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

Where should you incorporate your Iowa small business?  This question is asked a lot by many prospective small business owners.  The question used to be surprising but after seeing and hearing numerous advertisements for Delaware and Nevada corporations on the Internet and on satellite radio it is definitely 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.  Most observers say 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 probably 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 if you are doing business here in Iowa.  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 incoporate your Iowa small business be sure to contact a business attorney licensed in Iowa. 

Photo on flickr by rsgranne.

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Thanks to Kevin O'Keefe for the heads up on a lawsuit every blogger should know about.  A Texas minor is suing Virgin Mobile Australia for use of a Creative Commons photograph in a commerical ad campaign. 

The lawsuit alleges the use of the photograph by the company violated the minor's privacy rights.  The plaintiff's attorney says the company should have obtained consent from the parents of the minor before using the photograph in the ad campaign.  The photograph was posted on flickr.com by the minor's friend who is also a plaintiff claiming the Creative Commons failed "to adequately educate and warn him ... of the meaning of commercial use and the ramifications and effects of entering into a license allowing such use." 

This should serve as a wake up call for bloggers.  Many bloggers I know, including many of the IowaBiz authors, routinely upload photographs from the Creative Commons portion of flickr.  Have you thought about whether you were violating the privacy rights of somone in the pictures you upload?  Probably not.

Arguably it is much more likely a company using the photograph in a commerical ad campaign is going to get sued rather than your ordinary blogger.  In this case the company also had phrases with the photos that could have been interpreted as offensive to the minor such as "Dump Your Pen Friend" and the real kicker - "Free Text Virgin to Virgin". 

There is much discussion to be had on these issues including the blogs of Internet PR expert Shel Holtz and Stanford law professor Lawrence Lessig. 

The lesson is be careful when you upload photos, even Creative Commons photos, from any sites such as flickr.  As Holtz says:

. . . the social media community embrace and extoll the virtues of Creative Commons licenses, but this lawsuit seems to show that they are not a panacea. It’ll probably be up to the courts, ultimately, to decide who has rights to your image once it escapes into the social media space, with or without your knowledge or consent.

I also encourage you to check out the video of the plaintiff's attorney.  He makes a decent argument on behalf of his client.

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If you operate an online business or you are thinking of starting one I recommend you pick up a copy of Cyberlaw:  A Legal Arsenal For your Online Business.  Written by Iowa intellectual property attorney Brett Trout the book is new and updated with lots more content than his previous version. This book still has the helpful sample agreements and policies, but now covers new topics like document retention policies and social networking. Trout also offers easy how-to’s on avoiding legal pitfalls. The rich content and practical advice is bound to save you costly legal fees down the road.

The great thing about this book is that it is actually written for entrepreneurs - not lawyers.  You will appreciate the easy to understand language.  If you call Brett directly you might even be able to pick up an autographed copy from Iowa's toughest attorney. 

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Michael Moore of the Pennsylvania Employment Law Blog has an excellent post on the possibility of reverse discrimination when employers make decisions under the auspices of voluntary affirmative action plans, diversity programs, or even "risk management".  Michael says:

I am surprised by how many companies will select non-minority employees for layoff in a reduction in force or discipline believing that they have eliminated potential discrimination claims.   

His observation that our discrimination laws are written to prohibit employment decisions based on factors such as race, gender, age, religion, disability, etc. is often forgotten.  Employers must carefully follow the laws and regulations if they intend to implement an affirmative action or diversity program. 

FYI:  Michael's blog was recently named # 3 in the HR Blog Power Rankings by the HR Capitalist.  A ranking well deserved in my opinion.

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There are two great opportunities for Central Iowa entrepreneurs tomorrow:

1. IowaBiz Building Business Breakfast Series - Sponsored by Professional Solutions Insurance Services.  Drew McLellan headlines the initial breakfast presentation from the IowaBiz authors.  Drew will talk about the three marketing mistakes most businesses make.  The presentation is at the Professionals Solutions offices at 14001University Avenue in Clive beginning at 7:30 a.m.
2. SEMEE - sponsored by Transition Capital Management.  The meeting's agenda has been prepared by the Iowa Biotechnology Association.  If you are interested in Iowa's biotech industry you better not miss the meeting at the Science Center of Iowa located in downtown Des Moines.  The meeting starts at 4:00 p.m.  Past SEMEE events have been a hit!

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I encourage you to check out Blawg Review #126 written by Anita Campbell of Small Business Trends.  Anita is a lawyer by training but an entrepreneur at heart.  Her award winning Web site was the "Best of the Web" according to Forbes Magazine for small business blogs.

The lineup of small business experts on Anita's site is impressive.  The articles are well-written and informative.  Fellow IowaBiz authors should especially take notice.  The site is something to which we should aspire. 

And thank you to Anita for including my post on whether Licensing is a Viable Option Rather than Franchising?

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I have written about how to hire a business lawyer at times in the past.  My first rule is that the lawyer should be experienced and competent in business law rather than choosing a personal injury, family law, criminal law or other lawyer.  My analogy used to be that you would not want a plastic surgeon operating on your heart.  But I have a new analogy: 

You wouldn't want a linebacker covering a wide receiver on 2nd and 13, right?

No disrespect to Mike Klinkenborg.  The guy played his heart out.

Congratulations to Matt Gardner - the most faithful Iowa State Cyclone fan I know. 

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For anyone interesting in becoming a better blogger you need to read Kevin O'Keefe's Blawg Review #125.  It's his business but no one has done more than Kevin and Lexblog to promote blogging among lawyers.  Kevin's mantra for lawyer blogs:

'Do good - for society, yourself, and the image of our legal profession.'

 Kevin has cited some of the most brillant minds in the blogosphere for you to continue learning the "art of blogging".  Reading this post is a must.

P.S.  The sharing of knowledge and ideas with fellow law and business bloggers has spoiled me.  I attended a legal seminar this past week.  I spoke with one of the speakers and asked him a few questions seeking recommendations for helpful Web sites and other information on his topic.  His responses made it clear he did not want to share information with me because he viewed his information as "trade secret".  I just want to say thanks to all those lawyers out there you are unafraid to share their insight with fellow practitioners in an effort to 'Do good - for society, yourself, and the image of our legal profession.' 

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Charlie Longbrief, attorney at law, had just turned off his computer late on a Friday afternoon when the phone rang.  It was Pete Geek who owned a local computer consulting service.

"Charlie, I've got a problem," Pete said.

"Tell me about it," Charlie said.

"Well, I had to fire one of my sales people earlier this week.  The termination seemed to go fine but he hasn't returned his company laptop or cell phone.  I want to deduct the value of those items from his last paycheck or at least withhold his last paycheck until he brings those things back to me."  Pete responded.

"Do you have any type of written agreement with him regarding the return of the equipment?" Charlie asked.

"No, I don't," said Pete.

Charlie advised, "I know it is frustrating but Chapter 91A.5 of the Iowa Code won't allow you withhold the check or deduct the value in this situation unless you have written agreement with the employee where the equipment has been specifically assigned to the employee, and acknowledged in writing by the employee.  Also the written agreement should authorize you to deduct the value of the equipment from the last paycheck if not returned.  If you violate the law you could be forced to pay the employee's attorney's fees, liquidated damages and any court costs plus the wages you owe him.  You definitely have the right to your equipment but you can't get it that way."

"I am glad I asked.  By the way, maybe you could prepare an agreement for my employees to sign authorizing me to deduct the value of the equipment from wages if the equipment is not returned,"  Pete asked.

"You bet.  By the way, you may want to check out a blog post from Jill Pugh on 10 Things to Keep in Mind When You Fire an Employee.  It's also a good idea to review the provisions of Iowa's Wage Payment Collection Act."

"Thanks a lot, Charlie.  I am glad I called."

Photo on Flickr by cutesmallfuzzy.

* This is a hypothetical.  Be sure to seek the advice of an employment attorney for advice in your specific situation.

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Congratulations to What's For Dinner - Des Moines and its owners, Dawn Angus and Kristen Severs for their feature article in the Des Moines Business Record.  The success of their meal assembly business has brought multiple inquiries from would be entrepreneurs who are wondering whether they offer franchises opportunities for their business.  The thought of expanding beyond the single store operation had intrigued the owners but the investment of time and money is substantial.  A franchise also opens you up to FTC and state regulations which require disclosure statements such as an offering circular.

The article discusses how Dawn and Kristen were presented an opportunity to offer a license of their recipes, Web site and logo.  In these particular circumstances we were able to craft an agreement which provided them the opportunity to expand their reach beyond the single location but without all the hassles and expense of a franchise. 

So is licensing a viable option for businesses looking to expand rather than franchising in all circumstances?  Absolutely not.  Whether or not licensing is right for you is completely dependent upon the facts and circumstances of your own individual situation.  (See Don't Let Your Distribution or Licensing Agreement Become an Inadvertent Franchise).

Iowa has very specific laws on franchising and other business opportunity promotions.  In order to license your business product here in Iowa you must fall within the exceptions to the franchise and business opportunity promotions.  Particularly if you are offering a business system or marketing plan to a new business it may be difficult to fall within the exceptions to these important regulations. 

In order to determine if licensing is right for you be sure to consult a business and/or franchise lawyer before acting. 

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TheDes Moines Business Record features Iowa patent attorney Brett Trout and his foray into Mixed-Martial Arts (MMA) cage fighting.  Brett is seeking a cage match against an "attorney to be named later" with all the proceeds going to charity. 

So do you have what it takes to get in the ring with this 6'4",250 lbs., intellectual property giant?  If so, call Brett to schedule your cage match today.

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Iowa patent and intellectual property attorney Brett Trout posted yesterday on the recent ruling from a federal judge that struck down a key part of the Patriot Act.  Brett refers to an article from the Associated Press.

It is important to note the judge immediately stayed his ruling so the government could appeal.  I will follow this case as it moves forward and provide updates.  This is a critical issue for Internet Service Providers.

A nice overview of the ruling and its potential impact is found on Concurring Opinions.

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Thanks to Nina Kaufman for quoting my post  "Employees v. Independent Contractors" on the Entrepreneur.com Blog Network.  Nina's blog on the network is "Making It Legal:  The small business mentor's guide to entrepreneurship and law."  Her advice on the employee v. independent contractor issue is excellent:

This is not an area to play fast and loose with the law. It’s like gambling in Vegas; the house is stacked against you. As confident as you think you may be about the situation, it’s wise to confirm your choice with an employment or other business attorney.

Another blog post worth mentioning on the subject is from David Willis on his Texas Small Business Law Blog.  David is right on track with his warning to small business owners:

The bottom line is that an SBO cannot simply say that a particular worker is an independent contractor and expect that decision to have legal effect. The consequences for failing to properly determine the relationship between the SBO and worker can be quite serious, resulting in legal liability to third parties, insurance issues, and penalties for unpaid employment taxes. For these reasons, it is critical that an SBO seek help from a professional when defining the nature of an employment relationship is important to the SBO’s business.

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Is your business looking to blog?  Want to find out more about how you can have a Web site on steroids? 

If so, you definitely need to listen to DSMBuzz podcast with Mike Sansone of Converstations.  Mike Sansone is a premier blog coach, not just here in Central Iowa, but also nationally.  Particularly if you are a Central Iowa business you would be crazy not to to talk with Mike to learn how you can improve the communication with your customers. 

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In the never ending search for objective franchise information  I discovered Blue MauMau.  The site is a franchisee community designed to share insight, comments and stories about buying and running a franchise.

A few of recent blog entries worth reading are:

• 9 Riskiest Franchise Industries;
• Can You Profit as a Franchise Pioneer;
• A Franchisee's Warning About Owning a Business.

If you are considering a franchise it is important to research and conduct due diligence about the franchise system.  The notion that franchised businesses cannot fail is false.  Not everyone is cut out for owning their own business and not everyone is cut out for franchising.  Here are two suggestions if you are considering a franchise:

1. Talk with as many franchisees as possible in your due diligence.  Ask probing questions to get an accurate picture of the franchise and the prospects for success.  You will learn both from the positive and negative comments. 
2. Consider working in the franchise system for six months to a year before purchasing the franchise.  There is no substitute for working in the system before purchasing the franchise.  Don't think you can afford to do this?  Perhaps you should consider whether you can afford NOT to do this.

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