This a brief overview of the legal aspects of starting a business.
When starting a business, it is definitely recommended to form a legal business entity even if you are a single person business. A legal business entity will normally either be a Limited Liability Company or a Corporation. The benefit of forming a Limited Liability Company (“LLC”) or a Corporation to operate your business is that it can give you limited personal liability from lawsuits that could result from the operation of your business. For example, if someone wanted to sue you as a result of the operation of your business, that person would have to sue the LLC or corporation and could not sue you personally. The importance of this is that if the lawsuit is successful, they can only go after assets owned by the LLC or corporation and cannot try and collect your personal assets i.e. your home.
I always advise a new business owner to talk with their accountant before deciding to form an LLC or corporation. Your accountant may have a recommendation regarding which business entity is better for tax purposes for your business and financial situation.
Once you have decided on which type of entity to form, the process of forming the LLC or Corporation begins with the Wisconsin Department of Financial Institutions or “DFI”. The DFI has the forms that have to be completed to legally form and establish your new LLC and Corporation. These are formed through Articles of Organization for an LLC or Articles of Incorporation for a Corporation.
Once your LLC or Corporation has been established by DFI, then there are additional important legal documents that need to be drafted. For an LLC, you will need to draft an Operating Agreement. For a Corporation, you will need to draft Organizational Resolutions, Corporation Bylaws, and a Share Purchase Agreement.
It is highly recommended that you have an experienced Wisconsin business attorney help you with the drafting of these important legal documents.