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

Growing Des Moines businesses may want to consider a six month program offered by the Small Business Administration called the Emerging 200 (e200) Initiative.  Locally the course is taught by Monica Dolezal of Bizstarts.  The program begins in April.

The goal of e200 is to identify 200 inner-city businesses across the country that show a high potential for growth and to provide them the network, resources and motivation required to build a sustainable business within a designated inner-city geographic location.

The cornerstone of the e200 initiative is an in-depth educational program running approximately 80-100 hours, to be held two half-days per month from April through October, 2010. It will focus on topics such as organization management, finance, growth strategies and management, market development, and strategic planning.  Small business executives in the e200 Initiative participate in an intensive and comprehensive program, draw from each other's experiences and expertise, develop connections with local capital providers, and complete a growth plan by the end of the program.

Participation in e200 is free to qualifying businesses. Criteria for participation includes having been in business for a minimum of three years, $400,000 or more in gross annual revenues, and a business location within the City of Des Moines. Participation will be limited to only 15 businesses in Des Moines and 200 businesses nationwide.

For more information contact Monica Dolezal of Bizstarts at 515-229-2345 or the local Des Moines SBA office at 515-284-4522.

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A common thing I see from franchisees is that they include only the name of their franchise in an agreement as opposed to including their corporate or limited liability company name. Most of the time the names are different. For example, if my franchise is "Tops Franchise" but my corporate name is "Rush Nigut Enterprises, Inc.", I need to make sure the corporate name is included in the contract. 

I had this exact thing happen to a franchisee client. He failed to include the name of his corporation in a contract and used only the name of his franchise. The court ruled that he was personally liable for the debt because he had not disclosed to the other side that he was signing in a corporate capacity.

So be careful to always include your corporate or LLC name and sign with your title, (i.e. President, Vice-President, member, etc.).

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A bill in the Iowa Senate could require all businesses to provide paid sick leave to their employees.  My gut tells me many small businesses cannot afford to provide paid sick leave.

What do you think? 

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This is a part of an on-going series of posts which will form the Legal Guide for Starting a Business in Iowa.

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, a partnership, S corporation, C corporation, or a limited liability company. There are others but these are the main entities to research.

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.

Similarly, a partnership is also easy to set up and involves two or more people. A partnership requires no formal documentation but a partnership agreement is preferred. Like sole proprietorships, you and your partners have unlimited liability. With the ease of setting up and operating a limited liability company, a partnership is usually not recommended given today's litigious society. 

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 exploded in popularity over the past decade and also provides limited liability and avoidance of double taxation. An LLC may offer flexibility not available with corporations when it comes to ongoing requirements, its ownership and how the owners are paid.

The C corporation has traditionally been used for larger businesses but accountants may recommend this entity 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 such as venture capitalists.

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.

Our next posts in the Legal Guide to Starting a Business in Iowa series will examine the S corporation, limited liability companies and C corporations in more detail.

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This February is National Start a Business Month. To celebrate I am offering to form any Iowa incorporation or LLC for half the price during the month of February 2010.  It's my small way to encourage business start-ups and help out start up entrepreneurs.

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A couple of years ago I set out to write a Legal Guide to Starting a Business in Iowa. Unfortunately trying to work, write a blog, coach baseball and write the guidebook didn't quite work for me. I started the guidebook but never came close to finishing it.

So this year I have decided to blog the guidebook. At the end of the project, I'll have my book and hopefully Iowa entrepreneurs will have something that is helpful and informative.  The project may take several months so most of the information on the blog over this time will be very general in nature rather than dealing with current events. I'll still blog on current events as appropriate.

Thanks for your continued support and have a happy New Year!

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An article in Barron's supports, in a big way, the importance of keeping good business records. The article details how the IRS disputed a $75,000 repayment of a loan for a business owner named Henry resulting instead in a $68,000 dividend, on which Henry owed tax. 

Joseph Gelband, a tax attorney from Larchmont, New York, wrote the article. He provides some wise counsel for business owners:

[Henry's] story points to the importance-especially for a closely held corporation-of observing formal business practices, if for no other reason than to create a record.  Minutes should be kept, and updated at least annually. Executive salaries, bonuses, and loan transactions should be reflected in those minutes, which should be reviewed by the company's accountant when statements are prepared.  The existence of that kind of paper trail would have left Henry in a much stronger position.

Now is a great time to document those transactions before the end of the year. 

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The Franchise King has a great list of 20 small business blogs that have the right stuff. These blogs possess some of the best content on the Web when it comes to small business. Be sure to check them out!

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Throughout this blog you will see posts that recommend business people enter into a shareholder agreement when they start a corporation with multiple shareholders. But did you know that unless your shareholder agreement states otherwise, your shareholder agreement may only be valid for 10 years pursuant to Iowa corporate law?

Chapter 490.732 of the Iowa Code seems to indicate exactly that (although I have never seen it applied in a case yet). I think this is something that maybe even some of the most experienced corporate attorneys may not realize. So don't be surprised. You should review your shareholder agreement. If it is more than 10 years old, it may no longer be valid and a new agreement may be necessary.  If the agreement is less than 10 years old it may be a good idea to revise it so there is language indicating the agreement applies for more than 10 years. 

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Need capital for your business? Looking for an investor? If so, you should take the opportunity to attend a seminar from the Business Innovation Zone of Central Iowa (BIZ) on how to get your business into shape and attract an investor's eye.

Adam Claypool of DeWaay Investment Banking is the speaker. I have worked with Adam on several occasions so I know this will be a worthwhile opportunity to listen to one of central Iowa's more prominent investment bankers. The presentation is this Wednesday, October 21st at the Des Moines Partnership offices, 700 Locust Street, Suite 100, Des Moines, Iowa. It begins at 11:30 a.m.

Afterwards you can listen to me on the radio this Wednesday at 1:00 p.m. with Mike Libbie offering insights on business on Des Moines Local Live.

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The title of this post may be a little tongue-in-cheek, but I would say at this point I am forming perhaps 2-3 times as many LLCs as S corporations.

It still doesn't mean you should rule out the S corporation as your entity of choice. It could be the entity for your situation. Joe Kristan, an accountant with Roth and Company in Des Moines, explains in a recent post who can and should own a S corporation. 

It's important to note that a decision to form an s corporation or LLC is often as much a tax driven question as it is a legal decision. That's why I encourage all new business owners to contact an accountant, in addition to a business lawyer, to determine which business entity to form.

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How Business Gets Done, Words of Wisdom from Central Iowa Experts has hit the virtual bookshelves at www.lulu.com. I am honored to be a contributing author with several respected peers in our business community. My chapter is on the Partnership Prenuptial where I discuss the importance of drafting a  buy-sell agreement from the beginning of your business relationship.

The costs of litigating a business dispute can easily run in excess of $100,000 per side while a buy-sell agreement usually costs less than a a couple of thousand dollars. Unquestionably most business owners would rather concentrate on running their business than spending time in court.

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Whether you are starting a business from scratch or buying an existing business you should consider setting up a corporation or limited liability company (LLC) before you actually sign any agreements or documents relating to your new venture. To the extent possible, avoid signing any contracts, loan agreements or leases in your personal name. In many cases, however, you may be required to personally guarantee the loan or other debts but it is still recommended that you place those agreements in the company name. It is often surprising how the start-up documents may impact litigation issues down the road. If those agreements are in the business name it may help you avoid personal liability on unknown issues in the future. One of the most important reasons for starting a corporation or LLC is to protect your personal assets from the risks of the business. It is smart to start right from the very beginning.

A post from Ohio business lawyer Terri Rasmussen describes how one person went a little too far in trying to avoid personal liability. But the underlying advice in the blog post cannot be minimized. It is critical to sign documents in your corporate capacity (i.e. "President" or "Vice-President") and if you are signing on behalf of an LLC you should sign as "Member". Using catchy marketing titles such as "Big Cheese" or "Chief of Results" has no place when you are signing documents that could bind your business and subject you to personal liability. 

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From time to time I enjoy featuring a business law blog worth reading. The San Diego Small Business Law Blog from Joseph Dang is definitely one to check out. Although the blog is centered on California law, Joseph has a number of general posts that are helpful to any small business owner.

In particular, I encourage you to read his posts on business formation and incorporation. Real good stuff!

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In these tough economic times many individuals have lost their jobs. As a result, many are thinking of opening their own business or buying a franchise to replace the income lost from their former job. Franchise lawyer Charles Internicola has an excellent post on the topic. Charles has also published a new book, An Entrepreneur's Guide to Purchasing a Business, to provide important information for would be business owners.

Over the years I have been fortunate to see successful business owners from all walks of life. But remember, the vast majority of businesses fail. Do not jump hastily into a decision to own your own business. Charles points out some of the major considerations you will need to think about including whether you have sufficient capital, family support and whether you are prepared to "wear the many different hats" required of the new business owner.  

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My partner Pat Burk weighs in with a blog post on the new Iowa LLC law and real estate transfers. It's a great blog post because LLCs have long been the entity of choice for real estate ownership. The post includes a discussion on statements of authority and title examination.

Pat distinguishes nicely my previous comments concerning due diligence in dealing with LLC members to make sure they have appropriate authority to act for the LLC and the need to have title examiners assume proper authority. Again, it will be interesting to see how courts treat these issues (and others) under the new Iowa LLC law. 

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This blog post is the fourth in a series of blog posts highlighting changes in the 2009 Iowa Limited Liability Company Act. The new law applies to all LLCs filed in Iowa after January 1, 2009. The new LLC law will apply to older LLCs beginning on January 1, 2011 unless otherwise agreed by the members.

The new Iowa LLC law has a significant change relating to management. The current law provides that member voting is based upon capital contributions of the members. Generally, that means voting is based upon the percentages of the members and a member with 51% or more will control how the company is operated.

 However the default provision with the new LLC law is one member - one vote. This means that even a member with a minority percentage may have the ability to have as much management authority as an member that has a majority of the membership units. Accordingly, if a majority owner wants to maintain management control, the written operating agreement will need to specify such arrangement.

This may become even more important after January 1, 2011, when all LLC companies will need to comply with the new law. Some unsuspecting LLC majority owners may be surprised to learn that they may not be in control of their business unless an operating agreement specifies the majority interest controls.

This issue is just one of reasons I recommend that all LLC owners seek legal advice from a business attorney when forming an LLC under the new Iowa LLC act.

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This blog post is third in a series of blog posts highlighting changes in the 2009 Iowa Limited Liability Company Act. The new law applies to all LLCs filed in Iowa after January 1, 2009. The new LLC law will apply to older LLCs beginning on January 1, 2011 unless otherwise agreed by the members.

In my last blog post I picked on the new Iowa LLC law because I don't see great benefits to LLC members with some of the changes in the law related to operating agreements. But changes relating to Statements of Authority may not be so bad. (That is if you are an LLC owner. Third parties might disagree). 

Currently, Iowa LLC law says that all members of the LLC are agents of the company unless otherwise stated in the articles of organization. The new LLC law provides that members are no longer automatically agents of the company. As fellow Iowa business lawyer Marc Ward points out on his blog, "The risk of a rogue member binding or otherwise obligating the LLC will be gone."

The new law also permits an LLC to file a statement of authority with the Iowa Secretary of State. (Still amazing to me the Sec. of State has no notice of the new LLC law on its site). The statement of authority will serve as notice of who does or does not have authority to act for the LLC, sign documents transferring real property, or otherwise act for and bind the LLC.  The statement can state the authority or limits on authority by position (e.g. member, manager, president) or a specific person or persons.

Third parties will need to be careful in assessing whether a member actually has authority to sign on behalf of the LLC.  In doing so, third parties probably should request a copy of the Statement of Authority documentation from the LLC. This information will also likely be viewable on the Sec. of State's Web site under the Company's  filings. It will be interesting how courts will handle the issue of "apparent authority" under the new law (i.e. where a person purports to have authority to bind the company but really doesn't). After all, the whole purpose behind the provision is to prevent rogue members from binding the company. Is "apparent authority" thrown out the window if a Statement of Authority is filed?

A statement of authority filed in the county recorder's office will be conclusive evidence in favor of a person who gives value for real property in reliance on the statement.  Similarly, a filed statement limiting the authority of a person or position to transfer real property will constitute notice to all.

Under the new law, a statement of authority will expire 5 years after it or the most recent amendment becomes effective, unless canceled earlier.

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This blog post is second in a series of blog posts highlighting changes in the 2009 Iowa Limited Liability Company Act. The new law applies to all LLCs filed in Iowa after January 1, 2009. The new LLC law will apply to older LLCs beginning on January 1, 2011 unless otherwise agreed by the members.

Beginning in 2009 there are a couple of issues relating to operating agreements that LLC business owners must consider. The operating agreement is the document that sets forth how the LLC is governed and run.

1. LLCs are not required to have an operating agreement in writing but watch out. On its face the fact an operating agreement is not required in writing might excite LLC owners. However, it is not advisable to go without a written operating agreement, particularly if there are two or more members in the LLC. Even a single member LLC should consider a written operating agreement in order to protect against piercing the corporate veil. If an operating agreement is not in writing, the provisions of the new statute will automatically apply to the LLC. In many instances, the statute has provisions that may surprise and bite unknowing LLC owners especially with regard to management rights, profit distribution and transfers of interest. It is best practice to have a written operating agreement.  
2. Operating Agreements may be amended orally. LLC owners may amend their operating agreement orally under the new statute. Again, while that may make it easy to amend the agreement it will likely remain best practice to override this statutory provision to include language in the written operating agreement requiring an amendment to be in writing. That way members may avoid the enevitable arguments that ensue when agreements are not memorialized in writing. People tend to remember things differently when agreements are not in writing and the agreement is more difficult to prove in court.

Check back for more on the Iowa LLC law changes in future blog posts.

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This blog post is first in a series of blog posts highlighting changes in the 2009 Iowa Limited Liability Company Act. The new law applies to all LLCs filed in Iowa after January 1, 2009. The new LLC law will apply to older LLCs beginning on January 1, 2011 unless otherwise agreed by the members.

Beginning January 1, 2009, you will no longer file Articles of Organization with the Secretary of State to start your Iowa limited liability company. Instead, you will now file a Certificate of Organization to begin the process. Unless there are changes with the Secretary of State, I do not anticipate the filing fee would change from the current fee of $50.00. (Amazingly, the Iowa Secretary of State's Web site has no mention of the upcoming changes that I could see). 

The Certificate of Organization under the new Iowa LLC law will actually have less detail than Articles of Organization typically had in the past. The only information required for the Certificate of Organization are as follows:

1. The name of the limited liability company;
2. The street and mailing address of the registered office and the name of the registered agent.

That's it. The organizer also won't need to state the the LLC has a perpetual duration in the articles as the new law automatically provides that LLCs have a perpetual duration (just like corporations).

Now, that may seem simple enough to start but there are a number of issues with the new Iowa LLC law that could trap unsuspecting business owners. I will highlight some of those areas in upcoming posts. 

An excellent resource on the this topic is Ward on Iowa Limited Liability Company Law, written by Marc Ward of the Dickinson Law Firm. Marc has devoted an entire blog to the changes in the new Iowa LLC law. 

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There are significant changes to the Iowa limited liability company (LLC) statute effective January 1, 2009.  The changes include everything from how an LLC is initially formed and filed with the Secretary of State to changes that apply when a member leaves (i.e. disassociates) from the LLC.

Check back over the next couple of weeks for a series of posts regarding the new changes in Iowa's LLC law.

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A great discussion took place last Friday on Twitter among several young entrepreneurs in the Des Moines area. As a result, Daniel Shipton of Impromptu Studio took the bull by the horns and organized an "impromptu" entrepreneurial roundtable discussion for this Tuesday, December 9th from 12:00 p.m. - 1:00 p.m.

The anticipated roundtable will consist of Matt Kinley of Equity Dyanmics, representatives of the Technology Association of Iowa and several local entrepreneurs.  So if you care about the entrepreneurial climate here in Iowa be sure to participate.  I'll see you there.

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There are many entrepreneurs who want to run all their business AND personal expenses through the business.  For example, earlier this spring I witnessed a father buying his son's baseball equipment at a local sporting goods store.  I chuckled when he pulled out a company check to pay for the equipment.  Sure, one expense might get buried and never noticed in an audit but experience tells me that "pigs get fat while hogs get slaughtered."  Many business people don't understand where to draw the line.  Business expenses are fine to deduct.  But  running obvious personal expenses through the business just isn't acceptable.  It could even be a reason to "pierce the corporate veil" in litigation causing you to lose your limited liability protection. 

But where it may really hurt is when you go to sell your business. That is when it is critical to show the best possible operating profitability and cash flow to gain a fair price for your business. This means those avoidable (or perhaps illegal) expenses take away from the bottom line of the business and leave you with less value.  Moreover, it draws questions about your integrity and could make it harder to sell our business.

So keep the end in mind. Accurate and organized financial statements are a must. A penny saved today might be a dollar lost tomorrow.

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It has taken longer than I had hoped but my November goal is to lauch the Interactive Learning Environment for clients and others interested in employment law compliance and training, franchising basics and starting up your business.  Our initial free program will include a Legal Guidebook on Starting Your Iowa Business.  Gradually, we will release more and more content on the important issues that impact your business. One of my partners, Matthew Brick, will be a major contributer on employment law issues.

My introductory video is complete so I need to get moving on the programs. Due to time constraints with work load and this project, followers should expect blogging to be very light over the remainder of the month. I appreciate your loyal support to this blog and I encourage you to give our ILE a try when its finished. 

A special thanks to the guys at createWOWmedia who have been so invaluable in getting the ILE project off the ground. Stay tuned for the finished product and I look forward to your comments once we are up and running.

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The Midwest Small Business Conference is now set for October 10 & 11, 2008 at the Des Moines Marriott.  This event is rescheduled from the previous announcement on this blog because the original date conflicted with the Iowa-Iowa State football game. (Conference organizers learned that not even business gets in the way of football).  Fortunately the conference was able to pick up a new date and additional speakers.

I will be speaking on how to keep your business out of court.

Click here for a lineup of the conference speakers.  We hope to see you there!   

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I have seen many articles on the Internet which state that you absolutely need to form a limited liability company (LLC) if you are a small business owner.  The S corporation, once the darling of small business entities, is probably feeling a little lonely these days.

One important aspect of the S corporation is that you may be able to save on self-employment taxes by using an S corp instead of an LLC.

But don't get too carried away in the belief that you can set a low salary says accountant Joe Kristan in his latest post on Iowa Biz regarding s corporation salaries.  The key is to set a "reasonable salary" if you are the owner, although admittedly no one really knows what that means.

As is often the case in dealing with tax issues, Joe's advice is to remember that "pigs get fat, but hogs get slaughtered."  It's definitely a good idea to talk with an accountant when setting your salary in your S corporation.  It could save you considerable time and expense in dealing with the IRS. 

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Twice a month I blog for IowaBiz which was acquired by the Des Moines Business Record this summer.  Since that time it appears the bloggers have stepped up their game.  The posts have been informative and entertaining.  I encourage you to take a look.

My post today for IowaBiz centers on the trend of hiring outside law firms on a non-billable hour basis.  It's a trend I embrace and use frequently in my law practice.  Similar to the law firms mentioned in my post, I have already provided outside general counsel services to certain business clients based upon a mutually agreeable fixed monthly fee.  These clients receive a fixed monthly bill and do not receive bills for phone calls and overhead costs such as copying and postage.  I also have performed certain projects such as incorporation and LLC formation on a fixed rate and have also done so with contract review and writing.  No, I have not completely eliminated the billable hour from my practice but would love to do so.

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Gavin Craig in his new Twin Cities Business Litigation Blog has an excellent post on the importance of making sure the world knows you have a corporate entity.  Craig is convinced that many small business owners (especially contractors) do not know how to properly operate a corporation or LLC. Craig says,

When a person incorporates their business, it takes more than just filing a form with the Secretary of State. When a business is incorporated, it can't be a secret to those that do business with the new corporation. In other words, the new corporation needs to disclose the fact that the business (the party that is contracting with others) is incorporated on its letterhead, business cards, invoices and checks.

Craig is right on with his warning on this issue.  Whether you live in Minnesota, Iowa or Timbuktu, you must make sure you disclose the fact you have a corporate entity on your letterhead, business cards, invoices, checks and especially CONTRACTS. 

This is a particularly important message for franchisees.  Many franchisees operate under franchise trade name but fail to disclose in contracts, letterhead, business cards, etc. the name of their actual corporate entity.  One franchisee I know was personally sued for the damages related to an advertising contract because he had not disclosed to the other side that he actually operated with an LLC rather than as a sole proprietorship.  He had signed the contract using only the trade name of the franchise.  The other side said at trial that it didn't know the franchisee had an LLC.  So ultimately the judge sided with the advertising company.  It was an expensive lesson that could have been easily avoided. 

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These posts demonstrate some good business basics:

Small Biz Survival has a good blog post on how to keep good tax records. 

Kyle Kruidenier of the Iowa Law Blog talks about the importance of thinking with the end in mind when forming a business.

Marc Ward shares why LLC operating agreements should be in writing.

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With the help of Doug Mitchell and Andy Brudtkuhl I will be going live with an Interactive Learning Environment to complement this blog very soon.   The Rush on Business Legal Wire will focus primarily on employment law, franchise due diligence  / investigation issues and business purchase or sale considerations.  I also hope to attract top speakers to participate in the process.  The online seminar presentations will include in-depth written materials, audio presentations, podcasts and possibly video.

Forums will also be available for you to share your insights and ask questions.  Similar to the blog format, I won't be able to answer questions regarding specific situations but we can discuss topics generally.

I welcome your comments and suggestions on topics you would like to hear more about.

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Indiana civil and business lawyer Sam Hasler recently expressed his view that the place to incorporate your business is generally in your home state.

I agree with Sam. 

Delaware or Nevada may offer viable options for some companies but in general most Iowa small businesses are probably wise to incorporate here 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.

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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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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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One of my franchisee clients offered a very simple question that every prospective franchisee should ask of other franchisees when conducting due diligence:

What doesn't the franchisor do well?

He says this evoked the best responses from franchisees when he conducted his due diligence.  If you are considering a franchise be sure to talk to as many franchisees as possible.  Speaking to only a handful is not enough. 

For more information be sure to read this article on franchise due diligence resources.

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A new program from the non-profit Iowa Foundation for Microenterprise and Community Vitality (IFMCV), will provide a statewide mechanism for Iowa's microentrepreneurs to connect with community development agencies for assistance. Among the groups spearheading the effort are the Greater Des Moines Community Foundation and the Community Vitality Center (CVC), a policy analysis center based at Iowa State University. The program specializes in providing loans of $35,000 or less to small businesses.

State legislators are considering ways to fund microenterprise assistance programs that would be offered through the Iowa Department of Economic Development. An appropriations bill now under consideration would provide $500,000 to fund a microenterprise specialist at the IDED and begin a microloan program, using unspent Grow Iowa Values Fund dollars.

These are exciting developments for the state's small businesses which have long been ignored in Iowa. For more information please read this article from the Des Moines Business Record.

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It's no April Fool's joke, the Iowa Secretary of State corporate biennial reports are due today, April 1, 2008.  If you have not filed your report be sure to do so today.  In Iowa, limited liability companies are also required to file the report.  If you file online the cost is $30.00 for the filing fee.  The cost is $45.00 if you file a paper report.

If you do not file your report a notice is generated and eventually your corporation will be administratively dissolved after the notice.  You can get your corporation or LLC reinstated but that will cost you additional time and effort.  You also cannot get reinstated unless you have paid all applicable state taxes.

So get your report filed today.  If you know your corporation # and pin # you can file the report by going to the following link:

https://www.sos.state.ia.us/BiennialReports/index.asp

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Ohio business lawyer Terri Rasmussen has an excellent overview of the resources available on the SBA Website.  (With a hat tip to Joel Libava on the Small Business Trends Blog for the original post).  Terri also refers to a helpful post from Anita Campbell on the Ten Ways Business.gov Helps Your Business.

While I couldn't agree more with these posts about the valuable information found on the SBA Web site, I would add I find the Kauffman eVenturing site to be one of the most useful business resources on the Internet for pure business advice and information.  The quality of the ideas and writing on the Kauffman site is outstanding.

P.S.  If you are looking for an interesting interview, be sure to take some time to listen to Central Iowa's very own Sherry Borzo interview Anita Campbell on the dsmBuzz site.  It's terrific!

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A cautionary tale about partnership from Richard Fox on the Kauffman eVenturing site is an absolute must read.  Fox shares how he thought his legal background would protect him well as he created shareholder agreements, buy/sell agreements, voting trusts, special bylaws and articles of incorporation when he entered into a business partnership.  But even he was surprised when a 50 percent partner tried to sell the company out from underneath him after his father's funeral.  To make matters worse the partner tried to sell the company to their number one competitor.

Fortunately for Fox he was able to ultimately sell the company for a handsome price because he continued to concentrate on building the business rather than retaliating against his partner.  But it's pretty clear Fox believes any business person should be extremely careful when taking on partner.  He offers the following priceless advice (with my comments following):

• Know Your Existing Shareholders' Rights. Shareholders of private companies—even minority shareholders—hold the same legal rights as shareholders of public companies. When you accept shareholders, you accept the same scrutiny that comes with being a public company without the benefits. Understand that you can never be adequately prepared for a shareholder who wants to maliciously assert their shareholder rights to cause you problems. 

(Comment:  In Iowa, all shareholders are entitled to the financial information of the company as well as copies of all corporate documents   I strongly suggest you keep all copies of all important corporate documents and financial information routinely, not just when you need them.  In particular make sure you have any documents that would evidence ownership rights.  It is my experience that often one partner will have access to the corporate documentation while the other partner does not.  Don't let that happen to you).

• Avoid Taking on New "Legal" Shareholders. Entrepreneurs sometimes give ownership interests to key employees to allow them to share in the equity growth of the business. For the reason stated immediately above, you might consider offering "phantom stock," (read this article for more on phantom stocks) which carries all the economic benefits of common stock ownership without the potentially abusive rights of legal ownership. A lawyer should be able to advise you on the details. 

(Comment:  My experience with clients is that most employees really want to be paid more.  I know entrepreneurs often want employees to feel as though they have a "piece of the action".  But I also caution you to think twice about employee ownership).

• Take the high road. Rather than counter-suing the partner, Fox chose to put his energy into building the business. Not only was it good for the business, but it kept from muddying the waters any further and made a much needed ally out of the company's other corporate director. 

 (Comment:  This is very difficult to do is some situations.  Sometimes you may have no alternative but to fight back.  But I agree it is critical to continue growing the business). 

• Be prepared for anything. Pushed to the edge, some people will fight back with extreme measures. Although secretly passing legislation is extreme, be prepared for the unexpected.

(Comment:  I have learned this lesson the hard way myself with business partners in a few of my endeavors.  Do everything you can to protect yourself.  Start by knowing your rights and make sure to document, document, document.  Adversity often brings out the worst in people but amazingly people also change with substantial success.  Researchers have found the mere presence of money changes people.  It is also a good idea to have a trusted confidant that can help you vet a potential partnership without emotion).

• Sell on your way up. Entrepreneurs are "hard-wired" to grow businesses. The idea of selling is usually a far-away concept that is considered, but knowing the best time to sell is not intuitive. Don't wait until you can see the peak because chances are your buyers can see it too and will discount the price accordingly. Plan on a full year for the sale process to be completed; if you pull the trigger too late, you may miss.

(Comment:  This is a tough one for most business people.  You need to have a little luck on your side to sell at the right time.  But it's just like investing in the stock market.  You will likely never sell at the peak so don't be greedy.  A business sale should be a win-win for the buyer and seller). 

Overall, I just can't stress enough the importance of carefully considering whether a business partnership is right for you.  I often joke that it is not a matter of "if" but a matter of "when" the partnership will end.  But this is one joke I don't consider to be a laughing matter.  Fox's tale proves it.   

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Today is my last day with the Sullivan & Ward law firm.  This coming Monday I am taking a hop, skip and a jump over to the law firm of Brick Gentry, P.C. in West Des Moines, Iowa.  This is actually almost literally true as the Brick Gentry law firm is located across the parking lot just to the west of my current office location. 

It is difficult to leave my friends at the Sullivan & Ward firm but I am excited by this new opportunity.  Brick Gentry is a growing law firm with an excellent reputation in the Des Moines legal community for over 40 years.  The firm now consists of approximately twenty-five lawyers practicing in a wide range of areas including business law, municipal law, health care law, employment law, litigation and real estate.   

I'll join the firm as a shareholder and continue to work with my current business law clients and litigation matters.  Rush on Business will also continue although you will notice some changes to the links and contact information on the blog in the next couple of days. 

My new contact information is:

Rush Nigut, Brick Gentry, P.C., 6701 Westown Parkway, Suite 100, West Des Moines, IA 50266.  Phone:  515-274-1450; Fax:  515-274-1488; email:  rush.nigut@brickgentrylaw.com

Thank you again to all of you that read this blog.  I appreciate your support and look forward to this next step in the journey.  Stay tuned for more because I have a few plans ahead to mix it up and enhance the blog.  I'll need to settled in but I am looking forward to working on some new challenges very soon. 

photo on flickr by phxpma

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Here's some great tips for new small businesses.  Some terrific advice.  The top ten tips as listed:

1. Save up as much money as possible before starting.
2. Start on a shoestring.
3. Protect your personal assets.
4. Understand how--and if--you will make a profit.
5. Make a business plan, no matter how short.
6. Get and keep a competitive edge.
7. Put all agreements in writing.
8. Hire and keep good people.
9. Pay attention to the legal status of your workers.
10. Pay your bills early and your taxes on time. 

I especially appreciate the emphais placed on paying your payroll taxes on time, particularly the portion you withhold from your employees' wages. (See the commentary on No. 10).  It is critically important to understand that a corporation or LLC will not protect you from personal liability in the event these taxes are not paid.  (For an example, see a post from my favorite blogging accountant, Joe Kristan).

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Welcome to a RAGBRAI inspired Blawg Review.  What is RAGBRAI?  The Register's Annual Great Bicycle Ride Across Iowa is an annual seven-day ride across the state.  Heading into its 36th year, RAGBRAI is the longest, largest and oldest touring bicycle ride in the world.  It's not a race.  It's an experience.   And since Blawg Review is a carnival, nothing says carnival in an uniquely Iowa way like bicycles, spandex, pork chops, pie, frivolity and 10,000 of your closest friends!

The weather in Iowa is frigid this winter.  As the weekend of this Blawg Review approaches Iowans brace for another heavy snow.  Our friend Charlie Longbrief looks at the floor below his stationary bike and dreams of summer.  A person can stand only so many YMCA spinning classes.  He thinks back to his first RAGBRAI as a twenty year old when law school hadn't yet entered his mind and the biggest celebrity on the ride was Oakland Raiders great and Miller Lite spokeman Ben Davidson.  Now it's nothing to see the likes of lawyer turned politician John Edwards or the bicycling legend himself, Lance Armstrong.  Armstrong may have participated in the famous New York City Marathon but his heart will always belong with RAGBRAI.  Listen for yourself:

Day 1:  Missouri Valley to Harlan  - 58 miles

This year's ride starts in the river town of Missouri Valley.  While performing the traditional dip of his back tire in the Missouri River, Charlie sees Liz Overton of the Iowa Law Blog who warns him that because of the $350,000 settlement in a 2004 RAGBRAI death bicyclers better beware of the new proposed legislation from the Iowa State Association of Counties.

Unfazed Charlie gets on his bike and sets out on his adventure.  But as he rides off he does ask himself whether Mad Kane is right.  Is it wise to travel with friends particularly where tents are involved?

About 15 miles down the road Charlie takes a break and starts getting an earful from New Yorker Eric Turkewitz about how State Farm has been hit with a RICO lawsuit over alleged sham medical exams.  That hasn't been reported elsewhere and Charlie worries whether State Farm might be doing the same thing in Iowa.  Charlie is so interested he and Eric ride the rest of the way to Harlan together.  Although its only the first day Turkewitz remarks that he agrees with Lance Armstrong . . . RAGBRAI is a hell of lot more fun than his beloved New York City Marathon.

As he pulls into Harlan, Charlie finds himself a little short on cash and heads off to find an ATM.  There he sees John Crenshaw who starts telling him about the biggest scams banks are pulling off everyday. Charlie just shakes his head in agreement as he pays the $2.00 charge to get the money out of the ATM.  After a little angel hair pasta its time to hit the sleeping bag.  There is a big week ahead and unfortunately Charlie isn't twenty any longer.

Day 2:  Harlan to Jefferson - 83 miles

The next morning Charlie wakes up bright and early and sets off for Jefferson.  He has some clients that are buying a business nearby and that reminds him he should heed Larry Staton Jr.'s advice to know what you are getting when you buy a trademark from an existing business.

About half way to Jefferson our city boy is a little mesmerized by the miles and miles of corn.  It makes him wonder whether Farmer David will be able to pay that large patent judgment he now owes Monsanto as reported by the Patent Baristas.

In Scranton, just short of Jefferson, Charlie sees a big group of people gathered in a park off the town's main drag.  There he sees Dan Slater of the WSJ Law Blog who explains that all the hoopla is because the M & M boys have turned their attention to the RAGBRAI water slides because the Naked Cowboy drove them outta of Dodge.  The revelers love it and the log jam causes a very slow ride into Jefferson that evening.

Day 3:  Jefferson to Ames - 56 miles

It's a big day for politicians on the way to Ames, home of Iowa State University.  Barack Obama and John McCain are expected to make appearances today.  Hillary Clinton is here too and keeps talking about how the Florida and Michigan delegates must count.  Obama shrugs it off by saying even his six year old knows it wouldn't be fair to count votes where there was no campaign.  But at least Florida has made significant strides in improving its jury system according to Juries.  While Diane Levin points out voters can learn a lot from the field of negotiation.  Eugene Volokh shares that John Mellencamp may be able to stop McCain from playing his songs after all.

All the political talk has people addressing serious issues on the road today.  Riding on a three person tandum, Leon Gettler of Sox First tells Charlie that Sarbanes-Oxley not only failed to stop the subprime meltdown, it contributed by giving investors the false confidence that they could rely on the law, and not prudence to protect their market holdings.  Scott Greenfield shares that Congress has a pending bill that may immunize banks from paying billions in dollars to a small Plano, Texas company.  Patently-O adds that although DataTreasury is not directly mentioned in the bill it is pretty clear that Section 14 is directed primarily at the company. 

As Charlie rides into Ames he sees Kevin O'Keefe and  Holden Oliver of What About Clients engaged in a heated discussion about whether corporate clients really want a lawyer that blogs.  O'Keefe says yes while Oliver says no.  It then gets a little personal when O'Keefe accuses Oliver of being someone else.  Charlie blames Teri Rasmussen who started the whole thing when she said every client should want a lawyer who blawgs.

Day 4:  Ames to Tama-Toledo - 75 miles

Charlie gets ready to head off to Iowa's version of the twin cities today.  In the pancake breakfast line he meets Connie Crosby who is kind enough to introduce him to David Bilinsky.  David tells Charlie all about how there is a great need for law firms to turn their senior partners into business leaders.  David Maister overhears them and chimes in that one-firm firms are often quite successful.

After an uneventful morning Charlie witnesses an accident on today's route where someone goes to the hospital.  It looks like the rider will be okay but David Harlow of HealthBlawg warns that hospital-acquired infections are a real problem.  Iowa estate lawyer Matt Gardner says that even if the rider makes it through he should still think about the disposition of his bodily remains.

 As he enters Tama (or is it Toledo), John Phillips of the Word on Employment Law almost runs smack into a little beagle that darts in front of him.  The incident causes John to conclude that beagles should no longer be excluded from the Animal Employment Protection Act (AEPA).  John is obviously a little excited about the near miss and starts rambling about how he handled the situation a whole lot better than Roger Clemens handled the accusations from Brian McNamee.

Day 5:  Tama-Toledo to North Liberty - 82 miles

Now that we have passed the mid-way point for this year's ride, everyone is a little loosey-goosey today.  Charlie's cadence starts to pick up as the wind blows with the sweet smell of pork chops.  That could only mean that Mr. Pork Chop is nearby.  As he pulls off the roadside to visit our pork chop hero, Charlie sees that Iowa legal blogger extraordinaire Brett Trout and his band of Iowa legal bloggers are engaging Mr. Pork Chop in a battle of wills to determine who has the loudest pork chop call.  Sadly, while Trout may be Iowa's toughest attorney he is no match for Mr. Pork Chop in this arena.  Hear why:

After a pork chop and a short nap Charlie rides along to catch up with Michael Moore who discusses risk management in employee terminations and explains sometimes the "How" is as important as the "Why".  Pretty soon both of them come across a big party along the roadside.  A crowd is gathered around Dennis Kennedy who apparently is still celebrating his blawgiversary and birthday.  During the party Tulane Law Professor Alan Childress wonders aloud whether any Iowa legal counselors had ever been in trouble like the lawyer that got into trouble with his state bar by trying to talk his way out of a ticket for deer hunting.

Still a little full from his banana cream pie, Charlie and his new friend Charles H. Green ride along at an easy pace discussing that as more and more banks and consumers walk away from loans--and contracts gone bad, we are reminded that legally binding contracts are often only as strong as the morality of those signing them.

That evening after dinner there is lots of entertainment in North Liberty.  At a concert Cathy Gellis proclaims, "I need a husband!"  The revelation causes Jon Hyman to explain what happens when office romances go bad.  But Cynthia Shapiro, who received her RAGBRAI pass from George's Employment Blawg, says you might be able to have that office romance if you know a few secrets.  When Jennifer Jaskolka-Brown overhears them she warns them that email has made it much easier to collect damaging evidence in divorce cases.

Day 6:  North Liberty to Tipton - 62 miles

Charlie decides to join the Lance Armstrong peloton this morning for some fun.  As you might expect with Armstrong the ride is a little faster paced today.  There are several others brave enough to join the pack this morning:

• Colin Samuels says he'll never say never when Charlie asks if he'll ride again but Colin sure didn't like it when he got lost on the road from Harlan to Jefferson.
• David Lat explains that the only reason he is on the ride is because his playstation didn't arrive on time.
• Daniel Solove says this is more fun than being interviewed by Money Magazine.
• Barry Barnett offers tips on how to make the ride easier when you are with him.
• Jackie Dowd contemplates what life would be like without a legal system which is maybe a little profound this late in the ride. 
• Carolyn Elefant is usually Solo by Choice but today she is content to ride with the group especially since she thinks Lance is so cute.
• Anne Reed says sometimes its better to walk this way but Charlie can't imagine a walk across Iowa. 

Day 7: Tipton to LeClaire - 55 miles

The last day!  On his ride to LeClaire, Charlie meets up with the anonymous Editor of Blawg Review to tell him the ride has been worth it.  Together they dip their front tires into the Mississippi River where Charlie quips that normally what happens on RAGBRAI stays on RAGRBRAI, but this year what happens on RAGBRAI ends up on Blawg Review!

 * Legal Disclaimer:  This Blawg Review is a work of fiction.  Names, characters, places, events and incidents either are the product of the author's imagination or are used fictitiously.  Any resemblance to actual persons, living or dead, events or locales is entirely coincidental.

Blawg Review has information about next week’s host, and instructions how to get your blawg posts reviewed in upcoming issues.  My dear friend and fellow Iowa legal blogger Brett Trout takes the helm next week.  We wish him well as he tries to best the excellence of his previous effort on Blawg Review #106.

--------------------------

 Flickr Photo Credits:  johnedwards2008, wade, blmurch, MNgilen, IaRuth, wade and artandscience

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Chris Moander of the Wisconsin Business Law and Litigation Blog shares his take on the timeless advice that business people can pay for it now . . . or pay for it later.  Chris points out that many business people sadly lump legal services into the "too costly" or "unnecessary" categories when it comes to starting or running a business.  And while good legal services are not cheap it may actually save you in the long run.  Here are some of the downsides for not seeking professional advice as described by Chris:

• Purchased form documents create a false sense of security as “boilerplate” terms are assumed by the entrepreneurs to be “safe,” which is hardly the case. Owners who are not getting along and decide to split may find themselves mired in extremely expensive litigation over a long period of time, all of which could have been avoided by spending a fraction of the litigation costs on quality document drafting by an attorney.
• Technical faults in any number of license or regulatory filings go unnoticed until the company is audited, a criminal investigation occurs, or some other form of litigation begins. The litigation costs dwarf up-front legal costs due to the belief that preventative legal advice was not necessary or worthwhile.
• Buyers and sellers throw together an amalgam of words, believing that the resulting document reflects a mutual understanding. Eventually, one party feels aggrieved and suddenly the so-called contract is revealed as imprecise and nebulous…and so costly litigation commences.

My favorite blogging CPA, Joe Kristan, also shares similar advice over on IowaBiz.com.  Joe's moral?

When you mess with the ownership of your business, it's a lot cheaper to call a business lawyer and a tax guy before you do the deal; it costs a lot more to repair a deal than to do it right in the first place. 

Focus on doing it right the first time.  You will never regret it.

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Terri Rasmussen of the Ohio Practical Business Law Counsel blog says that every client should want a lawyer that blogs.  As you might guess, I agree. 

Why is it important, you ask?  Terri shares her thoughts (with some comments by me):

1. Knowledgeable Entrepreneur.  The blogging lawyer thinks in broader terms about what they want to know and what they can offer to clients.
2. Communication 101.  Connecting in a simple, straight-forward manner is key.
3. Authenticy and Real Voice.  You get to see the personality of the lawyer. 
4. Quality and Competence.  There is some ability to assess the quality and competence of the lawyer you are thinking about hiring.  No way to do that with a yellow pages ad.  This is where Terri makes perhaps her best point.  Any lawyer that is willing to put themselves out there and open up to scrutiny ought to be high on the list of any client.
5. Commitment to the Law Made Practical.  Most clients want to deal with a lawyer that just isn't in it for the money.  Why not consider a blogging lawyer that not only spends their spares time writing but also GIVES AWAY practical information to help people?  Blogging lawyers care.

Like Terri, I strive to have fun and help people through my blog and there is no question it has made me a much more effective lawyer.  Blogging is an educational process.  Not just for the reader but especially for the writer.  Without blogging I would never get to learn from great lawyers like Terri.

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It's always nice when people say great things about you but I am particularly humbled by a recent post from What About Clients?  WAC? is one of the great blogs (and I do mean great as evidenced by their award as the Best All Business Blog for 2007 by the ABA).  I respect Dan Hull and his gang for their absolute passion to delivering superior customer service.  WAC? is really just an extension of that passion.  As a young lawyer it was drilled into me that you do whatever it takes to serve clients and even a little bit more.  It's apparent Dan Hull lives that motto every day - 24/7.

But now there is a little pressure for the Blawg Review on February 18th.  Between WAC? and the comments from the wildly popular Iowa patent attorney Brett Trout I better not disappoint.

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I have often stressed the need for business people to follow corporate formalities and keep their corporations or limited liability companies up-to-date.  However, the recent decision impacting builders from the Iowa Supreme Court makes it significantly more important for builders and other contractors to do so.

The Iowa Supreme Court ruling essentially says that builders must provide a 15-year implied warranty for their work.  Fifteen years is a long time.  If a builder were to let their corporate entity lapse it could mean the builder would be personally liable if a lawsuit were to occur.  Same for other contractors who are likely to be pulled into lawsuits for work they performed as subcontractors.

Here are some basic tips on how to make sure your corporate entity stays viable:

1. Hold regular board of director and shareholder meetings in accordance with the bylaws.
2. Document those meetings with meeting minutes.
3. Observe corporate formalities (e.g. segregating corporate assets from personal assets; adhering to the bylaws, etc.)
4. File biennial reports with the Iowa Secretary of State.

Another tip would be that if you intend to dissolve or shut down a corporate entity you should follow the steps to publish notice of the dissolution as set forth in the Iowa Code.  This could allow the dissolved corporate entity to avoid certain claims that are not commenced within three years of the publication of the notice.

As always, be sure to seek the advice of your business lawyer if you have any questions in your specific situation.

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 I often tell clients it is important to establish relationships with at least four individuals when they start a business:

• Lawyer
• Accountant
• Banker
• Insurance Agent

But in order to have a starting five we need to add a fifth professional.  Who would I add?  How about a marketer? 

But the real reason I wrote this post was so I could shamelessly plug the best team in Iowa.  The Drake Bulldogs basketball team has now moved to 19-1 with a hard fought win over Creighton last night.  The 16th-ranked Bulldogs are clutch this year and have found ways to win at the end of the close games.  Excellent free throw shooting never hurts and last night was no different.  It was a great crowd and great fun.  If you get a chance be sure to catch a game this magical season.

It's been a long time Drake fans had this much to cheer about.  Go Bulldogs!

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Under a new Iowa immigration bill, employers that repeatedly employ illegal aliens would face civil penalties of up to $10,000 and up to a year in jail under legislation being proposed in the legislature.  Employers would be exempt from penalties if they seek verification of a worker's citizenship status through the Department of Homeland Security's verification system.  But many employers complain that system is dreadfully slow.

House File 2026 has sparked significant debate.  Democrats claim it is a human rights issue.  Republicans claim it is pure politics in an election year and intended to protect unions while harming non-unionized independent contractors.   The Hispanic community in particular has great fears that jobs will no longer be available in Iowa under the new law.

This bill may have the biggest impact on Iowa businesses this legislative season.  Read  House File 2026 here.

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This Wednesday morning (Jan. 16th) I will speak at the IowaBiz breakfast series on the How To Avoid Legal Surprises for Your Company.  The presentation begins at 7:30 a.m. at the Professional Solutions Insurance Services' Building, 14001 University Avenue, Clive, Iowa.

Thanks to our hosts from Professional Solutions Insurance Services.  So far, the series has been fantastic including talks from Drew McLellan, Shirley Poertner, Brian Honnold and Mitch Matthews.

I hope to see you there.

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Is your business in need of a buy-sell agreement?  Don't know how to get started? 

An excellent resource worth considering is a book from Z. Christopher Mercer called Buy-Sell Agreements:  Ticking Time Bombs or Reasonable Solutions?   A blog post from Mercer worth reading also raises an excellent point regarding buy-sell agreements:

If you are in the process of creating a buy-sell agreement, be sure that the document actually reflects the agreement of the parties to the critical business and valuation issues that relate to the particular situation.  If you have an existing buy sell agreement, review it to insure that it reflects agreement of the parties on key business and valuation issues that currently pertain to your situation (and not to the situation fifteen years ago when you first signed it!).  In both cases, be sure through review by competent legal counsel, that the agreement appropriately considers legal issues that pertain to your situation.

Seems like common sense but I recently learned of a situation where two owners had drafted their own agreement. (Kudos for at least recognizing the need for it).  The owners agreed upon a valuation.  The problem that arose is that neither owner really understood the valuation they had agreed upon and as their business progressed the valuation did not reflect the realities of their business.  The failure to review and implement an agreement with competent counsel has now resulted in litigation. 

It's also wise to get advice from an accountant or other business valuation expert when creating the buy-sell agreement.  A team approach is often very helpful.

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With 2008 fast approaching perhaps you are considering the pursuit of the American Dream to own your own business.  But where do you start?  Here are some helpful legal tips to consider before you start your Iowa business:

1. Find out the availability of your proposed business name. You can do a quick search on the Iowa Secretary of State Web site to see whether your name is available. If the name is available you may want to reserve the name through the Secretary of State but you are not required to do so before forming your business entity. You may also want to consider whether any company outside Iowa has your business name. You can conduct a free search on the U.S. Patent and Trademark Office or use a paid service to research trademarks nationwide. It is also a good idea to check whether someone has your proposed Internet domain name.  An intellectual property attorney could also be very helpful in this process.

2. Pick a Place to Incorporate or Form a Limited Liability Company (LLC). I am sometimes asked whether an Iowa company should incorporate or form an LLC in another state such as Delaware or Nevada. In general, an Iowa small business is probably better off incorporating or forming an LLC here in Iowa. The filing fees are low and the ongoing fees for registering the business in Iowa are among the lowest in the country. (Only $30.00 every two years if you file your biennial report online).

3. Choose the Shareholders and Directors. If you are forming a corporation who will be the shareholders in the company?  If it's an LLC, who are the members? These are the owners of the company.  Determine how much capital you will need. Do you have enough capital or access to capital in order to start the business on your own? If not you may need to consider other investors.

In most cases the shareholders of the small business are also the directors. Do you want outside directors? There may be good reasons to have outside directors but think this over carefully before you elect to do so.  Electing outside directors may limit your control over the business.

3. Create your Articles of Incorporation or Organization. The articles of incorporation (corp) or organization (LLC) act as a charter to start your new business in Iowa. The filing fee with the Secretary of State is currently $50.00. It is generally a good idea to have an Iowa business lawyer prepare your Articles of Incorporation or Organization and other corporate documents.

4. Prepare corporate bylaws or operating agreement. The bylaws (corp) or operating agreement (LLC) set out the operating standards and procedures the business company will follow.

5.Create meeting minutes, resolutions and agreements. It is a good idea to document the initial meeting minutes of the company including the meetings of the shareholders and directors or the members. At this time, you will elect the officers of the company including the president, vice-president, secretary and treasurer. You will also issue stock (corp) or membership (LLC) certificates at this stage. If you have multiple shareholders or members you will also likely need a buy-sell agreement.

6. Obtain your employer identification number (EIN). Your corporation or LLC will need to obtain an employer identification number from the IRS. This can be done through a convenient online application process.

7. Elect your tax status.  There are several different options for how your corporation or LLC could be taxed.  Make sure to talk with both your accountant and lawyer about which form of business entity is the most advantageous for your situation.

8. Open a bank account. You will typically need the EIN and a banking resolution in order to do this.

9. Obtain any licenses and permits. You will need to check the federal, state and local regulations to determine whether you need and licenses or permits to operate your business.

10. Follow the corporate formalties of running a business. In Iowa, this includes registering your business every two years with the Secretary of State's office. You also need to do corporate minutes at least on an annual basis including the election of officers and directors. Sign all documentation using your title as a corporate officer. You will also want to minimize or avoid situations where limited liability is not an absolute.

For more information on setting up an Iowa corporation or LLC please visit my small business formation page. 

photo on flickr by MargaretFun.

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Abe Lincoln, Freedom Fighter (1978)
Abe: I don't know about this politician business.
Judge: What do you mean by that?
Abe: If I have to sacrifice my integrity for politics, I guess I'll just have to stay a lawyer! 

Up to this point I have avoided blogging on politics and the Iowa caucus.  It's a no win situation for me.  I have clients on both sides of the aisle and a policy not to debate politics with clients has served me well.    Besides, Iowa lawyers like Gordon Fischer and Ted Sporer do a tremendous job of covering politics with their blogs so I'll leave the debate to the experts.

But one campaign strategy surprised me.  Many of the candidates are lawyers.  But as Joe Kristan recently pointed out, lawyers are not exactly the apple of the public's eye.  It's probably part of the reason why lawyer candidates tend to rarely emphasize their legal careers.  But one candidate has decided to go against the grain.  Trial lawyer extraordinaire John Edwards is campaigning in Iowa today with his most famous client.

As detailed in his book, Four Trials, Edwards obtained a $25 million judgment on behalf of Valerie Lakey and her parents.  Valerie nearly lost her life when she was disemboweled by a swimming pool drain that was incorrectly attached.  He has sent out mailings featuring the Lakeys and is now campaigning with them.  He also unabashedly points to his career as a trial lawyer as an example of how he will stand up and fight against corporate and special interests.    It's a bold but risky move given the public opinion of trial lawyers in particular.  But I am proud of Edwards for not shying away from his tremendous career as a lawyer. 

While the image of lawyers could be improved, it should start with lawyers being proud of the profession they have chosen.  We offer society a valuable and important service.  My thanks goes to lawyers like Edwards who aren't afraid to talk about it.   

Photo on flickr by alexdecarvalho  

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Iowa accountant Joe Kristan of Roth and Company shares some year-end tax planning ideas over on IowaBiz.com. 

It's a good idea to visit your accountant now (if you haven't already) to determine if there is anything you can do to improve your position come April. 

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Looking back on the first year of work at the Business Innovation Zone (BIZ), I have met with over 60 potential clients ranging across a wide variety of business areas.  I have learned much on this path. First and foremost, I have learned to never prejudge an idea. I must say that some of the most "unique" sounding ideas described in an initial phone call or meeting have turned out to have the most merit. The entrepreneurs in this area have a tremendous amount of creativity and several have identified truly unique market niches that have not been exploited to date. Along with those great ideas, I have met with many whose ideas I found lacking. Asking hard questions has become a well worn path for me. In many cases the idea has not been thought through from a business perspective. The euphoria of the "perfect product" has overshadowed the realities of a profitable venture. I often find myself asking potential clients questions about the running of their prospective business. For many, it is a rude awakening as they come to understand the immense hardship and stress that will come with starting a venture.

I am often asked what advice I have for would-be or current entrepreneurs. Here are my thoughts for those starting out:

• Seek out many opinions on your idea. Do not just "go with your gut".
• Spend time up front on a business plan, but only to the point that you frame your path and plan. Business plans evolve rapidly when you are forming a business, rarely surviving the first customer engagement.
• Know your exit points. It is easy to look out and say "I will sell my business for $xxx,xxx,xxx". It is much harder to say, "I am only going to invest $xxx,xxx" or a certain amount of time. Treat your venture as an investment and know when to exit as the event arrives.
• Take a balanced approach to your idea and business. Do not ignore important areas for lack of knowledge or assume that "I will figure it out when I get there".
• Relationships matter. No matter how automated or high tech things get, the relationships you build will support your company and conversely the lack of relationships will guarantee its failure.
• Learn to sell. Selling is ABSOLUTELY CRITICAL to your initial success. Hiring a salesperson is not the answer in the initial phases of a startup. You the entrepreneur must be prepared to get out and sell your idea, your product, your service, and yourself.
• Finally, spend a substantial amount of time understanding the cash flow of your business. For most businesses, the lack of cash flow management is the single greatest failure point.

From Rush:  BIZ is a community sponsored non-profit business accelerator designed to provide economic growth in Central Iowa through the development and expansion of entrepreneurial enterprise.  Particularly if you have a business in Central Iowa that is poised to grow regionally, nationally or globally, I encourage you to contact Mike. 

photo on flickr by aloshbennett

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I have seen many articles on the Internet which state that you absolutely need to form a limited liability company (LLC) if you are a small business owner.  The S corporation, once the darling of small business entities, must now feel like the red-headed step child.

But as New York attorney Derek Underwood points out LLCs are not always a good fit for the small business owner.  You may be able to save on self-employment taxes by using an S corp instead of an LLC.  But as Iowa accountant Joe Kristan cautions you need to be careful when you set your "reasonable" salary.  Joe says the issue is given greater scrutiny by IRS auditors these days.  It's important to get advice from an accountant and/or business attorney on the issue when you make the decision about which business entity to choose.

Please note:  In Derek's post he mentions that an S corporation is usually less expensive to form than an LLC.  In New York the filing fees for an LLC are considerably more than an S corp.  However, in Iowa the filing fee for LLCs and S corps is currently $50.00.

photo on flickr by digitalclickclick

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On IowaBIz.com, West Des Moines accountant Joe Kristan shares a story about what happens when you try to take personal deductions for corporate expenses.

The moral of Joe's story:

If you incorporate your business, run it like a business. The corporation pays the corporation's bills, or your deduction vanishes.

Great advice indeed!

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For some reason I am not having any success at getting people to comment on a couple of issues:  here and here.

But I am receiving a number of requests recently for information on specific subjects.  It's actually fun and gratifying to receive email from readers who say they have been following the blog and want to know what I think about . . .

Today, it's this question.  Does Iowa allow single member LLCs?

Answer:  Yes. 

How's that for direct and to the point.  See my post on LLC formation in Iowa for more information.

I also intend to get to a couple of other requests in the near future.

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It took us awhile but Sullivan & Ward's Iowa Law Blog is now live.  It was designed with the able assistance of LexBlog.  (The same company that designed and maintains this blog).

While Rush on Business tends to focus only on issues impacting Iowa businesses, we are taking a broader approach with the Iowa Law Blog to cover many different aspects of Iowa law.  I know many believe that a law blog (or any blog for that matter) should cover a niche topic.  However, I believe that a broader blog is better than no blog and it is frankly tough for a law firm of our size to have eight different niche blogs.  Besides the New Jersey Law Blog is a prime example of how a state law blog can achieve remarkable blogging success.

The Iowa Law Blog will focus on several legal areas including:

• Utility law (the core of the law firm's work for over 70 years);
• Business Law;
• Trust and Estates;
• Trial and Mediation;
• Employment Law;
• Regulatory Compliance;
• Family Law; and
• Real Estate

Similar to what Stark and Stark has done in New Jersey, we hope to keep businesses and individuals updated on legal and legislative developments in the Hawkeye State.  (Yes, you read that correctly despite the lack of wins and no offense).

We hope you find valuable information on the Iowa Law Blog and look forward to your comments.

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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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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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Congratulations to Vince Basile of Aerospace Geartech who is featured in an article about the Business Innovation Zone (BIZ) in today's Des Moines Register Business section.

Executive Director Mike Colwell worked with Vince to obtain grants through the Iowa Department of Economic Development and DMACC in order to purchase two manufacturing businesses (one from Ilinois and one from Florida) and move them to Iowa.  Colwell also helped Vince with his business plan and other strategic issues. 

Vince is an example of how persistance pays off.  He would tell you that his search for a business was not easy.  He looked at many different businesses until he found the right one (I guess two) for him.   He is now in a business that fits his skill set and passions.  He is extremely resourceful which will serve him well as he moves forward with his new business venture.

I also cannot say enough about the guidance and expertise of Mike Colwell.  Every time I talk with him I learn something new about business and entrepreneurship.  Central Iowa businesses are extremely lucky to have such a great new resource.  If you are a start-up entrepreneur or a business looking for growth or capital, I highly recommend talking with Mike.  BIZ does not actually make investments in companies but it does help entrepreneurs locate grants and find investors.  BIZ is also able to provide assistance with improving business plans and open up valuable networking opportunities for new entrepreneurs.  The thing I like best is that Mike won't always tell you what you want to hear.  His objectivity and honesty is refreshing. 

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It is possible to form your own corporation without a lawyer's help.  Every day, many entrepreneurs do exactly that by using online incorporation kits.  I have written about such companies in the past.  There is definitely a segment of the market these incorporation companies serve.

The most obvious motivating factor for setting up a corporation on your own is to save fees.  But there is a potential trade-off.  You now subject yourself to the hassles of filing a corporation yourself and the possibility of filing erroneous paperwork.  At least if you hire a lawyer you have someone to blame, right?

But the real question to ask yourself is this:  "Have I considered how it all fits together?"  See this post on incorporating in Iowa for a checklist of steps.

But filing articles of incorporation is only one step in the process.  Have you also considered:

• Is a Corporation the right entity for me?
• Bylaws.
• Shareholder Agreements - Buy/Sell Issues.
• Board of Directors.
• Officers.
• Employees.
• Obtaining an Employer Identification Number (EIN).
• Banking arrangements.
• Issuance of Stock.
• Financing your corporation.
• Insurance.
• Whether or not to elect S corporation status.
• Corporate name protection.
• State government requirements.
• Taxes.
• How to Avoid Lawsuits.
• Following corporate formalities.
• Signing documents as an officer.
• Assigning existing business to the Corporation.
• Leases.
• Intellectual property.

The above list is just a sampling of the issues you may deal with as you start your business.  A good business lawyer should be able to help you with all these issues either by providing you with direct advice or connecting you with someone else (often accountants, bankers and insurance agents) that can help fill in the gaps.  Most business people will tell you that hiring a good lawyer is crucial to your business success.   Plus, you might actually be surprised at the cost of hiring an Iowa lawyer compared to some of the online incorporation companies.  

How do you hire an Iowa business lawyer?  I suggest you follow two rules:

1. The attorney must be experienced and competent with business law issues.  Since you are in business you probably should not hire the local personal injury, family law or other attorney that does not have experience with business law issues.  Choosing a lawyer that is not familar with business law may have serious consequences and may increase the costs because the lawyer may learn on your dime. By analogy, you don't want a plastic surgeon operating on your heart.

2.  Make sure you feel comfortable with the attorney.  Don't make a snap decision based upon hourly rates.  Do you trust the lawyer?  Did you get your call returned right away?  Is the attorney easy to talk with?  Does the attorney care about you and your business?  Does the relationship feel right?  There are many competent and experienced business attorneys in Iowa so make sure to trust your instincts.

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I am excited to announce that the Sullivan & Ward law firm will publish its Iowa Law Blog beginning in mid to late August.  The firm's law blog will cover general legal issues inlcuding the following areas of law:

• Utility and electric cooperative law;
• Business law;
• Trusts and estates;
• Family law;
• Real Estate law;
• Trial & mediation; and
• Regulatory compliance.

It will be a group effort by the lawyers at Sullivan & Ward.  Our friends at Lexblog are developing the blog.  Kevin and his staff have been great to work with.  I'll let you know when it hits the blogosphere. 

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The IowaBiz.com site is gaining popularity daily.  Yours truly is one of the contributing authors but the other eleven authors have me checking this site every day and reading it through my feedreader.  I am continually impressed with the quality of the ideas and concepts developed by the authors.  A couple of my recent favorites and applicable to readers of this site include:

• What Kind of a Critter is an LLC?
• S Corporation Losses:  The Basics

Both posts were written by Joe Kristan of the Roth & Company Tax Updates Blog.  Joe is one of the best business blog writers I have seen on the topics of accounting and finance. 

Hats off to Professional Solutions Insurance Services for sponsoring the site.  The company exhibits a pay it forward approach.  They really "walk the walk" when it comes to putting the needs of small businesses before their own.  And one of their agents, Brian Honnold, has turned out to be a pretty good blog author in his own right.

So congratulations to PSIS and the IowaBiz.com team.  It is fun to be a part of such a great group.

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I ran across this list of tips for new small businesses.  Some terrific advice.  Here are the ten tips as listed:

1. Save up as much money as possible before starting.
2. Start on a shoestring.
3. Protect your personal assets.
4. Understand how--and if--you will make a profit.
5. Make a business plan, so matter how short.
6. Get and keep a competitive edge.
7. Put all agreements in writing.
8. Hire and keep good people.
9. Pay attention to the legal status of your workers.
10. Pay your bills early and your taxes on time. 

I especially appreciate the emphais placed on paying your payroll taxes on time, particularly the portion you withhold from your employees' wages. (See the commentary on No. 10).  It is critically important to understand that a corporation or LLC will not protect you from personal liability in the event these taxes are not paid.  (For an example, see a post from my favorite blogging accountant, Joe Kristan).

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A couple of Central Iowa business updates for your information:

1. SEMEE - The next SEMEE (Society for Entrepreneurial-Minded Executives) meeting is scheduled for July 19, 2007 from 6:00 - 9:00 p.m. at the EMC Insurance Building downtown.  I attended the February meeting and thoroughly enjoyed it.  Last time there were some great presentations by some excellent companies including US Rodeo Supply.  The focus of the organization is finding resources, other than money, that might help these companies grow.  Unfortunately I can't make it this time because of a prior commitment but I highly recommend attending if you are interested in business and live in Central Iowa.  It is a terrific networking and learning opportunity.  Hats off to the Steens of Transition Capital Management for continuing this great program.  There is no charge to attend.  For more information you might want to check out my podcast with Adam Steen.
2. BIZ - The Business Innovation Zone (BIZ) led by Mike Colwell is off to a fast start.  BIZ is a new regional business accelerator through the Greater Des Moines Partnership.  The organization already has many active clients in the first four months and has approximately 10 more ready to join.  A client, Aerospace Geartech, received substantial funding from the Department of Economic Development with the assistance of BIZ in order to start a new Central Iowa business.  For more information you may want to check out this podcast with Mike.  He has a tremendous amount of insight in business and a wealth of experience.

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I am hoping you will provide me with some input.  What do you think are the top legal issues facing small businesses today?

My general sense is that employee/human resource issues rank high.  If you are a small business owner, what keeps you up at night from a legal perspective?  If you are a lawyer or consultant, please add your perspective.

Please comment below.   Don't be shy.  I am hoping to develop some blog posts surrounding this discussion and I would love to hear from you.  If you are not interested in commenting publicly, please feel free to email me at rnigut@sullivan-ward.com.  With your input I should be better able to hone in on the legal issues facing small business owners.

Thanks for reading.  I appreciate it. 

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On the Texas Small Business Law Blog there is an helpful post on the common mistakes made by small business owners.  The common mistakes listed by business attorney David Willis include:

1) Under-capitalization.
2) Failure to plan and adjust for growth.
3) Over-emphasis on the type of business organization.
4) Failure to understand the impact of an employee.
5) Failure to understand the impact of employees.
6) Not having an employee manual.
7) Thinking: "I've got some experience, I can do this myself."
8) Not keeping up with the paperwork.
9) Failure to plan for litigation.
10) Not having an electronic document retention policy in place.
11) Failure to consult an attorney.

David is following up with more detailed posts about each mistake.  The one that caught my eye was No. 3 - over-emphasis on the type of business organization.  David warns that small business owners should not consider themselves invincible just because they have formed a business entity.  The small business owner must operate the business as a distinct entity. 

In the past I have written about some of the exceptions to limited liability.  The best way to maintain limited liability with your corporation or LLC is to is to make sure you keep your personal guarantees to a minimum, pay applicable taxes and keep all business dealings separate from your personal accounts.  Managing your small business corporate goverance (i.e. regular meetings of shareholders and directors with minutes documenting the meetings) is also critical.

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Over on IowaBiz.com Joe Kristan has an excellent post describing the basic tax treatment of S corporation losses.  Joe says,

Bottom line? The ability to deduct business losses is a good reason for many taxpayers to use S corporations.  If you expect S corporation losses, talk to your tax pro before year-end to make sure you are eligible to deduct them.

I always say that the choice of entity (C Corp. v. S Corp. v. LLC) usually boils down to tax treatment.  Joe's article demonstrates why.  If you are forming a new business you not only need to talk with your business lawyer but also an accountant.

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Joe Kristan, Central Iowa's premier blogging accountant, reminds us in a recent post that LLC and corporation owners are responsible for unpaid payroll taxes.  The most important take from the post:

The moral? Never, ever fail to remit your payroll taxes; if you do, don't expect an LLC, or any other entity for that matter, will fend off the IRS.

Joe also expands on his post in a recent article on IowaBiz.com.  I encourage you to subscribe via RSS to Joe's blog and also IowaBiz.com.  Joe's blog is entertaining and informative.  Who knew an accountant could have such a sense of humor?  IowaBiz.com is particularly interesting because it features 12 business bloggers from several different disciplines including marketing, law, accounting, networking and more. 

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The lawyers at Stark & Stark continue to produce helpful information on their law blog for clients and lawyers alike.  The latest article worth reading is from Stuart Mickleberg the Buy-Sell Agreements in Closely Held Business.  Stuart says a good Buy-Sell Agreement should accomplish at least four important objectives:

1. Providing mechanism for the orderly transfer of the business;
2. Establishing a valuation mechanism which avoids disputes between owners as well as possible disputes with the Internal Revenue Service;
3. Reducing possible disputes between owners, an owner's heirs, and possible unwanted business partners to whom an ownership interest in the company may otherwise be transferred; and
4. Providing financial security to a deceased or disabled owner's family.

As I have indicated in the past, the formation of an Iowa business should include a Buy-Sell Agreement.  Unfortunately it is an agreement that is often neglected by business people because they want to save on initial start-up costs.  As my friend Imke Ratschko says, "Buy-Sell Agreements are like prenuptial agreements for people in business... As with prenuptial agreements, people tend to overlook their importance or simply don't want to deal with the subject; after all, they are in love!"

But 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.

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Penny J. Ummstattd-Cope of the Joplin, MO Business Blog points out that today's women need to be just as concerned about protecting their assets as men.  Penny says:

Women should start thinking about protecting their assets before they get married or even enter into a living arrangement with a man.  Why?  More and more women are seeing an increase in their income due to owning their own business, working their way up the corporate ladder, etc.  In many cases the woman's income will be more than the man.  Women need to start thinking about protecting their assets just like the men have always done.

It is sound advice from Penny.  I am seeing more and more women starting businesses than ever before.  It is also my impression that more women are becoming professionals such as lawyers, doctors, pharmacists, and accountants than ever before.  These women definitely need to consider asset protection.

Penny's post on Prenups for Women has lots of good information.  Be sure to check it out.

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I generally recommend that new business clients visit with their accountant before deciding which type of business entity to form.  Even if I were to make my recommendation it is helpful to get the advice of the professional who will actually being doing the taxes. 

I saw a good post today on some of the potential tax considerations you should consider before you form a C corporation.  It's not a lemon of a post (you'll see why).  Please check out Joe Kristan's post on IowaBiz.com for more information. 

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Every blogger should take a look at the post "12 Important U.S. Laws Every Blogger Should Know" on the Directory Aviva.  (Thanks to Liz Strauss for pointing out her "Great Find").  Overall, it is an excellent post and I wish the author was disclosed.  I particularly like the "How to Stay Out of Trouble" section of each post.  However, I have a few comments about No. 10 - Limited Liability Laws and Incorporating since that is one of my main areas of legal practice.

Here's how the post says to stay out of trouble and my comments about each:

1.  Never mix your company funds and your personal funds if you want to preserve your limited liability protection. 

My response:  So true.  Business owners always need to make sure to keep their company funds and personal funds separate.  It is important to set up a company bank account and do not pay your personal bills and other personal expenses directly from your company account.  And you also need to watch personal guarantees which are often required of new business owners for loans and other expenditures.  You also should use your LLC or corporate name on all documentation and sign any documents using your name and title, i.e. "John Smith, Member or John Smith, President".  This helps make it clear you are acting in a company capacity as opposed to an individual capacity.  Also if you form an LLC or corporation for an existing business be sure to assign any contracts to the new business entity.  You will also want to follow your state corporate or LLC formalities along with drafting minutes of director, shareholder or member meetings.  Articles of interest on this site may include:

• How to Maintain Corporate Status and Maintain Limited Liability;
• Corporate Minutes Help Maintain Limited Liability Shield;
• Exceptions to Limited Liability for Corporations and Limited Liability Companies.

2. Always form an LLC rather than a corporation (Inc.) unless there are very specific reasons which apply to your unique case.

My response:  Small businesses may indeed benefit from forming an LLC because in general that form of business entity may have less formalties than the corporate form of business.  But it is important to realize that each business person may have different circumstances and therefore one entity may be better than the other for that individual.  I believe it is a bit of an overstatement to say that the formation of an LLC is the way to go for almost every single blogger.  In many instances, the S corporation form of business may be a better way to go.  Further, the decision does vary greatly on state laws.  Some states may not even allow single member LLCs.  Getting the advice of a small business lawyer and accountant is key in making the decision on which entity to form.  Articles of interest on this site may include:

• Limited Liability Company (LLC) Formation in Iowa;
• Small Business Incorporation in Iowa;
• Sole Owner:  What type of business entity should I form?

3.  Consider the state you form your LLC in determines the law and to some degree the state taxes that apply to your company.  The vast majority of LLC's are formed in Delaware or Nevada because of the strong legal entity caselaw in those states which tends to favor companies over individuals in lawsuits, but at a minimum creates a set of clear laws for companies to use if something goes wrong.

My response:  Many Iowa entrepreneurs have asked me where they should incorporate or form their LLC.  The question used to surprise me but given the number of advertisements on the Internet touting Delaware and Nevada corporations and LLCs, it is no longer a surprising question.  But in general, most small businesses will likely want to incorporate or form an LLC in their home state for a variety of reasons including convenience and cost savings.  Articles of interest on this site include:

• Where should you incorporate your Iowa small business?
• Iowa Ranks 4th in Judicial Fairness;
• Iowa is Not a Litigious State.

Overall, I believe the Directoy Aviva post is helpful but I do recommend you get the advice of a business lawyer and accountant before you make a decision on which type of business entity to form and where to form it.  The article warned about the application of unique circumstances and those just might apply to you.  It is best to be fully informed before you move ahead.   

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In October of 2006 I posted about an Iowa Association of Business and Industry survey regarding how Iowa business leaders perceived the legal climate in Iowa.  The survey stated that many business leaders are dissatisfied with Iowa's legal climate and believe it is costing the state jobs because of competition with other states.

That survey seemed to contradict the U.S. Chamber of Commerce survey which said Iowa ranks fourth in the country for judicial fairness.  Iowa has ranked in the top five for each of the last four years. 

So, which is it?  Well, we may have the answer.  Jim Carney, Legislative Counsel for the Iowa State Bar Association, says that Iowa's civil trials are on a downward trend.  In the latest addition of the Iowa Lawyer Carney pointed out that there has been a 17.5 percent reduction over the last five years in civil jury trials relating to tort law.  Moreover, the number of civil jury trials in Iowa continues on a downward trend.  There were a total of 262 civil jury trial in the entire state during 2006.  But even more important Carney says is the fact there has been a 44 percent decline in the total number of jury trials (civil and criminal) from 1994 to 2006.  In 2006, 37 counties in Iowa reported no civil jury trials while 21 counties reported one civil jury trial, 18 counties reported two and 7 counties reported three civil jury trials.  All in all, an astonishing 83 counties reported three or less civil jury trials.

Why the downward trend?  One of the major reasons for the decrease in civil jury trials is the increased use of mediation as an alternative to taking cases to court.  Overall, my experience with business clients leads me to believe that Iowa's judicial system is just as good as any state.  There are always ways to improve our Iowa's business climate but it just doesn't appear the facts support the notion that Iowa's legal system is a problem.   

*This was originally written by me for IowaBiz.com.

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The Limited Liability Company is a hybrid form of doing business that combines characteristics of the corporate structure and the partnership structure. It is a separate entity like a corporation and therefore carries liability protection for all of its members/owners, but is generally taxed like a partnership which has the benefit of flow-through taxation.

The owners are called members and can be virtually any entity including individuals, corporations, other LLCs, trusts, pension plans, etc. Some states, like Iowa, permit one-member LLCs, and others do not. If you are going to do business in multiple states, it may be wise to have at least two members of the Limited Liability Company. A husband and wife are considered two members for formation purposes.

The manner in which the Limited Liability Company will be operated is set forth in an operating agreement, which is an agreement between the members. The operating agreement for a Limited Liability Company is similar to the by-laws for a regular corporation. It is a good idea to have an Iowa business lawyer draft your Articles of Organization and Operating Agreement if you intend to form your business in Iowa.

The Articles of Organization are filed with the Iowa Secretary of State's office just like is required for a corporation. The filing fee is currently $50.00 for filing the articles. The LLC must also file a biennial report (new in 2006). The cost is currently $30.00 for online filing.

In many respects, a Limited Liability Company is very similar to a Sub-Chapter S Corporation. However, the Limited Liability Company provides much greater flexibility with respect to owners and the allocation of income to the owners. An S-Corporation may only have one class of stock, while an LLC may offer several classes of member ownership. Any number of entities or individuals may own interest in an LLC; however, ownership interest in an S-Corporation is limited to no more than 100 shareholders. Also, S-Corporations cannot be owned by C-Corporations, other S-Corporations, many trusts, LLCs, partnerships or non-resident aliens. LLCs are allowed to have subsidiaries without restriction, while S-Corporations are not allowed to own 80% or more of another corporation's shares.

Like a regular corporation, the primary advantages of forming a Limited Liability Company is the liability protection the corporate entity affords its members (shareholders with respect to a regular corporation). The members of a Limited Liability Company are not liable for the debts and obligations of the company. By comparison, in any Sole Proprietorship or Partnership, the owner's personal assets may be used to pay debts of the business. Another advantage relates to the on-going existence of the company. If an owner of the company dies or wishes to sell their interest, the corporation can continue to exist and do business. If an owner of a Sole Proprietorship or Partnership dies, generally the business or partnership also terminates.

Unlike a regular corporation, the wages paid to the members of a Limited Liability Company will be subject to self-employment tax; however, self-employment tax may be avoided on members who do not participate in management of the company. It is important to consult an accountant to determine which form of business provides the best tax advantages for your situation and a business attorney regarding the legal aspects of LLCs before making any decisions on which entity to form for your business.

Click here for more information on forming an LLC in Iowa.

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If you are thinking about starting a corporation in Iowa, here is a checklist of steps you might consider before starting your business:

1. Find out the availability of your corporate name. You can do a quick search on the Iowa Secretary of State's Web site to see whether your name is available. If the name is available you may want to reserve the name through the Secretary of State but you are not required to do so before incorporating. You may also want to consider whether any company outside Iowa has your corporate name. You can conduct a free search on the U.S. Patent and Trademark Web site. It is also a good idea to check whether someone has your proposed Internet domain name. In Iowa, your corporate name must have "incorporated", "corporation", "limited", or some abbreviation of such term.

2. Pick a Place to Incorporate. I am sometimes asked whether an Iowa company should incorporate in another state such as Delaware or Nevada. In general, an Iowa small business is probably better off incorporating here in Iowa. The filing fees are low and the ongoing fees for registering the business in Iowa are among the lowest in the country. (Only $30.00 every two years if you file your biennial report online).

3. Choose the Shareholders and Directors. Who will be the shareholders in the company? These are the owners of the company. Most of the businesses I represent have only a handful of owners. Determine how much capital you will need. Do you have enough capital or access to capital in order to start the business on your own? If not you may need to consider other investors.

In most cases the shareholders of the small business are also the directors. Do you want outside directors? There may be good reasons to have outside directors but think this over carefully before you elect to do so.

3. Create your Articles of Incorporation. The articles of incorporation act as a charter to start your new business in Iowa. The filing fee with the Secretary of State is currently $50.00. It may be a good idea to have an Iowa business attorney prepare your Articles of Incorporation and other corporate documents.

4. Prepare corporate bylaws. The bylaws set out the operating standards and procedures the business corporation will follow.

5.Create meeting minutes, resolutions and agreements. It is a good idea to document the initial meeting minutes of the company including the meetings of the shareholders and directors. At this time, you will elect the officers of the company including the president, vice-president, secretary and treasurer. You will also issue stock certificates at this stage. If you have multiple shareholders you will also likely need a shareholder agreement.

6. Obtain your employer identification number (EIN). Your corporation will need to obtain an employer identification number from the IRS. This can be done through a convenient online application process.

7. Elect "S" corporation status. (This is optional). You should speak with your accountant to determine whether it is appropriate to treat your corporation as an "S" corporation or a "C" corporation. Most small business corporations choose to be "S" corporations. An S corporation lets you enjoy the limited liability of a corporate shareholder but pay income taxes on the same basis as a sole proprietor or a partner. The "S" corporation is a pass through entity where the owners report the profits on their personal tax returns. In a "C" corporation the company itself is taxed on business profits and the owners are taxed on the money they draw out of the business. This could lead to double taxation. However, an experienced accountant can help you minimize your tax and in certain situations a "C" corporation may be more advantageous. So the key is to follow the advice of your accountant.

If you elect "S" corporation status you must file a special form with the IRS (Form 2553) upon starting your corporation.

8. Open a bank account. You will typically need the EIN and a banking resolution in order to do this.

9. Obtain any licenses and permits. You will need to check the federal, state and local regulations to determine whether you need and licenses or permits to operate your business.

10. Follow the corporate formalties of running a business. In Iowa, this includes registering your business every two years with the Secretary of State's office. You also need to do corporate minutes at least on an annual basis including the election of officers and directors. Sign all documentation using your title as a corporate officer. You will also want to minimize or avoid situations where limited liability is not an absolute.

For more information on forming an Iowa corporation please visit the Sullivan & Ward, P.C. Web site for my small business formation package.

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Thanks to Small Biz Survival blog I saw an excellent article from Entrepreneur.com entitled 75 Secrets to Startup.  A portion of the article discusses whether to form a corporation or not.  It also includes information on where to form your corporation.  Many Web site articles and companies will tout Delaware or Nevada corporations.  But the reality is most small businesses are probably better off incorporating in their own state.

For more information you may want to check out my blog post "Where Should You Incorporate Your Iowa Small Business?"

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In a recent post New York small business lawyer Imke Ratschko points out that one of the reasons to choose an S corporation over an LLC is the possibility to save on employment taxes.  She also links to a helpful article written by Stephen Nelson, CPA on how to save taxes with an S corporation.  Make sure to read both articles.  If you are dealing with tax issues be sure to get advice from an accountant or tax attorney.

I encourage anyone who has not already done so to explore the New York Small Business Law Blog.   Imke routinely shares great insight and resources on her blog including information about New York incorporation and LLC formation and other topics that are helpful for any small business owner.  It is one of the best small business law blogs in the country. 

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I listened to an insightful podcast from Becky McCray of Small Biz Survival called Nothing New.  She also quotes Dr. Samuel Johnson who once said, "People need to be reminded more often than they need to be instructed." 

That is so true when it comes to helping businesses recognize legal issues.  So often what I say on a topic is nothing new, but the reminders don't hurt.  Some examples:

• Seven Ways to Avoid Employee Lawsuits
• Corporate Officers Need to Use Care When Signing Agreements
• The Secret of Negotiation: Care Less, Get More
• Five Ways to Avoid Lawsuits Against Your Business
• Small Business Corporate Governance
• Formation of Iowa Business Should Include Buy-Sell Agreement

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New York small business lawyer Imke Ratschko wrote an excellent blog post on Web incorporation services.  She found a blog post by a California business lawyer who described a certain Web incorporation service as almost a scam.

Imke also shares her reasons why people are better off choosing business lawyers to perform incorporation and LLC formation services.  Her list:

• Many business attorneys make it easy for you by offering flat fee business entity formations and initial free consultations;
• a real person with a law degree takes responsibility for your business entity formation;
• a real person with a law degree is available to answer questions and help you decide what business entity is right for you;
• a real person with a law degree can help you draft an operating agreement or shareholder agreement.  Web services do not usually draft these agreements for you.  If they do, you will get a "one size fits all" agreement that can be worse than not having one at all.
• a real person with a law degree will remember you and your business and remind you of follow up legal issues in running a corporation or LLC, maybe even years later.

I couldn't agree more with Imke.  Many business lawyers, including myself, provide incorporation and LLC formation services on a flat fee basis.  The major difference is that when you see a business lawyer for your services you will actually receive legal advice.  You just don't get that from a Web incorporation service.  Don't take my word for it - just read their disclaimers.

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A couple of months ago I received Sirius satellite radio as a gift.  I love it except for one constant ad that drives me absolutely bonkers.  About every fifteen minutes I hear an ad from LegalZoom, a legal document company.  LegalZoom touts that its fees are 85% less than those of lawyers. 

First, with most Iowa lawyers the fee comparison is just not accurate.  Second, while LegalZoom's ad says it is not a law firm it fails to highlight an important part of its disclaimer pointing out that the legal information on their site is not legal advice and is not guaranteed to be correct, complete or up-to-date.  But as they say, it is experience you can trust.  Or is it?  Be sure to check out this post from a Colorado lawyer who loves LegalZoom because he has landed more business fixing mistakes from LegalZoom than he would have earned had he done the work in the first place. 

One of the craziest things LegalZoom offers is a prenuptial agreement.  First, if you have enough money for a prenuptial agreement you can afford a lawyer.  Second, a prenuptial agreement is one area of law that if a mistake is made it could cost you - I'd say approximately half your assets.  Let's just say I have trouble believing any attorney worth his or her salt - including those "top attorneys" who founded LegalZoom - could in good conscience recommend a person use a legal forms company for a prenuptial agreement.  I also wonder what my friend Brett Trout thinks about their offers on patents, trademarks and copyrights.

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.

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I tell clients they need to establish relationships with at least four professionals when starting a business including:

• Lawyer
• Banker
• Insurance Agent
• Accountant

As tax season kicks into full force many business owners may be considering hiring an accountant to complete their business taxes.  I always get worried when a business person tells me he or she does not have an accountant for their business.  In my view, a good accountant for your business is absolutely essential.

This article from About.com talks about how to hire the right accountant.  One of the best pieces of advice from the article is that you should make sure your accountant works on business tax returns.  Not all accountants specialize in business tax returns.  The article points out that big tax preparation chains such as H & R Block and Jackson Hewitt generally cater toward individuals and you may want to consider going elsewhere for business tax returns.

I wonder if fellow Iowa blogger and accountant, Joe Kristan could weigh in with some sage advice on this topic.

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In Iowa, the sole owner of a business generally has the following choices for type of business entity:

• Sole Proprietorship
• S Corporation
• C Corporation
• Single-Member Limited Liability Company

Some of the factors you may want to consider include:

• Do you need limited liability protection?
• How will profits be taxed?
• Can you take advantage of certain fringe benefits?
• Will you be seeking additional investors?

A sole proprietorship is the easiest to set up.  No formal legal documentation is required.  But a sole proprietorship does not provide you with limited liability protection.  The S Corporation, C Corporation and LLC provide limited liability protection.

Business profits with the S corporation, single-member LLC, and sole proprietorship are taxed at the individual level and you avoid double taxation.  The C Corporation can allow you to take advantage of certain fringe benefits but it also requires appropriate tax planning to reduce your corporate tax liability. 

A C corporation may be necessary if you want to attract additional investors, especially venture capital.

Keep in mind there is nothing to prevent you from changing business entities as your business grows.  Many businesses start out as sole proprietorships and then incorporate later. 

For more information see these posts on Small Business Incorporation in Iowa and Forming an LLC in Iowa. 

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If you are starting a new business in Iowa it is important to know your registration and tax-related responsibilities.  The following is a list of helpful resources for the new business start-up in Iowa.

• Iowa Small Business Development Centers 
• Iowa Business License Information Center
• Iowa Business Tax Registration
• Iowa Retail Sales Tax Permit
• Iowa Department of Revenue
• Iowa Unemployment Insurance Account
• Iowa Workforce Development
• Iowa Workers Compensation Information
• Iowa Secretary of State
• Iowa Department of Economic Development
• Federal Internal Revenue Service

I have also placed these links on the right hand side of this Web site under the Resources section for future reference.

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New York small business lawyer, Imke Ratschko, has some excellent advice regarding the care corporate officers should exercise when signing agreements.  As Imke points out, it is always important for a corporate officer to sign agreements and other documents using their corporate title.  Moreover, the officer should make sure to read the agreement carefully to make sure personal obligations are not hidden in the agreement.

Read agreements and sign them correctly.  These two pieces of advice are two of the easiest ways to avoid personal liability and maintain the corporate shield.  I know it is common sense but as Voltaire said, "Common sense is not so common."

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The core of this Iowa business and corporate law blog consists of six main categories found on the right hand side margin including incorporation and LLC formation, starting a business, franchise law, employment law, business litigation and buying and selling a business.  I attempt to cover many of the basics in each category and also follow a variety of new developments including the recent Iowa consumer class action against Microsoft which is one of the largest cases in Iowa history.

In a recent interview with the Des Moines Register I was asked why I started this blog.  Initially I sought to differentiate myself from other Iowa business lawyers in order to more effectively market my services.  While blogging has worked to accomplish my initial goal, I quickly developed a much higher sense of purpose with this blog.  I want to do my part to improve the public image of lawyers.  My strong sense of purpose is to educate and provide information to business people in a way that helps them identify legal issues and make more informed choices about what legal services they need.  The collaborative process of a law blog (or any blog) can allow this to happen. 

Be sure to let me know if you have any questions about this Iowa business and corporate law blog.    Please feel free to explore and comment.  I hope you find it interesting and informative.

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I read with great interest an article about law firm mavericks in the Law Practice Magazine of the American Bar Association.  I found the article particularly appealing having recently read the book Mavericks at Work. 

One of the maverick lawyers featured is 29-year-old Christopher Marston of Exemplar Law Partners of Boston.  Marsten used every penny of his personal savings to start a law firm that is turning the practice of law on its head by charging for services only on a flat fee basis.  For decades law firms have talked about "getting away from the billable hour".  Marsten's firm is determined to walk the talk.  One look at this firm's Web site and you quickly realize they have a distinctive and disruptive purpose that sets them apart from their rivals.   

Another Massachusetts law firm featured is ConvergentGC.  The law firm operates from the premise that most entrepreneurs really need in-house counsel but few can afford it.  The firm is an outside general counsel firm that essentially adds a senior-level attorney to the management staff.  The firm has no hourly rates, no bills for phone calls and no bills for overhead costs such as faxes.

In my own practice I am developing the strategies implemented by these firms.  I already provide outside general counsel services to certain business clients based upon a mutually agreeable fixed monthly fee.  These clients receive a fixed monthly bill and do not receive bills for phone calls and overhead costs such as copying and postage.  I also perform certain projects such as incorporation and LLC formation on a fixed rate and have also done so with contract review and writing.  I have continued to bill hourly for litigation in the past but in 2007 these mavericks have inspired me to begin handling litigation matters on a fixed rate basis as well. 

I have felt for a long time the billable hour needs to be thrown out the window.  This coming year I plan on doing just that. 

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As New York Small Business Law blog says, "Articles on choice of business entity are a dime a dozen."  But I agree this article concerning Choice of Entity from the worldwide law firm of O'Melveney & Myers is an excellent guide. 

The article contains the answers to many of the frequently asked questions concerning using a "C" corporation, an "S" corporation or an LLC/Partnership for business operations.   The article discusses the tax aspects of the various entities.  The tax treatment of your business should be a major factor in determining which business entity you choose.  I also recommend speaking with your accountant before you make a decision on which entity to use.

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The time to hire a business attorney is before you get into legal trouble.  It is much easier and more cost-effective to prevent problems rather than solve them.  Further, if you do get into legal trouble it will be much easier to deal with the issues if you already have a solid relationship with a business attorney.

So how do you hire a business attorney for your Iowa business?  I suggest you insist upon two main criteria:

1. The attorney must be experienced and competent with business law issues.  Since you are in business you probably should not hire the local personal injury, family law or other attorney that does not have experience with business law issues.  Choosing a lawyer that is not familar with business law may have serious consequences and may increase the costs because the lawyer may learn on your dime. By analogy, you don't want a plastic surgeon operating on your heart.

2.  Make sure you feel comfortable with the attorney.  Don't make a snap decision based upon hourly rates.  Do you trust the lawyer?  Did you get your call returned right away?  Is the attorney easy to talk with?  Does the attorney care about you and your business?  Does the relationship feel right?  There are many competent and experienced business attorneys in Iowa so make sure to trust your instincts.

Here are a couple of articles which may help you choose the right attorney for your business:

How to Hire an Attorney from Entrepreneur.com

Ten Questions to Ask Your Business Attorney from Allbusiness.com

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Buying a franchise does not automatically provide you with limited liability.  The franchisor may be a corporation or LLC but that does not make your own franchise business a corporation or LLC.  You must still form your own corporation or LLC in order to obtain the benefits of limited liability.  Otherwise, you will have a sole proprietorship or partnership which could subject you to personal liability.

It is a good idea to sign the franchise agreement in the name of your corporation or LLC even if you must personally guarantee the obligations of the agreement.  It could actually help you in unrelated litigation down the road.  In a case I am familar with the owner of a franchise did not sign the franchise agreement in the name of the LLC he allegedly used for his franchise business.  The plaintiff in that case attempted to impose personal liability on the owner because he had not signed the franchise agreement in the name of his LLC.  Further, the LLC owner did not sign his agreement with the Plaintiff in the name of his LLC.  The defendant used only the franchise name which did not give any indication to the Plaintiff that it was dealing with anything but a sole proprietorship.  Ultimately the court ruled in favor of the Plaintiff and personal liability for the debt was imposed. 

The lesson is to start with the corporate formalities from the beginning.  Be sure to sign agreements in the name of the corporate entity.  Here are some checklists for those interested in forming a corporation or LLC for their franchise or other business.  If you have any questions please be sure to talk to an experienced business attorney.

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Here is an interesting tidbit presented by the California Estate and Business Law Blog.

According to Turbotax the S Corporation has the lowest risk of audit for the various business entities.  Those audit risk percentages are:

S corporations   .19%

Partnerships     .26%

C Corporations    .71%

Sole Proprietorships     2.13%

But if you play by the rules it really should not matter which business entity you use.

Update on December 1, 2006:  See this article from Inc. Magazine which I spotted on the New York Small Business Law blog (thanks Imke) concerning the rise in S corporation audits.  Again, play by the rules and it won't matter.

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New York Small Business lawyer Imke Ratschko presents a helpful e-book on her blog "Small Business Guide to Risk Management - A complete guide for business decision-makers" published by the Association of Small Business Development Centers.

This easy to read guide discusses the many risks that businesses face and provides checklists to assess those risks and mitigate them to the extent possible.

In particular, employee related lawsuits are a major concern of many businesses.  The guide contains an excellent overview of the issues related to human resources.  From the human resource section:

At a minimum, employers should ensure that they are in strict compliance with all applicable federal and state labor regulations.  A next step would be to institute proactive management policies and practices to educate managers and employees about their respective rights and responsibilities.  Employee lawsuits are often a symptom not only of perceived transgressions, but also of low employee morale brought on by ineffective or indifferent management attitudes.

Another insightful section involves intellectual property including patents, trademarks, copyrights and trade secrets. 

I encourage you to check it out.

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Perhaps often overlooked, the Iowa Secretary of State Web site is an excellent resource for the Iowa start-up entrepreneur.  In the Iowa business services section of the site a business person can find information about a wide variety of topics including:

1.  A guide to the most commonly formed business organization options.  The guide has information on sole proprietorships, general partnerships, limited partnerships, limited liability partnerships, for profit corporations, nonprofit corporations, professional corporations and limited liability companies.

2.  A frequently asked questions section including information about domestic and foreign corporations in Iowa, registered agents and office, trademarks and service marks, trade names, and whether you should reserve a business name before forming your Iowa corporation.

3.  A section on the most common reasons documents are rejected by the office.

4.  A section on the tax aspects of an Iowa business which links to the Iowa Department of Revenue.

5.  A link to the Iowa business license information center.

And of course the disclaimer:  The information provided on the Iowa Secretary of State's site is intended to give you a basic understanding of some of the various types of entity formation you may choose for your business or your organization. This information is not complete and is not a substitute for the advice of an Iowa business lawyer or any other professional advisor.

The information on the site was provided with the assistance of respected Drake University Law School Professor Matthew Dore. 

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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.

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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.

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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.

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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:

1. Hold regular board of director and shareholder meetings in accordance with the bylaws.
2. Document those meetings with meeting minutes.
3. Observe corporate formalities (e.g. segregating corporate assets from personal assets; adhering to the bylaws, etc.)

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.

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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. 

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The Limited Liability Company is a hybrid form of doing business that combines characteristics of the corporate structure and the partnership structure. It is a separate entity like a corporation and therefore carries liability protection for all of its members/owners, but is generally taxed like a partnership which has the benefit of flow-through taxation.

The owners are called members and can be virtually any entity including individuals, corporations, other LLCs, trusts, pension plans, etc. Some states, like Iowa, permit one-member LLCs, and others do not. If you are going to do business in multiple states, it may be wise to have at least two members of the Limited Liability Company. A husband and wife are considered two members for formation purposes.

The manner in which the Limited Liability Company will be operated is set forth in an operating agreement, which is an agreement between the members. The operating agreement for a Limited Liability Company is similar to the by-laws for a regular corporation. It is a good idea to have an Iowa business lawyer draft your Articles of Organization and Operating Agreement if you intend to form your business in Iowa.

The Articles of Organization are filed with the Iowa Secretary of State's office just like is required for a corporation. The filing fee is currently $50.00 for filing the articles. The LLC must also file a biennial report (which is new for 2006). The cost is currently $30.00 for online filing.

In many respects, a Limited Liability Company is very similar to a Sub-Chapter S Corporation. However, the Limited Liability Company provides much greater flexibility with respect to owners and the allocation of income to the owners. An S-Corporation may only have one class of stock, while an LLC may offer several classes of member ownership. Any number of entities or individuals may own interest in an LLC; however, ownership interest in an S-Corporation is limited to no more than 100 shareholders. Also, S-Corporations cannot be owned by C-Corporations, other S-Corporation, many trusts, LLCs, partnerships or non-resident aliens. LLCs are allowed to have subsidiaries without restriction, while S-Corporations are not allowed to own 80% or more of another corporation's shares.

Like a regular corporation, the primary advantages of forming a Limited Liability Company is the liability protection the corporate entity affords its members (shareholders with respect to a regular corporation). The members of a Limited Liability Company are not liable for the debts and obligations of the company. By comparison, in any Sole Proprietorship or Partnership, the owner's personal assets may be used to pay debts of the business. Another advantage relates to the on-going existence of the company. If an owner of the company dies or wishes to sell their interest, the corporation can continue to exist and do business. If an owner of a Sole Proprietorship or Partnership dies, generally the business or partnership also terminates.

Unlike a regular corporation, the wages paid to the members of a Limited Liability Company will be subject to self-employment tax; however, self-employment tax may be avoided on members who do not participate in management of the company. It is important to consult an accountant to determine which form of business provides the best tax advantages for your situation.

Click here for more information on forming an LLC from a Des Moines Iowa business attorney.

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If you are thinking about starting a corporation, here is a checklist of steps you might consider before starting your business:

1. Find out the availability of your corporate name. You can do a quick search on the Iowa Secretary of State's Web site to see whether your name is available. If the name is available you may want to reserve the name through the Secretary of State but you are not required to do so before incorporating. You may also want to consider whether any company outside Iowa has your corporate name. You can conduct a free search on the U.S. Patent and Trademark Web site. It is also a good idea to check whether someone has your proposed Internet domain name. In Iowa, your corporate name must have "incorporated", "corporation", "limited", or some abbreviation of such term.

2. Pick a Place to Incorporate. I am sometimes asked whether an Iowa company should incorporate in another state such as Delaware or Nevada. In general, an Iowa small business is probably better off incorporating here in Iowa. The filing fees are low and the ongoing fees for registering the business in Iowa are among the lowest in the country. (Only $30.00 every two years if you file your biennial report online).

3. Choose the Shareholders and Directors. Who will be the shareholders in the company? These are the owners of the company. Most of the businesses I represent have only a handful of owners. Determine how much capital you will need. Do you have enough capital or access to capital in order to start the business on your own? If not you may need to consider other investors.

In most cases the shareholders of the small business are also the directors. Do you want outside directors? There may be good reasons to have outside directors but think this over carefully before you elect to do so.

3. Create your Articles of Incorporation. The articles of incorporation act as a charter to start your new business in Iowa. The filing fee with the Secretary of State is currently $50.00. It may be a good idea to have an Iowa business attorney prepare your Articles of Incorporation and other corporate documents.

4. Prepare corporate bylaws. The bylaws set out the operating standards and procedures the business corporation will follow.

5.Create meeting minutes, resolutions and agreements. It is a good idea to document the initial meeting minutes of the company including the meetings of the shareholders and directors. At this time, you will elect the officers of the company including the president, vice-president, secretary and treasurer. You will also issue stock certificates at this stage. If you have multiple shareholders you will also likely need a shareholder agreement.

6. Obtain your employer identification number (EIN). Your corporation will need to obtain an employer identification number from the IRS. This can be done through a convenient online application process.

7. Elect "S" corporation status. (This is optional). You should speak with your accountant to determine whether it is appropriate to treat your corporation as an "S" corporation or a "C" corporation. Most small business corporations choose to be "S" corporations. An S corporation lets you enjoy the limited liability of a corporate shareholder but pay income taxes on the same basis as a sole proprietor or a partner. The "S" corporation is a pass through entity where the owners report the profits on their personal tax returns. In a "C" corporation the company itself is taxed on business profits and the owners are taxed on the money they draw out of the business. This could lead to double taxation. However, an experienced accountant can help you minimize your tax and in certain situations a "C" corporation may be more advantageous. So the key is to follow the advice of your accountant.

If you elect "S" corporation status you must file a special form with the IRS upon starting your corporation.

8. Open a bank account. You will typically need the EIN and a banking resolution in order to do this.

9. Obtain any licenses and permits. You will need to check the federal, state and local regulations to determine whether you need and licenses or permits to operate your business.

10. Follow the corporate formalties of running a business. In Iowa, this includes registering your business every two years with the Secretary of State's office. You also need to do corporate minutes at least on an annual basis including the election of officers and directors. Sign all documentation using your title as a corporate officer. You will also want to minimize or avoid situations where limited liability is not an absolute.

Find out more about how to incorporate your business from a Des Moines Iowa business attorney.

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How to Name Your Iowa Business

The first step in naming your Iowa business is to make sure it is available for use. This requires a little homework. You need to make sure you are not infringing someone else's business name.

To stay out of trouble you should first see if the name is available through the Iowa Secretary of State's Web site. You can perform a search of a database containing the names of all the registered corporations and limited liability companies (LLCs) registered for business in Iowa. Another option is calling the Iowa Secretary of State's Office at 515-281-5204 to see if your name is available.

The next step is to make sure your business name is not registered as a trademark. It is possible for businesses to trademark their names in Iowa but a federally registered trademark offers more protection for the owner. In order to check the federally registered trademarks you can perform a free search on the U.S. Patent and Trademark Office Web site. Conducting a search this way is not always complete so you may want to consider contacting an Iowa trademark attorney or a company which specializes in trademark searches. Another great way to protect yourself is to conduct a Web search of Google, MSN, Yahoo or other search engine to find out if a business shows up with the same name. You better be careful and consult an Iowa trademark attorney if you intend to use the same name as someone else.

Why is a trademark so important? If you choose a business name that is too similar to a competitor's name, you might find yourself accused of "infringing" a trademark owner's rights. The trademark owner then may be able to force you to change your business name and also receive money damages from you.

Be sure to contact an Iowa business attorney or Iowa trademark attorney if you have questions about how to name your Iowa business.

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Exceptions to Limited Liability for Corporations and Limited Liability Companies

One of the main reasons for incorporating or forming a limited liability company (LLC) is protection from personal liability for business debts and claims. While corporate and LLC owners enjoy this limited liability in many situations it is important to realize that limited liability is not absolute. A corporate shareholder or an LLC member may be held personally liable if he or she:

1) Personally and directly injures someone;
2) personally guarantees a bank loan or other business debt and the company defaults;
3) fails to deposit taxes withheld from employees' wages;
4) intentionally engages in fraud or illegality which causes harm to the company or someone else;
5) mixes business and personal assets and does not maintain separate accounts for the business and personal finances.

Business insurance may be helpful in certain situations to protect you if limited liability does not apply but many insurance policies contain exclusions for intentional acts.

The best advice for running your corporation or LLC is to make sure you keep your personal guarantees to a minimum, pay applicable taxes and keep all business dealings separate from your personal accounts.

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Start-Up Businesses Should Develop Solid Relationship with Business Attorney

It is a good idea for start-up businesses to develop a solid relationship with a business attorney. Hiring an attorney is usually not as expensive as entrepreneurs imagine. In many instances entrepreneurs may try to set up their own incorporations through online resources but boilerplate article of incorporation, bylaws or shareholder agreements may not meet your needs. A business attorney can also help you consider other issues which may further protect your interests. This article from Entrepreneur discusses how to develop a solid relationship with your business attorney and the reasons why you should hire an attorney from the outset of your business.

Click here for information on Iowa small business incorporation and LLC formation services.

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Are you looking to incorporate your Iowa small business? My first word of advice is to speak with an accountant to determine which form of business best suits your tax situation. Your choices likely include the "S" corporation, "C" corporation or you could choose to form a limited liability company.

Some people are inclined to choose an online service to incorporate your business. Many of these companies hook you in with a low cost advertisement for the incorporation but the other necessary documentation is offered for a significantly higher cost. Further, these organizations are often unaware of specific legal situations and local laws. It is wise to choose a business lawyer to incorporate your business. You want to make sure your lawyer practices primarily in business law. Choosing a lawyer that is not familar with business law may have serious consequences and may increase the costs because the lawyer may learn on your dime. By analogy, you would not want a plastic surgeon operating on your heart.

Find out how to affordably incorporate or form a limited liability company for your business. Click here for more on small business incorporation.

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When you buy a business you should consider setting up a corporation or limited liability company (LLC) to buy the business. You should avoid signing any contracts, loan agreements and leases in your personal name. In certain cases you may be required to personally guarantee the loan or other debts but it is still recommended that you place those agreements in the company name. It is often surprising how your start-up documents may impact litigation issues down the road. If those agreements are in the business name it may help you avoid personal liability in the future. One of the main purposes of a corporation of LLC is to protect your personal assets from the risks of the business. It is smart to start right from the very beginning.

Click here for more information on setting up a corporation or LLC for your Iowa business.

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For over fifty years, the Sullivan & Ward law firm has represented rural electric cooperatives and generating electric cooperatives in the state of Iowa, as well as several electric cooperatives from across the country. Our attorneys, including John Ward and Michael Joynt, have gained national recognition for their expertise in the area of rural electric cooperatives and public utility law and are often speakers for various seminars throughout the country. Sullivan & Ward also represents many telephone and water cooperatives throughout Iowa.

In its capacity as general counsel for these organizations Sullivan & Ward advises companies and their boards on issues of corporate governance, general business functions, employment matters and litigation. The firm has extensive experience with matters unique to electric cooperatives including formation and organization, voting rights, tax issues, FERC issues, RUS programs and other regulatory matters.

Click here for more information concerning Sullivan & Ward's rural electric cooperative and public utility law practice.

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Iowa Corporate and Business Attorney to Write "The Entrepreneur's Guide to Starting a Business in Iowa"

Des Moines,Iowa corporate and business attorney Rush Nigut is currently working on an online handbook entitled, "The Entrepreneur's Guide to Starting a Business in Iowa". The handbook will appear on the Web site of Sullivan & Ward, P.C.(a law firm located in West Des Moines, Iowa) and the rushonbusiness blog. The guide will aid entrepreneurs in the formation of their Iowa business and will include the following information:

1) Choosing a structure and forming your business;
2) Iowa state requirements for officially forming your business;
3) Nonprofit corporations;
4) Selecting your business name and how to protect it;
5) Iowa state responsibilities for maintaining your business entity;
6) Key terms and information for your business;
7) Iowa tax information;
8) Small Business Development Center information;
9) Financing your Iowa business;
10) Duties as an Iowa Employer;
11) Writing a business plan;
12) Human resources management;
13) Insurance issues;
14) Iowa state licensing issues;
15) Governmental regulations;
16) Environmental issues;
17) Successfully marketing your Iowa business.
18) Iowa Business Resource Links;

Click here for more information if you are interested in forming an Iowa business entity.

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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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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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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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Articles of Incorporation or Organization Only Part of the Story

Now for the rest of the story . . .

Imagine a client that becomes embroiled in a disagreement with a 50/50 business partner. The two formed a LLC through a lawyer who was unfortunately not a business lawyer. The lawyer set up a limited liability company and drafted articles of organization. The problem - no operating agreement or initial meeting minutes.

Unfortunately this happens all too often. Without an operating agreement it is very tough to settle potential disagreements. How do you value the company? Who has authority or management rights? How are disputes settled? All of these items could have been set forth in an operating agreement. Instead, the parties may be staring a judicial dissolution in the face.

When do you need a shareholder agreement (Corp) or an operating agreement (LLC)? It is important to have one even if you are the sole shareholder or member. It helps establish corporate formalities to insulate you from personal liability. However, it is absolutely imperative to have such an agreement if you have more than one shareholder or member. That is the case even if the shareholders or members are family or best friends. Having a well-written shareholder or operating agreement can help prevent significant problems down the road.

Click here to learn about forming a corporation or limited liability company.

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Corporate Minutes Help Maintain Limited Liability Shield

Corporate minutes often seem unnecessary and mundane. Here's an article that discusses the importance of minutes and good record keeping in order to maintain limited liability in your corporation or limited liability company.

Click on the Inc article to learn more.

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Why Incorporate?

Here are three excellent reasons to incorporate:

1) Protect Your Assets

When you incorporate or form a limited liability company (LLC), you protect your assets including your money and home. As long as you follow the corporate formalities your company is legally separate from you as an individual so that any debts or liabilities do not put your bank account or home at risk.

2) Pay Less Taxes
There are often tax benefits to incorporating or forming an LLC that allow you to save money by paying less in taxes.

3) Enhance the Perception of Your Business

If you plan to have employees or seek investors incorporating or forming an LLC is usually a first step in enhancing the perception of your business and demonstrating that you are business savvy.

Click here to find out more about incorporating your business or forming an LLC.

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Basic Information Regarding Limited Liability Companies In Iowa Guest Blogger: Dennis Puckett of Sullivan & Ward, P.C. a West Des Moines business law firm.

The Limited Liability Company is a hybrid form of doing business that combines characteristics of the corporate structure and the partnership structure. It is a separate entity like a corporation and therefore carries liability protection for all of its members/owners, but is generally taxed like a partnership which has the benefit of flow-through taxation.

The owners are called members and can be virtually any entity including individuals, corporations, other LLCs, trusts, pension plans, etc. Some states, like Iowa, permit one-member LLCs, and others do not. If you are going to do business in multiple states, it may be wise to have at least two members of the Limited Liability Company. A husband and wife are considered two members for formation purposes.

The manner in which the Limited Liability Company will be operated is set forth in an operating agreement, which is an agreement between the members. The operating agreement for a Limited Liability Company is similar to the by-laws for a regular corporation.

In many respects, a Limited Liability Company is very similar to a Sub-Chapter S Corporation. However, the Limited Liability Company provides much greater flexibility with respect to owners and the allocation of income to the owners. An S-Corporation may only have one class of stock, while an LLC may offer several classes of member ownership. Any number of entities or individuals may own interest in an LLC; however, ownership interest in an S-Corporation is limited to no more than 75 shareholders. Also, S-Corporations cannot be owned by C-Corporations, other S-Corporation, many trusts, LLCs, partnerships or non-resident aliens. LLCs are allowed to have subsidiaries without restriction, while S-Corporations are not allowed to own 80% or more of another corporation's shares.

Like a regular corporation, the primary advantages of forming a Limited Liability Company is the liability protection the corporate entity affords its members (shareholders with respect to a regular corporation). The members of a Limited Liability Company are not liable for the debts and obligations of the company. By comparison, in any Sole Proprietorship or Partnership, the owner's personal assets may be used to pay debts of the business. Another advantage relates to the on-going existence of the company. If an owner of the company dies or wishes to sell their interest, the corporation can continue to exist and do business. If an owner of a Sole Proprietorship or Partnership dies, generally the business or partnership also terminates.

Unlike a regular corporation, the wages paid to the members of a Limited Liability Company will be subject to self-employment tax; however, self-employment tax may be avoided on members who do not participate in management.

Click here for more information on forming a limited liability company in Iowa.

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How to Preserve Corporate Status and Maintain Limited Liability: Follow simple steps to preserve your corporate status and maintain limited liability.

If you are careless about maintaining the separation between the corporation and yourself, you can jeopardize your freedom from personal liability or certain tax benefits - the main reasons to incorporate. It is rare for a judge to disregard a corporation and impose personal liability on a shareholder, but it does happen. When it does it is almost always in a small corporation where the owner has allowed the line between the corporation and the owner to disappear.

Following these simple steps help preserve your corporate status and maintain limited liability:

1) Put adequate capital into your corporation. This means putting in enough money and other assets to meet your foreseeable business requirements. The amount will vary from business to business. Get advice from someone in that business or an accountant.

2) Insure against obvious risks. Is there a substantial risk to customers or others being injured because of your business? It is wise to obtain a reasonable amount of coverage.

3) Observe corporate formalities. Issue stock certificates to shareholders before doing business. Keep a corporate record book with Articles of Incorporation, stock records, bylaws and minutes of shareholder and director meetings. Hold annual meetings each year to elect directors and officers.

4) Separate your personal finances from the corporation's. Your corporation needs its own bank account. Don't use the corporate bank account to pay your personal expenses.

5) Use the correct corporate name. Use your full corporate name in all your business dealings. Put the corporate name on your stationery, business cards, phone book listings and on your Web site. Be careful not to use an abbreviated version of your corporate name unless you have filed for a fictitious name with the Secretary of State.

6) Sign documents as a corporate officer. Sign your name - "John Doe, President" - along with the name of your corporation, rather than sign just as an individual. This makes it clear you are acting as the agent for a corporation and not as an individual. If you must personally guarantee an obligation you should still follow this advice. It provides evidence that the corporation and you are separate legal entities.

7) Assign existing business to the corporation. If you incorporate an existing business (such as a sole proprietorship or a partnership) the old business may have contracts. It's usually a good idea to formally transfer these contracts to the corporation.

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Are you looking to incorporate your Iowa small business? My first word of advice is to speak with an accountant to determine which form of business best suits your tax situation. Your choices likely include the "S" corporation, "C" corporation or you could choose to form a limited liability company.

Some people are inclined to choose an online service to incorporate your business. Many of these companies hook you in with a low cost advertisement for the incorporation but the other necessary documentation is offered for a significantly higher cost. Further, these organizations are often unaware of specific legal situations and local laws.

It is wise to choose a business lawyer to incorporate your business. You want to make sure your lawyer practices primarily in business law. Choosing a lawyer that is not familar with business law may have serious consequences and may increase the costs because the lawyer may learn on your dime. By analogy, you would not want a plastic surgeon operating on your heart. Find out how to affordably incorporate or form a limited liability company for your business. Click here for more on small business incorporation.

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