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. 

 

I want to take the time to thank my clients that have made 2009 such a special year. I am very fortunate to work with some of the best people I know. A big thank you to the regular readers of this blog.  As I enter the 4th year for Rush on Business this coming March it’s always nice to know that I have support from so many.  

Have a great Thanksgiving holiday!

 

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. 

 

In a recent interview I was asked about what employers need to know about the H1N1 virus as a follow up to my recent post on how employers need to be prepared for H1N1.  I didn’t have a lot of time to respond as the question came towards the end of the program and we ran out of time. As a follow up, I thought I would mention that Connecticut employment lawyer, Daniel Schwartz, has a great post on H1N1 and the workplace. Daniel lists some available resources and has several recommendations for employers to get ready for the flu season:

  • Update (or create) a Business Continuity Policy with specific provisions for H1N1 flu.
  • Encourage employees to get flu shots (both seasonal and H1N1) as soon as possible. To the extent that you offer health insurance to employees, determine if those shots are covered under the appropriate plans. And consider offering flu shot clinics if you have the resources.
  • Clarify what your absence and illness policies will be. Consider having flexibility in this situation if you can to encourage employees who are sick (who have someone that is sick in their household) to stay home.
  • Make sure your infrastructure can handle an increased telecommuting presence if need be.
  • Stay updated on the EEOC guidance.

I couldn’t agree more that employers need to have flexibility in your policies. This is one time where it is likely okay to vary from your existing leave policies. However, it is imperative that if you do so, you treat all employees in a fair and consistent manner. 

Education is a key to prevention. For more information please visit Flu.gov for helpful information on H1N1 including a business planning section.  

 

I had the pleasure of sitting down for an interview with Michael Libbie yesterday. We talked blogging, discrimination cases, franchising and other issues.

If you didn’t catch it live you can watch the podcast here. (The interview begins at about the 30 minute mark).

If you haven’t heard about Des Moines Local Live, you should check it out. It’s an Internet radio station with 50 local radio hosts talking everything from business to sports.  A real testament to Des Moines’ Internet-blogging presence.

 

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.

Franchise attorney Charles Internicola busts the myth that franchise agreements are non-negotiable in his post, Myth:  Is it Illegal for a Franchisor to Negotiate and Modify the Terms of its Franchise Agreement. This is one of the best posts on the subject that I have seen.

In addition to the fact that you should take your right to negotiate the franchise agreement seriously, I would encourage you to stay on the alert for other common red flags from franchisors (I have written about these previously but it bears repeating):

  1. You don’t need a lawyer to review the agreement.
  2. I would prefer you don’t talk with other franchisees. You should only talk with me.
  3. Trust us, we can’t (and won’t) change the agreement but we won’t really hold you to that provision anyway.

Like many people you may considering an investment of your retirement savings in a franchise. You absolutely owe it to yourself to do the best job possible investigating that franchise and performing the most due diligence possible. That includes hiring experienced franchise counsel to review the franchise agreement and disclosure document. You need to talk with as many franchisees as possible but be sure to visit with those in your area. The success of a franchisee in New York, for example, may differ significantly than the success of a franchisee of Iowa especially when franchises are more of a regional flavor.

Some franchisors won’t negotiate the terms of the agreement but that can be okay. Hopefully the franchisor can explain their reasoning for not negotiating a provision rather than hiding behind a blanket statement that they cannot negotiate because it is illegal.  You definitely want to deal with a franchisor that is willing to listen and consider your needs. 

And never, I mean NEVER, believe the franchisor that tells you they won’t hold you to the terms of their written agreement. You can be assured that the franchisor’s lawyer in any lawsuit will never acknowledge that statement was ever made and most franchise agreements are written so that any such statement could not be used as evidence in court. 

 

Megan Erickson of the Dickinson Law Firm has started Erickson’s Blog on Social Networking and the Law.  Now that’s a blog that will have a never ending flow of posts.  She already has an interesting array of posts including one where a business owner got slapped with a $2 million libel lawsuit for Facebook and Twitter posts.

This is one blog I’ll be sure to follow.

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.