If you can’t show evidence that your LLC is a real business, you could lose the same benefits it’s supposed to confer. Therefore, you need to be able to prove to the courts or the IRS that you treat your company as a formal business, not a personal slush fund. Moreover, this loss of benefits could continue to apply should the LLC be liquidated. Fortunately, maintaining an LLC isn’t incredibly tricky.

Short-Term Maintenance of an LLC

There are several measures every LLC should take either leading up to the establishment of the organization or immediately following its inception. These measures are not only good business practices but will also contribute to the strength of an LLC.

1. Create a Separate Bank Account. While blending personal and business finances is not illegal, it is not a good idea. For example, using a personal bank account as the account for an LLC is entirely counterproductive to organizations wishing to enjoy the protections provided by the structure of LLCs. An LLC risks losing its classification as a separate legal entity by blurring the lines between personal and business finances. This loss of status could mean that members’ personal assets are liable for any liabilities or debt incurred by the LLC. Furthermore, a separate bank account simplifies recordkeeping and tax compliance, especially if the IRS audits the LLC. Here are some excellent tips for maintaining a business account:

1. Reimburse business expenses and keep the receipts

2. Record all transactions and be able to document the reason for business purchases

3. DO NOT use the business account to fund personal endeavors

4. Get a business credit card to use for only business expenses to minimize reimbursement complications

2. Create an LLC Operating Agreement. Iowa law does not mandate that an LLC have an operating agreement, but it is highly recommended. An operating agreement lays out each member’s responsibilities, what assets each person contributed to the business, how ownership is structured, how money will be raised and distributed, what your process is for adding and removing members, and under what circumstances and how your company will be dissolved.

3. Acquire Necessary Permits and Licensing. While Iowa does not have a general state business license, certain businesses may require specific licenses or permits depending on the LLC’s intended business type of business. Operating without the required permits or licenses risks the LLC status of the organization and opens the organization to fines or legal charges.

Long-Term Maintenance of an LLC

Moving onward, LLCs must complete some regular maintenance to remain in good standing. These actions intend to ensure that the LLC is neither dissolved through negligence nor weakened to the point of being ineffectual.

1. Filing the Annual Report. Limited liability companies formed, or doing business as a foreign entity, in Iowa are required to file a Biennial Report with the Iowa Secretary of State by April 1st of odd number years. The report can be filed through Iowa Secretary of State’s Fast Track Filing System. The cost for doing so is $60.

2. Amend the Certificate of Organization. An LLC may sometimes wish to amend its certificate of organization for several reasons. One such instance is if any information in the certificate is realized to be inaccurate. Accordingly, Iowa Code § 489.202(5) provides that the certificate of organization must be promptly amended, changed, or corrected when a manager of a member-managed LLC or a member of a member-managed LLC becomes aware that any information in the certificate of organization was inaccurate when filed or has become inaccurate due to changed circumstances. Luckily, amending a certificate of organization is not an onerous task. There are only three filing requirements for an amended certificate:

1. The name of the LLC

2. The date of filing its certificate of organization

3. The amendment to the certificate of organization
Iowa Code § 489.202(2)

The certificate of organization can also be restated and filed with the Iowa Secretary of State, superseding the original certificate. It must state:

a. In the heading, the LLC’s present name and former names and the date of filing the LLC’s initial certificate of organization

b. The changes made by the restatement

*The amended certificate of organization can be filed through the Iowa Secretary of State’s Fast Track Filing System and must be accompanied by a filing fee of $50.

Foreign LLCs authorized to do business in Iowa may apply for an amended certificate of authority with the Iowa Secretary of State if it changes its name (at its state of formation), corrects the state of formation, changes the duration of the LLC, changes its principal office or mailing address, or changes its registered agent. In addition, a foreign LLC may surrender its authority by filing a notice of cancellation with the secretary of state of Iowa, providing, among other things, the address to which the secretary may mail any process against the LLC.

3. Amending the LLC Agreement/Operating Agreement. Similar to a certificate of organization, an LLC may sometimes wish to amend it operating agreement. The operating agreement may be amended only with the approval of all of the members.

4. Maintain Detailed Records. Keeping records of company operations and activities is not a legal obligation, but it’s one of the most effective ways of protecting the organization. In addition, regular record keeping helps prove that the LLC is its own entity, thereby strengthening personal liability protection. Detailed record-keeping may also be necessary for those seeking to receive business loans, as most private financial institutions require comprehensive financial records before engaging in any association with another entity. Any detailed records should include the following documents:

– LLC certificate of organization
– LLC operating agreement
– EIN confirmation letter
– All financial statements and tax records
– All business licenses and permits
– All relevant member and shareholder information
– Meeting minutes
– Any records required by the operating agreement

These records should be kept at the place of business and backed up to a digital server for easy access.

5. Tax Compliance. Typically, LLC members are responsible for paying taxes rather than the LLC itself; therefore, it is critically important that members pay these taxes in full and on time. Failing to do so can put the LLC in poor standing and may even attract unwanted attention from the IRS. One such tax in Iowa that is important to remember is the state sales tax, which is a tax on gross receipts from the sale of taxable tangible personal property. Foreign LLCs may be responsible for payment of Iowa sales and use tax depending on whether the LLC’s business activities create a tax filing requirement. The safest way to avoid taxation infractions is to consult with a qualified tax professional or attorney.

Looking to the Future

While not all suggestions are required by law, they are all sound business practices that will drastically improve the short and long-term viability of an LLC. These practices allow LLC members to focus on operating the company while minimizing their risk of losing liability protection and tax advantages.

This guide is meant to provide foundational knowledge and by no means addresses every concern an LLC should have; the most effective way of protecting an organization is to consult with a qualified business attorney anytime there is confusion or whenever guidance may be beneficial.

The process of filing a series LLC is more arduous than that of filing a standard LLC. To establish a protected series, an LLC must first receive an affirmative vote or consent from all LLC members. Upon receiving member approval, a protected series may be created by filing a protected series designation with the secretary of state, signed by the company, stating the company’s name and the protected series to be established.

Similar to a standard LLC counsel should draft an operating agreement to govern the series LLC and each individual protected series. The operating agreement should generally set forth certain fundamental terms, including:

1. Management Structure
   1. The method used to maintain separate and distinct records for each series
   2. The method for adding or dissolving series
   3. A statement that the debts, liabilities, and obligations incurred, contracted for, or otherwise existing with respect to a particular protected series shall be enforceable against the assets of that protected series only, and not against the assets of the series LLC generally
   4. Terms contemplating the death or disability of a member
   5. Indemnification rights (if any) in the event the LLC or a member is sued in connection with the business of the LLC
2. Member Rights and Responsibilities
   1. The authority of members to bind the LLC and participate in day-to-day management
   2. The voting rights, if any, of each member in making certain key decisions
   3. The circumstances under which a member may withdraw from the LLC, and the way in which the member’s economic interest is calculated upon withdrawal
   4. The ability or restrictions of a member to sell or pledge its interest to a third party
   5. The circumstances and terms under which new members may be admitted
3. Profit and Loss Allocation
   1. The ownership percentage of each member, or the way it is calculated at any given time
   2. The manner in which profits, losses, and expenses are allocated, and by whose authority
   3. The circumstances under which the LLC will be liquidated, and the priority of claims among the members upon liquidation

]]> https://www.hartungschroederlaw.com/attorney-home-page/how-do-i-form-an-llc-in-iowa/ Fri, 22 Jul 2022 16:48:27 +0000 https://www.hartungschroederlaw.com/?p=1927 There are several important steps to take when setting up an LLC in Iowa. The first is determining if any sort of licensing or permits are required. While Iowa does not have a general state business license, certain businesses may require specific licenses or permits depending on the LLC’s intended business type of business. The Iowa Business License Information Center should be consulted for information regarding licensing needed for specific business activities. Additionally, an LLC must register with the Iowa Department of Revenue for a separate permit number for sales tax, consumer’s use tax, retailer’s use tax, withholding tax, and water service excise tax. It is also important to note that individual municipalities and subdivisions may have additional licensing, endorsement, and permit requirements. Furthermore, federal licenses may be required for businesses that operate in federally regulated activities.

The next step is deciding the official name of the LLC; there are both required elements and restricted elements to consider when naming an LLC in Iowa.

1. The name of an Iowa LLC must be set forth in its certificate of organization and contain the words “limited liability company” or “limited company” or the abbreviation “L.L.C.”, “LLC”, “L.C.” or “LC.” “Limited” may be abbreviated as “Ltd.”, and “company” may be abbreviated as “Co.”

2. The name of an LLC must be distinguishable from the name of any other entity incorporated, organization, authorized, or reserved to transact business in Iowa.

3. An LLC’s name can be reserved by completing the state of Iowa’s Application for Reservation of Name form provided by the secretary of state. Completed forms, including payment, should be delivered to the Iowa Secretary of State. The fee is $10 for LLCs. A reservation is valid for 120 days.

4. An LLC wishing to do business under any name other than its legal name must complete and file a Fictitious Name Resolution form provided by the secretary of state at the cost of $5 per trade name reserved for use.

After deciding on the name of the LLC, the next step is preparing and filing the necessary formation documents. One or more people may begin by filing a properly executed certificate of organization with the Iowa Secretary of State through its online Fast Track Filing System. The fee for filing a certificate of formation with the Iowa Secretary of State is $50. A member must be admitted as a member of the LLC, and such admission usually occurs when the certificate of organization, filed in the office of the Iowa Secretary of State, becomes effective.

The following components are required within a certificate of organization:
1. The name of the LLC;
2. The address of the company’s registered office;
3. The name and address of the LLC’s registered agent for service of process in Iowa
Iowa Code § 489.201(2).

The date the Secretary of State of Iowa files the certificate of organization is the date the LLC comes into existence. This filing of the certificate by the secretary of state is definitive proof that the person(s) executing the certificate satisfied all formation requirements.

Operating agreements are an essential part of LLCs, and while they are highly recommended, they are not required by Iowa law. Much like a partnership agreement or corporate bylaws, the LLC operating agreement dictates the actions pertaining to the ownership and operation of the LLC. The operating agreement is defined as an agreement of all the members and may be oral, in a record, implied, or any combination thereof. It is highly recommended for individuals to allow counsel to draft an operating agreement when forming an LLC. This agreement can theoretically be contained in more than one document and does not need to be filed with the Iowa Secretary of State or any other public office. It is important to remember that once finalized, unless the agreement itself calls for an expiration date, the operating agreement remains in force until amended or changed by the members’ unanimous consent (or other agreed-upon percentage). There is no incorrect form of operating agreement; agreements should be tailored to fit the individual circumstances and needs of the contracting parties. While there is nothing specifically required in an operating agreement, there are several things it should cover:

1. Management Structure
a. Whether the LLC is member-managed (i.e., managed by its owners) or manager-managed
b. Requirements for voting by quorum, in person, or by proxy, as well as any other matter necessary to exercise the right to vote
c. Procedure for amending the certificate of organization or the operating agreement, including procedures that allow for the amendment of the operating agreement without a vote or approval of the LLC’s members, or certain classes of the LLC’s members
d. Rights and powers of managers, including whether there are multiple classes of managers and the duties and voting powers of each
e. Procedures for electing and removing managers
f. Indemnification of members and managers by the LLC

2. Member Rights and Responsibilities
a. Procedures for admitting and expelling members
b. Initial capital contribution required of members
c. Notice and procedure required for member meetings (and for managers, if applicable), as well as a listing of actions that can be taken by consent without the need for a meeting
d. Management rights and authority of each member, including whether there are different classes of members and the relative rights and responsibilities of each class
e. Voting rights of members and the voting power of each, including the designation of a class or classes of members that hold no voting rights whatsoever

3. Profit and Loss Allocation
a. Allocation of profits, losses, and distributions among members and different classes of members
b. Buy-sell provision

Operating agreements are crucial as they govern the LLC’s actions and behavior. Other than the filing of a certificate of organization, Iowa imposes no organizational formalities on LLCs.

1. Sole Proprietorship. Sole proprietorships are owned and operated by one individual – there is no legal distinction between the owner and the business. As a result, they are relatively inexpensive and easy to set up. In a sole proprietorship, the business does not file a tax return; the income (or loss) passes through the business and is reported on the owner’s personal tax return. Within a sole proprietorship, the owner is personally responsible for any liabilities that the business incurs. Sole proprietorships are also less conducive to investment opportunities due to the absolute control enjoyed by the owner.

2. Corporation. Corporations are the most complex legal organization. A corporation is a legal entity separate and independent from the people who own or run the corporation, namely shareholders. Within a corporation, corporate shareholders have limited responsibility for the debts of the business because the corporation itself is responsible for all liabilities the company incurs. This limited liability for shareholders creates an atmosphere conducive to attracting new investment. However, businesses must also go through a more rigorous and costly process to become a corporation. Furthermore, earnings are subject to taxation at the entity and individual levels upon distribution to shareholders.

3. General Partnership. General partnerships are associations between two or more people in business seeking a profit. These partnerships are usually fairly easy to create and maintain, but it is essential to create a partnership agreement. Partnership agreements formalize the rules for the distribution of profits/losses, ownership percentages, dissolution terms, management rights, etc. The absence of a partnership agreement can lead to management and oversight issues down the road. General partnerships are tax-reporting entities, not tax-paying entities. A partnership must file an annual information return (Form 1065) with the IRS to report income and losses from operations, but it does not pay federal income tax. Instead, profits and losses are passed through to the owners based on their profit-sharing percentages outlined in the partnership agreement. Each partner pays taxes on their share of the profit/loss. Partners within a general partnership typically have unlimited personal liability meaning that each partner is jointly liable for all business debt and liability.

4. Limited Liability Company (LLC). An LLC is a hybrid combination of corporations, sole proprietorships, and general partnerships. Owners of an LLC are called members; these members may include individuals, corporations, other LLCs, and foreign entities. There is no limit on the number of members an LLC can have. LLCs are usually considered “pass-through entities” for tax purposes, meaning business income passes through the business to LLC members who report their share of profits or losses on the individual income tax returns. This revenue is often subject to additional taxes at the state level. Furthermore, even if profits aren’t distributed, each member’s share of profit represents taxable income. Accordingly, LLCs are only required to file informational tax returns. As the name suggests, LLCs protect their members by providing limited liability. Limited liability shields LLC members from being personally liable for business debts and claims. In an LLC, liability for business debt will only extend beyond the company’s assets in cases of fraud or illegality.

In many scenarios, the most prudent way to organize a new business is as an LLC. This is because LLCs combine the ease of having a partnership with the legal protections offered to corporations.

Once the parties have agreed upon the price and entered into a written agreement, the earnest money is typically deposited with the brokerage of the listing agent. The earnest money will be held until the transaction closes. At closing, the earnest money will be applied towards the purchase price of the property. However, if the transaction does not close and one of the parties backs out of the deal, then the parties will need to determine which party will receive the earnest money. Determining which party gets to keep the earnest money will depend largely on the language and provisions included in the purchase agreement.

If you have questions regarding earnest money or purchase agreements, the attorneys at Hartung Schroeder can help.

ABOUT TRAVIS BRENNER

Travis is an associate attorney at Hartung Schroeder. His experience includes real estate and family law, civil litigation, and working with clients to form non-profit organizations and businesses. Travis also holds a Master of Business Administration degree, which allows him to better address the needs of business clients. You can read more about Travis or get in touch with him here.

While most assets (e.g., bank accounts, vehicles, and furniture) can be divided without a court order, retirement plans require a QDRO to be issued in order for the company administering the retirement plan to recognize the right of the alternate payee to receive payments or benefits available under the plan. However, a QDRO cannot require the plan to confer a benefit to the alternate payee that is not already available under the plan.

Typically, the “alternate payee” is the spouse/soon-to-be former spouse of the plan participant. The alternate payee may also be a child or dependent of the plan participant. A QDRO will assign either a specific dollar amount or a percentage of the plan’s benefit to the alternate payee.

Although every QDRO must contain certain information, each QDRO will be different depending on the type of plan and benefits. If you have questions or need assistance with a QDRO, the attorneys at Hartung and Schroeder can help.

ABOUT TRAVIS BRENNER

Travis is an associate attorney at Hartung Schroeder. His experience includes real estate and family law, civil litigation, and working with clients to form non-profit organizations and businesses. Travis also holds a Master of Business Administration degree, which allows him to better address the needs of business clients. You can read more about Travis or get in touch with him here.

NIL knows no boundaries . . . yet!

The NCAA’s “acceptance” of the reality that student-athletes must be allowed to make money from their own NIL (Name, Image and Likeness) has created a huge “gray area” when it comes to what is or is not permissible.

The NCAA’s initial “Interim NIL Policy” is clearly a punt – deferring to state laws which have been promulgated to define the rights and responsibilities of student-athletes when it comes to making money. It is apparent that the NCAA is hoping for uniform Federal Legislation to be passed – largely to eliminate the nightmare of policing fifty different state laws and the impact different rules in different states will have on “fair competition.”

Prior to NIL, the NCAA strictly limited income opportunities in order to preserve the “amateur status” of its student-athletes. However, this position has eroded quickly following the June 21, 2021 United States Supreme Court decision in NCAA v. Alston et. Al – which struck down NCAA rules limiting the education related benefits schools may make available to student-athletes.

In the wake of Alston, student-athletes can now earn money so long as payment is not:

• Contingent upon enrollment at a particular institution
• For athletic participation or achievement
• For work not performed

Unless restricted by State Law – everything else appears to be fair game – for now. Without question, additional rules, regulations, interpretations and limits will soon follow. Otherwise, an unlimited “free market” system will undoubtedly destroy any sense of parity / fair competition that may currently remain in the NCAA.

Without boundaries – the rich will get richer and the NCAA (in its present form) will become obsolete. Until then, if you are a prospect, student athlete, coach or institution, the attorneys at Hartung Schroeder have experience with NCAA Compliance issues and we are available to assist you in navigating these uncharted waters.

ABOUT J.D. HARTUNG

J.D. is a co-founder and partner at the law firm of Hartung and Schroeder. He started the firm with friend and colleague, Brad Schroeder, after working in both boutique and large, multi-state firms. He saw first-hand that a small firm brings definite advantages to clients. Experienced in general litigation, he serves a wide range of clients including those seeking legal counsel for business, family law issues and personal injury. You can read more about him or get in touch here.

Restrictive covenants, aka property covenants, tell you what you can and cannot do with your property.  Two main purposes of covenants are to limit the misuse of property and maintain property values.  Restrictive covenants are often put in place by land developers who are developing a tract of land into a subdivision of homes.  First, the developer creates a list of covenants that restrict the use of the lots being sold in a particular subdivision, then the developer would file those covenants at the county recorder’s office.  After the covenants are filed, they will remain connected to land until the covenants expire or are terminated. Since the covenants are connected to the land, they will pass from seller to purchaser.

Examples of Restrictive Covenants:

• House Requirements: Covenants may require a minimum square footage or house design, such as a one or two story house.
• Design Approval: Covenants may require any new construction plans, renovations, or other improvements to be reviewed and approved by a committee or HOA prior to being initiated.
• Business Usage: Covenants may prohibit homeowners from operating a business out of their home.
• Pet Restrictions: Covenants may limit the number and type of pets that are allowed on your property.
• Other Restrictions: Covenants may restrict home owners from storing trash in their yard, posting signs or billboards on their property, or parking vehicles on their driveways. Covenants may also require homeowners to mow their lawn every so often or upkeep their landscaping in a particular manner.

This is not an exhaustive list of covenants, and it is important to research the covenants you may be subject to before purchasing a new property.  Overall, covenants are designed to maintain continuity and preserve property values within a particular neighborhood, subdivision, or group of properties.  However, some covenants may prevent you from using your property the way you would like. If you have questions or concerns related to property covenants, an experienced real estate attorney at Hartung Schroeder can help.

ABOUT TRAVIS BRENNER

Travis is an associate attorney at Hartung Schroeder. His experience includes real estate and family law, civil litigation, and working with clients to form non-profit organizations and businesses. Travis also holds a Master of Business Administration degree, which allows him to better address the needs of business clients.

Mediation and arbitration are two forms of dispute resolution methods that parties may elect to use.  Additionally, some contracts may contain a mediation or arbitration clause which requires parties to mediate or arbitrate any disputes prior to filing a lawsuit. Although they are both types of dispute resolution, mediation and arbitration have distinct differences.

Mediation is a process that is led by a mediator who will attempt to assist the parties in reaching a fair and mutual agreement.  Although the mediator is usually a lawyer, the mediator will not provide legal advice to the parties.  The mediator’s role is neutral and should avoid taking sides with either party.  Mediation is a non-binding process.  This means that a resolution will only be reached if the parties can mutually agree. The parties cannot be forced to accept a resolution when mediating.  If a settlement is reached between the parties and they execute a settlement agreement, that agreement will become legally binding on the parties.  If no agreement is reached during mediation, the parties retain the option to arbitrate or initiate litigation.

Arbitration is a process that is led by an arbitrator. The arbitrator plays a role similar to a judge in a typical court proceeding. The arbitrator will hear the evidence and legal arguments from each party and decide the outcome of the dispute. Unlike mediation, arbitration is a binding process on the parties.  This means the parties are required to comply with the decision made by the arbitrator.

Mediation and arbitration are attractive alternatives to litigation because the processes are faster and generally less expensive than formal court. If you have questions or concerns regarding mediation or arbitration, the attorneys at Hartung Schroeder are available to help.

NCAA v. Alston

On June 21, 2021, the United States Supreme Court issued the long-awaited opinion for NCAA v. Alston.  After months of anticipation, the Supreme Court issued a unanimous decision that affirmed the Court of Appeals and U.S. District Court’s rulings that held the NCAA rules limiting the amount of education-related benefits an athlete may receive violates the Sherman Antitrust  Act.

Throughout history, the NCAA argued the procompetitive effects of amateurism in college athletics outweighed any anticompetitive effects that resulted in capping compensation to college athletes.  In it’s ruling, the Supreme Court found:  “In any other business or industry, the price fixing or price capping employed by the NCAA would unequivocally be deemed an antitrust violation.”

Prior to the ruling in Alston, there was a long-standing notion that the “amateurism” aspect of college athletics insulated the NCAA from Sherman Antitrust violations.  The Supreme Court in Alston finally discarded the view that amateurism provides the NCAA with a blanket defense to anticompetitive actions.  The Court determined that there are no special characteristics of the NCAA that exempt it from the Sherman Antitrust laws.  In his concurring opinion, Justice Brett Kavanaugh wrote: “The NCAA is not above the law.”

Although the Supreme Court did not squarely address the recent developments of athlete’s rights to capitalize on their own name, image, and likeness (NIL), the Alston decision will provide college athletes with substantially more bargaining power when it deals with paying collegiate athletes. Additionally, the Court’s ruling against the NCAA will likely force the NCAA to be less restrictive in its regulations regarding athlete compensation.

NIL Changes

As of July 1, 2021, the NCAA instituted new rules and regulations which will allow student-athletes to receive compensation for their name, image, and likeness (NIL).  Historically, the NCAA has generally refused to compensate athletes for their athletic services, while the NCAA and member schools have generated massive profits from sporting events and TV deals.  Under the new NIL rules, college athletes will be allowed to earn money from endorsement deals, social media advertising, making personal appearances, signing autographs, and other types of arrangements.

The NCAA enacted these new rules and regulations in response to the growing number of State Legislatures that were enacting their own NIL laws for college athletes. As of today, Alabama, Florida, Georgia, Mississippi, New Mexico, Oklahoma, Nebraska, Texas, Kentucky, Ohio, Oregon, Illinois, Colorado, South Carolina, and Arizona all have NIL laws in effect. Missouri and Connecticut will have NIL laws that will go into effect before year’s end, while Arkansas, Tennessee, Nevada, and Michigan have NIL laws that will go into effect in 2022. Each state’s NIL laws are different, but a majority of the laws contain many similar provisions.

The new NIL rules allow student athletes to benefit from all of the hard work and sacrifices they have made to become a college athlete.  Numerous college athletes around the country have already inked lucrative endorsement deals.  Depending on your state’s NIL laws, college athletes may utilize agents or legal representatives to assist in procuring NIL deals.  The NIL opportunities are just beginning.  If you want to know more about NIL or would like an attorney to assist with NIL opportunities – the attorneys at Hartung Schroeder are available to help.

ABOUT J.D. HARTUNG

J.D. is a co-founder and partner at the law firm of Hartung and Schroeder. He started the firm with friend and colleague, Brad Schroeder, after working in both boutique and large, multi-state firms. He saw first-hand that a small firm brings definite advantages to clients. Experienced in general litigation, he serves a wide range of clients including those seeking legal counsel for business, family law issues and personal injury. You can read more about him or get in touch here.