Ben & Jerry’s co-founders, Ben Cohen and Jerry Greenfield, will speak at Drake University this coming Tuesday, October 3, 2006 at 7:30 p.m.  Their talk is entitled, "An Evening of Social Responsibility, Radical Business Philosophy, and Free Dessert for All".

Ben and Jerry took their company from a storefront operation and turned it into a $160 million public company.  Social responsibility and creative management were the cornerstones of their business.

It should be a great event.  The talk is held at the Drake Knapp Center.  It is free and open to the public.

The Limited Liability Company is a hybrid form of doing business that combines characteristics of the corporate structure and the partnership structure. It is a separate entity like a corporation and therefore carries liability protection for all of its members/owners, but is generally taxed like a partnership which has the benefit of flow-through taxation.

The owners are called members and can be virtually any entity including individuals, corporations, other LLCs, trusts, pension plans, etc. Some states, like Iowa, permit one-member LLCs, and others do not. If you are going to do business in multiple states, it may be wise to have at least two members of the Limited Liability Company. A husband and wife are considered two members for formation purposes.

The manner in which the Limited Liability Company will be operated is set forth in an operating agreement, which is an agreement between the members. The operating agreement for a Limited Liability Company is similar to the by-laws for a regular corporation. It is a good idea to have an Iowa business lawyer draft your Articles of Organization and Operating Agreement if you intend to form your business in Iowa.

The Articles of Organization are filed with the Iowa Secretary of State’s office just like is required for a corporation. The filing fee is currently $50.00 for filing the articles. The LLC must also file a biennial report (which is new for 2006). The cost is currently $30.00 for online filing.

In many respects, a Limited Liability Company is very similar to a Sub-Chapter S Corporation. However, the Limited Liability Company provides much greater flexibility with respect to owners and the allocation of income to the owners. An S-Corporation may only have one class of stock, while an LLC may offer several classes of member ownership. Any number of entities or individuals may own interest in an LLC; however, ownership interest in an S-Corporation is limited to no more than 100 shareholders. Also, S-Corporations cannot be owned by C-Corporations, other S-Corporation, many trusts, LLCs, partnerships or non-resident aliens. LLCs are allowed to have subsidiaries without restriction, while S-Corporations are not allowed to own 80% or more of another corporation’s shares.

Like a regular corporation, the primary advantages of forming a Limited Liability Company is the liability protection the corporate entity affords its members (shareholders with respect to a regular corporation). The members of a Limited Liability Company are not liable for the debts and obligations of the company. By comparison, in any Sole Proprietorship or Partnership, the owner’s personal assets may be used to pay debts of the business. Another advantage relates to the on-going existence of the company. If an owner of the company dies or wishes to sell their interest, the corporation can continue to exist and do business. If an owner of a Sole Proprietorship or Partnership dies, generally the business or partnership also terminates.

Unlike a regular corporation, the wages paid to the members of a Limited Liability Company will be subject to self-employment tax; however, self-employment tax may be avoided on members who do not participate in management of the company. It is important to consult an accountant to determine which form of business provides the best tax advantages for your situation.

Click here for more information on forming an LLC from a Des Moines Iowa business attorney.

If you are thinking about starting a corporation, here is a checklist of steps you might consider before starting your business:

1. Find out the availability of your corporate name. You can do a quick search on the Iowa Secretary of State’s Web site to see whether your name is available. If the name is available you may want to reserve the name through the Secretary of State but you are not required to do so before incorporating. You may also want to consider whether any company outside Iowa has your corporate name. You can conduct a free search on the U.S. Patent and Trademark Web site. It is also a good idea to check whether someone has your proposed Internet domain name. In Iowa, your corporate name must have "incorporated", "corporation", "limited", or some abbreviation of such term.

2. Pick a Place to Incorporate. I am sometimes asked whether an Iowa company should incorporate in another state such as Delaware or Nevada. In general, an Iowa small business is probably better off incorporating here in Iowa. The filing fees are low and the ongoing fees for registering the business in Iowa are among the lowest in the country. (Only $30.00 every two years if you file your biennial report online).

3. Choose the Shareholders and Directors. Who will be the shareholders in the company? These are the owners of the company. Most of the businesses I represent have only a handful of owners. Determine how much capital you will need. Do you have enough capital or access to capital in order to start the business on your own? If not you may need to consider other investors.

In most cases the shareholders of the small business are also the directors. Do you want outside directors? There may be good reasons to have outside directors but think this over carefully before you elect to do so.

3. Create your Articles of Incorporation. The articles of incorporation act as a charter to start your new business in Iowa. The filing fee with the Secretary of State is currently $50.00. It may be a good idea to have an Iowa business attorney prepare your Articles of Incorporation and other corporate documents.

4. Prepare corporate bylaws. The bylaws set out the operating standards and procedures the business corporation will follow.

5.Create meeting minutes, resolutions and agreements. It is a good idea to document the initial meeting minutes of the company including the meetings of the shareholders and directors. At this time, you will elect the officers of the company including the president, vice-president, secretary and treasurer. You will also issue stock certificates at this stage. If you have multiple shareholders you will also likely need a shareholder agreement.

6. Obtain your employer identification number (EIN). Your corporation will need to obtain an employer identification number from the IRS. This can be done through a convenient online application process.

7. Elect "S" corporation status. (This is optional). You should speak with your accountant to determine whether it is appropriate to treat your corporation as an "S" corporation or a "C" corporation. Most small business corporations choose to be "S" corporations. An S corporation lets you enjoy the limited liability of a corporate shareholder but pay income taxes on the same basis as a sole proprietor or a partner. The "S" corporation is a pass through entity where the owners report the profits on their personal tax returns. In a "C" corporation the company itself is taxed on business profits and the owners are taxed on the money they draw out of the business. This could lead to double taxation. However, an experienced accountant can help you minimize your tax and in certain situations a "C" corporation may be more advantageous. So the key is to follow the advice of your accountant.

If you elect "S" corporation status you must file a special form with the IRS upon starting your corporation.

8. Open a bank account. You will typically need the EIN and a banking resolution in order to do this.

9. Obtain any licenses and permits. You will need to check the federal, state and local regulations to determine whether you need and licenses or permits to operate your business.

10. Follow the corporate formalties of running a business. In Iowa, this includes registering your business every two years with the Secretary of State’s office. You also need to do corporate minutes at least on an annual basis including the election of officers and directors. Sign all documentation using your title as a corporate officer. You will also want to minimize or avoid situations where limited liability is not an absolute.

Find out more about how to incorporate your business from a Des Moines Iowa business attorney.

Employers are usually cognizant of discrimination and harassment claims. However, they are often blindsided by retaliation claims. The successful resolution of a discrimination or harassment complaint means you are only halfway home. Supervisors and employees must not retaliate against the employee who complained. This is even more important now because of a recent United States Supreme Court decision lowering the burden for employees to show retaliation.

Here are some proactive measures employers can take in order to avoid retaliation claims:

1) Make sure your employee handbook includes a policy prohibiting retaliation.
2) Always have alternative reporting avenues.
3) Conduct supervisor and management training on harassment, discrimination and retaliation.
4) Make sure supervisors and management have been asked the tough questions when it comes to employee discipline. Make sure the discipline has nothing to do with the complaints of harassment, discrimination or retaliation.
5) Periodically talk with the complaining employee to determine if anyone has retaliated against them. If performance is an issue for the employee be sure to bring this to the attention of the employee and make sure to document your conversations. Document! Document! Document!

Be sure to consult your employment lawyer for advice in specific situations.

Lawpportunities has scheduled its Iowa Blawging Seminar for November 10, 2006 at the Hilton Garden Inn in Johnston, Iowa. Brett Trout and I invite any lawyer interested in blogging or blog law to join us for what we hope is a very interesting and timely conference.

The conference is approved for 7.0 CLE hours in Iowa including 1 hour of ethics. Click here for the outline of the Iowa blawging conference

Yesterday I attended the Trade Regulation and Corporate Counsel Seminar sponsored by the Iowa State Bar Association. In his presentation on franchising, Mark Hamer of Meardon, Sueppel & Downer, P.L.C. confirmed a growing trend in franchising is that every clause is negotiable. This often includes some of the more troublesome issues for franchisees. This is a trend I have seen for some time.

Your ability to negotiate depends a great deal on your bargaining power. Is the franchisor new? If so, you probably have a great opportunity to negotiate terms. Are you financially solid? Are you buying multiple franchises? These are just some of the factors that may improve your bargaining position.

You may be told the franchise agreement is not negotiable by the sales representative. I would not let that deter you from attempting to negotiate certain terms of the franchise agreement. The key is to know what, when and how to negotiate franchise agreement terms.

Today’s Des Moines Register Business Section contained an article by Patt Johnson featuring the assistance provided by SCORE to local entrepreneurs. SCORE is made up of retired executives that mentor and counsel new entrepreneurs.

People generally think of SCORE in the context of their one day workshops for new entrepreneurs. However, it was also surprising to learn than SCORE also helps more experienced entrepreneurs who may have hit a roadblock, seek expansion or need to create a succession plan. Diana Kautzky of Deaf Services Unlimited discussed in the article how one meeting with retired clothier Paul Whitmore provided her with the insight she needed.

The local SCORE Web site also provides several helpful articles and Weblinks for business owners. The site also links to over 500 sample business plans.

Other helpful resources for Iowa entrepreneurs include:

Iowa Small Business Development Centers (SBDC)
BizStarts
Ewing Marion Kauffman Foundation (My personal favorite)
FranNet Franchise Consulting
Entrepreneur.com
Inc.com
Forbes.com
Small Business incorporation and LLC formation for Iowa entrepreneurs

In a decision described as a "blockbuster" and a "bombshell", the U.S. Court of Appeals for the District of Columbia has ruled the IRS may not tax emotional distress or professional reputation damage awards unrelated to lost wages or earnings.

The case began when Marrita Murphy sued the Department of Labor alleging that her former employer, the New York Air National Guard, had blacklisted her and provided unfavorable job references because she blew the whistle on environmental hazards at an airbase. Murphy received $70,000 in compensatory damages–$45,000 for emotional distress and $25,000 for injury to her professional reputation.

Murphy included the $70,000 award on her 2000 federal income tax return, then filed an amended return seeking a refund of more than $20,000, the amount of taxes paid on the $70,000 award. The Internal Revenue Service denied her request. Murphy then sued the IRS and the United States in federal district court. The federal district court rejected her claims and granted summary judgment to the government defendants.

On appeal, the D.C. Circuit reversed the lower court’s decision. The panel agreed Murphy could not prevail based on federal law 26 U.S.C. section 104(a)(2), which was amended in 1996 to prohibit the exclusion of emotional distress damages (as opposed to physical injuries) from gross income calculations. Federal law provides that damages for personal injuries and sickness are not taxable; physical injuries are based in tort and not subject to calculation as gross income.

However, the D.C. Circuit delared section 104(a)(2) unconstitutional under the 16th Amendment.

The court agreed with Murphy that her $70,000 award for emotional injury and loss of reputation was not income within the meaning of the 16th Amendment. "As we have seen, it is clear from the record that the damages were awarded to make Murphy emotionally and reputationally ‘whole’ and not to compensate her for lost wages or taxable earnings of any kind," Chief Judge Douglas H. Ginsburg wrote for the court. "Under this analysis, therefore, the compensation she received in lieu of what she lost cannot be considered income and, hence, it would appear the 16th Amendment does not empower the Congress to tax her award."

This decision could have a favorable impact on employees and employers alike. Employees will obviously benefit because they will pay less taxes on their settlement or judgment. Employers benefit because plaintiffs may accept less in settlement.

If the case is appealed to the U.S. Supreme Court, plaintiffs nationwide could avoid the tax if the Court rules favorably. However, many tax experts think the Supreme Court will reverse in the event the IRS appeals.

See the D. C. Circuit Court ruling.

Justice Marsha Ternus Named Iowa’s First Woman Chief Justice

Justice Marsha Ternus has been named Iowa’s First Woman Chief Justice. She takes over for the departing Louis Lavorato. Former Iowa Governor Terry Branstad appointed Ternus to the Court in 1993. She earned her law degree, with honors, from Drake University Law School in 1977.

Before joining the Iowa Supreme Court Ternus worked for the Bradshaw Law Firm in Des Moines. She practiced as insurance defense lawyer until her appointment in 1993.

Ternus has an excellent reputation among Iowa lawyers for her fairness and intellectual integrity. She will make an excellent Chief Justice.