I saw an interesting article on the LexBlog Network regarding how to deal with partner disputes. The post written by Texas restaurant lawyer, Matthew Sanderson, dealt specifically with restaurants, but the information contained in the post is applicable to any business. Sanderson recommends the following when a dispute occurs:

  1. Avoid the conflict by identifying motivators and doing your homework;
  2. Open the lines of communication;
  3. Stand up for yourself and your rights (but don’t lose your cool).

I often compare partnerships to a marriage. In any marriage good communication is essential to maintaining a happy household. Where I’ve seen partnership disputes fester and cause problems is when the partners fail to communicate with one another. So I think Sanderson’s bullet points are right on target.

Further, a helpful piece of advice for avoiding partnership disputes is to set clear expectations of what each partner is bringing to the table. Even though it isn’t a part of your typical operating or shareholder agreement, you may what a letter of understanding defining the roles of each partner. Partnerships work best when the partners have complementary strengths. For example, a strong sales person combined with strong operations or details person may have a strong partnership together where two partners with the same skill set lack the balance needed to run the overall business.

Partnerships are not easy. Be sure to have a partnership agreement in place that details what happens if a dispute occurs or the partnership ends due to death, disability or other reasons. Sanderson’s last point on not losing your cool is especially important. Make sure you think things through before you react and hopefully you’ll be able to avoid costly mistakes if a partnership dispute occurs.

 Entrepreneur Magazine has a good article on Five Overlooked Legal Mistakes Entrepreneurs Make. Those mistakes include:

  1. Making handshake deals with clients and vendors;
  2. Choosing the wrong business structure;
  3. Bring on partners without a detailed agreement;
  4. Establishing a 50/50 partnership;
  5. Filing a trademark without doing enough homework.

In my practice I’ve seen the mistakes outlined above cause significant problems for entrepreneurs. Getting agreements in writing is one of the easiest things you can do to avoid legal mistakes, whether it’s with clients and vendors or partners. 

I find it refreshing that the lawyer quoted in the business structure section prefers setting up corporations most of the time for her clients. LLCs are formed roughly at a 2 to 1 rate compared to corporations in Iowa and I’m sure nationally that trend follows as well. In many cases, a corporation may be preferable to the LLC. It all depends on the circumstances. All too often people are quick to form a business entity without much thought or investigation. My experience, however, it’s best to speak with a business lawyer and accountant prior to forming your business structure to see what best meets your needs.

The trademark issue is also a great one to point out. My experience is that most entrepreneurs fail to check whether their trademark is available with the U.S. Trademark office. This often results in problems if the business name or trademark infringes on another mark. If an entrepreneur has invested significant dollars in marketing and branding, that mistake can be very costly. So it is helpful advice to speak with a business attorney and/or trademark attorney to determine the availability of obtaining a trademark for your business name. 

The Des Moines Register reported that investor group Plains Angels has invested $750,000 over the last eight months. This is great news for Iowa startup companies. Venture capital in Iowa has lagged and groups like Plains Angels are definitely trying to change that.

There is a $300 application fee to present before the Plains Angels’ group. In some blog posts and other social media outlets, I’ve seen the fee criticized by some who expressed concern that it was just a fee collection group. I considered that assertion somewhat naive on the part of some seeking funding, but the recent news should alleviate some initial fears that the group is actually making investments in companies rather than just collecting fees. The significant investment made over the last eight months in three Iowa companies is very promising for the Iowa startup scene.

If you’re interested in learning more about the process for Plains Angels or becoming an investor, be sure to visit the Plains Angels Website.

In January  I wrote about the new Iowa Business Specialty Court Pilot Project.  This week the Iowa Supreme Court announced that three judges have been selected to hear cases for the business court. The judges include:

  • Judge Michael Huppert of the 5th Judicial District, which includes Dallas, Polk and Warren counties;
  • Judge Annette Scieszinski of the 8th Judicial District;
  • Judge John Telleen of the 7th Judicial District.

I have had the opportunity to appear before or work with all three of these judges. It’s an excellent list of judges to get this pilot project off the ground.  Again, I’d like to see the threshold amount come down from $200,000 so that more business cases can be involved but it will be interesting to see how the new business court is received by lawyers and the public. Eligible cases can begin to be transferred May 1, 2013.

With the recent passage of a new state law in Ohio and a new bill offering greater protection for franchisees in California, it will be interesting to see whether this growing trend of more pro-franchisee laws continues.

Interestingly enough it is Iowa that is often cited as a pro-franchisee state because of its franchise act. However, the growing economic market in Des Moines and throughout Iowa has not kept franchisors from establishing businesses in the state over the recent years. In my view, the opportunities for growth in Iowa far outweigh any negativity franchisors may have toward the Iowa franchise act.

But added protections for franchisees isn’t necessarily a bad thing. Most franchise agreements are very one-sided in their terms and often have significant legal protections for the franchisors. You generally have a sophisticated business entity on one side (the franchisors) and less sophisticated people (the franchisees) on the other side. Most franchisees are small business people just looking to make a good living and may be investing their life savings into a franchise. Offering greater protections to franchisees should not hurt good franchise operators that deal fairly with franchisees. It will set them apart in the long run. Moreover, franchisees may feel more comfortable to go into franchise businesses.

So it will be interesting to see if the trend continues toward tougher franchise laws and the impact these laws will have on the industry.

 There are 5 people every entrepreneur should meet when starting a business:

  • Lawyer;
  • Accountant;
  • Banker;
  • Insurance Agent; and
  • Marketing professional.

How do hire a lawyer that’s right for you? See my article on my new site, Iowa Business Law Services.

As we are now in the heart of tax season, many business owners are looking for an accountant to complete their taxes. That’s the wrong time to do it. Business owners need to establish a relationship with an accountant from the very beginning. It’s important to receive tax advice on which business entity is right for your tax situation. Hiring a good accountant for your business is absolutely essential. A terrific accounting blog is the Tax Update Blog.

Lots of business owners also wait to establish a relationship with a banker until they need a loan. Again, that’s the wrong time to start. Instead of opening an account at any old bank, get some recommendations and talk with business bankers before opening an account. Tell the business banker about your business and your plans. Try to stay in contact with the banker periodically if just to remind them you are still there. You never know when you might need a line of credit or loan. Establishing a relationship with a banker in the beginning can pay big dividends.

Find an insurance agent that specializes in insuring businesses. There may be hidden land mines out there that you can insure. I recently communicated with a business insurance agent regarding a contract matter for a client. The business insurance agent had important input that will protect my client moving forward. I seriously doubt an insurance agent dealing primarily with car and home loans would have known about the specific issues we were dealing with.

And if no one knows about you it will be tough to succeed! Consult with a marketing professional that is knowledgeable in your industry.  A tremendous blog on marketing is Drew’s Marketing Minute.

 I am very happy to announce my new companion Web site to go along with this blog at www.iowabusinesslawservices.com. The site will feature information on my legal practice areas, a simple way to submit information for formation of a new corporation or LLC and also a video resources section with tips on business and franchise law. We’ll also feature many other business and franchise law resources as we develop out the site.

A new offering with the new site rollout is that I am immediately implementing a Subscription Services Plan to make legal services more affordable for the new or early stage company. Check it out for details.

I also set up a new Facebook page for the blog be sure to ‘Like’ the page for easy access to updates on business and franchise law.

Thanks so much for following Rush on Business. And look for some other exciting offerings from me very soon relating to franchise law.

 The Classic Battle

A group of franchisees file a lawsuit contending the franchisor forces them to buy products and/or services at inflated prices while setting retail prices so low the franchisees cannot profit. The lawsuit also alleges that the franchisor omits or misrepresents key facts about its business operations when selling the franchise.

The franchisor, of course, denies the allegations and intends to vigorously defend the lawsuit.

The Issue

Many franchise agreements contain restrictions on the products and suppliers the franchisee may use. While this may seem reasonable in the beginning, (after all, you’re buying a proven system, right?) many franchisees discover later they can get cheaper products and find better suppliers than they can using the franchisor’s system.  The franchisees begin to question why they are paying for higher priced products along with paying royalties which eat into profits even more. When this happens franchisees tend to get upset and file lawsuits like the one described above.

If the franchisee agreement you are considering contains restrictions on products and suppliers be sure to consider those provisions very carefully. Be prepared to ask the tough questions of the franchisor when it comes to products and suppliers. Also, don’t take for granted just because you are going with a franchise that you are getting the benefit of the franchisor’s "bargaining power."

Above all, make sure to talk with as many current franchisees as possible regarding the products and services of the franchise and conduct your due diligence.

The BIZ is host to a great event this coming week featuring Dwolla COO Charise Flynn as she takes questions on life behind the scenes at the high growth start-up. I’ve had the opportunity to serve on a speakers’ panel with Charise and I find her personal journey and insights fascinating. Charise is a fellow Simpson College graduate so you know she’s got to be good.

The event is Wednesday, February 20th at 11:30 a.m. at the Greater Des Moines Partnership offices. The admission fee is $15.00 which includes lunch.

Register for the event here.

 

I’ve seen it many times. A certain market or industry becomes "hot" and all the sudden franchises start popping up all over the place. For example, a few years ago the 24/7 fitness market took off. In the Des Moines, Iowa area there were all kinds of fitness franchises that entered the 24/7 fitness market. Unfortunately many of them went out of business and only a few major players remain.

This happens in other industries. Right now the self-serve premium yogurt market seems to be really taking off. You add the toppings yourself and then weigh the cup just prior to paying. Looks to be a "hot" concept. But in the end how many of these franchises will be around in 10 years? Don’t know but it’s safe to say there will probably be some winners and losers in that market. 

It’s not a surprise that a significant percentage of franchises will fail. After all, the majority of businesses fail within the first 5 years. With the typical franchise agreement lasting 10 years, it’s important to choose a concept that will have staying power rather than just the latest "hot" concept.

Buying a franchise is a major investment. Success is not guaranteed. Choose wisely.

For interesting reading take a look at this article on the Top Franchise Trends for 2013.