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

A new Iowa law blog has sprouted.  Jim Nervig of the Brick Gentry law firm has started the Iowa Real Estate Lawyer Blog.  Jim's just getting his feet wet at this point but he is off to a fine start. 

Jim practices in the areas of real estate transactions, tax sale law, tax assessment appeals, zoning and other municipal law, corporation law and wills. He frequently speaks at seminars on real estate, tax sale and zoning topics.  Jim previously served as City Solicitor for the City of Des Moines, Iowa. Jim's blog is intended to help readers stay current on issues relating primarily to real estate and tax sale law and procedures in Iowa.  Particularly when it comes to tax sale law, there are few in this state with the knowledge and experience possessed by Jim.

I encourage you to add Jim's blog to your favorites if you are interested in real estate.  It will be worth it.

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Tonight I will be appearing on the Iowa Business Hour with Jim Goodman from 7:00-8:00 p.m. on 98.3 WOW-FM. 

I follow a long line of distinguished guests on the program including the incomparable Brett Trout. 

If you don't have anything else to do take a listen tonight.

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Do you have bad credit?  If so, this article on how to qualify for a franchise loan even with bad credit may interest you.  But please don't be offended when I say I hope you don't get the loan.

The number one reason I see for business failures is the lack of sufficient capital.  I have seen several people invest their entire life savings only to have their business fail because they lacked the money to survive the first 6 to 24 months.  These overly optimistic business owners scraped the money for the initial loan but had no room for error.  When the business didn't cash flow right away they were doomed.

My advice is simple for those that have bad credit and want to start a business.  Work on improving your credit and accumulate cash to invest in your business. You should plan on having at least double the capital you believe you need.  If you have the idea you just cannot pass up at this time you may need to go raise capital through a rich uncle, an angel investor or venture capital.  If you are investing in a franchise operation as discussed in the article you can probably forget about venture capital.  It's not likely to happen.

I am not saying every person with bad credit shouldn't consider starting a business.  But the odds of business success (a difficult task under the best of circumstances) go down measurably when the potential business owner cannot manage money well and does not start out with adequate capital.  A much better article would have been about how someone could improve their credit and increase savings to start out a business on solid footing.  Providing loans to those that cannot afford them is not the recipe for business success.  After all, it's the same mentality that caused the mortgage crisis our nation currently faces.

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My most recent post on Love Contracts received some link love from the Wall St. Journal and Law.com's Legal Blog Watch.  It's nice to get a little recognition now and then from the heavyweights.

Be sure to check out employment lawyer Mark Toth's blog that was the source of my post.  He has one of the most informative and creative employment law blogs around.

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Mark Toth of the Manpower Employment Law Blog has an interesting post on "hooking up at work" and whether love contracts are a good idea.  This is where co-workers sign a contract in order to protect the company and the employees involved against sexual harassment or other discrimination charges.  Mark says he doesn't think the agreements are necessarily a good idea because it forces the company to become the love police and subordinates may claim that they were forced to sign such an agreements under duress when a superior is involved.

Other employment lawyers quoted in the Newsweek article featuring Mark believe the love contracts may be a good idea.  However, I tend to agree with Mark.  Sure certain office-romance relationships may start out consensual but it can quickly turn to harassment when one of the lovers calls it quits and the other won't give up the pursuit.  I tend to believe that the changed circumstances and conduct that occurred after the relationship broke off still opens the company up to liability - love contract or no love contract. 

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Tomorrow's BIZ networking luncheon features Jonni Tonnemacher, a CPA specializing in fraud detection services.  Learn how to identify fraud in your business and implement controls to prevent fraud from occurring.

I have not heard Jonni talk previously but the topic is fascinating.  It is downright scary how much fraud occurs in business.  Don't be a victim.  Be informed.

Read more about the offerings of BIZ at www.bizci.org.

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I am frequently involved with the purchase and/or sale of a business.  Often the purchaser discovers the business through a business broker.  In the Des Moines area, it seems as though several of the business brokers convince prospective buyers to make an offer before seeking legal advice or reviewing the basic terms before the offer is signed. (i.e. price, financing terms, earn-out, non-compete, etc.).  The selling point is that the broker's form offer to purchase makes the agreement contingent upon review by professionals including a lawyer and/or accountant. 

While the contingency is a good one, the problem is that it does not replace a consultation with a lawyer or accountant before the offer is made.  The simple reason is that once the offer is made it creates a binding agreement.  If you fail to consult the lawyer before signing the offer the basic terms of the sale are complete.  At that point, the lawyer may be able to help you with the legal wording in the final contract but it is awfully tough to change the terms of the deal.

So if you are purchasing a business be sure to consult a business lawyer before signing the offer.  Don't fall for the notion that a contingency permitting legal professionals to review the agreement will allow you to change the terms of deal in the final agreement.  Once you sign the offer it is probably too late.

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In his new blog, Marc Ward of the Dickinson Law Firm, sets out some key changes to the new Iowa LLC Act.  One important issue to remember is that by default under the current law, Iowa LLCs are member managed unless unless the articles of organization or the operating agreement provides for management by manager(s).  Under the new law only a provision in the operating agreement can change the management of the LLC from member-managed to manager-managed.  As Marc indicates:

The operating agreement must expressly provide that (a) the LLC is "manager-managed" (b) the LLC is "managed by managers" (c) management of the LLC is "vested in managers" or (d) words of similar import.  Be safe, use one of the first three phrases recognized by the Act to avoid all doubt.

But even perhaps more importantly, the new law (effective Jan. 2009) provides that a member is not an agent that can bind the LLC just because they are a member.  The LLC may also file a statement of authority with the Iowa Secretary of State that specifically sets forth who does or does not have authority to act for the LLC to execute an instrument transferring real property or to enter into transactions on  behalf of or otherwise act for or bind the LLC.

Hat tip to Joe Kristan for pointing out Marc's blog.  For those that doubt the validity of social media, it's kind of funny that I learned my neighbor was blogging through someone else's blog post. 

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Former general counsel and small business owner, Anita Campbell, offers sage advice in her post on the Build a Solo Practice Blog about how to write a better contract .  What is the better contract in Anita's view?

1. First and foremost, the better contract protects the client.
2. The better contract is written in plain English.  (A novel concept indeed!)
3. The better contract is written for a 12th grade education or lower.
4. The better contract incorporates standardization.

A word of caution concerning standardization of contracts:  Clients will often take a standardized contract and fail to adapt it appropriately for the current business transaction.  Clients should be reminded that it is a good idea to have the business lawyer review the agreement to make sure it adequately protects the client in the current transaction, contains the actual terms of the current transaction and fulfills the goals of the current transaction.  I can't tell you how many times I have seen the embarassing situation where a business person took a standardized contract and failed to revise it appropriately for the situation.  It happens often when people pilfer agreements from the Internet and fail to modify the terms.  If litigation occurs, the result of this carelessness could be a verdict against the client.

Anita's solution involves providing a set of instructions to the client along with the standarized contract.  Included in the instruction sheet is the direction to have the business manager consult the corporate lawyer before signing or implementing the agreement.  This may work well with organizations that have in-house counsel but is probably less intuitive for businesses with outside counsel.  I offer the reminder to always have contracts reviewed by your business lawyer.

Hat tip to Susan Cartier Liebel and her Build a Solo Practice Blog.  Susan is passionately building one of the best blogs in the country.  Notice I didn't limit it to legal related blogs either.

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The Small Business Administration (SBA) and FranNet have teamed up to offer an online training course for those interested in franchising.

The free online course on franchise basics provides three key sections that examine more than 10 essential areas relating to franchising, including Whether Franchising Right for You and How to Choose the Right Franchise. The course also covers franchising options, strategies for growth, and pitfalls to avoid. Course participants will be able to better understand franchising and decide if it is the best small business option for them.

For more information please be sure to contact Joe Cooney who is the FranNet consultant for the Iowa / Nebraska region.  I have found Joe to be a very helpful resource.

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Anita Campbell of Small Business Trends shares her thoughts about how to avoid the contract from hell on the Build a Solo Practice site. 

As a former general counsel and now a small business owner, Anita has been on both sides of the fence when it comes to contracts.  According to Anita, here are some things to avoid in your next contract:

• Too much legalese.
• Using adverbs like "whereas" and "heretofore".  It's kind of like using "COMES NOW" for pleadings.  Does anyone really talk like that?
• More than 5-7 defined terms.
• Attaching multiple exhibits.  I can speak from experience that multiple exhibits is a real pain for the drafter so I can't imagine what it is like for the reader.
• Making it so hard to understand that it leads to avoidable litigation just because no one can understand it.

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Teri Rasmussen of the Ohio Practical Business Law Counsel blog has gathered some excellent resources for those who are interested in pursuing a franchise to start a business.

Thanks to Teri for referring to a couple of my blog posts but I also recommend checking out the Small Business Administration's consumer guide to buying a franchise as well as attorney Mike Hamblin's 4-part series on franchising.

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In a recent blog post, Daniel Schwartz of the Connecticut Employment Law Blog reminds employers just how important it is to notify insurers under their employment practices liability insurance.

This advice is not just critical in the employment context.  It is vital for every type of insurance your business may have.  If a claim occurs be sure to notify your insurer immediately.  The failure to do so may result in a denial of coverage.

Thanks to Daniel for the reminder.

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