Archive for category Corperations

Business blockbusters from the Iowa Supreme Court

My last post discussed Summer Reads for Iowa Businesses.

Viewers may again watch arguments in front of the Iowa Supreme Court. In case you missed reading Iowa Supreme Court cases this summer, this post reviews some of the summer’s business cases from the Iowa Supreme Court.

Iowa Supreme Court decisions are readable and a few decisions arereleased each week. If you skip the criminal and divorce cases (which are fascinating but hopefully not necessary for your business), a few business cases might help you spot potential problems and help your business steer clear of potential legal situations.

This year not only were the Green Hornet and Green Lantern in theatres, we also saw State Office v. Polk County Court and State Office v. Linn County Court.

STATE COURT ADMINISTRATOR, vs. IOWA DISTRICT COURT FOR LINN COUNTY, DEPARTMENT OF PUBLIC SAFETY, DIVISION OF CRIMINAL INVESTIGATION, JUDICIAL BRANCH, STATE COURT ADMINISTRATOR and POLK COUNTY CLERK OF COURT, vs. IOWA DISTRICT COURT FOR POLK COUNTY,

In both cases individuals were charged with criminal offenses which were later dismissed. Though the charges were dropped, certain information remained on the Iowa Courts website. The individuals attempted to expunge their records, including those on the Iowa Court’s website. Read the cases to understand the epic battle between “public records” and “due process.”

At present, docket information remains available to the public regardless of the outcome of a criminal charge. Watch this for sequels by the court or the legislature . . .

ANNETT HOLDINGS, INC., vs. KUM & GO, L.C.,

An employee of a trucking company was allowed to receive cash from credit card transactions at a truck service station, purportedly for fuel purchases by other trucking company employees. The pattern of transactions was noticed by management. The employee was convicted of theft and ordered to pay $298,524.79 in restitution. The trucking company could not recover from the credit card transaction company because of a written agreement that company cards could be used for purchases and cash advances, that the trucking company was responsible for fraudulent use of the cards, and that the trucking company would hold the transaction company harmless for the acts of the trucking company employees. The trucking company had no such agreement with Kum and Go and sued, asserting Kum and Go was negligent in allowing the trucking company employee to receive the cash. The court determined that the trucking company’s recovery was barred due to the economic loss rule, which “. . . bars recovery in negligence when the plaintiff has suffered only economic loss.” Also discussed was the “contractual economic loss rule” which “bars tort claims for economic loss, on the theory that tort law should not supplant a consensual network of contracts.” For an alternate ending, read the dissent of two justices.

JOHN PAVONE and SIGNATURE MANAGEMENT GROUP, L.L.C., vs. GERALD M. KIRKE and WILD ROSE ENTERTAINMENT, L.L.C.,

In Pavone v. Kirke, the parties entered into an agreement in which Pavone and his company, Signature Management Group, LLC, would provide consulting services in obtaining gaming licenses and casino management services to defendants. In applications to the Iowa Racing and Gaming Commission (IRGC), it was stated that Signature Management Group would manage casinos for the defendants. Over time, the parties renegotiated their agreement and defendants hired an operations consultant. The relationship fell apart and disagreements ensued about management fees stated in the agreement versus those offered by the operations consultant. After the IRGC was informed of the breakdown in negotiations, it awarded a gaming license to defendants. Defendants then terminated their agreement with Signature Management Group and agreed to work with the operations consultant. Pavone sued, and a jury found the defendants breached the original agreement pertaining to the management agreement between the parties and a first look option and good faith negotiation obligation for future opportunities, and awarded $10 million to Pavone. The Iowa Supreme Court reviews many business issues and lends insight into what can go wrong in dealings.

MARK PEAK, vs. ELLIS ADAMS and RACHEL ADAMS,

If the parties weren’t real people, this would almost be a comedy.

Mark Peak broke his leg while helping Ellis and Rachel Adams move furniture with a U-Haul truck. During the process, Peak sustained substantial damage to his leg and incurred $50,000 in medical bills. In negotiating settlement with U-Haul, Peak’s attorney received a “Release of All Claims” to be signed in exchange for U-Haul’s $20,000 settlement. Mistakenly, the release named U-Haul, U-Haul’s insurance company andEllis Adams as parties discharged. The mistake was not caught by Peak’s attorney nor Peak and the release was signed. The Adams’ insurance company then refused to pay on the grounds that Ellis Adams had been discharged in the signed release.

The plot twists and turns as the district court finds that the release was unambiguous, but the Iowa Court of Appeals reverses because of the surrounding circumstances and the parties’ intent in signing. In the final act, the Iowa Supreme Court states “enforcement [of the release] is governed by principles of contract law” and “it is well settled that failure to read a contract before signing it will not invalidate the contract.” “In the construction written contracts . . . the intent of the parties must control . . . [as] determined by what the contract itself says.” The court declined “[t]o allow a party to avoid a signed release based on a unilateral mistake,” and affirmed the district court’s judgment pertaining to Ellis Adams; however, the court reversed the district court’s judgment pertaining to Rachel Adams as she was unnamed in both the U-Haul rental agreement and the release signed by Peak.

After this chilling read . . .  you won’t sign without reading again.

Check back frequently for additional installments from the Iowa Supreme Court, and remember, light reading now may save you a trip to the litigator later.

-Christine Branstad

 

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Summer Reads For Businesses in Iowa

Summer Reading for business leaders often includes motivational books. Classics include:
Good to Great – Jim Collins

Getting to Yes – Roger Fisher and William Ury

How to Win Friends and Influence People – Dale Carnegie

If you read my blog, you are likely a family member or recognize the need to “brush up” on the law before your business is in trouble. With so many topics of interest for savvy business people to cover, I have developed my list of “Summer Reads for real Businesses in Iowa.”

Summer Reads for Businesses in Iowa:

Cyber Law: A Legal Arsenal for Online Business – Brett J. Trout

Cyber Law offers a guide to online business, including navigating pitfalls Cyber Law effectively translates “online geek” to “everyday business owner.” Unlike, the rest of my list, this book is actually fun to read.

The Human Resources Manual of a large organization or state agency.

You can get one from a business associate or buy an up to date version. As you read the manual, ask yourself why each provision is in the manual and if your business (no matter how small) may use some of those ideas.

Your own Human Resources manual.

Each business owner should be the expert in the business’s human resources manual. If you don’t understand it, talk with your lawyer about re-writing it. No business owner ever won a case by saying “I did not understand my own manual.”

The “standard” contracts used by your business.

If you don’t understand it, talk with your lawyer about re-writing it. No business owner ever won a case by saying “I did not understand my own contract.”

The actual regulations of your industry (and then the website that explains the regulations that you just read).

For this I recommend an iPad, Kindle or reader. State and federal regulations are free to the public and published in the Code of Federal Regulations (“CFR”). The US Government site provides a keyword search.

Some agencies provide websites with quick explanations of their regulations as well as FAQ pages. Additionally, many agencies publish updates on their websites, of which a complete listing is available here.

Iowa also publishes administrative regulations in the Iowa Administrative Code, available from the Iowa General Assembly’s website. Familiarizing oneself with these resources can not only consume numerous hours of free time, but also allow a quick answer to be found when issues do arise.

Iowa Supreme Court cases (just the business cases).

The Iowa Supreme Court regularly releases opinions which touch on business, as does the Iowa Court of Appeals. The Iowa Supreme Court and Iowa Court of Appeal opinions are well reasoned, concise, and usually enjoyable to read. More often than not I find my weekly review of recent opinions has bearing on a client’s matter or a personal interest. My next blog will be about recent Iowa Cases.

The Iowa UCC.

Iowa has adopted the Uniform Commercial Code (“UCC”), which governs myriad aspects of business, from creation of a contract (see Article 1) to sales of goods (see Article 2) to transactions involving security interests (see Article 9). The UCC is no light afternoon read. An entire law school course may only cover one Article of the UCC; though this should not dissuade you from reading it. Knowing the actual language of the law will help any business leader to ask the right questions when the next contract is negotiated.

Anything your tax advisor tells you to read.

Finally, a bit of a reminder that professionals are here to help you. Often, articles or other materials that are “suggested” for reading could end up saving a business (and any professionals employed by that business) time. Whether it is keeping receipts or ensuring a document is signed and notarized, advice from professionals is meant to aid a business. My advice is to take some time and read up on a topic which affects your business. Not only will you be more knowledgeable, you may just head off a “situation” before it arises, or prevent one from growing exponentially.

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Boring Blog

The UCC is only exciting when you are in a dispute. Read this boring blog and avoid the excitement.

Article 9 of the Iowa UCC (Iowa Code Section 554.9101 et seq.) governs the purchase and sale of goods and related secured interests. This blog will deal with protecting a business during an initial transaction. My next blog will deal with placing the public on notice of a security interest.

Bill’s Bakery Supplies is an equipment wholesaler.

Joe Smith is CEO (and sole employee) of Smith’s Confectionary Inc.

Smith purchases equipment from Bill’s. If Smith cannot pay, how can Bill’s recoup the unpaid balance?

Often, security agreements arise where an item is sold on account (six months same as cash) or a loan is received for the purchase of an item (bank loan for a car), and the purchaser is allowed to pay off the balance over a period of time. A seller may want to retain certain rights to the goods until paid in full.[1]

Smith pays 10 percent of the total price, signs the purchase agreement, and takes the equipment. Bill’s Bakery Supplies may be entitled to full payment on the account, but has it retained a security interest in the goods?

Likely no. In Iowa, an agreement to sell goods alone is not enough for a security interest to attach to the goods. Iowa Code Section 554.9203 provides that for a valid security agreement there must be:

(1) value given;

(2) a right in the collateral that the debtor can transfer to the secured party; and

(3) a signed security agreement with a description of the collateral or the collateral in  possession of the secured party.

This means Bill’s no longer has an interest in the goods sold and, essentially, has an unsecured open account.

If your business wishes to keep a secured interest after sale, create an agreement that:

(1)  specifies that a security interest is held by the seller;

(2)  is signed by the purchaser; and

(3)  includes a detailed description of the goods (e.g. serial number, make, and model).


[1] (Author’s Note: The UCC refers to a security agreement in this situation as a Purchase Money Security Interest, where the entity which gave the funds to the person to procure the good/s has a security interest in the goods as collateral.)

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Following Rules is Easier when you Write the Rulebook

My last blog was about dealing with “red tape” and following agency rules and regulations. Sometimes the most efficient way to deal with rules is to help write the rulebook.

 There are many ways to write the rules.

1)      Write to your legislator.

2)      Participate on a board or commission.

3)      Join a trade association that lobbies on your behalf.

4)      Lobby for yourself.

5)      Hire a lobbyist.

U.S. citizens have a first amendment right to petition their government. Corporations also have first amendment rights.  Many businesses exercise that right through lobbying.

Lobbyists are paid advocates who educate and persuade legislators. Most people assume lobbyists simply push for or against proposed legislation, but lobbyists may help draft proposed legislation or suggest amendments. Often, the lobbyist’s job is simply to make a bill “fit.” For example, if a proposed bill would heavily regulate balloon sales, the clown lobby may seek an exception for non-helium balloon animals.

Lobbyists may also put together research that would otherwise go unnoticed by legislators who have to address legislation on myriad issues.

A skilled lobbyist will:

  • Have rapport with lawmakers and know who will serve a key role in specific legislation.
  • Be proactive by heading off contrary or obstructionist legislation.
  • Keep clients informed of upcoming legislation and the associated rules.  
  • Maintain contact with legislators or members of the executive branch with influence over government agencies.
  • Develop relationships with other lobbyists for collaborative efforts and negotiation.

If you help write the book, it is less likely they will “throw the book at you.”

- Christine Branstad

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New Administration—->New Rules

 

The Iowa state seal.Image via Wikipedia

Despite the refrain of pundits, new administrations are not “same old same old.” New leaders come in with new ideas, new agency leaders, and plans to “make a difference.”

The most direct effects are felt at the agency / administration / department level (I will just use “agency” for the remainder of the blog). If your company has someone dedicated to the regulatory process, that person will get to know the new guard and review changes. If, like most small businesses, that job falls on you, take steps to recognize upcoming changes.

1)    Check the agency website every week until June.

2)    Call and find out if the agency sends out a newsletter. Get on the list.

3)    Call the lobbyist for your business association and ask to be in on the lobbyist’s newsletter.

4)    Check your association website regularly.

If you are tech-savvy, get the appropriate RSS feeds. If you are not, ask a teenager to help you.

Most agencies want you to be in compliance and want things to move smoothly. Find a liaison who will help ensure that you have the appropriate information to be in compliance.

My next blog will focus on proactive steps you may take regarding the laws/rules before you become ensnarled in red tape.

- Christine Branstad

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Practices that Supplement Contracts

How Many in a Baker’s Dozen?

Industry practices and specific relationships may create unwritten contractual terms that bind the parties. This blog has more legal analysis than usual, but read on. Really.

Iowa’s Uniform Commercial Code (UCC) governs transactions in goods. Iowa’s UCC section 554.1303 addresses three principles that may supplement or amend contracts:

* course of performance,
* course of dealing, and
* usage of trade.

Course of Performance: This addresses conduct between the parties in a current contract when:

(a) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and

(b) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection. To better understand Course of Performance read ABC Metals & Recycling Co., Inc. v. Highland Computer Forms Inc. which is a case involving claims about amounts paid for paper. A contract provision provided the price for the paper was on a particular website. After the contract was formed, the website shut down, but the information became available on another website. The second site was used by both parties. The five year use of the second website became a determining Course of Performance.

Course of Dealing: Your prior dealings with a party may create a Course of Dealing, which is an understanding that becomes part of a future contract, even if not specifically stated. To better understand Course of Dealing read St. Ansgar Mills Inc. v. Streit which is a case involving a hog farmer who regularly ordered feed corn from the mill. The mill would either send order confirmations to Streit for signature, or hold the orders for Streit’s signature. Often, turnaround for signatures was a month or greater. The hog farmer called in two orders for future delivery of corn; the mill held the confirmations for a signature. When the farmer returned more than one month later, the price of corn had significantly dropped. The farmer refused to sign the order, stating that the written confirmation had not been delivered within a reasonable time. The Iowa Supreme Court considered prior orders showing Course of Dealing where significant time passed between oral purchase orders and delivery of written confirmations.

Usage of Trade: Some industries work with such similar goods that industry-wide standards and practices develop. To better understand Usage of Trade read C-Thru Container Corp. v. Midland Mfg. Co. which involves a contract between a manufacturer of bottles and a buyer. The manufacture asserted that the buyer did not order a sufficient amount. The buyer asserted that the manufacture did not provide samples to assure a suitable product. The Iowa Supreme Court found that the buyer was allowed to provide evidence of trade practice and could argue that the industry has a standard of providing samples prior to orders.

What does this mean for your business?

1) Know how other businesses handle similar contracts. (Especially if you are venturing into a new industry.)

2) If you want to deviate from a common business practice, get written agreement.

3) Define your business relationships in the same way that you define the actual terms of a contract, with attention to clarity.

www.kreamerlaw.com

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Avoiding Lawyers and Lawsuits-Waivers of Liability

Waivers are everywhere: the back of concert tickets, Web sites, sales agreements. As a business consumer, you may wish to make sure

Image by Aquila via Flickr

that you are willing to give up the stated rights. As a business owner, ask:

  • From what are your protecting yourself?
  • Is this a real danger?
  • What is your goal?
  • Do you run a PR risk by warning your clients that your product “may cause death” (especially if you sell coffee tables)?

This post addresses personal injury waivers: the kind you sign at batting cages and skating rinks.

My next post will address the types of waivers that are part of sales agreements and are found within websites for products..

The post that follows that will address Indemnification Agreements.

First, the easiest way to avoid lawsuits and judgments for personal injury is to be prudent in taking care of your business. Common sense safety is more cost effective than waivers.

-   Encourage employee common sense through a wellness program.

-   Have a plan to keep your employees and patrons safe.

-   Talk with your insurer about risk analysis and risk reduction.

The Iowa Supreme Court addresses waivers in a number of cases:

Personal injury waivers must “be specific enough to identify all possible causes of injury so that a reasonable person is on notice.” A waiver that simply agrees that one party is not responsible for any injuries is not specific enough to waive all claims related to acts by that party1.

A waiver must be “voluntary“, ”intentional” and “knowing”. The waiver must intentionally relinquishment a known right.”2 The court uses the standard of a reasonable person to determine whether a party had notice of the provisions in question and may be bound by terms within a contract/agreement.3

The parties must be clearly identified to be considered released parties.4

Once the release is clear in its intent, parties may be bound. Even if you (or your client) does not read the release, a party who is able to read and has the opportunity to do so must suffer the consequences of failing to do so.5

The more dangerous your business, the more likely you can set out the risk and put them in the hands of a person who assumes the risk. For example,“Hang gliding is associated with injuries and death.” If you run a shoe-shine stand, it is more difficult to set out the risks and pass them on to a client. (Then again, hopefully the shoe-shine isn’t dangerous.) From a client perspective, you may have clients who wonder why they must sign a waiver that states that “death is a possible consequence” of their shoe shine. If you are leading  rock-climbing expedition, the client likely expects a waiver.

A well drafted waiver will:

  • specifically set out the parties involved,
  • address the type of danger,
  • specifically waive the damages, if any,
  • show that the waiver is voluntary, and
  • provide clear language.

We will see how the Iowa Supreme Court handles the inevitable case about “throw in the kitchen sink waivers” written in three-point font. For amusement or consideration, the waiver below from an actual ticket. I used a magnifying glass to read it. Apparently a kids’ concert needed the following waiver:

“warning! Despite enhanced spectator shielding measures, pucks still may fly into the spectator area, serious injury can occur, stay alert at all times including during warm up and after play stops. If struck, immediately ask usher for directions to medical station. Holder voluntarily assumes all risks and danger incidental to the event for which the ticket is issue, whether occurring prior to, during or after the event, including, but not limited to, danger of being injured by thrown, batted, kicked, shot, struck, etc. objects such as balls bats hockey sticks pucks racquets and other objects or equipment or by other spectators or players or by entering a mosh pit. Holder voluntarily agrees that the management, facility, league, participants, participating clubs, Ticketmaster, and all of their respective agents, officers, directors, owners, and employees are expressly released by holder from any claims arising from such causes”

-   Christine Branstad

1. Sweeney v. City of Bettendorf, 762 N.W.2d 873, (Iowa 2009)

2. Benton v. Slater, 605 N.W.2d 3, (Iowa, 2000)

3. Joseph L. Wilmotte & Co. v. Rosenman Bros. 258 N.W.2d 317, (Iowa 1977)

4. Huber v. Hovey, 501 N.W.2d 53, (Iowa 1993) (plaintiff injured by fireworks misfiring into pit area of race track); Grabill v. Adams County Fair and Racing Association, 666 N.W.2d 592,( Iowa 2003) (plaintiff injured by detached wheel of race car flung into pit area of race track).

5. Forrester v. Aspen Athletic Clubs LLC, 766 N.W.2d 648, (Iowa App. 2009).

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Right from the Start – Non Solicitation Agreements

Image by lumaxart via Flickr

My previous post reviewed non-competition agreements to keep employees from walking away with the kitchen sink – trade secrets, client lists and knowhow. This post focuses on Non-Solicitation Agreements, a more narrow method of keeping other companies from luring employees or clients away. The next post will address non-disclosure agreements.

In the second year of your burgeoning IT business, you have 5 employees. You land a project that requires a temporary workforce of 10 employees. A staffing company offers to provide workers, but a clause in the contract prohibits you from soliciting any of the temporary staff for 2 years. Should you sign?

In its third year, your company competes for a project requiring onsite work. You plan to embed your team, but are concerned that you risk losing the contract if you muddy negotiations with a requirement that the client not solicit your employees. How do you address the issue?

A non-solicitation clause is a normative approach to both situations. Non-solicitation clauses are a common method for setting boundaries with staffing companies, consultants, and trainers.

A non-solicitation agreement with another company may prohibit luring employees. The strictest agreements prohibit all contact, which has led to litigation about whether purely social interaction violates the clause. Additionally, employees may be prohibited from hiring other employees away.

Other non-solicitation agreements prohibit luring away customers. Companies have agreed that, as employees move between companies, each will not solicit the clients previously serviced by the employee for the other company. In the alternative, the non-solicitation agreements may be directly between employer and employee (often in lieu of a non-competition agreement). Those agreements may be narrow (e.g. employee may not solicit clients for whom employee was account manager) or broad (e.g. employee may not solicit any client on company’s client list). The more broad the provision, the more likely it will be scrutinized by the court.

Agreements to limit competition, disclosure or solicitation are, by their nature, restrictions on trade. Iowa courts have long held that any restraint of trade is strictly construed against the one seeking to restrain another from pursuing employment or business pursuits. As one example, Iowa Courts specifically distinguished “selling” and “solicitation” based on who initiated the transaction.

As you consider non-solicitations agreements, consider:

  • Is non solicitation good for your business?
  • Is it good for the industry in general?
  • What time limit should apply?
  • What geographic limit should apply?
  • Is the agreement limited to a certain type of client?
  • Is it limited to a certain type of employee?
  • Will it affect your ability to recruit and retain employees?
  • Is it fair?

-    Christine Branstad

www.kreamerlaw.com

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Right from the Start – Non-Disclosure Agreements

Image via Wikipedia

Image via Wikipedia

Non-Disclosure Agreements (also called NDAs, Confidentiality Agreements or Secrecy Agreements) have broad use in business.

The “form” NDA is a business myth. Each is designed for a purpose; the provision to protect a trade secret in a severance agreement bears little resemblance to one used when exploring a joint venture. An intellectual property attorney protecting your patent-pending machine in “pitches” to manufacturers uses a significantly different NDA than an employment law attorney protecting your client list from “walking away” with current employees.

All non-disclosure agreements should be:

-   Realistic: Protecting information should not involve parties agreeing to lock themselves in windowless rooms while dealing with each other. If you are dealing with an unscrupulous person with no assets, an NDA may not protect you.

-   Tailored enough. If collaborating, do you expect the other party to disclose information to contractors or employees?

-   Broad enough. If you provide a plant tour, is information discovered in the plant tour protected?

-   Specific enough. If one party drops out, may the other use information obtained? Is there a specific penalty for disclosure? Is there a penalty for accidental disclosure (e-mail intercepted by hacker, cleaning service theft, et cetera)? Does the NDA adhere to the laws of the state where it is written and to the laws of states where each party does business?

The Iowa Supreme Court sets out a test to determine whether a “nondisclosure-confidential agreement” is enforceable. The courts look at whether the restriction is: “(1) reasonably necessary for the protection of the employer’s business; (2) unreasonably restrictive of the employee’s rights; and (3) prejudicial to the public interest.”

Among ethical business partners, an NDA will set boundaries of conduct and mutual expectations. A well-worded agreement may save future headaches.

But even the best NDA will not make an unethical employee act ethically. In the event of unethical behavior, a properly drafted NDA may be a corporate lifesaver.

- Christine Branstad

www.kreamerlaw.com

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Get it right the first time

Running to the secretary of state to get corporate filings is not the first step in developing your business.

Incorporating before your business has an identity is like getting a marriage license before you decide on a groom. You will likely have to start over.

First, determine: Who are you? What do you want? What is your growth strategy? What is your exit plan?

Second, talk with advisers including: your lawyer, business mentors, tax professional, business partners. Gather information to use in determining an organizational chart, managerial structure, initial investors and future direction.

Finally, look at the types of business entities:

* C Corporation
* S Corporation
* Professional Corporations (PC)
* Limited Liability Company (LLC)
* General Partnership
* Limited Partnership
* Limited Liability Partnership (LLP)
* Sole Proprietorship
* Trust

Yes, there is a right time to get the real security of a business entity. If you are inventing, dividing profits or shopping ideas, you may want and need the protection of limited liability. Additionally, if you are beginning to negotiate contracts (even “little” contracts like your cell phone), you want your business entity in place. It is easier to have assets and liabilities in the name of your entity from the start. . . if you do it right the first time.

Like a good marriage, your business entity will need maintenance to go the distance. Like a marriage, it is easier to care from the start than to fix the problems.

- Christine Branstad

www.kreamerlaw.com

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