Nascar is big business and its biggest star is undoubtedly Dale Earnhardt, Jr.  Dale Jr.’s contract is set to expire at the end of the 2007 season and he is now requesting a majority ownership in his father’s namesake company, DEI.  DEI is run by his step-mother Teresa Earnhardt.  Dale, Sr. may have left her in charge but Dale, Jr. appears to be holding the cards. 

But can you imagine this happening in any other sport?  (Yes, I do consider Nascar a sport).

  • Do you think Peyton Manning will request majority ownership of the Colts?
  • Did Michael Jordan demand majority ownership of the Bulls?
  • Did Babe Ruth get majority ownership of the Yankees?

  What about Nascar itself?

  • Are Gordon and Stewart entitled to majority ownership of their race teams?  (Gordon does have some ownership).  And what about Jimmie Johnson then, isn’t he left out in the cold with Gordon owning a piece of his car.  (Cup Champions all, something Dale, Jr. has not accomplished).
  • Even imagine if Dale, Jr. were driving for Childress right now?  Could he reasonably demand majority ownership?

In the business world does the owner give up majority ownership to the star salesperson just because they threaten to go somewhere else?   And this is business after all. 

So after all these examples you might imagine I would advocate that Teresa should send Dale, Jr. packing, right? 

Wrong.

Sure his father built DEI.  But Dale, Jr. is DEI now.  And 49 percent of a substantial sum of money is a whole lot better than 100 percent of a much smaller amount. (Of course, keep in mind Dale, Sr.’s licensing rights still bring in millions).  But there is no replacement for Dale Earnhardt, Jr.  After all, hasn’t she seen the number of beer cans that have been thrown at Talladega over the last couple of years when he hasn’t won? 

As Tony Stewart said, "DEI without Dale Earnhardt, Jr. is a museum." 

I say give him the keys to the garage.  He has earned it.

Read what others are saying.  Here, here and here.

 

Generally, the easiest way  for a buyer to purchase a business is through an Asset Purchase Agreement.  The buyer is not actually purchasing the business itself.  One commentator has described it has buying the seller’s merchandise without buying the store.

Buyers tend to favor asset purchases for several reasons.  First, the buyer obtains the seller’s assets without assuming the liabilities of the business.  Second, the buyer gets a "stepped up" basis on the assets being acquired which is helpful to the buyer from a tax perspective.  (This is where the buyer’s basis for depreciation is the allocated purchase price of the transferred assets).  Sound complicated?  Trust me it is a good thing for the buyer.  Third, the buyer can pick and choose which contracts of the business to assume.  Fourth, a buyer may or may not hire the employees of the seller.

Now a seller may want a stock sale, particularly if the business is a C corporation.  In this case the buyer is purchasing the business entity itself.  If the seller owns a C corporation an asset sale may result in double taxation for the seller.  (Never a good thing).  Under those circumstances the corporation will pay tax on the gains of the assets sold, and then the shareholders will pay capital gains tax when the corporation is liquidated.  But with a stock sale, the seller will only pay the capital gains tax on the sale, generally at a 15% tax rate (at least until 2010).

One point to consider in the negotiation of an asset purchase or stock sale is that the potential tax liability for the seller may be greater than the savings to the buyer.  So a seller may want to consider adjusting the purchase price slightly in order to gain the tax savings from a stock sale.

For more information on this subject check out this helpful article from CCH Business Owner’s Toolkit .  If you have questions regarding whether you should make an asset purchase agreement or stock sale please be sure to consult your tax advisor and/or a business attorney.

If you are selling your business you should not divulge trade secrets and confidential business information without a signed confidentiality agreement.  The theft of trade secrets is an increasingly litigated issue.  In the business sale context this often happens when negotiations break down and the potential buyer decides they can start their own business.  It is important for the confidentiality agreement to include the right to obtain an injunction, damages, and attorneys fees in the event of a breach.

The first step in selling your business is to protect yourself.  I also recommend you contact a business lawyer before you enter into any agreements or provide trade secrets and confidential business information. 

When forming small businesses I am sometimes asked whether the owner(s) must form a board of directors consisting of members from various backgrounds who are not actually owners of the business.  While it may work in certain situations, I have not seen this model work real well for most small businesses.  By their very nature, many small businesses are highly entrepreneurial and generally the owner(s) does not want consult a board for approval or have the board looking over their shoulder on every move.  Generally, it seems most small business owners choose to limit their board of directors only to the owners of the business.

But isn’t the advice of others (often more experienced entrepreneurs) helpful to the business owner? 

One possible solution is to form an advisory board.  The advisory board does not need to be anything formal and the members do not actually need to meet at the same time.  The advisory board may simply be a collection of individuals you ask for advice on a periodic basis.  We all could use mentors.  An advisory board can be a great way to receive input from others without giving up any power in the decision making for your business.  For advice on how to form advisory board for your business check out this article from Kaufman eVenturing.

Believe it or not, as a small business lawyer I have named more than my fair share of businesses for clients.  (Maybe I should add that to the list of incorporation services).  I always kind of laugh when I am asked for my opinion on the subject because I am not a marketing, advertising or branding expert – professionals that may actually get paid for coming up with a business name. It also makes me wonder how often do doctors name babies?

But the truth is business owners should take great care in naming their businesses.  I found this article with 18 insights on naming your small business.   You may also want to check out my past post on how to name your Iowa small business covering some of the legal considerations. 

Today I had a discussion with another attorney about the the pros and cons of franchising.  We determined that while many business owners may think they want to franchise, it is often not the best alternative for their business.  If you are interested in the topic you may want to check out this article on whether you should sell franchises or build a chain of company-owned locations.  It is worth the read.

You may also want to read my article on 12 things to consider before franchising your business.

Iowa patent and information technology lawyer Brett Trout recently completed his series of posts on the new federal rules concerning electronic discovery.  Brett and I also recently completed a podcast interview discussing the new electronic discovery rules.  I encourage you to check it out.  Brett has a lot of great information to share on the topic.

One way to prepare your business for the new electronic discovery rules is to have a solid document retention policy.  I found this helpful white paper from LexisNexis Applied Discovery regarding the elements of a good document retention policy.   Some of the key elements include:

  • A written document retention policy must be actively enforced and audited;
  • the policy should include the name of the custodian of the information;
  • the policy should list the types of servers and back up tapes used;
  • a lawyer needs to be familiar with the company’s IT system;
  • companies must educate employees about the policy and stress implications of not following it;
  • the policy must be easy to follow, periodically updated and state how often it will be updated;
  • the policy must address the different ways employees save information;
  • the policy should also address the litigation hold including email back up tapes.

I am interested in hearing from you if you have other document retention recommendations.  In the end, a solid document retention policy could help you avoid substantial sanctions and/or judgments for mismanaging or willfully destroying documents. 

The Iowa legislature is now considering amendments to Iowa’s right-to-work law.  This is a hot button political issue – the merits of which I am not discussing in this blog post.  What I am addressing is the confusion many people express over the Iowa right-to-work law.  Many individuals confuse the law with the belief that non-compete agreements are not enforceable in Iowa.  I have heard many times, "Iowa is a right-to-work state so this non-compete is not enforceable, right?"

Wrong.  Right-to-work has nothing to do with it.  As I discussed in a previous blog post on the topic, non-compete agreements are enforceable in Iowa under certain circumstances.  Iowa’s right-to-work issue generally involves the prohibition of a union from making membership or payment of dues or fees a condition of employment, either before or after hire.  Iowans are free to work and join a union and Iowans are also free not to join a union.  The right-to-work law does not involve the issue of non-compete agreements.

If you are looking for a discussion on the political issues of Iowa’s right-to-work law check out Mark Ingebretsen’s article on IAbiz Online.  IAbiz Online, launched in January of 2007, is the companion Website to the new IA.biz Magazine.  Both projects are communication tools of the Iowa Association of Business and Industry.  (And yes, you might even catch some of my articles re-published on the Web site).

Drake University Law School had some exciting news this morning.  Former Governor and Presidential hopeful Tom Vilsack will serve as a visiting professor of law during the 2007 calendar year.  Before his election as Governor, Vilsack practiced law in Mt. Pleasant, Iowa.  He will teach a May interim course focusing on legal issues relating to rural development and renewable energies with help from Professor Neil Hamilton.

A nice feather in the cap for Drake Law School.  Way to go Bulldogs!

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: