Iowa Legislation Signed into Law in 2014 (so far…)

New Iowa Corporate Laws Signed in 2014

Our readers frequently inquire about what new legislation Iowa’s legislature is passing and Iowa’s Governor, Terry E. Branstad, is signing into law.  While the 2014 legislative session has not yet adjourned for the year, a list of all legislation signed into law in 2014 is provided below along with links to the legislation.  Notably, for our readers here at, on March 26, 2014 and as referenced below, Governor Branstad signed Senate File (“SF”) 2200 into law.  As we will more fully address in future posts, SF2200 revises an Iowa corporation’s duties to provide shareholders with important financial information as well as amends Iowa’s existing law governing voting trusts and shareholder agreements.

As of April 13, 2014, Iowa Governor, Terry E. Branstad, has signed the following bills into law:

Signed on March 7, 2014

House File 2131: an Act modifying applicable to the recording of a mortgage or deed of trust executed by a transmitting utility.

House File 2172: an Act providing for the use of an electronic filing and notice system by the Public Employment Relations Board.

House File 2216: an Act concerning the definition of off-road utility vehicle for purposes of regulation by the Department of Natural Resources. Continue reading

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Showing Shareholders the Money in Iowa Corporations

Iowa Corporate Law

Are Iowa corporations required to disclose financial information to shareholders?

Iowa law requires Iowa corporations to provide certain financial information to their shareholders.  In particular, Iowa Code Section 490.1620 mandates Iowa corporations to provide their shareholders with “annual financial statements.”  As you may suspect, “annual financial statements” should include a balance sheet, an income statement, and a statement of changes in shareholder equity, if any.  Further, if financial statements are prepared for the corporation on the basis of generally accepted accounting principles (GAAP), the annual financial statements provided to shareholder must also be prepared on that basis.

When must an Iowa corporation’s financial statements be provided to shareholders?  

Iowa law clearly states the corporation must send the annual financial statements to each shareholder within 120 days after the close of each fiscal year.  See Iowa Code Section 490.1620 (2014).  If the corporation, however, is a public corporation, additional requirements may apply under the United States Securities and Exchange Commission.

What if an Iowa corporation fails to provide annual financial statements to shareholders as required by Iowa law?

If an Iowa corporation fails to provide annual financial statements as required by Iowa law, the aggrieved shareholder(s) may choose to request relief from an Iowa court, including seeking a court order compelling the corporation to produce the required statements, and perhaps, damages if they can be established.

Annual financial statements are just a few of the corporate records a shareholder may access and review.  To learn more about the records a shareholder may review, you may want to review these posts: here and here.  Finally, Continue reading

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7 Corporate Records an Iowa Corporation Must Keep

Maintain Iowa Corporate Records

Iowa shareholders who are either seeking to learn more about their corporation or who are investigating potential corporate wrongdoing, often inquire as to what corporate records (i.e. documents) their corporation must keep.  Not surprisingly, reviewing a corporation’s records often provides shareholders with a better understanding of how the corporation is running, or perhaps, isn’t running.  Pursuant to Iowa law, a corporation is required to keep at least the following five (5) categories of records:

1.  All minutes from shareholder and board of director meetings;

2.  Records of all actions taken by shareholders or the board of directors without a meeting;

3.  “Appropriate”* accounting records;

4.  A record (i.e. list) of its shareholders;

5.  Articles or restated articles of incorporation and any amendments thereto;

6.  Bylaws or restated bylaws and all amendments to them currently in effect; and

7.  All written communications to shareholders.

Iowa Code Section 490.1601 (2014).

*The phrase “appropriate” accounting records is commonly understood to mean those records that generally permit financial statements to be prepared which fairly present the financial position and transactions of the corporation.  Also, according to one very influential authority, “in some very small businesses operating on a cash basis, ‘appropriate’ accounting records may consist only of a check register, vouchers, and receipts.”  Model Business Corporation Act, 16-2 Official Comment at 2 (2012).

Keeping these and other corporate records on hand for a specified period of time is not only required by Iowa law, but access to such records helps shareholders understand important information about their corporation.  

To learn more about inspecting your Iowa corporation’s records, see these posts HERE, HERE, and HERE or contact an attorney in your jurisdiction.

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Pre-Incorporation Liability for Iowa Entrepreneurs and Startups

Iowa Preincorporation LiabilitySo you’ve come up with the next “big thing,” and you’re excited, anxious, and busting at the seams to get started.  All natural feelings, but before getting too far down that exciting path, be careful not to put your cart before the legal horse.

You have probably heard about some of the many legal protections that Iowa business owners receive by forming a corporation (e.g. limited liability), but you may not have heard that before the corporation is legally formed you are likely “on the hook” for any liabilities that arise (debt claims, infringement claims, personal injury claims, etc).  Specifically, Iowa law provides that if you act or purport to act on behalf of a corporation that has not yet been incorporated (i.e. legally recognized by the state), you are personally liable for all liabilities created while so acting.  See Iowa Code Section 490.204.  In other words, just because you intend to create a corporation or because you have filled out the paperwork to do so, if the corporation has not been legally recognized by the state, you could be held personally liable for any claims that arise. These claims include trademark infringement, copyright infringement, and patent infringement to name a few.  Consequently, before you go out and act or purport to act on behalf of a corporation you intend to create, saddle up that horse and get your legal affairs in order.  After all, in Iowa, incorporating is relatively inexpensive, easy, and quick.  To get started and learn more, you should consider contacting a licensed attorney.

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A Deeper Dive into a Director’s Duty to Become Informed

Iowa Fiduciary Duty to Become Informed

As described in a prior post (here), Iowa’s fiduciary duty law requires directors to become informed with respect to their decision-making obligations.  Thankfully, a director’s duty to become informed is fairly straightforward.  As you may suspect, the duty to become informed requires a director to become sufficiently familiar with background facts and circumstances relating to a particular issue before taking action.  Not surprisingly, the process typically involves directors reviewing written materials provided before or at a board meeting and paying attention to or participating in the deliberation leading up to a vote on a particular matter.

Further, there is not a specific “legal method” that courts require directors to follow in order to become sufficiently informed; rather, both the method and measure – “how to become informed” and “how much work is required” – are matters of reasonable judgment for the director to exercise and a court to evaluate on a case-by-case basis.  In short, when discharging your duty of care by becoming properly informed on a matter, you may ask yourself, would a judge or jury of my peers reviewing my actions believe I’ve become sufficiently informed by (1) reviewing the materials presented; (2) obtaining answers to questions that may arise; and (3) otherwise doing the work necessary to thoroughly understand a matter before taking action?  While these items are fairly basic, many directors overlook these responsibilities and find themselves on the wrong end of a costly lawsuit. Continue reading

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Care, or Beware! Iowa’s Fiduciary Duty of Care

Iowa's Fiduciary Duty of Care

With Valentine’s Day just around the corner, we think it’s high time to further explore “caring” in the corporate context.  And while we’ve frequently addressed the broad concept of fiduciary duties that Iowa law and Iowa courts impose upon corporate directors (here, here, and here), we have yet to dive further under the fiduciary duty umbrella and explore the fiduciary duty of care.

Duty of Care Characteristics – What is the Duty?

The duty of care is a somewhat abstract legal concept.  Consequently, rather than a clear  and simple explanation, courts and legal commentators use several characteristics to explain a director’s “duty of care.”  A director’s duty of care is frequently broken-down and explained in reference to a director’s obligation to manage the corporation in good faith and requiring a director to: (1) become informed (read more here); (2) devote attention to; (3) and to form a “reasonable belief” about certain matters.  Considering that a director’s role includes providing direction and oversight to officers, employees, and other agents of the corporation who carry out day-to-day management functions, it is easy to see why directors must abide by these important characteristics.

A Standard or “Baseline” From Which a Director’s Level of Care is Measured

The question frequently arises as to how much “care” a director must exercise to satisfy this duty.  In other words, how informed must a director become on a matter, or how much attention must a director devote to an issue in order to satisfy the duty?  Thankfully, just as Iowa law creates the duty of care, it also provides a “baseline” or “standard” from which to evaluate whether a director exercised sufficient care.  The baseline is described as: “the [level of] care that a person in a like position would reasonably believe appropriate under similar circumstance.”  Iowa Code Section 490.830.  An admittedly vague standard, but one that allows Iowa’s courts to apply the standard to all cases after taking into consideration the unique facts and circumstances of each case.  It must be noted that in certain circumstances a director’s duties are more specifically defined.  For example, with respect to the issuance of shares (Iowa Code 490.621), distributions (Iowa Code 490.640), dismissal of derivative proceedings (Iowa Code 490.744), indemnification (Iowa Code 490.855), and interested-transaction authorization (Iowa Code 490.862), among others, Iowa law provides further clarification as to how a director must carry out his/her duties. Continue reading

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Resources for Small Businesses in Iowa

Image Credit: The Greater Des Moines Partnership

The entrepreneurial experience of starting a new business is thrilling, exciting, scary, and often nerve racking, to name just a few emotions.  And whether you’re thinking about starting a new business in the Des Moines area – ranked Best Place for Business and Careers in 2013 – or you just launched your new endeavor, central Iowa is filled with countless, valuable resources to help you start off on the right foot and avoid future problems, including avoidable corporate disputes.

Check out this list of valuable resources and don’t be afraid to reach out and contact someone.  No matter what stage you’re in, they’re there for a reason:

  1. West Des Moines Incubator;
  2. StartupCity Des Moines;
  3. One Million Cups of Coffee Des Moines;
  4. Startup Iowa;
  5. CarpeDM;
  6. Iowa Small Business Development Center;
  7. The Greater Des Moines Partnership; and
  8. BrownWinick Startup Group.

We hope this list will help you in many aspects, and perhaps provide you with a few great people to surround yourself with in your business ventures.  Finally, we welcome our readers to send in additional resources that they’ve used or learned about in Iowa’s rich startup environment.

See related postHow to Start an Iowa Limited Liability Company in Iowa.

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Understand Your Burden of Proof Before Exercising the Nuclear Option

Breach of Fiduciary Duty Claims in Iowa

Duty of Care v. Duty of Loyalty and the Shifting Burden of Proof

Intra-corporate dispute cases frequently involve litigants asserting breach of fiduciary duty claims.  More specifically, they involve plaintiffs alleging the defendant(s) breached his/her duty of care and duty of loyalty.  Before a plaintiff exercises the nuclear option and launches such highly contentious claims against a defendant(s) in court, the plaintiff and his/her counsel should consider who (plaintiff or defendant) will bear the burden of proof to prove such claims.

On January 9, 2014, the Iowa Court of Appeals published its opinion in Virgil Moore and Marilyn I. Moore vs. Pioneer Estates, LC, et. al, No. 3-1000/ 12-2105 (Full Opinion Here).     In Pioneer Estates, the plaintiff launched a legal attack against defendants, alleging the defendants breached their duty of care and duty of loyalty in several ways (failing to disburse available funds; charging unauthorized and excessive management fees; making improper and unauthorized charges for business expenses of other entities; borrowing funds for other business entities owned by defendants; paying personal living expenses for defendants; and entering into transactions which were unfair).  For its duty of loyalty claims, the plaintiff recognized that while the burden of proof is traditionally placed squarely upon plaintiffs, a duty of loyalty case is unique and the burden of proof shifts to the defendants.  To address the plaintiff’s argument and this important proof question, the court relied upon a 1988 Iowa Supreme Court case.  See Cookies Food Products, Inc., by Rowedder v. Lakes Warehouse Distrib., Inc., 430 N.W.2d 447, 453 (Iowa 1988). Continue reading

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Personal Liability for Failing to Hold LLC Meetings and Keep Corporate Minutes?

Iowa Court of Appeals

On January 9, 2014, the Iowa Court of Appeals published its opinion in Northeast Iowa CO-OP., n/k/a Viafield v. Joel Lindaman et al., No. 3-1058 / 13-0297 January 9, 2014 (Full Opinion Here), which is yet another Iowa Court of Appeals opinion addressing member liability in an Iowa limited liability company (“LLC”).  In particular, the opinion addresses whether the plaintiff, Viafield, can pierce an LLC’s corporate veil and hold the defendant, Lindaman, personally liable for the LLC’s debts.

Viafield requested the Court pierce the LLC’s corporate veil under several legal theories. Before assessing Viafield’s legal theories, however, the Iowa Court of Appeals acknowledged an LLC’s corporate veil may be pierced in Iowa upon establishing one of six different factors:

Iowa courts may disregard a corporation’s existence if (1) it is undercapitalized, (2) it is without separate books, (3) its finances are not separated from individual finances, (4) it pays an individual’s obligations, (5) it is used to promote fraud or illegality, or (6) it is merely a sham. Briggs, 262 N.W.2d at 810.

One of Viafield’s arguments for piercing the LLC’s veil and holding Lindaman personally liable was that the LLC “did not hold meetings and no minutes exist.”  Viafield, p. 18. Continue reading

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5 Must-Consider Clauses for Your Business’ Governing Documents

5 thingsIncluding the proper provisions in your business’ governing documents (Articles of Incorporation, Bylaws, Operating Agreement, etc…) can help eliminate several problems – legal and otherwise – down the corporate road.  The following legal issues, all of which relate to a corporation’s board of directors, are important to consider when either starting a business or amending the business’ governing documents as they generally must be addressed within the corporation’s appropriate governing document(s) (articles of incorporation or bylaws) to have an effect:

1.  Directors’ Power to Set Their Own Compensation.  In some small corporations, shareholders are frustrated to learn that directors are setting their own compensation.  In Iowa, unless the articles of incorporation or bylaws state otherwise, the board may fix the directors’ compensation.  Consequently, should you want to restrict or limit the directors’ power to set their own compensation, you should consider this issue early and before finalizing the corporation’s articles of incorporation and/or bylaws.  See Iowa Code Section 490.811.

2.  Electing Directors by Cumulative Voting.  Similar to paragraph 1, unless the corporation’s articles of incorporation state otherwise, shareholders generally do not have a right to cumulate their votes for directors.  For minority shareholders, the right to cumulative voting is often the key voting provision that will allow a minority shareholder to elect someone to represent them on the Board of Directors.  Without the right to cumulate their votes, minority shareholders may not have the voting power to elect an individual, including themselves, to the board.  See Iowa Code Section 490.728.

3.  Electing Directors by Greater Than a Simple Plurality of the Vote.  Just like the prior paragraph, unless the articles of incorporation state otherwise, directors are elected by a plurality of the votes cast, not a majority of the votes case.  In other words, individuals receiving the largest number of votes are elected directors, which may result in individuals being elected but having fewer than a majority of all the votes cast in the election.  If you or your corporation want to require a majority vote, rather than a plurality vote, you should consider contacting an attorney to discuss including the proper language within your corporation’s appropriate governing documents.  See Iowa Code Section 490.728.   Continue reading

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