Business Law

Giving Away Information

Crop Sam Speaking WEB (2)

Businesses really have only two choices: they can grow (through formation or purchases) or go away (mostly by sale).  Those are the two things I spoke about during a recent Lunch and Learn presented for the West Des Moines Chamber of Commerce. If you would like to access the PowerPoint I used, click this link:Chamber Luncheon Final

Here are the high points of what we discussed:

  • Identifying an Opportunity;
  • How to Avoid Pitfalls;
  • What the Buying/Selling Process Looks Like;
  • Pricing the Transaction;
  • Structuring the Transaction.

Following the formal presentation I took questions from the attendees. The one item that stands out was a question about the size of transactions I normally worked on. I responded that in my 30+ years I have worked on transactions ranging from start-ups all the way through the sale of a $45,000,000 company, but the most important transaction is whatever my client(s) need to accomplish.

However, the best question came as I was packing up to leave.  An attendee came to me and asked, “Why is it that you simply gave us all of this information free of charge?” My answer was really pretty simple: “My job is to help businesses and individuals achieve their goals. For me, that includes providing people with an opportunity to expand their business knowledge.  Simply giving some valuable information away for free? No, I’m doing what I love.”

The Kreamer Law Firm specializes in business law as well as estate law.  We Get Things Done!

Buying and Selling a Business- A Lunch & Learn Event

Buying and/or selling a business requires many considerations.  For example, you may find yourself wondering:

  • How to identify the right opportunity as a buyer or a seller;
  • What pitfalls might lurk in the existing economy;
  • How will the pricing and the structuring of the transaction work;
  • What’s the process behind the transaction numbers?

Please consider joining me on August 13th. I’ll be hosting the Lunch and Learn event through the West Des Moines Chamber of Commerce and talking about this topic which is really, very useful in  a city like West Des Moines where businesses and companies thrive.

Buying or selling a business can be a very tricky process; even in a simple transaction there can be many questions. Come to the Lunch and Learn on August 13 which will be held at 4200 Mill Civic Parkway West Des Moines, IA and find out more about what it takes to get through the buying/selling process. The end result can be very rewarding for both parties.

This will be a great event and I can’t wait to answer your questions. Click this link to sign up. You don’t need to be a member to attend, so feel free to bring any and all questions you have.
http://web.wdmchamber.org/events/eventdetail.aspx?EventID=292

This is a very important topic to discuss and if, in the meantime, you have any questions, feel free to email info@kreamerlaw.com, call (515)727-0900, or visit our website www.kreamerlaw.com

 

Employee Wages: Let’s Get to the Basics

Minimum Wage Dollars (2) Recently minimum wage has been all over the news.  Some states and even some cities have passed laws that have raised the minimum wage, recognizing what a person must earn to make a living. Because of this, people are asking, “How much must I pay my W-2 employees here in Iowa?”

The law in Iowa sets a minimum wage of $7.25/hour and applies to all employers whose gross annual sales are $300,000 or more. The Federal minimum wage is the same $7.25/hour and applies to all employers whose gross annual sales are $500,000 or more.  When both the Federal requirements and state law apply, it’s actually the law which sets the higher standards that must be followed by the employer. So, in the states that have passed higher minimum wage rates, the local law actually trumps Federal law.

The laws on wages in Iowa have some slight exceptions.  For example, if the business employs tipped employees (defined as an employee who makes $30/month or more on tips), then the business can pay as little as $4.35/hour (Iowa) or $2.13/hour (Federal).  However, in any given week where the employee’s wages do not average at least $7.25/hour, the business is required to pay the difference.

Another income regulation to consider is that Iowa law also allows for an employer to pay an employee an “initial employment wage” of $6.35/hour for that employee’s first 90 days of employment.  Federal law allows for employees under the age of 20 to be paid as little as $4.25/hour for the same 90 day period. This period allows the employee time to train until they are able to fully handle the workload.

If you, or someone you know, are in need of legal services regarding employment wage questions or employees, feel free to contact us at Kreamer Law Firm, P.C. through our website at www.KreamerLaw.com or by calling us at 515-727-0900.

Buying a Business, Essential Qualities: Commitment

This blog is part of a series of blogs on buying a business. We are first exploring the qualities you need when deciding to whether or not you are should buy a business. I encourage you to go back and read the previous blogs.

This week we are discussing access to commitment.

Commitment. The one indispensable characteristic of a successful Buyer is commitment. By this I mean that although a Buyer will not succeed simply because they ARE committed to the business; it is certain that the business will fail if they are not.  Business commitment takes many forms. Business ownership can take a toll on the Buyer’s social and family life in addition to their financial situation. Accordingly, a Buyer, and to some extent their family and friends, must be willing to make some short term sacrifices to reap long term benefits. Among the commitments successful Buyers make is to be “life long learners.” There are many good business books and courses. Four books that we strongly recommend are: “Getting to Yes” by Roger Fisher and William Ury; “Guerilla Marketing” by Jay Conrad Levinson; “From Good to Great” by James Collins and “E-Myth Revisited” by Michael Gerber.

If you would like assistance in regards to the purchase/sale of a business, please contact me at http://www.kreamerlaw.com.

Buying a Business: Essential Qualities, Expansion of Products and Services

In the 30 +/- years of since I began practicing law, I have worked on hundreds of sales and purchases of businesses. This is the second chapter in a series of blogs wherein I will share my observations and experiences.  I encourage you to go back and read this blog series from the beginning “insert date”.

The second reason a strategic buyer will purchase a business is to provide expansion of products/services.

Expansion of products/services. Most business purchases by Buyers seeking to expand their product line/services are successful. These types of transactions are typified by Buyers with related industry experience. Examples of this type of acquisition could include:

An insurance agency who focuses on sales of life insurance buying an agency with expertise in property and casualty insurance.

A car dealership which buys another car dealership which represents a different manufacturer.

Sellers in these types of transactions are often motivated by personal reasons such as retirement, health issues, or unrelated indebtedness. It is not uncommon in these types of transactions for the Seller (or a key employee of Seller) to remain involved in the operation of the business after its acquisition. In the examples above the Seller might run a “division” of the Buyer’s business which engages in the Seller’s business. In these types of transactions, it is very important that as part of the transactions the Seller agrees that he/it will not compete with the Buyer for a period of time (normally 2-5 years) after the Seller is no longer involved with the business.

Next  I will be covering Entry into the Market.

Buying a Business: Essential Qualities

In the 30 +/- years of since I began practicing law, I have worked on hundreds of sales and purchases of businesses. This is the first in a series of blogs wherein I will share my observations and experiences.

There are several “qualities” which are common to Buyers in successful sales/purchases of businesses.  These qualities are:  industry knowledge, personal operational knowledge, capital, access to expertise, and commitment In the next few weeks I will be exploring these qualities with you.  Before you consider buying any business, you should ask yourself if you have these qualities:

This week we are examining industrial knowledge and Personal knowledge.

Industry knowledge. Industry knowledge includes knowing the “market” (both customers and competition), as well as “industry standard” revenue/costs/expense ratios for the business. This information can sometimes be obtained from associations which are comprised of similar businesses.

Personal operational  knowledge. Unlike “old dogs” it IS possible for Buyers to learn “new tricks”. HOWEVER, in most successful transactions the Buyer himself/herself has had PERSONAL experience in the operational side of a business similar to that which they are considering buying. Often one of the terms of a transaction is that the Seller agrees to “train” the Buyer. This approach can be successful if the business operation is not very complicated, or if the business has revenues of less than $250,000. Our experience is that in most (but not all) cases the teacher/pupil model does not translate well to Sellers and Buyers.

A hybrid between buying a business and starting one “from scratch” is the purchase of a franchise. At its core, a franchise is a tested business “model”. Their terms and conditions vary among industries and among companies within an industry, but most offer some level of industry/market knowledge and training of franchisees. Obtaining a franchise can reduce the “learning curve” but it is not a guaranty of success.

If you would like assistance in regards to the purchase/sale of a business, please contact me at http://www.kreamerlaw.com.

BE PREPARED: CUT YOUR LEGAL FEES WHEN STARTING A BUSINESS

The client who comes prepared for meetings with their attorney save significant amounts on their legal fees. This is because the attorney can work much more efficiently to address your needs.

The nature of the preparation is dependent on the type of matter involved, but, at the very least, you should consider writing out a list of questions and/or issues to be discussed. This will help you “focus” the discussion, stay on track, and avoid forgetting something which needs attention.

If we were asked to assist you in the formation of your business, we would urge you to consider the following:

  1. The business name
  2. Principal address of the business
  3. Names, addresses and social security numbers of all “owners”
  4. How much (as a percentage of the total equity) each owner will own
  5. What each owner will contribute to the business in return for their ownership
  6. Names, addresses, and titles of officers
  7. If the business will be leasing space, a copy of the lease
  8. If the business will have employees how many and when the first payroll will be paid (you are considered an employee of a corporation of which you are an owner; you are NOT an employee of a limited liability company in which you are an owner)

We strongly recommend, but do not require, that you prepare a business plan. The biggest value a written business plan is that it will cause you to think through the business on a practical logistical level. A “completed” business plan should include:

  1. A marketing plan
  2. A projection of revenue and expense, and
  3. An analysis of the Strengths, Weaknesses, Opportunities and Threats (a S.W.O.T. analysis) which you may confront in your business.

Although there are several business plan software packages available, we HIGHLY recommend you work with a nearby Small Business Development Center (“SBDC”), which is a governmental entity charged with assisting entrepreneurs.

The adage “time is money” is particularly true when working with your attorney. By spending some of your time preparing for your meeting with your attorney, you could save a substantial amount of money.

Will You Be Personally Liable For Your Actions of Your Employees?

Are you personally liable for damages arising from the actions (whether negligent or intentional) of your employees? If one of your employees, during normal business hours, causes a serious accident while driving a company vehicle, are you (personally) liable for the damages/injuries? Are you personally liable for your business’ accounts payable to vendors, or loans from creditors?

The answers may depend, on your company’s books and records.

In virtually every state, the law provides that if the owners of the company do not follow general business protocols creditors (including people who file lawsuits) can “pierce the veil” and attribute personal liability to the owners of the company.

Your best defense to a lawsuit seeking to “pierce the veil” is to maintain good company records. This includes, but is not limited to:

  • The existence of a company Minute Book. This is the repository of the company’s records. It normally will contain not only minutes of meetings[1], but also stock[2] or membership unit ledgers[3].
  • The existence of Bylaws[4] or an Operating Agreement[5]. These documents normally address issues of business governance (including, but not limited to: who votes, the issues on which votes are taken, and how votes are counted), as well as tax issues. These documents may address relationships among the owners (buy/sell; rights of first refusal, transfers on death), but these issues are often addressed in separate documents.
  • The issuance of Stock or Unit certificates. These are tangible evidence of business ownership. Most commonly the number of shares/units is less important than the percentage of ownership of the total outstanding shares/units. Not all shares or units need be exactly alike. For instance: there could be non-voting owners who share in the economic returns, but have no “voice” in the management of the company (“silent partners”); or certain owners may have a right to a preferential return (either as to income or as to liquidation, or both).
  • Minutes of shareholder/member and director/manager meetings. Anything “material” (i.e. important and/or significant) should be documented in minutes. Determination of what is “material” will vary from business to business. Elections of directors/managers should be documented (particularly if there is a change of directors/managers). Meetings need not be held in person, or face to face. Telephonic, and/or e-meetings are becoming increasingly common. Resolutions affirming, authorizing, or directing, an action can be adopted without a meeting is the resolutions are contained in a signed document.
  • Filing of all applicable tax forms on a timely basis.
  • Absence of co-mingling of funds of the business and the owners; absence of payments of the owner’s personal expenses with company funds.

In short: if those who own and manage the business ignore business formalities, the law will ignore the separate existence of the business entity.


[1] Shareholder and director meeting minutes in the case of a corporation; member and manager meetings in the case of a limited liability company.

[2] For a corporation

[3] For a limited liability company

[4] For a corporation

[5] For a limited liability company