What do you need to know about starting a business in Wisconsin?
Starting a business is hard work! You may have an excellent product or idea for a future business, but creating and operating a business to capitalize on it takes significant planning. This article will give you a brief primer of the things you need to consider when forming a business, and the legal steps you need to take to make it official.
Before trying to create a legal entity for your business, or registering it with the State of Wisconsin, you need to put considerable thought into a business plan. First off you should pick a name, and a location to conduct your business. This may involve checking if your preferred name is already taken, and looking into areas you could establish a store front or office space. You should also conduct market research – who wants your product or service, how can you market it to them, and what are your competitors in the field?
Perhaps most important is creating a business plan. You should think about how you want to develop your product or service, how you want to sell and market it, and who will be a part of your business. You also need to know what your business’s financial requirements and burdens will be, and how much you need to sell in order to have a successful operation.
This is an incredibly important step – every entrepreneur needs a plan for growing their business and ensuring its long-term success and stability. Once you have a plan, you can begin to consider the legal business entities that are available to you, and how they match your needs.
What type of entity is right for you?
There are lots of different entity options for entrepreneurs. Depending on how direct you want your profits to be, or how much tax and other financial liabilities you want to expose yourself to, you should consider several options. One of the first questions is whether you want to incorporate your business or not.
Non-incorporated entities include sole proprietorships, and partnerships:
Sole Proprietorship – a sole proprietorship is an informal business entity that treats the business and its owner as one and the same. The profits of sole proprietorships go directly to the owner of the business. However, any liabilities for the business, financial or otherwise, also fall directly on the owner.
Partnerships – partnerships are like sole proprietorships, but with more business members. Generally, profits from the partnership are split directly by the partners, but like a sole proprietorship, the liabilities of the partnership are the responsibility of the partners. Wisconsin does allow limited liability partnerships (LLPs) in certain circumstances, which can help provide liability protections, while offering a partnership structure.
Non-incorporated entities like these provide maximum profit flow, and the simplest taxation structure – profits are taxed as personal income for the owner. However, the benefits of profit flow are balanced out by the direct exposure that owners have to legal and financial liabilities. They are a double-edged sword.
Incorporated entities include LLCs, and various types of corporations, statutory-closed corporations, and non-profit corporations:
Limited Liability Company (LLCs) – an LLC is an incorporated business entity, that has limited liability protections in place for the owners and managers of the LLC. LLCs are easy to maintain, and have good tax structures – company profits are passed through to the owners, and are taxed as personal income, which avoids double taxation. You can have an LLC be managed by the owners, or by a hired or elected management group.
Corporations – Full corporations are more complicated business entities. They can choose between S and C corporation status, which affects how the company and its owners are taxed. They require more filings with the state, and require more maintenance by the owners.
Incorporated entities are more closely regulated by state laws. LLCs are taxed only once, but some types of corporations can be taxed twice – once at the corporate level, and again at the personal income level. Corporations shield their owners from the financial and legal liabilities of the company, as long as the owners and managers don’t abuse the company for their own personal financial use.
The business structure you choose will depend on the unique characteristics of your business. For many small business owners, especially sole-owners, the LLC is a great option, but you should consult with a business lawyer to see what the best option is for your business.
What do you need to register?
Once you have picked a structure for your business, you need to take the appropriate steps to create and register the business. All businesses will need to name their business, choose a registered agent that will accept taxes and legal documents on behalf of the business, acquire an Employer Identification Number.
If you are creating a corporation, you also have to file articles of incorporation with the Department of Financial Institutions. Once you pay a filing fee, and submit the articles of incorporation and other basic business information, you have a registered business!
What else do you need to consider?
After registering your business, there are still several things to consider. Corporations and LLCs need to make annual filings with the State.
You should quickly create an operating agreement or corporate bylaws that will create guidelines for your partners, shareholders, and managers. Many small businesses register with the state, and then fail to create rules that govern their own corporations. Operating agreements, and bylaws create rules that govern how your business will function, and are the best way to deal with potential conflict between managers and owners before they happen. Attempting to resolve disputes without clear business rules can be expensive, and sometime fatal to the company.
Your business may need insurance, or special licenses. For example, bars are required to obtain liquor licenses among other things. Before you begin operating, make sure you have obtained all the proper licenses for business sector. You should also consider obtaining business banking and financial accounts, in order to keep a level of separation between you and your business, and to keep your business financials running smoothly.
If you have employees, you should consider compiling an employee handbook that establishes the rules your employees need to follow, and creates drug abuse and harassment policies. Properly managing your employees, and establishing protocols to manage employee conflicts will save your business money and headaches down the line.
Ultimately, starting a business is a complicated process, but with the right help, you can get your business off to a great start. If you want help forming a business, the experienced attorneys at Russell Law Offices, S.C. are here to help.