1. General considerations
When dealing with lawsuits involving injury to customers or competitors, Wisconsin’s economic loss doctrine may very well restrict the amount of recovery to which an injured party is entitled. If your legal theories are based upon breach of promises, many of these “injuries” cannot be sued upon. Punitive damages are not permitted in breach of promise lawsuits. A corporation can be sued on practically any claim or theory that could be asserted against a natural person. This is because the law treats a corporation as a distinct legal entity, a legal “person”. In addition; however, a corporation has certain unique liabilities that result from its status as a corporation. You should consult with your attorney concerning these technical distinctions. Shareholders can assert claims on behalf of the Corporation and partners or business people can assert claims against each other.
Damages may often times require expert testimony and complex mathematical projections in order to meet the burdens of proof. There are various ways to calculate damages, such as lost profits or future contracts or expectations or the loss of business value.
3. Economic loss doctrine
When the only injury in the business litigation is economic loss, the economic loss doctrine prohibits the parties from seeking personal injuries. “Economic loss” for purposes of the doctrine is defined as “the loss in a product’s value which occurs because the product is inferior in quality and does not work for the general purposes for which it was manufactured and sold.” This doctrine is judicially created and it limits the remedies of the parties to what was provided for in the contract, or by statute. The policy underlying this is stated in a federal district court decision in Wisconsin as follows:
Commercial entities are capable of bargaining to allocate the risk of loss inherent in any commercial transaction. Courts should assume that parties factor risk allocation into their agreements and that the absence of comprehensive warranties is reflected in the price paid. Permitting parties to sue in tort when the deal goes awry rewrites the agreement by allowing a party to recoup a benefit that was not part of the bargain.
4. Choosing the Form of your business
The organizational form in which you will conduct your business or activity is the primary discussion that you will enter into with your attorney. This decision will have long-term effects even after the businesses sold or discontinued for some other reason. Depending on the circumstances, a for-profit business or activity might be conducted as a sole proprietorship, a partnership, a limited partnership, a limited liability company (LLC), or a corporation. Which of these entities is best for a particular client will depend on a number of factors including business litigation, income taxes, Social Security taxation, dividends versus distributions, piercing the corporate veil and limitations on liability and management techniques and requirements.
A general partnership does not limit the liability of its partners any for the debts and obligations of the business. A limited partnership is a general partnership with some of the partners liability limited. Only the limited partners have some protection. They, however, cannot engage in management of the business. A limited liability partnership (LLP), on the other hand, can limit all of the partners’ liability for debts and contract obligations. Both general partnerships and LLP’s are governed by chapter 178 of the Wisconsin Statutes. LLP’s are created by the filing of a registration statement with the Department of Financial Institutions. Limited partnerships are governed by chapter 179 and are created by the filing of a certificate of limited partnership with the Department of Financial Institutions.
The LLC form is another choice. This is a legal entity created by the filing of organizational documents with the Department of Financial Institutions. An LLC’s owners are called members. They are protected from liability by statute. The income tax treatment of an LLC can be decided by simply checking a box as to whether you want it taxed like a corporation or a partnership. This simple method avoids the problems associated with claims against the business claiming that it is, for example, not a corporation. Taxing authorities often make this claim. Generally, a corporation has to establish limited liability and separate entity status if it is challenged. LLC’s do not. Corporations must establish three out of four factors. They are centralized management, limited liability, marketability of shares, and perpetual existence. These four factors are essential discussion when working with your attorney. The choice of business form will take into account the differences when analyzing business litigation issues, tax treatment, the type of product or services sold. Some products and services are higher risk than others. To competently advise clients on the best entity choice for their circumstances, an attorney must be familiar with each organizational form and how it differs from the other entity choices.
Click here to download a brochure on Starting a Business from the State Bar of Wisconsin
If you are considering changing your business entity or starting a new one and if you are looking for an experienced business lawyer to maximize the options that you have available to you, we, the Michael Ablan Law Firm, LLC., can help you. We have been serving business clients since 1974. With an experienced and aggressive yet honest, trustworthy and friendly legal team consisting of a lawyer with 35 years of experience, specialized paralegals, and a tax accountant, the Michael Ablan Law Firm, LLC., in La Crosse, WI can help you. We also have offices in LaCrescent, Minnesota and Hayward, Wisconsin. Contact us for a free consultation. Our expert legal services are available to you anywhere in the State of Wisconsin, including but not limited to the counties of La Crosse, Trempealeau, Monroe, Pierce, Crawford, Vernon, Grant, Sawyer, Jackson or any other county in Wisconsin or in the state of Minnesota, including all counties surrounding La Crescent, MN, such as Houston and Winona and any other county.