One of my favorite franchise related bloggers is Joel Libava who is affectionately known as The Franchise King. He has more franchise related blogs than possibly anyone on earth. He also has written an informative book on the steps needed to effectively research franchise opportunities.

Libava is quoted in a recent Entrepreneur article on How to Research a Franchise.  I recommend reading it.

 

Read my post on IowaBiz for More on Twitter in the Workplace. Twitter is a micro-blogging application that is quickly becoming the new "thing" for business networking and marketing. Chances are you may already have an employee in your business on Twitter. Don’t get left in the dark.

Don’t believe it’s a big deal? Then why are people like @ChuckGrassley and @LanceArmstrong using Twitter?

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. 

The Des Moines Register has an interesting article on the fitness business market in Des Moines. Included in the article is a discussion on the growing number of 24/7 franchises in Des Moines. So, it begs the question, "Is buying a fitness franchise a solid investment in this market?"

I have represented a number of franchisees in the fitness industry. Based upon this experience, I would say the competition is fierce and a prospective franchisee needs to carefully consider whether to purchase a fitness franchise gym given the current market conditions in Des Moines.  Specifically, I would look very carefully at the trends of the franchisee concerning the number of outlets.  You should closely review the information regarding outlets. Carefully study the number of transfers and not just the number of closures.  A high number of transfers may be an indication that franchisees in the system are struggling, but unprofitable gyms have not been shut down.  Of course if there is a significant number of closures in the system that is definitely a bad sign. The reality is that profitability in this market with a fitness franchise gym is often a tough task to achieve.

Be sure to visit with current franchises and franchisees that have left the system. Ask the franchisor whether its records are updated so you can talk to as many franchisees (and former franchisees) as possible.  Consider what will differentiate your facility from other gyms in the area.

I am not saying that profitability cannot be achieved in this industry but I encourage any prospective fitness gym franchisee to conduct thorough research (and maybe think twice) before making the investment.

FYI:  Coming soon I have developed a new niche site related solely to franchise issues called RushonFranchise. It will include programs on how to research and buy a franchise for franchisees and how to develop a franchise program if you are a franchisor. I will interview experts in the industry and will have in-depth materials on franchising. For those of you that are regular readers, this is the ever-evolving Interactive Learning Environment I referenced previously on this blog.

 

 The State of Iowa recently announced that it intends to step up efforts to enforce independent contractor misclassification. It is anticipated these enforcement efforts could bring in millions to the state coffers.

For more information on this topic please see my recent post on IowaBiz and another post from August of 2007 warning about independent contractor misclassification.

See also this article on how to avoid misclassification of independent contractors. 

It is more important than ever for businesses in Iowa to understand the differences between employees and independent contractors.

With the recent economic downturn, layoffs have begun to occur. A potential option for many former corporate employees is franchise ownership. While franchising does offer many advantages it is critical to approach a franchise opportunity just as you should any other business opportunity – with caution.

 

It is a misnomer that franchises are more likely to succeed than other businesses. In fact, the International Franchising Association has discouraged all franchisors from making such claims. The truth is that franchises fail at a rate that is similar to non-franchised business.  So careful due diligence is important when considering a franchise opportunity. One of the best things you can do is talk to as many existing (and former) franchisees as possible. Also, consider several key disclosure issues including:

  1. Franchisor’s litigation history;
  2. Amount of the initial investment;
  3. Vendor rebates and products you must buy from the franchisor;
  4. Earnings claims made by the franchisor;
  5. Franchisor’s financial statements;
  6. Trends concerning the number of outlets.  It is important to closely review the information regarding outlets. Carefully study the number of transfers and not just the number of closures.  A high number of transfers may be an indication that franchisees in the system are struggling, but bad stores have not been shut down. 

And finally, be willing to walk away. This is the paradox of successful negotiation. Those that are willing to walk away usually find they get more in negotiation.

For more on franchise due diligence be sure to visit the Federal Trade Commission’s Consumer Guide for Buying a Franchise. 

 

Blawg Review is the blog carnival for everyone interested in law. A peer-reviewed blog carnival, the host of each Blawg Review decides which of the submissions and recommendations are suitable for inclusion in the presentation. For an example, please read my Blawg Review #147 during which Charlie Longbrief got so tired riding across Iowa that he apparently couldn’t post the rest of the year.

It’s time for the Blawg Review of the Year Nominations. Those who have ever hosted blawg review or are scheduled to host a blawg review are entitled to vote. You cannot vote for your own. There were many worthy contenders this year.  Here are my picks:

Blawg Review #162 – China Law Blog – World peace, basketball and Raquel Welch.  What else do you need?

Blawg Review #172 – Ohio Employer’s Law Blog – In a year in which Iowans Shawn Johnson and LoLo Jones were the talk of the Olympics, how could I not pick this Olympic themed Blawg Review?

Blawg Review #173 – Chicago IP Litigation Blog – Michael Phelps and Blawg Review. Is there any question I am a sports fan?

Blawg Review #189 – Infamy or Praise – Another masterful performance by the perennial winner of the Blawg Review of the Year.

 

 

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.

 

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.

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.