Law Office Report - Summer 2009
Starting A Business Is Not As Simple As A "Few Clicks"
Attorney Rick A. FlugaurI recently read two separate articles in local publications describing the process for starting a business in Wisconsin. In both instances, the articles directed the readers to the Wisconsin Department of Financial Institutions (hereafter “DFI”) web site. This web site allows you to complete and file on-line documents to organize and maintain a business in Wisconsin, including Articles of Incorporation (to register a corporation) and Articles of Organization (to register a limited liability company). The web site is very informative and user friendly and makes the process of filing these initial documents rather easy. Because of the “on-line” filing system in Wisconsin, both articles implied that the process of starting a business was as simple as a “few clicks.” Unfortunately, neither of these articles addressed the numerous factors that a business owner should consider when starting a business. This article will address many of the things that a new business owner must consider and complete before starting a new venture.
Deciding on a Form of Business Entity.
Typically, the first step in starting a new business is to decide on the form of entity you should operate your business under. There are several choices. For example, in Wisconsin your business could be operated as a corporation, limited liability company, general partnership, limited partnership, limited liability partnership or a sole proprietorship (for a single owner). Your choice of entity will often depend on the type of business and the ownership structure. Factors you should consider when selecting an entity would include: limited liability protection for owners, state and federal tax rules, and opportunities for succession planning for future growth and ownership of the business.
Preparing the Organizational Documents.
After deciding on the appropriate entity, you should direct your legal advisor to prepare organizational documents for your business.
• This process includes selecting your business name. You should do a thorough search to make sure that the business name you select is not similar to a name that is already registered in Wisconsin. Also, your name should not be similar to a name of a business in the geographic area in which you will be doing business.
• Your legal advisor should file the appropriate registration documents with the DFI (i.e., the articles to organize the business entity), if applicable.
• Your legal advisor should draft organizational resolutions to document election of individuals who will be managing and directing the company and ownership certificates should be prepared.
• Organizational documents should include bylaws (for a corporation), an operating agreement (for an LLC) or a partnership agreement (for partnership entities). These documents outline the management of the operations of your new entity including voting rights, approval process for management decisions and other matters.
• If your new entity will have multiple owners, it is typical to have an agreement that sets forth the transfer restrictions to maintain ownership within the defined ownership group in the event one of the owners dies, becomes disabled, leaves the employment of the business or divorces.
Obtain Reporting Numbers.
Your new business will have to apply for and obtain the required state and federal reporting numbers and licenses. These new reporting numbers often include a federal employer identification number, a seller’s permit for the collection and remittance of sales or use tax, a state withholding number and establishment of an unemployment compensation account. Your business may also be required to obtain specific reporting numbers, licenses or permits, depending on the type of business.
Creating the Relationship with Your Financial Institution.
You should work with a commercial banker to discuss the financial services required for your business. You should establish a new checking account and discuss the need for a commercial line of credit that will help stabilize the cash flow of your new business, especially during the start-up process. Other merchant services provided by the bank, such as the processing of credit card payments, should also be discussed with your banker.
Coordinating Insurance for Your Business.
You should work with your commercial insurance agent to ensure that you have the appropriate insurance coverage for your new business. Insurance coverages would typically include: commercial liability insurance, worker’s compensation insurance, fire and casualty insurance for company assets, and errors and omissions insurance coverage.
Protecting Name, Product or Process.
If your new business has a unique name, product or process that you wish to protect from potential competitors, you will need to analyze the state and federal laws available to protect these intellectual aspects of your business.
Other Agreements.
There are various other agreements that a new business should consider including customer contracts, vendor agreements and employment agreements.
• Customer contracts can be extremely important in preventing claims or lawsuits by customers and enforcing payment for the products or services provided.
• If your new business will rely in part on vendors supplying certain products or services, vendor agreements may be critical to the success of your new business. Agreements will help ensure that the service or product will be maintained by the vendor for a specified term and at certain prices.
• Employment agreements are often used in small businesses to prevent key employees from leaving the company and soliciting the primary customers of your new business and/or competing with your new business. These agreements must be carefully drafted to be enforceable under Wisconsin law.
Using professionals to assist you when starting a new business is critical. Successful businesses rely on their attorneys, accountants, insurance agents, commercial bankers and financial advisors to assist them in navigating through the various considerations when structuring their new business for success.