Wisconsin Business Corporation Law: Everything You Need to Know
Wisconsin Business Corporation Law is important to be aware of for anyone wanting to form a corporation in the State of Wisconsin. 3 min read
2. Director Immunity from Liability
3. Protecting Transactions
Wisconsin Business Corporation Law is important to be aware of for anyone wanting to form a corporation in the State of Wisconsin. There are several advantages to forming a corporation, one of the biggest advantages being limited liability protection for its owners. Therefore, if the corporation is sued, the owner’s personal assets cannot be effected, meaning that the owner need not worry about losing his or her personal belongings i.e. car, home, and other assets. Other benefits of a corporation include tax savings, ease of transferring ownership, and more.
Requirements for Incorporating in Wisconsin
In order to form a corporation in the State of Wisconsin, you must file the articles of incorporation with the state’s Secretary of State and pay the required filing fee. Your company can officially begin conducting business immediately after this document is filed.
Included in the articles of incorporation will be the following:
• The name of your corporation
• Stock structure
• Names/addresses of incorporators (shareholders)
• Registered agent name/address
A statement confirming that your corporation is being incorporated under Chapter 180 of the Wisconsin statute. With regard to the stock structure, the business must include the total number of shares being issued. If there is more than one class of stock, then this document must identify all classes or series of stock, while providing a unique designation for each one. Before you can issue stock, you must identify limitations and preference when it comes to such shares. This document must also include a provision that gives directors the authority to determine stock limitations and preferences.
Director Immunity from Liability
One of the principles of operating a corporation is the fact that the directors cannot be held personally liable for any sound business judgments or mistakes made in the course of the business’s operations. This is referred to as the business judgment rule, and this doctrine is a rule of law along with a source of procedure when it comes to potential legal disputes arising from shareholder actions.
The State of Wisconsin has followed the business judgment rule for quite some time. In fact, prior court cases have decided cases in favor of this rule, having stated that courts will not interfere in the internal management of corporate affairs unless and until officers abuse their power, act in bad faith, or engage in abuse or indiscretion.
One of the purposes of the business judgment rule is to protect directors when decisions made for the business turn out to be the wrong decisions, in which the shareholders incur a loss. In fact, without this rule, directors might be hesitant in taking on such roles. Wisconsin has an extra layer of protection for such directors, which was enacted in 1987.
Under Wisconsin Stat. section 180.0828(1), a director cannot be liable to the business or shareholders for any damages unless the plaintiff can prove that the director breached his or her duty in four unique categories, all of which involve some sort of willful or illegal misconduct.
However, the director’s immunity might be limited only to the business’s articles of incorporation. Therefore, the business can opt out of the statute that offers immunity. If a corporation does do this, then directors might still have the benefit of the business judgment rule if a legal dispute arises.
Similarly, the state statute could protect a director if the business judgment rule isn’t otherwise available. An example of this would be a dispute arising from the director’s oversight responsibility, in which a plaintiff is claiming liability based on the director’s failure to detect or prevent a risky activity that was conducted by the company’s employees. In this case, the business judgment rule wouldn’t apply since the director didn’t consciously make a decision.
Another reason for distinguishing between the business judgment rule and the state statute is due to the fact that the former protects the directors and the board’s decision itself. For example, if a shareholder sues to enjoin the business from making a board-approved decision claiming that another choice is available and makes more sense, the state statute doesn’t come into play. This is because the director’s financial liability is not an issue; rather, the business judgment rule would act as a defense.
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