Rush on Business

Franchise Agreement Negotiation Red Flag: We Won't Hold You to It

rush.nigut@brickgentrylaw.com (Rush Nigut) — Fri, 10 Feb 2012 13:20:45 -0600

In this video I discuss a red flag I've seen come up in franchise agreement negotiation. Sometimes a franchisor will tell a prospective franchisee that they can't (or won't) change the franchise agreement. That's just fine but my problem comes when they say, "Don't worry though, we won't hold you to that provision." That is definitely a red flag!

The Franchise Contract is Over. What Next?

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 09 Feb 2012 06:00:00 -0600

Maryland franchise lawyer Jeff Fabian has an excellent blog post on the issues to consider when the franchise agreement terminates on the Franchise Help blog.

In my experience many franchisees are under the misconception that they can simply change the name of their business and then begin serving the same customers the next day under the new business name. Wrong!

Most franchise agreements will contain a non-compete clause. And franchisees are surprised to learn that the customers may not belong to them at all.

Jeff's post covers these issues and more. Keep these factors in mind when you are initially reviewing the franchise agreement and considering whether to purchase the franchise. If a franchise term is 5 years, that can go very fast and you might find your bucket is empty at the end of the term.

False Advertising Lawsuit Filed Against Hall of Famer George Brett's Company

rush.nigut@brickgentrylaw.com (Rush Nigut) — Wed, 08 Feb 2012 09:30:25 -0600

A false advertising lawsuit has been filed against Brett Bros. Sports International, Inc. by an Iowa man. The President of the company is none other than Hall of Famer and legendary baseball player, George Brett. The lawsuit, filed in the United States District Court for the Southern District of Iowa seeks class action status and more than $5 million in damages according to the Complaint filed on February 6, 2012.

The allegations center on the alleged health and/or performance benefits of the necklaces that many young athletes seem to wear these days. The lawsuit alleges that Brett Bros. falsely claims its necklaces "help relieve stiffness in the shoulders and neck, eventually stabilizing your whole body, as well as help recovery from sports fatigue, restore important ion balance, and improve concentration and focus."

The Plaintiff, who purchased his necklace at the 2011 College World Series, says he didn't receive any of these benefits after relying upon the endorsement of George Brett.

This isn't the first time the sports performance necklace and bracelet industry has come under attack. Last year, it was reported that Power Balance entered into a $57 million settlement and declared bankruptcy.

The lawsuit against Brett's company specifically alleges that the company violated the Iowa "Private Right of Action for Consumer Frauds Act" (Iowa Code section 714H). Filing a class action pursuant to the statute requires approval from the Iowa attorney general's office. The Complaint indicates that such approval has been obtained. A successful lawsuit under the statute would entitle the named Plantiff and the class members to damages, costs and reasonable attorney's fees.

Iowa LLC Law: Anonymity in Filing Good for Confidentiality

rush.nigut@brickgentrylaw.com (Rush Nigut) — Tue, 07 Feb 2012 08:15:58 -0600

One of the nice benefits of filing an LLC in Iowa is that the owners are not required to disclose the members in filings with the Iowa Secretary of State. In many instances when filing a Certificate of Organization, I won't list the member(s) to provide anonymity to the member(s) on the public search site. Instead, I'll sign as the organizer and use our law office address as the registered office for the company. In biennial report filings, I'll sign as the registered agent or authorized representative.

This strategy is helpful when business owners don't want others to know what their doing through public searches on the Secretary of State's site. Today's Des Moines Register BIZ BUZZ column had a report about a buyer that purchased a home in our area for $2.5 million. The owner obviously did not want others to know who purchased the home so they set up an LLC with only the lawyer disclosed as the organizer. This kept the information confidential - for now. Someone will likely found out when they move in since it's a residential property. But I've represented several people who use this strategy to keep their identities protected from public searches. The member is disclosed in the operating agreement, meeting minutes and other documents but those documents are not filed or shared on the Iowa Secretary of State site.

Just another reason why forming an LLC in Iowa is beneficial for Iowa residents.

Should You Include Your Spouse When Forming an Iowa LLC?

rush.nigut@brickgentrylaw.com (Rush Nigut) — Mon, 06 Feb 2012 06:00:00 -0600

I am often asked whether a business person should include their spouse when forming an Iowa small business LLC. Circumstances may vary but there are usually some benefits to filing an LLC as a single-member rather than having two or more members. First, single-member LLC owners are not required to file a separate tax return for their business. Additionally, it may help your family from an asset protection standpoint. I discuss these issues in the video below.

Where to Incorporate or Form an LLC for Your Iowa Small Business?

rush.nigut@brickgentrylaw.com (Rush Nigut) — Sat, 04 Feb 2012 06:00:00 -0600

I've addressed the issue of where to incorporate or form an LLC for your Iowa small business a few times on the blog. In general, Iowa small businesses would do well to incorporate or form their LLCs right here in Iowa. But I am asked often enough that I thought it might be helpful to prepare a video on the topic.

Should a Spouse Sign a Franchise Agreement?

rush.nigut@brickgentrylaw.com (Rush Nigut) — Fri, 03 Feb 2012 09:47:15 -0600

I recently received an inquiry on the blog asking whether or not a spouse should sign a franchise agreement. Circumstances may vary, but in general, I usually recommend that spouses don't sign the franchise agreement if they aren't going to be involved in the franchise business. It's my view there is no reason your family should throw all your eggs in one basket by having both spouses sign a personal guarantee.

If a franchisor tells you it's required for the spouse to sign, push back. There is no such legal requirement. Plus, most franchise agreements have transfer provisions that allow the franchise to be transferred to the spouse in the event of death or other circumstances.

Other reading: 11 Things Every Franchisee Should Know.

Be sure to consult a franchise and/or business attorney for your specific circumstances.

Rush on Business You Tube Channel on the Air!

rush.nigut@brickgentrylaw.com (Rush Nigut) — Wed, 01 Feb 2012 11:56:33 -0600

I am pleased to announce that I now have a Rush on Business You Tube Channel where I'll post short videos on various aspects of business and franchise law. I have a few videos posted so far and I'll add content weekly.

New videos include:

Should You Include Your Spouse When Forming a Small Business LLC?

Where Should Iowa Residents Incorporate or Form an LLC for their Small Business?

If there is a topic you think would be interesting, please let me know!

MyEntreNet Business Entity Formation Seminar Postponed

rush.nigut@brickgentrylaw.com (Rush Nigut) — Wed, 01 Feb 2012 09:37:35 -0600

Unfortunately I must postpone the MyEntre.Net seminar set for tomorrow at Noon CT on business entity formation issues. We will reschedule as soon as possible. Unfortunately a conflict has come up that cannot be avoided.

I look forward to giving the presentation soon!

Iowa Startup Fair Has More Than 80 Companies

rush.nigut@brickgentrylaw.com (Rush Nigut) — Tue, 31 Jan 2012 08:17:46 -0600

The Iowa Startup Fair takes place on January 31, 2012 from 3 to 6 PM in various locations around downtown Des Moines, Cedar Rapids, Cedar Falls and Pella. More than 80 companies will be exhibiting throughout the state.

There are more than 50 businesses exhibiting at the Des Moines locations. Those locations are the StartupCity Des Moines offices, 317 Sixth Avenue, Fifth Floor; Amici Expresso, 206 Sixth Avenue; Foundry Coworking, 418 6th Avenue, skywalk level; and the BitMethod Headquarters, 418 6th Ave., 12th Floor.

The event is designed to give the community, investors and business people a look at the exciting things Iowa business startups are accomplishing.

I'll be exhibiting with my startup, NotifyWorks, a cloud based software system that allows lawyers, financial advisors and other professionals to send automated email notifications to their clients even when they are away from their desks or working on something else. Come check us out!

Employers & Social Media: NLRB 2nd Report Concerning Social Media

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 26 Jan 2012 08:31:25 -0600

Jon Hyman wrote on his Ohio Employer's Law Blog that the NLRB has issued a 2nd report on social media as protected concerted activity. If you are an employer considering discipline or termination of an employee resulting from social media activity you need to be very careful. Jon points out:

This report underscores that employees’ use of social media to discuss the workplace and work-related issues, and the impact of business’s social media policies on those discussions, remains at or near the top of the NLRB’s priorities. Because the NLRB is taking such an interest in this area, employers act at their peril if they discipline or discharge an employee for social media activities, or roll out a social media policy, without the advice and input of counsel well-versed on these issues.

Bottom line: Discipline of employees making disparaging comments about your company through blogs, Facebook, Twitter and other sites could land you in trouble. You should read the report of the acting NLRB general counsel. It's one thing to have rules that prohibit plainly egregious conduct through the use of social media but be VERY cautious if have rules trying to curb what employees can say about your company.

Business Formation: What Entity is Right For You?

rush.nigut@brickgentrylaw.com (Rush Nigut) — Wed, 25 Jan 2012 05:55:43 -0600

Do you know the difference between sole proprietorships, partnerships, corporations and limited liability companies? Do you know whether to set up an S corporation or is a C corporation better for you? Are limited liability companies really all that and a bag of chips?

Be sure to join me for an information-packed webinar through MyEntre.Net on Thursday, February 2, 2012 at 12:00 p.m. CT as we discuss the common business structures and how these various legal structures vary in complexities. Plus, we'll talk about the common misconceptions that abound in choosing a legal structure for your business.

If you're thinking about forming a business entity soon, you won't want to miss this seminar!

Franchising in the 21st Century: How can franchising improve?

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 19 Jan 2012 20:24:58 -0600

Franchisee lawyer Richard Soloman suggests there may be watershed changes in franchising over the next 15-20 years in a post on BlueMauMau. It's an interesting post from a lawyer who has seen many franchisees lose their life savings in franchise operations gone awry.

Some prospective franchisees reading Richard's post may be surprised. Are the problems in franchising that serious? After all, isn't it safer to own a franchise than an independent business? The answer is an emphatic NO!!!!! The fact is that franchise businesses fail at about the same rate as independent businesses. One could argue it's even tougher to make a franchise work financially when you consider that franchisees are required to pay royalties, advertising and other fees even when the franchisee's business is not profitable. The notion that franchises offer a proven system that will work for franchisees really isn't the case in many circumstances. Many franchises are neither "proven" or a "system".

I agree that franchising could use some important changes over the next 15-20 years. A few things could make a big impact in my opinion:

Uniform Franchise Laws. Franchising laws vary widely from state to state. Although it wouldn't be easy to get all the stakeholders to agree, it would be helpful for franchisors and franchisees to have uniform franchise relationship laws so that everyone is operating under more predictable standards. I don't think most franchise lawyers see this on the immediate horizon but it should happen in my view.
Unprofitable Franchisees Should Be Permitted to Terminate. Should an unprofitable franchisee be forced to stay in business or pay lost royalties for the duration of the franchise agreement? I know that risk is inherent in business and franchisees are contractually bound. Not every franchisee will be successful and sometimes failures occur through no fault of the franchisor. But most often there is blame on both sides and franchisors should acknowledge their involvement (or lack of involvement) in unprofitable franchise locations. But my idea isn't that franchisees get off scot-free. Instead, how about lawsuit immunity for franchisors that give franchisees the right to terminate unprofitable locations? It might just lead to a better team approach.
Franchisors must actually be obligated to do something under the Franchise Agreement. I've read franchise agreements where the franchisor is essentially not obligated to do anything for the franchisee. In one recent franchise agreement I reviewed, everything the franchisor agreed to do for the franchisee was "in their discretion". Why should one party be obligated to do something when the other is not? Just getting the franchisee in business shouldn't be enough for a franchisor.

Those are just a few things in my view that could level the playing field and make franchise opportunities better and safer investments for franchisees. Now I want to make it clear that I don't view every franchisor as evil or bad. But many franchise-franchisee relationships could definitely benefit from a more even playing field. I also don't see any these ideas occurring any time soon and I'm sure there are many franchise lawyers who think these ideas are bad anyway. Of course as George S. Patton said, "If everyone is thinking alike, then somebody isn't thinking."

Free Incorporation and LLC Formation for Iowa's Military Veterans in 2012

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 19 Jan 2012 08:13:55 -0600

Last night I attended the Greater Des Moines Partnership's Annual Dinner. It was an interesting evening and I enjoyed listening to the guest speaker Christiane Amanpour discuss her experiences as a global journalist. She is obviously incredibly passionate about her work and encouraged everyone in the audience to "DO GOOD" with their work and to help the community around them.

The Partnership also announced last night that it is continuing its support of the "Hiring our Heroes" program designed to get our unemployed Iowa military veterans back to work. A video presented before dinner stressed the sacrifice made by so few for so many of us and the tremendous qualities that military veterans demonstrate in workplaces throughout Iowa.

Yesterday, I wrote about Above the Line America a new group formed for business people who have a "GIVE FIRST" attitude. So all of the events and conversations got me thinking, "How can I "DO GOOD" and "GIVE FIRST"?

That's why I have decided throughout the rest of 2012, I will donate my time for any Iowa military veteran who wishes to set up a basic corporation or LLC for a new small business. It's only a small gesture but it's one way that I can say thanks to our veterans who have sacrificed so much for us. So if you are a military veteran in Iowa who is starting a small business, feel free to contact me regarding this offer.

Business Growth Summit 2012 in Ankeny on January 31st

rush.nigut@brickgentrylaw.com (Rush Nigut) — Wed, 18 Jan 2012 06:00:00 -0600

A new organization called Above the Line America is hosting a Business Growth Summit in Ankeny, Iowa on January 31, 2012 from 8:30 a.m. to 5:00 p.m. The Summit is located at the FFA Enrichment Center, 1055 SW Prairie Trail Parkway in Ankeny.

The day should be a great one. Business owners and professionals will get an opportunity to come away with an ActionPlan for their business plus listen to some great speakers including Tony Brigmon (the Original Ambassador of Fun for Southwest Airlines, Geoff Wood of Silicon Prairie News, Major Sean Quinlan (a Bronze Star recipient), Jordan Lampe of Dwolla and Angela Maiers of Angela Maiers Education Services. But best of all there is the opportunity to network with many other business-minded people like you.

One of the advisory board members for Above the Line America is my friend Andrew Clark of createWOWmarketing. Andrew and three others started the group to create a network of business-minded individuals with a "give first" attitude. If you have any questions regarding the organization or the event be sure to contact Andrew.

You can register for the event here.

Iowa Startup Fair to Showcase New Businesses

rush.nigut@brickgentrylaw.com (Rush Nigut) — Mon, 16 Jan 2012 10:53:20 -0600

The first ever Iowa Startup Fair is taking place on Tuesday, January 31, 2012 from 3 to 6 pm. During the fair, new businesses will set up informational tables to showcase thier projects for an audience of business, investment, civic and other community members.

In Des Moines, the Startup Fair locations will be at the Midland, Bank of America and Liberty Buildings. In Cedar Rapids/Iowa City, Vault Co-Working will host. A location in Pella has not yet been determined and other regions in Iowa will be added soon according to the site.

I've decided to participate in Des Moines with my new startup, NotifyWorks. Notifyworks is a web-based automated email system that enables lawyers and other professionals to proactively notify their clients of dates and deadlines.

Does Your Iowa Business Need an Angel?

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 12 Jan 2012 06:00:00 -0600

Iowa entrepreneurs have an opportunity to connect with potential investors at the i2Iowa Investors and Innovators Forum on April 12, 2012 at Veterans Memorial Auditorium. Business owners and entrepreneurs can pitch their businesses to investors from four tracks which include:

Life and Bio Sciences
Information Technology
Advanced Manufacturing
General Business

Companies can apply online through February 7, 2012. The goals of the program are to 1) fund companies and 2) showcase the amazing investment opportunities in Iowa. The program is presented by the Technology Association of Iowa and sponsored by the department of Iowa Economic Development.

Looks like another great opportunity to continue the tremendous momemtum Iowa is experiencing in the startup business community. Check it out!

Tips on Negotiating Franchise Agreements

rush.nigut@brickgentrylaw.com (Rush Nigut) — Wed, 11 Jan 2012 06:00:00 -0600

I saw an interesting post from franchise attorney Michael Webster on the BlueMauMau site on Negotiating Your Franchisee Rights. Some of his helpful nuggets:

Review the FDD to see if they are using franchise brokers - you may be able to knock something off the franchise fee by asking for the broker's rebate.
Budget for professional advice. Hire an experienced franchise attorney to negotiate an addendum or side agreement.
Get rid of the personal guaranty.
Get rid of the right of first refusal - it drives down value when selling.
Avoid franchises that limit your use of social media for local marketing.

Read the full article from Michael for more insight. Is it likely you will you get everything on Michael's "wish list"? Probably not. But it is worth asking. Don't be fooled into thinking that franchisors can't and won't negotiate franchise agreements.

The advice on the use of social media is often overlooked by prospective franchisees. In my opinion, a franchisor that won't allow a franchisee to market using social media is stuck in the dark ages. It just doesn't make sense in today's business environment.

See also my blog post on 11 Things Every Fanchisee Should Know. I am an absolute stickler on the trademark indemnification provision. If a franchisor won't indemnify you for the use of THEIR trademark, what else won't they do for you?

LLC Operating Agreements: Watch Out for Capital Calls

rush.nigut@brickgentrylaw.com (Rush Nigut) — Wed, 04 Jan 2012 09:22:12 -0600

I was researching some issues for an LLC operating agreement and ran across an excellent post from the Wisconsin Business Law Blog on the fact that capital calls are often overlooked by LLC investors. Attorney Todd Goodwin provided the following example,

[i]f a "capital call" provision exists and is exercised by the majority members or by the managing member and one of the members cannot afford to put in the required capital, such member could face expulsion from the LLC, dilution of their ownership percentage in the LLC, super-dilution of their ownership percentage to the point where their percentage is effectively worthless, or other negative consequences. (There can be other consequences, but these are some of the typical ones seen in these types of agreements).

I have seen this happen several times with limited liability companies. It happened frequently for investors during the latest economic downturn, especially with real estate investors who could not meet their capital calls. Many of those real estate investors faced expulsion as a result. As Todd points out, the capital calls are neither bad or disadvantageous, but are often important for the operation of the LLC. As an investor it is important to review and understand fully the terms of the capital call provisions BEFORE you sign the operating agreement.

11 Things Every Franchisee Should Know

rush.nigut@brickgentrylaw.com (Rush Nigut) — Sat, 24 Dec 2011 07:58:08 -0600

This year I've reviewed so many franchise disclosure documents for prospective franchisees that I've lost count. No matter the industry, it seems as though I am always discussing the same things with franchisees, whether they are interested in fitness, restaurants, business services or tech. So here are 11 things I'd like every franchisee to know when they are considering a franchise opportunity:

A franchise must have a strong brand or a great system (preferably both). Many prospective franchisees consider brands no one knows about. If so, that brand better have a product or system that knocks your socks off because you're going to need to promote it just like you started up your own new independent business. Buying a well-known brand is usally better because the franchise name recognition is often so critical to success. Without a strong brand name or a great system, what are you buying?
Be willing to walk away from the deal. In my experience, franchisees who are willing to walk away, get the best deals. They are the ones who get concessions in fees, territorial protections and other terms in the franchise agreement. It's like buying a new car, if you're willing to walk away, the sales person will usually stop you with a better offer.
If it isn't in writing, the franchisor isn't going to do it. Many franchisees tell me that a franchisor told them 'this' or the franchisor told them 'that'. If 'this' or 'that' isn't in the franchise agreement, you can be rest assured the franchisor will not live up to their end of the bargain. You can take that to the bank.
Trademark indemnification is necessary. Are you really going to invest your life savings in an opportunity when the franchisor won't even stand by their brand and trademark by defending you if someone sues you for using the FRANCHISOR's trademark? In my opinion franchisors should be legally required to defend franchisees for the use of the franchisor's trademark. After all, the marks are the heart of the franchise. Most franchisors I've dealt with will make this concession in their franchise agreement but it still amazes me when it's not addressed up front in a franchise agreement.
Determine if franchising is right for you up front. Some people are not rule followers. These people will not make good franchisees. If you want to chart your own course with a business, don't become a franchisee.
Interview as many current and former franchisees as possible. If you aren't willing to take the time to call current and former franchisees, you probably get what you deserve if the franchise opportunity goes wrong.
Avoid personal guarantees for your spouse. Most franchisors will require a personal guarantee from you. However, there is no reason to throw all your eggs in one basket by having your spouse sign a personal guarantee too.
Bargain with new franchisors. I am leery of people investing their life savings in a new franchisor but I realize it is sometimes a great opportunity to get on the ground floor of a franchise. But remember that most new franchisors NEED to sell franchisees. This means you may have greater bargaining power to get a better deal.
Franchise agreements are negotiable. Franchise agreements are negotiable even if the franchisor says they're not. Do not be afraid to negotiate. A franchisor that gets upset with you because you try to negotiate is not the right franchisor for you. It's not personal, it's just business.
Mutliple Unit Franchising has the most risk but offers the most reward. In my view, owning multiple units allows you to harness the true power of franchising. The franchisees I see who are the most successful are all multi-unit owners. However, this usually requires a substantial investment and should not be considered unless you have sufficient capital. But owning one franchise unit of system is unlikely to ever make you wealthy and often you are just buying yourself a job.
Franchise businesses fail at roughly the same rate as other businesses. Over the past few years I've seen many franchisees you could not make it for one reason or another. Don't fall for the trap that franchise businesses are less likely to fail. It couldn't be further from the truth.

Don't trust your franchise selection to luck. Do your homework and carefully consider all your options before making a substantial investment in a franchise.