good corporate governance:
Also, she recommends you should review the shareholder agreement and bylaws regularly (at least annually) to ensure that they accurately reflect how the company is being run and amend them as necessary.
Thanks to Imke Ratschko of the New York Small Business Law Blog for leading me to Traci's site. I also found Alex Simpson's Corporate and Securities Law Blog through Traci and Imke's site. All three of these blog sites contain informative articles on business and corporate law issues. I recommend you check them out.
Where should I incorporate my small business? I hear this question a lot from would be entrepreneurs in Iowa. The question used to surprise me but after seeing the numerous advertisements for Delaware and Nevada corporations on the Internet I suppose it is a legitimate question.
Delaware has reputation and history on its side. Delaware's Division of Corporations boasts that more than a half a million business entities make their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 60% of the Fortune 500. Businesses, especially large ones, choose Delaware because of the state's business laws and respected Court of Chancery. Corp Law Blog says it is because of Delaware's predictability.
Nevada has recently exploded in popularity for many businesses. This is due to Nevada's pro-business climate, low-tax mentality and the lack of an information sharing agreement with the IRS.
Delaware or Nevada may offer viable options for some companies but in general most Iowa small businesses are wise to incorporate in Iowa. First, Iowa has very low fees when it comes to incorporating your business. It is a $50.00 fee to file Articles of Incorporation for a domestic corporation in the state of Iowa. Further, it only a $30.00 fee every two years for a biennial report if you file online. These fees are extremely low compared to other states.
Second, you won't avoid Iowa taxes by incorporating your Iowa small business in Nevada or Delaware. The tax and corporation laws of Iowa will require you to register your company and pay fees as a foreign corporation in Iowa and you will be required to pay Iowa state income taxes for any income earned. (You also do not avoid federal income taxes by incorporating in Nevada despite the lack of an information sharing agreement with the IRS).
And the perceived court advantages in Delaware? That might be fine for a large business that is actually going to litigate a case in Delaware but it is probably not cost effective for most Iowa small businesses to litigate their cases in Delaware. Besides unless you have well-written forum selection clause in contracts your Iowa small business will likely end up in Iowa courts anyway.
If you have questions regarding where you should incorporate your Iowa small business you should be sure to contact a business attorney licensed in Iowa.
Iowa patent and technology lawyer Brett Trout recently posted about a couple of cases where bloggers were hit with big verdicts. One of the verdicts included $11.3 million awarded to a Florida woman after being called a "crook", "con artist" and a "fraud" in an online post.
This just points out that businesses must look before they leap with blogs. Blogging raises a whole host of issues incuding copyright infringement, privacy issues and defamation. I recall an instance on the Web where a former employee blasted an employer and then the employer openly discussed on the Web the circumstances of the employee's departure. The employee could have faced a defamation claim and also a claim for divulging trade secrets of the company regarding pay and product information. On the other hand, the employer could have faced privacy claims for sharing the circumstances of the employee's termination.
Companies considering a corporate blog should consider seeking advice from a lawyer with a good understanding of technology and blog law.
Often blogging is similar to email. It is often a less formal method of communication and some bloggers don't think it through before posting their words for the world to see. So look before you leap when it comes to blogging.
We have started a new tradition. Every Saturday I will point out a great Web resource for business start-ups. Today is one of my favorites.
The Entrepreneurs' Viewpoint Blog along with the Kauffman eVenturing Web site is one of the best comprehensive resources for businesses on the Web. The site contains orginal articles written by entrepreneurs for entrepreneurs. The focus of eVenturing site is to develop the "best of the best" content in order to assist business people who are starting and running high impact companies.
The site features articles on the following business topics:
Operations; and
Do you have a great business Web resource? I would like to know.
The Iowa Association of Business and Industry has published a survey indicating Iowa's legal climate is hurting job growth. The survey also states that many Iowa business leaders are dissatisfied with Iowa's legal climate and believe it is costing the state jobs because of competition from other states.
The survey seems to contradict the U.S. Chamber of Commerce survey which said Iowa ranks fourth in the country in judicial fairness. Iowa has ranked in the top five for each of the last three years.
So which is it? Well, there is no question businesses (in Iowa and all states) are devoting more time than ever to liability concerns and defending themselves against lawsuits. However, my experience with clients leads me to believe Iowa's judicial system is as good as any state. In fact, certain businesses I know could tell you horror stories about the judicial systems in other states with so-called "legal reform". That's not to say we can't improve though and we should continue to look for ways to improve our business climate. I am just not convinced the major problem is Iowa's legal system.
The six-year old Iowa private antitrust class-action against Microsoft is finally heating up. The case is set for trial November 13, 2006 but yesterday a hearing was held on Microsoft's allegations that Plaintiffs' lawyer, Roxanne Barton Conlin, engaged in misconduct when she persuaded a Hewlett-Packard technician to give her internal documents from another case. Microsoft is asking that Conlin be removed from the case.
Conlin's lawyer, Mark Tripp of the Bradshaw Law Firm, said Microsoft's lawyers are on an ethical witch hunt in order to keep Conlin from trying the case because they don't want to face her in court. He also argued the information the technician had was insignificant.
The lawsuit seeks up to $450 million for Iowa consumers upon the novel legal theory of "lack of innovation". Conlin contends that Microsoft's anti-competitive activities during the 1990s killed many innovations that never reached consumers.
Pundits have their doubts about whether the lack of innovation theory has any merit but don't count Conlin out. She has a number of large verdicts to her credit including a big win over UPS where she hit them for over $80 million. The National Law Journal has named her as one of the Top Ten trial lawyers in America.
Frankly, when I first heard about this case I had my doubts. Could it be that Bill is afraid to take the stand after all?
Is it acceptable to request the birth date of an applicant on the job application?
It is generally NOT advisable to request an applicant's date of birth on an employment application (except to ask whether an applicant is over the age of 18). The Age Discrimination in Employment Act prohibits discrimination on the basis of age and applies to people age 40 and over. Like sex, age is rarely relevant to a job description.
In order to avoid age discrimination you may also want to refrain from asking questions about when an applicant attended elementary, high school or college.
It is always a good idea to consult your employment lawyer regarding your employment applications.
Lawpportunities, a joint venture between Des Moines lawyers Rush Nigut and Brett Trout, is receiving national attention for its legal blogging seminar coming up this November 10th in Johnston, Iowa. According to LexBlog's Kevin O'Keefe, Lawpportunities is hosting the country's first full-day CLE devoted to blogging. LexBlog is one of the country's leading providers of law blogs. O'Keefe describes the seminar as "[g]old for lawyers needing mandated CLE credits while learning something that can grow their business."
So if you are a lawyer, be sure to sign up for the YBlawg seminar today.
If you are starting a business in Iowa you may want to review this site from the IRS and this site from the Iowa Department of Revenue concerning your federal and state tax responsibilities.
Corporate Law Notes Blog recently posted an interesting article which should cause employers to carefully consider their policies concerning monitoring of personal email and other technologies in the workplace.
A Massachusetts trial court ruled that the employer did not adequately put the employee on notice that his personal email account (Yahoo in this case) would be monitored despite several warnings in the manual that "Internet activity" would be monitored.
The case emphasizes the need to specifically set forth in an employee manual that "the content of personal email" may be reviewed and monitored when accessed through company owned computers or other technology. It also emphasizes the need to be specific about whether other technologies will be monitored including voice mail, cell phones, text messaging, etc.
The awareness of monitoring email or other communications in the workplace will likely increase given the congressional page scandal involving Mark Foley.
A recent Iowa Supreme Court case, McVey v. National Organization Service, Inc., stresses the importance of developing a drug-testing policy that complies with Iowa law and making sure that policy is delivered to each employee.
McVey lost her job after testing positive for marijuana during a random test. The employer notified her over the phone and she did not return to work. Depsite testing postitive, McVey filed a wrongful termination lawsuit seeking damages and also reinstatement. The trial court dismissed her claim and she appealed.
McVey and her attorney, Mark Hedberg, made two arguments. First, that McVey did not receive a copy of the the company's drug-testing policy. Second, the written policy was not adequate to meet Iowa's statutory requirements.
The Court agreed with McVey. The Court ruled the requirement that the employer adopt an employee drug-testing policy and deliver it to each employee is a necessary step in invoking the statutory authorization for employee drug-testing. The Court said that even if McVey had received a copy of the employer's policy, the policy submitted did not meet the detailed requirements of Iowa law because it did not set forth what disciplinary or rehabilitation actions the employer shall take against the employee upon receipt of a confirmed positive test.
Here are some suggested preventative measures in order to avoid some of the pitfalls of Iowa's drug-testing law:
1) Make sure your policy complies with Iowa and federal law;
2) DO NOT assume your DOT/CDL drug-testing policy will satisfy the state law;
3) Periodically review your drug-testing policy to make sure it is compliant with state and federal laws through a human resource audit;
4) If you have any questions please be sure to contact your attorney.
Also, make sure to see my post on drug testing from April 29, 2006 before the recent decision.
I was recently interviewed for an article written by Patt Johnson of the Des Moines Register entitled, "Franchise Owners Buy a Head Start". As a part of my business law practice, I routinely review franchise agreements and Uniform Franchise Offering Circulars (UFOC).
The article featured several franchisees that are pleased with the franchise process and discussed the success of the local Maid-rite franchisor. In the article I pointed out that prospective franchisees must keep in mind while franchising can give you a head start it is still critical to perform your due diligence. You must interview as many franchisees as possible in order to get an accurate picture of a prospective franchisor. It is also important to keep in mind that while you will be your own boss you will not have complete independence. You will still need to live within the rules of the franchisor.
It is easy to form your new Iowa business entity. For details see my Small Business Package. To get started just fill out the Startup Form and we'll contact you to confirm the information.
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