Most of our agricultural clients operate their operations through one or more limited liability companies. Simply put, an LLC is a hybrid between a corporation and a partnership. As a hybrid entity, an LLC allows members to have limited liability like a corporation and the more flexible management and ownership structure of a partnership. Generally, members of an LLC have no personal liability for the LLC’s contractual, statutory, or tort liabilities.
Form an LLC
An LLC is formed in Wisconsin by its organizers who file articles with the Wisconsin Department of Financial Institutions. The articles of association require the disclosure of the name, registered office and representative of the company; its management structure; and the names of the first organizers of the LLC. Technically, filing for articles of association is all that is required to begin business operations as an LLC in Wisconsin. However, it is generally advisable and necessary for the LLC to take additional steps to be qualified to conduct its business and to comply with tax and other legal requirements.
The first recommended action is to adopt a written operating agreement. Without a written operating agreement, the LLC operates under the default rules of Chapter 183 of the Wisconsin statutes, which establishes the rights, responsibilities, and obligations of each member. For agricultural clients, the default provisions of Chapter 183 do not reflect the management and ownership structure they envisioned when they decided to form the LLC. Therefore, our firm advises our agricultural clients that it is essential that they adopt a written operating agreement to change the default arrangements in order to establish a clear and specific structure under which the business will be managed and owned.
Too often people believe that an LLC will provide them with limited liability protection; However, it is not that simple. It is essential that members take steps to preserve the LLC’s limited liability protection and avoid a “corporate veil piercing”. This usually happens when a court disregards the limited liability protection of an LLC because the members have done one of the following:
- failed to properly separate their personal and business transactions, funds and transactions
- did not bring sufficient capital to the LLC
- did not respect the formalities of the company
- did not keep company records
- entered into transactions when the LLC was insolvent
- failed to use legal name on contracts and commercial communications
To avoid piercing the corporate veil and ensuring clients maintain their limited liability protection, we advise our agricultural clients to do the following:
1. Financial matters. Members of the LLC must establish a separate bank account for the LLC in order to maintain a separation between the finances of the LLC and personal finances. All income of the LLC must be deposited into the accounts of the LLC and all expenses must be paid from its accounts. Under no circumstances should personal expenses of an LLC member be paid from the LLC’s financial accounts.
2. Written documents. All contracts, loan documents, agreements, deeds and other correspondence must be signed by a member, director or agent of the LLC with authority to perform such documents on behalf of the LLC and not on behalf of the members of the LLC. the LLC.
3. Limited Liability Notice. When the LLC is operating, the LLC must provide notice of its limited liability status and designation. Providing this notice informs third parties that they are dealing with a company that has liability protection and not with LLC members in a personal capacity. The company’s status as an LLC should be clearly stated on all checks, stationery, purchase orders, invoices and invoices, documents, agreements and advertising materials.
4. Asset titling. Personal property, real estate and other assets of the LLC must bear the name of the LLC. The proper title of the assets ensures the separation between the assets of the LLC and the members of the LLC. Failure to properly register assets could put the personal assets of one or more members at risk.
5. Insurance. The LLC shall obtain, on behalf of the LLC, appropriate property, liability, workers’ compensation, and other appropriate insurance to insure the assets and operations of the LLC. The LLC must obtain coverage for these assets and activities before commencing business operations. In addition, each member of the LLC should consult their insurance agent to ensure that the member has adequate personal liability protection, as the LLC does not provide protection against personal negligence claims. of a member for his own actions.
Mayer is a partner at the agricultural law firm Twohig, Rietbrock, Schneider and Halbach. Call him at 920-849-4999.