A presentation on legal considerations when choosing a business structure.

1. Which Business Structure Is Right For Me? Jeffrey M Glazer Glazer Legal Services jmg@glazerlegal.com 608-277-1778 (p)

2. Better Question – What Is A Business? Legally recognized Organization Designed to provide goods and/or services

3. Why? Share Resources/Information Efficiency/Combined Resources Limited Liability

4. How? Agree Offer/Acceptance/Consideration Act in Furtherance of the Agreement Purchase property in joint tenancy/name of organization Distribute receipts to parties to agreement

5. Now… Which Business Structure Is Right For Me? Sole Proprietorship Partnership, Limited Partnership (LP), Limited Liability Partnership (LLP), Limited Liability Limited Partnership (LLLP) Cooperative, Limited Liability Company (LLC) C-Corp, S-Corp,

6. Sole Proprietorship One person Start doing business Unlimited personal liability Business taxes are personal taxes, plus self-employment tax

8. Partnerships Rights and Duties of Partners Repaid contribution Share equally in the profits and losses Indemnity Repay loans with interest Equal management rights; decision by majority, except actions in contravention of partnership agreement which must be unanimous An Accounting Fiduciary Duty Partnership Interest Is A Personal Interest Taxes are personal; partnership is not taxed

9. Partnerships Partners are agents of the partnership Can bind partnership conveyance of partnership property Admissions are evidence against partnership Can accept notice But can’t, without unanimous consent: Assign partnership property to creditors Dispose of the goodwill of the business Perform an act that would frustrate the business Anything else that the partnership says

10. Partnerships Unlimited liability Joint and several Personal Limited Liability Partnership (LLP) Registered Liability of partnership is still joint and several, but limited to partner’s contribution

11. Partnerships Dissolution Partnership has an express termination date The date Will of any partner that hasn’t assigned/charged interest No term date: express will of any partner Expulsion of any partner Death or bankruptcy of any partner Decree of court Upon Dissolution, Partnership can: Assign rights and obligations Wind up

12. Partnerships Winding Up Count up all assets Partnership property Contributions of partners Pay liabilities Non-partner creditors Partner creditors Partner Contributions Distribute remaining profits

13. Limited Partnerships General Partners Manage Partnership; joint and several, personal liability Limited Partners Cannot participate in management; Liability is limited to contribution Requires registration of LP Dissolution: Removal of limited partner does not Removal of general partner might Taxed like partnerships

14. Limited Partnerships Not the same as Limited Liability Partnerships which are general partnerships with all partners having limited liability LLLP – Limited Liability Limited Partnership General partners also have limited liability Wisconsin does not recognize

15. Partnership v Corporation Partnership: does not exist absent its partners; if a partner leaves, there is no partnership Corporation: exists independent of its constituents, but is owned by its constituents; limited liability for actors

17. Fair Dealing

18. Fiduciary Duty

19. Act in conformance with Criminal Law

20. No Willful Misconduct

22. Limited Liability Company Distributions – value of contribution All items of income, loss and credits are passed-through to Members Members taxed even if no distribution is made May not make a distribution, if: Would be unable to pay debts in ordinary course FV Assets < FV Liabilities Dissolution and Winding Up: similar to partnership, except all Members must agree to dissolve

23. Cooperatives A minimum of 5 adults; minimum of 3 directors Looks like a corporation Articles of Incorporation Meeting of Board and Members ByLaws Registered Agent Acts like a partnership Not necessarily capital stock One member = one vote No proxy voting

24. Cooperatives Officers and Directors not liable except: Duty of Fair Dealing Violation of Criminal Law Willful Misconduct Transaction in which officer/director received improper personal benefit Directors who vote in favor of a negligent or bad faith distribution are joint and severally liable Members are never liable for obligations of co-op

25. Cooperatives Net Proceeds minus Operating expenses Supplies and property procured for patrons Cost of services to patron Taxes Reserves for depreciation, etc. Remainder shall be paid and counts as income to co-op Up to 5% may be saved for co-op education (expense) Salaries of directors/officers/employees (expense) Dividends to capital stock

26. Cooperatives Remainder shall be paid and is not income to co-op Distributions and reserves to patrons/members; may be made in cash, credit, stock, property, etc.; may be made in accordance with patronage or stock ownership

27. Corporations S-Corp – Federal election Receive pass-through taxation to shareholders Requirements LLC or Domestic Corporation One class of stock No more than 100 shareholders (spouses = 1) All shareholders must be US citizens and natural persons Profits and losses must be pro-rata

28. Corporations Organized under Wisc. Stat. § 180 Articles of Incorporation Name of Corporation (Inc., Co., or Corp.) Class, Series and Number of stock shares Preferences and limitations of Class and/or Series, if any Grant or limitation of Preemptive Rights Name and Address of Registered Agent Name and Address of Incorporators

29. Corporations Preemptive Rights: right of preference to any newly issued shares Preferred Shares: non-voting shares with preference over common-stock to dividends Participating Rights: rights to additional dividends if certain goals are met Cumulative Rights: rights to dividends accumulate Exchange/Convertible Rights: can exchange for other types of securities (convertible: can exchange to common) Putable: may force redemption

30. Corporations Administrative Requirements Board meetings Must have at least one board member Shareholder meetings Proxy voting allowed Cumulative voting for Directors Voting Agreements allowed Annual Report Shareholders elect Board, Board selects Officers

31. Corporations Duties of Directors and Officers Directors and Officers are not liable unless they violate a duty to the corporation Advance shareholder interest; may also consider: Effect on employees, suppliers, and customers Effect on community Any other factors the Director/Officer deems pertinent Business Judgment Rule: Officers and Directors are presumed to act in the interest of the company, unless there is a violation of the duty of care Duty of Care: standard of reasonable care while performing duties Duty of Loyalty: must put corporation’s interests ahead of one’s own

32. Corporations Pros Good for lots of shareholders Very flexible for voting and dividends Statutorily mandated procedures already exist Cons Double taxation Corporation is taxed on income Shareholders taxed on dividend (post-tax income) Complex for small organizations

33. We’re Done! Partnerships General, Limited, Limited Liability Companies Cooperative, LLC Corporation S-Corp C-Corp