Howdy Partner, Show me Your Books!

Iowa Partnership Books and Records

Access to Books & Records in an Iowa Partnership

Similar to shareholders in a corporation and members in a limited liability company, partners in a partnership are entitled to access the partnership’s books and records.  Iowa partnership law expressly states partners may access books and records: “[a] partnership shall provide partners and their agents and attorneys access to its books and records.”  Iowa Code Section 486A.403.  Access to books and records in a partnership promotes transparency in the organization, instills accountability amongst partners, and provides the opportunity to implement a system of “checks and balances.”  Indeed, a partner who suspects wrongdoing – such as a partner using partnership money for personal purposes and/or gain – may inspect the partnership’s books and records to either confirm or alleviate their suspicion(s).

Notably, the right to inspect a partnership’s books and records survives a partner’s departure from the partnership.  Iowa law provides former partners with the ability to access books and records – even after departing a partnership – so long as the records sought relate to the time period during which the former partner was a partner in the partnership. Continue reading

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Ousting a Corporate Director in Iowa

Removing a Director from the Board of Directors

A Shareholder’s Power to Remove a Director From the Board of Directors

Shareholders often inquire: How is a director removed from a corporation’s board of directors?  The question may be posed out of concern that the shareholder – who also serves as a director – feels threatened as a director and is concerned about being ousted, or the shareholder may be frustrated with a particular director’s conduct and is seeking a change in leadership.  Either way and in theory, removing a director from a corporation’s board of directors is relatively straightforward.

Shareholders, as the corporation’s owners, possess the power to “remove one or more directors” in an Iowa corporation.  Iowa Code Section 490.808.  Importantly, pursuant to Iowa law, so long as the corporation’s articles of incorporation do not state otherwise, “shareholders may remove one or more directors with or without cause.”  Id (emphasis added).  In other words, Continue reading

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2 Must Know Duties Between Partners in a Partnership

Fiduciary Duties Between Iowa Partners

Legal Duties Between Iowa Partners

The Holidays are upon us, and just as tempers can unfortunately flare during family gatherings, so too can they flare between partners at Holiday parties.  And while frustrations arise for good, bad, and other reasons, knowing whether a valid legal reason exists – as opposed to a personal, trivial issue – is important to know for the future of your business and partnership.  To this end, partners often wonder what, if any, legal duties they owe to each other and the partnership generally.  This post quickly identifies two legal duties that partners owe to each other and to the partnership under Iowa law. Continue reading

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Business Owners Taking Legal Mulligans? Caution!

Successor Liability in Iowa

Successor Liability in Iowa

The Legal Mulligan You May Not Want to Take

While mulligans are commonplace on the golf course, they can spell trouble for business owners in the business world.  In particular, business owners who believe they can “start over” and avoid liability or debt held in their first company by “taking a mulligan” and starting a second company – which provides the same product or service as the first – are often setting themselves up for not only a penalty, but perhaps years of costly litigation.  A legal doctrine known as “successor liability,” allows Iowa courts to find a successor company (Second Co.) liable for the debts of a predecessor company (First Co.) in several circumstances.  Many successor liability cases involve business owners giving up on their first company and trying to “take another swing” by starting the business over with a second company (because of too much debt or other liabilities in First Co.) – the proverbial legal mulligan.  On November 6, 2013, the Iowa Court of Appeals published an opinion (here) addressing this legal mulligan – successor liability in Iowa.

In the November 2013 opinion, Continue reading

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How do I Start an Iowa Limited Liability Company?

Start an Iowa Limited Liability Company

“The Way to Get Started is to Quit Talking and Begin Doing” – Walt Disney

Whether you are looking to start an Iowa corporation (“Inc.”), an Iowa limited liability company (“L.L.C.”), or an Iowa limited liability partnership (“L.L.P.”), starting on the right foot and complying with Iowa’s legal requirements is a good first step.  Not surprisingly, complying with Iowa’s legal requirements can not only help reduce future legal disputes, but it can also trigger several corporate liability protections.  This short post addresses two Iowa legal requirements that should be addressed when starting a new Iowa limited liability company (L.L.C).

What’s In a Name?  Selecting a business name is a logical starting point for those seeking to form an Iowa business.  Careful consideration should be given to your business name, not only for marketing and branding purposes, but also for important legal reasons.  For instance, legal disputes can (and do) arise if the business name you choose is the same or too similar to the business name of another business or entity operating in your market.  Such disputes frequently include unwanted consumer confusion in the marketplace (mistaking your good/service for that of another), which may lead to among other things, an infringement lawsuit against your new business.  To reduce the likelihood of a future legal dispute related to your business’ name, you can begin by searching the Iowa secretary of state’s online business entity database (here) as well as the federal trademark office listings (here) to determine if someone has already claimed rights in the name.  If your desired business name does not appear to be used by another business, you are one step closer to potentially securing the name for your business and you may want to consider “reserving” the name in Iowa, which can be done with this Iowa form (here).  It is important to point out that as with so many areas of the law, even the most basic issue, such as choosing a name for an L.L.C., can be complicated by several legal requirements.  Click here for an example of a few of Iowa’s many naming requirements.  A licensed attorney in your jurisdiction that works with business owners and entrepreneurs can assist in navigating this legal terrain and help ensure that the name you choose will not create problems for you and your business down the road.

Iowa L.L.C. Creation  After carefully navigating Iowa’s naming requirements and settling on your new business’ name, you may begin the legal process of formally creating a legal entity.  In Iowa, you may act as an organizer to form a limited liability company by signing and delivering to Iowa’s secretary of state a “certificate of organization.” According to Iowa law, a certificate of organization must include at least the following information: Continue reading

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As an Owner, Am I Liable for the Debts of my Iowa Limited Liability Company?

Iowa LLC Umbrella of Protection
Member Protections Under Iowa’s LLC Umbrella

Just as shareholders in Iowa corporations are, by default, generally not liable for the debts and liabilities of their corporation, members (a.k.a. owners) in Iowa limited liability companies are also generally not liable for the debts and liabilities of their companies (see this article for more information about protections provided to shareholders in Iowa corporations).  Put another way, the “limited,” in limited liability company (L.L.C.) actually means something and conveys just what Iowa law provides: limited liability for members.

Iowa black letter law provides that members in an Iowa limited liability company enjoy limited liability and, by default, are generally not liable for the debts, obligations, or other liabilities of an Iowa LLC: Continue reading

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Business Divorce in Iowa – Can I Kick a Fellow Member Out of My Iowa Business?

Business Divorce - Iowa LLCs

Iowa Business Divorce

Unfortunately, like some marriages, the exciting and passionate fire that burns between business owners and drives them to come together to do amazing work is replaced by a dull flame, bickering, money problems, and a deep yearning to part ways – the business divorce.  In Iowa, business owners in limited liability companies (LLCs), partnerships, and corporations often consider divorcing – booting a fellow owner or find themselves on the other end of an effort to remove them as an owner.  As a result, it is often asked, how does Iowa law address business divorce?

This post identifies three (3) instances in which an Iowa court may divorce business owners by kicking out (i.e. expelling) an owner in an Iowa limited liability company.  Iowa law expressly permits Iowa courts to legally separate business owners in Iowa limited liability companies under certain, specified circumstances,  including the following: Continue reading

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Are Shareholders in Small Family Businesses Personally Liable for Business Debts and Liabilities?

Iowa Shareholder - Pierce the Corporate VeilRegardless of whether your family business may be considering taking on debt for a much-needed expansion or whether it is facing liability from a lawsuit or other matter, one question frequently arises:  As a shareholder in an Iowa corporation, can I be held personally liable for my business’ debts, liabilities, or actions?  In Iowa, the “default rule” rule is stated as follows:

A purchaser from a corporation of its own shares is not liable to the corporation or its creditors  with respect to the shares…

Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts or debts of the corporation.

Iowa Code § 490.622 (2013) (emphasis added).  As set forth above, unless your family business corporation – incorporated in Iowa – has otherwise agreed, the default rule in Iowa is that shareholders are generally not personally liable for the corporation’s acts or debts.  This “shield of liability” or “corporate veil,” as it is often called, is generally the fundamental reason that entrepreneurs and business owners alike decide to incorporate in the first place – to create liability protection, the “shield of liability.”  While the provision reproduced above certainly creates legal protections and will provide comfort to many shareholders, it should be noted that as with many legal principles, instances exist in which courts will recognize the “shield of liability,” but nonetheless “pierce the corporate veil” and hold directors, officers, and others liable.  To read more about piercing the corporate veil, click here.

If you have questions about whether you or someone you know may be personally liable or potentially liable for the acts, debts or other liabilities of a business, you should consider contacting a corporate dispute attorney.

Continue reading

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One Thing you Must Know if Someone Has Interfered With Your Contract

Interference with a Contract in Iowa

It’s often said that “it’s a cut-throat world,” “life is not fair,” and that in order to survive you must hustle.  While there is certainly truth to these concepts, taking your actions to the extreme, however, and proceeding with reckless abandon may result in liability for you and/or your company.

Iowa law protects Iowa businesses from people improperly interfering with contracts.  For example, let’s say you own or work for ABC Corp. and you have successfully secured a supply contract with Supply Co.  Supply Co. supplies widgets to your company that are essential for your business.  One day, your competitor, Interference Corp., learns of your contract with Supply Co. and decides to contact Supply Co. in an effort to cut off or otherwise interfere with your contract (perhaps by impacting your supply of widgets or pricing).  Interference Corp. may have asked Supply Co. to stop supplying you with widgets or may have offered to enter into an exclusive relationship whereby Supply Co. would only supply widgets to Interference Corp. but not a single widget to you.  Either way, as a result of Interference Corp.’s actions, Supply Co. terminates its contract with you, refuses to supply you with widgets or otherwise increases your pricing for the same widget.  Consequently, you are now unable to fulfill orders and your business tanks.  Do you have a right to relief? Continue reading

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It’s Not My Signature, I Can’t Be Bound To That Contract! Not So Fast…

Iowa Supreme Court - Bound to A Contract You Did not SignOn October 18, 2013, the Iowa Supreme Court published its opinion in Life Investors Insurance Company of America vs. Estate of John M. Carrado and Federal City Region, Inc., No. 13-0102 (October 18, 2013) and found that you may be bound to a written agreement / contract you did not sign, but where your signature somehow appearsan outcome that likely sounds crazy at first blush.  Moreover, and perhaps even more eye-opening, the court further concluded that you may be bound to the agreement / contract even if you do not know who signed your name to the agreement / contract or whether the signature was even authorized. Continue reading

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