You have made the decision to start your own small business. That is great news! But what steps should you take now to properly organize your limited liability company?
In Wisconsin, the first step of limited liability company formation is to decide on a name and file Articles of Organization with the Wisconsin Department of Financial Institutions. The articles establish your business with the State of Wisconsin and specify whether your business is managed by members or managers, who will serve as your registered agent, and the principal location of your business.
Many individuals file articles online, but do not complete the other steps to best protect their business and to take full advantage of the limited liability protection provided for by a limited liability company.
The next step is to develop and execute an Operating Agreement for your limited liability company. An Operating Agreement guides how your new business will function. You will draft your Operating Agreement to determine voting rights and duties of members, management terms of members or managers, member ownership interest, and meeting requirements. The Operating Agreement, when fully executed, protects the members from personal liability for actions of the limited liability company. This point is important because without the executed Operating Agreement, the members will likely be subject to personal liability as they would be if they operated with a sole proprietorship or partnership. Resolutions by the organizers, members, and/or managers adopting the Operating Agreement and member lists should be executed at the same time.
The final step to develop your new limited liability company is to determine whether to draft a Buy-Sell Agreement. This agreement is very important to limit conflict when a limited liability company has multiple owners. The terms of this agreement determine the process for transferring business ownership and anticipates various scenarios which will likely lead to conflict. Such scenarios include the determination of the fair market value of the business and a selling member’s interest, what happens to the shares of a member in the event of death or divorce, how shares are transferred when a member retires, and who has the option to purchase ownership in the limited liability company.
The business attorneys at Anderson O’Brien are happy to provide you with personalized guidance on the topics covered in this post, as well as decisions regarding the nuances of the tax elections, management decisions, proper record-keeping, and other steps to formalize your new limited liability company.