Experienced Business Attorneys Serving Southeast Wisconsin
Guiding Your Business’ Future
Whether you are looking to start a new business, or need to manage and maintain an existing company, it is important to consult an attorney to ensure you are operating under the most beneficial legal arrangement. Additionally, signing a contract may seem routine and familiar, but the legal ramifications of making promises to other people or companies using written contracts can have long-lasting effects on your life and finances.
It is key to have a competent lawyer assist in your business expansion actions and review any important contract you are creating or being asked to sign. From business or real estate purchase agreements to purchasing your own commercial building or merging with another company, we can help. Knuteson, Hinkston, & Rosenberg, S.C. is based in Racine, WI and works with clients across Southeast Wisconsin.
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Factors of a Business Plan
Creating a vibrant and successful business often takes years of editing and refining your business plan to be more efficient and profitable. There are many different aspects to consider when building or refining a business plan.
What type of legal entity will be used?
Will you have partners?
Will your company’s physical location and business activities allow you to obtain the necessary licenses and permits to operate?
How will the company dissolve or proceed if there are disputes between owners?
Who will have control and ultimate decision-making power in your business?
Will you have employees or independent contractors?
What types of tax benefits are available?
Choosing a Legal Entity: Limited Liability Companies
authority of members and managers.
Multi-member: The LLC is taxed
as a partnership, in which case
members pay taxes on profits
based on their respective shares
of the LLC’s ownership.
S-Corp Election—LLCs can elect
to be taxed as an S-Corporation.
The main benefit is allowing owners to split the taxation of their company salaries from their ownership profit distributions, which may save money on taxes. You should consult your professional
accountant before deciding if an
S-Corp election is right for you
For example, if a customer were to file a lawsuit against your LLC due to an accident or loss that occurred in connection with your business, the damages ultimately awarded to the customer would be limited to the assets of the LLC itself. The customer would not be able to access your personal assets in satisfying the claim against your business, such as your home or retirement savings accounts.
How does creating an LLC protect its owners?
Choosing a Legal Entity: Partnerships
assets can be at risk in the event of a business lawsuit. Since there is little to no liability shield for partners, this is one of the least popular and ill-advised business entity formations.
their share of the company’s profits.
Partners are usually jointly and severally liable for the business debts too, meaning that creditors can freely pursue any and all of the partners to satisfy claims. Certain specialized partnerships, such as Limited Liability Partnerships (“LLP’s”), can provide some of the same liability protections of LLCs and corporations, but there are some unique rules and requirements that must be met to create a valid LLP.
It is important to consult an attorney if you are contemplating using a partnership for your business arrangement. An attorney can help draft partnership agreements that modify and alter some of the disadvantageous default rules discussed here, as well as assist with properly forming a specialized limited liability partnership.
Choosing a Legal Entity: Corporation vs. LLC
A smaller corporation can also designate itself as an S-Corp, which results in the tax liability being passed on directly to the shareholders themselves through their personal taxes. This will prevent the corporation from being “taxed twice.”
One of the main differences between corporations and LLCs is the way in which they are taxed. By default, corporations are generally taxed twice, meaning they pay tax on the profits of the corporation itself, and then shareholders also pay a second wave of personal taxes on dividends disbursed to the shareholders individually. A sole-member LLC only pays one tax because LLC profits pass through to the personal income of the LLC’s owner—like the second wave of taxes that shareholders pay in corporations. LLCs with two or more members are often taxed as partnerships by the IRS (Internal Revenue Service).
However, smaller LLCs can make an election to avoid the default rules and be taxed as a corporation instead. This flexibility makes LLCs an attractive option for small or new businesses. The election allows the LLC to designate itself as a “C-Corp” or “S-Corp.”
How does designating an LLC as a corporation affect its taxes?
A Sample Scenario
For example, if a business owner’s personal income will be taxed at the 24% income bracket, it might make sense to leave some of the company’s profits within the business instead of taking the money out for personal use to be taxed twice. The money left within the LLC-corporation will only pay the first wave of taxes under the lower corporate tax rate of 21% as of 2020.
This money can be used to pay off business debts, purchase company cars and cell phones, or invest in expanding the business, etc. The LLC’s members can therefore control how much of the money will be taxed twice if they take out profits for their personal use, and reinvest the business funds that have only been taxed once to save money. From a practical standpoint, many business owners would rather pay the tax only once and simply use LLC-corporate funds to pay for the owners’ company cell phones and vehicles, office expenses, advertisements, etc.
For owners whose lifestyles are bound to their business activities, operating as either a traditional corporation, or as an LLC making the corporate tax election, might save the most money in the long-run.
Business/Corporate Law FAQ’s
Questions? We have the answers for you.
What type of business entity should I form?
Choosing a business entity depends on several factors. These includes your business
activities, the number of owners, employees, and even investors. There are many types of entities to choose from with varying levels of liability protection, complexity, and benefits. Speak to an attorney to find the entity that best fits your needs.
Do I need to register my business with the state?
Yes, and no. Several of the business entity types, such as a corporation or an LLC, require you to file specific forms with the state to be recognized as a legal entity. This is not the case for more simple entities like a sole proprietorship or a partnership. However, you may choose to file a trade name for these entities unless you choose to conduct business under your own legal name. An attorney can help you accomplish registration.
I trust my business partners, do I really need to draft an operating agreement?
Corporate bylaws and operating agreements are internal rules that govern business owners’ decision making and ownership rights. These documents are not required in Wisconsin, however they can be vital for the life of a business. When the stakes are high, business disputes often bring out the worst in people. However much two business partners trust each other, it is still a good idea to have expectations set for how decisions will be made and disputes handled.
What is business succession?
Like estate planning, business succession is the planning for who will control your business once you die, retire, or become incapacitated. This plan may include transferring ownership to a family member, or promoting an employee to lead the company. A business succession plan can
be executed within your general estate planning process.
Should I hire a lawyer to form my business?
A lawyer can help with complex tasks including choosing an entity, registering your business with the state, drafting governing documents, and navigating zoning or licensing laws. Owning and operating a business can be a high-risk and high-reward endeavor. A lawyer ensures that you avoid disputes and exposure to liability goes a long way in protecting your interests.
Do I need a physical office space, or can I conduct my business solely online?
Technology — especially during COVID — has shown many business owners that they can conduct business solely online. For businesses that are registered with the state, they must list a physical business address for tax and communication purposes. However, there is no requirement that the business activity is conducted at that address. If a business can be conducted completely
online, you have every right to do so!
How can I sell my business?
Selling your business is like selling any other asset you own — just more complex. The owner or owners will determine the value of their company, organize their finances, and transfer their ownership interests to a buyer or buyers. Oftentimes, this process is governed by the company’s buy-sell agreement within their bylaws or operating agreement. The buy-sell agreement gives
owners some guidelines on how to exit the business, and who they may sell their ownership interests to (sometimes to their business partners).
How do I pay taxes on my business income?
Each business entity is taxed differently. Corporations and LLCs both file taxes as a business entity, with corporations paying a second tax on the dividends distributed to shareholders. Both entities may elect to be taxed more akin to a partnership or sole proprietorship. With these, a business is not taxed as a separate entity, instead each owner pays taxes on their personal share
of the business income.
Can business creditors access my personal assets?
Whether creditors can come after your personal assets depends on the kind of business entity you have formed. Corporations and LLCs offer liability protection to their owners. In the event
of debt or lawsuit, your personal assets are separate from your business and shielded from liability. With the more simple entities of a sole proprietorship or partnership, the business is not considered a separate legal entity from its owners. Therefore, there no built-in liability protection. In this case, your personal assets are open to risk.
How can I hire employees?
You may hire employees with or without a contract. Depending on the nature of your
business, it may be a good idea to have employees sign a contract or employment agreement. Additionally, you will need to obtain an “Employer Identification Number” known as an EIN. An is used by the federal government to identify your business entity for filing taxes and hiring
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making decisions based on business tax benefits. Corporations have much more complex tax
and accounting work associated with them than LLCs. Your attorney can recommend and
explain which business structure will ultimately make you the most money.
Contract Drafting, Review, & Negotiation
Contracts boil down to promises being made between multiple parties, whether that involves business partners, customers, or spouses. Contracts can be enforced by filing lawsuits against an offending party for breach of contract. Absent special circumstances where a party has been legitimately defrauded and fooled into signing a contract, contracts are usually enforced by courts of law.
However, enforcing or defending against an allegation of contract breach can be expensive for both parties in terms of litigation costs and attorney fees. Therefore, creating a fair contract that can be reasonably complied with by parties is essential to maintaining a prosperous contractual relationship.
Have questions? We’ve got answers.
Stages of Contract Negotiation
Our firm can assist with drafting new contracts for your business, such as contractor terms and conditions or liability waivers for customers, as well as business and commercial asset purchase agreements and letters of intent. We also routinely assist clients in drafting real estate purchase agreements and leases to buy, sell or lease residential properties.
Another common type of contract occurs between husband and wife through marital property agreements, which can stipulate how a couple will classify ownership of their marital and separate property, and subsequently divide their joint assets in the unfortunate event of a divorce. As the drafter of a contract, retaining an experienced transactional lawyer can ensure that you create a document which is written primarily to your favor and benefit.
Attorney Andrew Rosenberg often assists clients by reviewing employment termination contracts, non-compete agreements, severance packages, real estate purchase agreements or amendments, commercial leases, and other business contracts. When reviewing a contract provided by another party, your attorney should plan to spot issues that are not drafted in your favor. If possible, these issues should be addressed and amended to reflect a fairer arrangement for both parties.
Your lawyer can also assist with establishing letters of intent, which help commit parties towards completing or finishing a contractual deal. Finally, a skilled transaction lawyer will be able to advocate on your behalf to secure the best deal possible under your existing circumstances.