WDFI Warns of Corporate Records Service Scam

The Wisconsin Department of Financial Institutions has said in a news release on Thursday that numerous business owners have been receiving a solicitation for information and credit card numbers to pay a fee to “Corporate Records Service.” The form comes pre-filled with very specific corporate information (available on-line) which makes it seem official.

The WDFI confirmed that it is not affiliated in any way with Corporate Records Service.

If you receive this form, be sure you know what service you are paying for, as it does not appear to be related to any annual registration requirements or anything related to the WDFI.

You can see the JS Online story here.

Do I need a license for my business in Wisconsin?

There are a number of different regulations and licenses that a small business has to deal with. The most often overlooked is the requirement from each city for specific licensing.

The State of Wisconsin requires licenses for a number of businesses from Accountants and Acupuncturists to Wild Rice Harvester and X-Ray Services. You can see the complete list here. However, each city or municipality also has its own set of license and business requirements that need to be complied with. Often times these are much more specific than the State requirements. Read more

Can I just close my doors if my business is sued?

Unfortunately, as is the case with many legal questions, the answer is maybe. There are a number of factors to look at before that question can be answered, and most likely you would need to see a lawyer to evaluate each individual case.

Generally speaking a party suing your business, if they obtain a judgment against your business, is going to be able to collect against the assets (or at least the unsecured assets) of your business.

This can vary from getting a receiver appointed to force the liquidation of company assets, to freezing business bank accounts, or even having the Sheriff go in and collect cash directly from the cash register to help satisfy the judgment. Thus, if your business has more value in assets than the potential judgment amount, it may be worth contesting the lawsuit or trying to reach a settlement. If not, then you can explore whether you can simply close up shop and move on.

Under Wisconsin law you are not allowed to simply close up shop and raid all of the assets of the business just to avoid a creditor. Neither are you allowed to sell all of the assets to a friend or relative (or anyone for that matter) for a severe discount just to avoid creditors. For example, if your business was Bob’s cleaning Company Inc. and your business were sued, you cannot simply sell all of your business assets to your brother for $1 and open up Joe’s Cleaning Company Inc. This would be known as a “fraudulent transfer” and is covered by Wis. Stat. Section 242.04

242.04 Transfers fraudulent as to present and future creditors.

(1) A transfer made or obligations incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

(a) With actual intent to hinder, delay or defraud any creditor of the debtor; or

The statute provides some guidelines for determining “intent to hinder, delay or defraud any creditor of the debtor.” Some of those include:

  • The transfer or obligation was to an insider;
  • The debtor retained possession or control of the property transferred after the transfer;
  • Before the transfer was made or the obligation was incurred, the debtor had been sued or threatened with suit;
  • The transfer occurred shortly before or shortly after a substantial debt was incurred; and
  • The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

Additionally, it is considered to be a fraudulent transfer if the transfer is made:

242.04(1)(b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
1. Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
2. Intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.

Not only does this statute prevent you from intentionally disposing of assets to avoid creditors, it also raises issues if you are intending to legitimately sell your business’s assets and you have been sued or you have outstanding creditors. You need to ensure that the transfer cannot be categorized as a fraudulent one.

In any event, if you or your business is sued it is best to immediately see a lawyer who can explore your options with you. If you play your cards right though, one of those options may be to simply close your doors and move on to your next, hopefully more successful, venture.

Using Non-Compete Clauses to Add value to your business

I just came across a really well written article about non-compete clauses, you can read it here www.saleofbusinesslawblog.com . I am a big fan of Non-compete clauses to sweeten a deal. Chances are, that if you are selling the business, it is because you are no longer going to be performing that type of work anyway. But guaranteeing it with a non-compete clause can give the other side a sense of security and can be a nice bargaining chip to help sweeten the deal.

Of course you have to be sure that you do not want to continue in the business and be sure that the amount added to price is sufficient to cover the opportunity cost involved in no longer being able to pursue an industry that you are knowledgeable about.

Often these agreements are limited to 3-5 years. This gives the buyer enough security about the short term without permanently banning the seller from the industry. Keep in mind however that non-competes vary in large degrees and that there are many specific rules you must follow in order for your non-compete to be enforceable. In Wisconsin, often times non-competes against individuals are limited to around 2 years.

Where is the real value? In the Company or the Employees?

Often, when a company is looking to acquire another business, it looks at all of its gleaming equipment and its wonderful balance sheet as the reason to purchase the company, but in reality all of that success is probably more tied to the employees that work there then the systems or equipment associated with the business. Both Buyers and Sellers of businesses need to keep this in mind from the very outset of negotiations.

A business, as a buyer, needs to be aware of where the value lies and ensure that it is receiving that value when it purchases the company. This may be through opportunities to retain the current employees as well as non-compete agreements for after the sale commences.

For sellers it is extremely important to ensure that there is an agreement that the potential buyer will not simply hire away the sellers most valuable employees. When negotiations begin the potential buyer is given access to the inner workings of the sellers company, and thus may realize that the real value lies in a handful of employees. If there is not a Letter of Intent or other agreement prohibiting the hiring away of that top talent, the buyer may simply call the deal off and acquire the most valuable part of the seller’s business without paying the seller a dime. Courts in Wisconsin will generally up-hold Non-Solicitation agreements for up to 2 years.

From a buyer’s standpoint it is important to be diligent and ensure that the valuable part of the company comes with the deal, and conversely it is in the seller’s best interest to protect that valuable commodity until the deal is finished.

Difference between an Asset Purchase and a Stock Purchase

There are two mainstream ways that Businesses go about acquiring other businesses. This is through either an Asset Purchase or a Stock Purchase. There are advantages and disadvantages to both approaches, taking a look at what you want to accomplish will go a long way towards helping you decide which method to take. Read more

Why Employee Stock Ownership Plans (ESOPs) Are Not Just for Big Companies in Wisconsin

What is an ESOP? An ESOP is exactly what it sounds like, an Employee Stock Ownership Plan, the employees literally hold the stock to the company. The better questions are how do you go about implementing an ESOP? and what are the benefits? While a small percentage of ESOPs (which get most of the news coverage) are large publicly held companies that utilize the vehicle to stop a take over or to buyout a failing company, an overwhelming majority of ESOPs are enacted by smaller, closely held companies as a contribution to its employees. This can serve to motivate and empower your employees, but it can also serve to help in the borrowing of money for acquiring new assets in pretax dollars. Read more

Why Doing Everything to Avoid Business Taxes may Hurt Your Bottom Line

Everybody hates to pay taxes, but Small Business owners seem to hate it the most. Small businesses will go to great lengths, both legally and illegally to hide their income from the IRS, and thus have a lower tax bill each year. While this may seem ideal for the present, is this practice hamstringing your companies overall goals if you ever go to sell?

If you want to get full market value for your company, a key component is showing a profit. It can’t just be this month or last quarter either, you have to make a commitment 2-3 years before selling your business that you are going to have your books show a profit. This means no longer hiding income or taking “questionable” deductions. As an Attorney, I would say you should never do these things, but everyone knows that they happen. If you will not stop those activities for fear of the IRS, then stop them when you want to sell your business because the added return on that sale will be well worth the additional tax hit you may incur.

What Happens when one Partner Leaves a Partnership?

In a January 2007 decision, Estate of James H. Matteson v. Robert R. Matteson et al. , the Wisconsin Appellate court takes the time to further clarify its decision from Lange v. Bartlett , 121 Wis. 2d 599, 602 which stated

[W]hen one partner leaves a partnership and allows the other to continue the business, the departing partner is entitled to receive, in addition to a share of the value of the business, a share of the profits until the business is wound up. We also held that the continuing partner is entitled to be compensated for work done during this time.

In this case, Robert and James had a partnership in a radio sales and service business. In 2001, James left the partnership, but Robert continued the business as an LLC. They never agreed how James should be compensated for his half of the partnership, and unfortunately soon thereafter James died. His estate filed suit and 3 years of litigation ensued. Read more

The Problem with On-Line Form Contracts

If you are looking to start a business in Milwaukee, Wisconsin, or already own a business in the Wauwatosa or Milwaukee area, you might think, “I can save some money on using contracts and business formation services from an on-line website.” And this is true, you will certainly get a cheap alternative. Of course, as in all things in life, you get what you pay for.

Every well written contract can be broken into three main parts. These three parts I like to call Information, Action, and Insurance. You can read more about this in the three part series of posts “The Anatomy of a Contract” The information part of the Contract simply describes what the contract is about: who is involved and what they are contracting for. The on-line contracts, with your input, can usually cover the Information portion of the Contract pretty well. At the end of the day, if you fill in the proper blanks, you have at the very least an outline of what each party is looking to accomplish. Read more

How will the bailout effect businesses in Milwaukee?

It really remains to be seen what the actual effects will be, but I am optimistic that things are moving in the right track. Regardless of your political leanings and whether you feel it was “deserved” or not, the bailout was necessary because the flow of money had seized up. You can think of the banking industry, and the flow of money through the economy as an engine, and cash is its fuel.

Lending money is not a zero-sum game, it is not simply a transfer of wealth from one to another, when banks lend money, money is actually created by making those dollars available in multiple places at the same time, Read more

Why choose an LLC? All of the benefits without a lot of the hassle

LLCs in Wisconsin have become the entity de-jour for new businesses in Milwaukee and the rest of the state. The real strength of the LLC is its ease to set up and maintain and its versatility. 

An LLC provides all of the liability protection of a Corporation. The same rules generally apply about piercing the corporate veil. In order to maintain the liability protection an LLC affords you have to be sure that you follow the requirements of maintaining your LLC as well as keeping all personal and business money separate. Read more

Business Valuation and Tax Ramifications

Buying a business can be more complicated and have greater tax ramifications then one may first realize. Generally speaking there are two different values to a company, the book value and the actual value. When you are buying a company with significant assets there will be significant research, perhaps by a business valuation company, into the value of the company and all of these ramifications will hopefully be taken into account.

Where the interesting situations arise is when there is purchase of a company that has limited assets or is not valued very high. Read more