Wisconsin Corporations

Question 1

Promoter Liability

Answer 1

A promoter is personally liable for knowingly acting on behalf of a corporation before incorporation and is jointly and severally liable for all liabilities created while so acting, even after the corporation comes into existence, unless a subsequent novation releases the promoter from liability.

Question 2

Pre-Incorporation Transactions

Answer 2

In Wisconsin, a corporation is not bound by contracts entered into by its promoters or incorporators. The corporation can be liable when the corporation expressly or impliedly adopts the contract. Adoption takes place when the corporation accepts the benefits of the transaction or gives an express acceptance of liability for the debt, such as through board resolution after incorporation.

Question 3

Filing Requirement

Answer 3

In Wisconsin, the DFI’s filing of articles of incorporation is conclusive proof that the corporation is incorporated

Question 4

Notice of Meeting

Answer 4

In Wisconsin, the articles of incorporation or bylaws may permit oral notice. Written notice is effective at the earliest of the following: (i) when received; (ii) five days after its deposit in the U.S. mail; (iii) on the date shown on the return receipt, if sent by registered or certified mail; or (iv) on the effective date specified in the articles of incorporation or bylaws.

Question 5

Shareholder Action Without a Meeting

Answer 5

In Wisconsin, action required or permitted to be taken at a shareholders’ meeting may be taken without a meeting in either of the following ways:

i) Without action by the board of directors, by all shareholders entitled to vote on the action; or

ii) If the articles of incorporation so provide, by shareholders who would be entitled to vote at a meeting those shares with voting power to cast not less than the minimum number.

Question 6

Shareholder Inspection Rights

Answer 6

To inspect and copy corporate records, a shareholder in Wisconsin must satisfy all of the following requirements:

i) The shareholder has been a shareholder of the corporation for at least six months before her demand, or the shareholder holds at least five percent of the outstanding shares of the corporation;

ii) The shareholder gives the corporation written notice of her demand at least five business days before the date on which she wishes to inspect and copy the records;

iii) The shareholder’s demand is made in good faith and for a proper purpose;

iv) The shareholder describes with reasonable particularity her purpose and the records that she desires to inspect; and

v) The records are directly connected with her purpose.

Question 7

Futility Exception

Answer 7

The futility exception is not recognized in Wisconsin

Question 8

Special Meeting

Answer 8

In Wisconsin, unless the articles of incorporation or bylaws provide otherwise, special meetings of the board of directors require at least 48 hours’ notice of the date, time, and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the articles of incorporation or bylaws.

Question 9

How may a director waive notice of a special meeting?

Answer 9

A director may waive notice of a meeting at any time by a signed written waiver. In addition, a director’s attendance waives notice of that meeting unless the director promptly objects to lack of notice.

Question 10

Conflict of Interest

Answer 10

In Wisconsin, a conflict of interest arises when a director has a direct or indirect interest in a corporate transaction. A director may have an indirect interest when the transaction involves another entity in which the director has a material financial interest. A conflict-of-interest transaction is authorized or specifically ratified if it receives the affirmative vote of a majority of the directors who have no interest in the transaction.

Question 11

Business Judgment Rule

Answer 11

The business judgment rule is based on a presumption that the director of a corporation, in making business decisions, acted in good faith and with the honest belief that her decision was in the best interest of the company. Where applicable, the rule protects a director from liability for honest errors of judgment if she acted with good faith. The rule does not, however, shield a corporate director who has acted in bad faith.

Question 12

Forming a Corporation

Answer 12

To form a corporation, the articles of incorporation must be filed with the Department of Financial Institution, and such filing is conclusive proof that the corporation is incorporated. Unless its articles of incorporation provide otherwise, a corporation has the same powers as an individual to do all things necessary or convenient to carry out its affairs. Once the articles of incorporation are filed, an organizational meeting is held at which the appointment of officers, adoption of bylaws, and approval of contracts may take place. When the incorporators hold the meeting, election of the board of directors also takes place.

Question 13

Articles of Incorporation

Answer 13

The articles of incorporation must include certain basic information about the corporation, such as its name, the number of shares it is authorized to issue, the name and address of its registered agent, and the name and address of each incorporator.

Question 14

Bylaws

Answer 14

The bylaws contain any lawful provision for the management of the corporation’s business or the regulation of its affairs that is not inconsistent with the articles of incorporation.

Question 15

Quorum

Answer 15

Unless the articles of incorporation or bylaws state otherwise, a quorum of a board of directors in Wisconsin consists of a majority of the number of directors specified in the articles of incorporation or bylaws. However, the articles of incorporation or bylaws may authorize a quorum of a board of directors to consist of no fewer than one-third of the number of directors specified in the articles of incorporation or bylaws.

Question 16

Participation in a Special Meeting

Answer 16

In Wisconsin, unless the articles of incorporation or bylaws provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting of the board of directors by, or to conduct the meeting using, any means of communication by which any of the following occurs: (i) all participating directors may simultaneously hear each other during the meeting; or (ii) all communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors.

Question 17

What governs the rights duties of managers and members?

Answer 17

The operating agreement of an LLC

Question 18

Safe-Harbor Provision

Answer 18

The operating agreement may also provide “safe-harbor” provisions under which specific acts or transactions that would otherwise violate the duty of loyalty may be authorized or ratified by one or more disinterested and independent persons after full disclosure of all material facts. An operating agreement may not relieve or exonerate a member or manager from liability for any of the following: (i) a willful failure to deal fairly with the LLC or its members in connection with a matter in which the member or manager has a material conflict of interest, (ii) a violation of criminal law, unless the member or manager had reasonable cause to believe that the person’s conduct was lawful or no reasonable cause to believe that the conduct was unlawful, (iii) a transaction from which the member or manager derived an improper personal benefit, or (iv) willful misconduct.

Question 19

Court-Ordered Dissolution of a LLC

Answer 19

A court may order dissolution of an LLC on any of the following grounds: (i) the conduct of all or substantially all of the company’s activities and affairs is unlawful; (ii) it is not reasonably practicable to carry on the company’s activities and affairs in conformity with the articles of organization and the operating agreement; or (iii) the managers or controlling members have acted or will act in a manner that is illegal, fraudulent or oppressive.

Question 20

Piercing the Corporate Veil

Answer 20

In Wisconsin, neither inadequate capitalization nor the disregard of corporate formalities will independently justify piercing the corporate veil, but rather are elements comprising the “alter ego” theory or “instrumentality” rule.

The “instrumentality” or “alter ego” doctrine requires proof of the following elements:

i) Control (not mere majority or complete stock control, but complete domination) not only of finances but of policy and business practice in respect to the transaction attacked, so that the corporate entity as to this transaction had at the time no separate mind, will, or existence of its own; and

ii) Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or commit a dishonest and unjust act in contravention of plaintiff’s legal rights; and

iii) The control and breach of duty must proximately cause the injury or unjust loss complained of.

Question 21

Distribution of LLC Assets upon Winding UP

Answer 21

In Wisconsin, a dissolved LLC continues its legal existence but may not carry on any business except that which is appropriate to wind up and liquidate its business. Upon the winding up of an LLC, the assets are first to be distributed to creditors, including members that are creditors. Remaining assets are to be distributed to members and former members in the following order: (i) in satisfaction of liabilities for pre-dissolution interim distributions; (ii) for the return of their contributions in proportion to their respective values; and (iii) for their transferable interests in proportion to their respective rights to share in distributions.

Question 22

When may the board dismiss a shareholder’s derivative action?

Answer 22

The board can seek to dismiss a shareholder’s derivative action if a majority of the board’s qualified directors (i.e., directors without a material interest in the action) determine in good faith after reasonable inquiry that maintaining the action is not in a corporation’s best interests. However, the board’s failure to investigate credible allegations of corporate illegality constitutes lack of good faith.

The board may appoint a special litigation committee of independent directors to recommend whether to proceed with a derivative action. Whether committee members are independent is tested on an objective basis as of the time they are appointed. Considering the totality of the circumstances, a court must determine whether a reasonable person in the position of a member of a special litigation committee can base his decision on the merits of the issue rather than on extraneous considerations or influences.

Question 23

Fiduciary Duties

Answer 23

In Wisconsin, a corporate director has a fiduciary duty to act in good faith and to deal fairly when conducting corporate business.

Question 24

Personal Liability for Members of an LLC

Answer 24

In Wisconsin, the debts, obligations, and liabilities of an LLC belong solely to the LLC. Except for liability for contributions or wrongful distributions, a member or manager of an LLC is not personally liable for any debt, obligation, or liability of the LLC, solely by reason of being or acting as a member or manager. An LLC’s mere failure to observe formalities is not a ground for imposing liability on a member or manager for a debt, obligation, or other liability of the company.

Question 25

Duty of Care

Answer 25

The duty of care requires a director to act with the care that a person in a like position would reasonably believe appropriate under similar circumstances.

Question 26

Duty of Loyalty

Answer 26

The duty of loyalty requires a director to act in a manner that the director reasonably believes is in the best interests of the corporation. Typically, a director breaches this duty by placing his own interests before those of the corporation.