In December’s issue of Inc. Magazine, Norm Brodsky describes a paradox of successful negotiation.  The less interest you have in doing a deal, the more likely you are to get one you’ll find difficult to refuse.

Brodsky is considering selling his businesses (records storage, secure document-shredding and delivery).  He turned down an offer from a major corporation because they would not buy the delivery business.  A VC firm then approached Brodsky.  Brodsky explained to the VC partner why they should buy all three of the businesses, set his price and then told the VC partner he would not negotiate.

A short time later the VC partner shot Brodsky an offer several million dollars below the asking price.  Brodsky didn’t respond.  The VC firm then inquired about why Brodsky had not responded and Brodsky again informed them he would not negotiate.  He really didn’t care if he sold his businesses or not. Low and behold, the VC firm agreed to the price and the deal is in the due diligence phase.

This lesson is applicable in business litigation as well.  If you are willing to walk away empty handed you are often much more likely to get a good deal.  You are probably in the strongest negotiating position when you really don’t care if the case settles or not.  However, it is rare in the litigation context that an initial "take it or leave it" approach results in a settlement.  Particularly if you are negotiating with an insurance company there will be an expectation that you engage in a negotiation process with multiple offers going back and forth.  Usually a case will not settle until both parties have the perception that they could do worse if they go to trial.  The parties need to sense the risk.

Still, as Brodsky demonstrates, the "take it or leave it" approach can be very effective under certain circumstances and is a very powerful negotiation technique with the right client and case.  Being a good poker player doesn’t hurt either.

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.

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

Business.gov is the "Official Link to the U.S Government".  This Web site is an excellent resource for the start-up business. 

The site has many helpful areas including:

1.  Business Resource Library – contains information on a variety of regulatory topics including taxes, managing and hiring employees and intellectual property;

2.  Government forms search – by agency, form number or name;

3.  State Compliance Resources – which might be particularly helpful if you are doing business in more than one state;

4.  Links to the Small Business Business Administration – includes links to planning, starting, managing and exiting a business.

I read this well-written blog post from Ken Adams of Adams Drafting regarding the implications of a buyer knowing, pre-closing, that a seller’s representations are inaccurate in a business sale.  I recently wrote about the litigation traps of selling a business so I found this article intriguing.

Following the tips outlined in Ken’s post may help protect against some of the post-closing demands from buyers in a business sale but it is still important for a seller to document the disclosure of adverse material facts.

In Iowa, non-compete agreements are enforceable under certain circumstances.  The best time to secure a non-compete is when you hire the employee although continued employment may be sufficient consideration to bind even current employees.  Iowa courts have developed a three-part test to determine whether a non-compete agreement is enforceable:

1.  Is it necessary for the protection of the employer’s business?

Factors to consider:  Does the employee have a great deal of personal contact with customers?  Is the employee in a position to lure customers away?  Have you spent significant time and money training the employee?

2. Is the non-compete unreasonably restrictive of the employee’s rights? 

Factors to consider:  Is the non-compete limited in time?  The most common time restrictions are 1-3 years.  Courts tend to favor shorter time restrictions.  (This will always depend on the cirmcumstances of the particular case).

Is the non-compete limited in geographic scope?  For a local business, a 50-mile limit may be reasonable while a regional business may use a scope spread out over several states.  It depends on the market area of the particular business.  Because of the Internet and other technologies, geographic limits are becoming a less effective way to control competition from former employees.  Businesses must carefully consider how to be reasonable and still control competition in the global marketplace.

3. Is the non-compete prejudical to the public interest? 

Factors to consider:  Does the particular non-compete harm the general public?  This part of the test has rarely been used to invalidate non-competes in Iowa.  For example, non-competes in Iowa have been upheld against doctors and dentists where you might expect that limiting access to health care could harm the general public.

Finally, Iowa has adopted a "partial enforcement" doctrine permitting a court to uphold a non-compete agreement to the extent it is reasonable and allowing the Court to modify terms if necessary.  For example, a court may reduce a time restriction from 3 years to 1 year if the judge finds that is appropriate.  Or, a judge could change a geographic restriction from the entire state of Iowa to a 100-mile radius of the business.  This is different from an all or nothing approach where a judge might declare the entire non-compete agreement invalid if just one of the terms is found unreasonable.  When litigating non-compete agreements in Iowa the parties must consider whether the agreement may be partially enforced.   

When you go to court you are putting your fate into the hands of twelve people who weren’t smart enough to get out of jury duty. – Comedian Norm Crosby

The jury in the Iowa consumer class action case against Microsoft has been picked. (Of course, these jurors should be commended for their service and the joke above is not intended to reflect upon them in any way.  These jurors are making a sacrifice and I admire anyone who makes such a commitment to upholding our system of justice).  The jury consists of seven men and five women.  In a typical Iowa state civil court case you would normally only have eight jurors.  Several of the jurors have apparently purchased Microsoft products which makes them eligible to receive damages in the event the jury decides against Microsoft.  I seriously doubt that will be much of a factor.

Opening statements are expected to begin November 30th.  I’ll continue to keep readers posted as the case moves forward.  It should be an intriguing but lengthy trial. (You gotta feel for those jurors).  It is expected that both Bill Gates and Steve Ballmer will testify live in the case. 

The Plaintiffs are asking for over $300 million in damages.  The Des Moines Register also reported that both sides have hired PR firms to handle the publicity in the case.  I will enjoy seeing how that plays out giving the number of blogs that will likely cover this trial. 

So tell me your opinion?  How do you feel about this case?

I reviewed three commercial leases this past week so this quote from Will Rogers sums up my experience:

The minute you read something and you can’t understand it, you can almost be sure that it was drawn up by a lawyer.  You see, every time a lawyer writes something, he is not writing for poserity, he is writing so that the endless others of his craft can make a living out of trying to figure out just what he said.

The Writing, Clear and Simple Blog has some excellent observations on clearer legal writing.  Let’s all just say no to legalese in said contracts hereafter.

The Technology and Marketing Blog has an interesting analysis of the Barrett vs. Rosenthal case handed down by the California Supreme Court on November 20, 2006.  In its ruling, the court decided whether "distributors" of content have immunity under 47 USC 230 for Internet publications.

A major point in the analysis: 

No one is liable for other people’s content online–period (except for claims not covered under the statute–IP, federal criminal law, ECPA).

The author, Eric Goldman, points out that "active involvement in the creation of a defamatory Internet posting would expose a defendant to liability as an original source."  But in the Rosenthal case the defendant forwarded content without modification.  Accordingly, (at least in California) Plaintiffs that claim they were defamed in Internet postings may only seek recovery from the original source of the statement.

The Rosenthal case appears to protect bloggers who link to articles or republish content without modification but another case in the District of Columbia threatens to go in a different direction.  In general though it is still a good idea for bloggers to check out the accuracy of posts before linking or republishing content.

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.