I know it seems early to be concerned with the 2010 Iowa Legislature, but there is a bill carried over from last year that the Bar Association and others have been told will certainly become law if something isn't done about it. And it is a bill that should not become law.
Why am I so concerned with SF 413? Because by creating a new Iowa Code Section 91A.15 it imposes personal liability on officers of corporations, members and managers of LLCs and partners in partnerships "for a judgment obtained against an employer for failure to pay wages dues pursuant to Iowa Code Chapters 91A or 91D (Wage Payment Collection and Minimum Wage, respectively). It is such a poorly written bill that it excludes corporate directors and shareholders, but includes LLC managers and members, the drafter apparently not realizing that they are practically interchangeable concepts. It is also unclear whether it applies to LLPs and LLLPs.
Subsection 2 of this proposed new 91A.15 attempts to soften the liability exposure of subsection 1 by limiting it to persons (a) who control, supervise or have authority over wages and (b) who have a controlling interest or ownership in the entity and knowingly violate 91A or 91D.
This is not as limiting as it might seem because none of the terms are defined. What is "control"? Is being a manager having "authority for"? What does it mean to "knowingly" violate?
If this law is passed you can kiss LLCs in Iowa good-bye. The Legislature will also make it very difficult for out-of-state businesses organized as LLCs to do business in this state. In other words, the preferred business entity, chosen by 77% of all new businesses in the State of Iowa, will be persona non grata. Don't let any legislator who votes for this bill try to tell you they are pro-business or an advocate of business development in Iowa because they are not.
I appreciate what the sponsors of this bill are trying to do, but there is a better way to do it: Codify the elements of piercing the corporate veil. Doing so will give clear guidance to owners and courts alike and see that people are punished for their conduct, not merely their ownership.
-Marc Ward
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