Wisconsin Non-stock Corporations
(001) Chapter 181 of the Wisconsin Statutes governs the formation, operation and dissolution of non-stock corporations in Wisconsin.
(002) For purposes of corporate formalities, Chapter 181 of the Wisconsin Statutes does not distinguish between non-profit corporations and non-stock corporations that are operated for profit.
(003) A non-stock corporation in Wisconsin is governed by its board of directors.
(004) Instead of shareholders, a non-stock corporation may, but is not required to, have members.
(005) No part of the income or surplus of a Wisconsin non-stock corporation may be distributed to its members, directors or officers; however, reasonable compensation may be paid for services rendered.
(006) A non-stock corporation has an existence of its own, independent of the terms of office or employment of members, directors or officers.
(007) A non-stock corporation under its own name may sue or be sued, have a corporate seal, acquire or hold or dispose of property, enter into contracts and incur liabilities and do anything else not forbidden by law to further the corporation’s activities.
(008) See Wis. Stat. § 181.0302 for a detailed list as to the powers
statutorily granted to non-stock corporations.
Advantages of Incorporation: pros and cons of nonprofit vs. for-profit
(009) The principal advantage of incorporation is that it protects the members from personal liability for the obligations and liabilities of the corporation.
(010) In addition, incorporation establishes continuity; corporations (both nonprofit and for-profit) are subject to a body of statutes that provide very specific guidance as to their formation and operation; and incorporation brings stature to the organization and implies stability.
(011) Where profit is not a goal and the enterprise can be funded by donations or grants, the nonprofit corporation is the preferred vehicle for pursuing social objectives.
(012) A non-stock corporation attains its separate legal status through the filing and approval by the Wisconsin Department of Financial Institutions ("WDFI”) of its articles of incorporation (the “articles”).
(013) Wis. Stat. § 181.0202(1) requires that the articles include a statement that the corporation is incorporated under Chapter 181, the corporation’s name, the mailing address of the corporation’s initial principal office whether within or outside of Wisconsin, the street address of the initial registered office and the name of its initial registered agent at that office within Wisconsin, the name and address of each incorporator and whether the corporation will have members.
(014) The incorporator need not reside in Wisconsin in order to execute and file the articles.
(015) If the corporation is to be authorized to make disbursements pursuant to Wis. Stat. § 181.1302(4), the articles must include a statement to that effect.
(016) As to the name of the corporation, Wis. Stat. § 181.0401 outlines several requirements.
(017) First, the name must contain one of the following words: corporation (corp.), incorporated (inc.), company (co.) or limited (ltd.).
(018) Second, the name must not indicate that the corporation is being formed for a purpose not permitted under Chapter 181 or the articles.
(019) Third, the name must be distinguishable from the corporate name of another domestic corporation authorized to transact business in Wisconsin.
(020) The articles may also, but are not required to, include the names and addresses of the natural persons who will serve as the initial directors, the purpose or purposes for which the corporation is organized, provisions regarding the management of the business and the regulation of the affairs of the corporation, provisions regarding the distribution of assets on dissolution and provisions that define, limit or regulate the powers of the corporation, its board of directors or its members.
(021) It is also important to note that the board of the non-stock corporation must consist of at least three directors.
(022) In order to file the articles, the articles must be signed by the incorporator(s) and the name of the person who drafted the articles must be included along with a return address for the WDFI to use in returning the articles.
(023) The filing process begins by submitting the original articles and one exact conformed copy to the WDFI by either mail or person along with a $35 filing fee.
(024) If the non-stock corporation intends to obtain exemption from federal and state income taxation, the articles must conform to applicable statutes and regulations discussed below in the Record-keeping, State Reports and State Taxes section.
(025) Once the non-stock corporation has been established, the initial board of directors should meet in person or agree by written consent to ratify the acts in connection with the initial formation of the corporation and adopt bylaws which set forth the rules and procedures governing the decision-making process of the board of directors and the general operation and management of the corporation consistent with the applicable statutes of Wisconsin and the articles.
(026) Typically, the bylaws of a non-stock corporation contain provisions governing member, director and officer qualifications, powers, and duties; voting; filling of vacancies; meetings; property holding and transfer; indemnification of directors and officers; committees; bank accounts; fiscal year audits and financial reports; conflicts of interest; and amendment and dissolution procedures.
(027) See appendix 1L of A Guide for Wisconsin Nonprofit Organizations for sample bylaws.
(028) The basic concept that a corporation is a separate legal entity independent of its owners is not absolute.
(029) There are times when a court will disregard the separate existence of the corporation from the members, directors and officers and hold those individuals liable.
(030) This is referred to as “piercing the corporate veil.”
(031) Creditors or tort victims attempt to pierce the corporate veil and assert claims against and seek recovery from some or all of the corporation’s members.
(032) Members of a non-stock corporation are typically shielded from liability both under the common law and statutorily.
(033) Courts are reluctant to disregard the corporation’s separate existence unless there is a compelling reason to do so, such as a member acting inequitably or committing fraud.
(034) It is important to note that the reasons to find a member personally liable also apply to directors and officers of the corporation.
(035) If a third party attempts to hold a director or officer personally liable, the corporation may be required to indemnify the director or officer for all reasonable expenses incurred in relation to defending the proceeding.
(036) Indemnification is mandatory if the director of officer was successful in defending the proceeding.
(037) A director or officer might also be entitled to indemnification if they act in the proper procedure outlined in Wis. Stat. § 181.0873.
(038) Directors and officers of the corporation are also generally not held personally liable for the debts, obligations or actions of the non-stock corporation.
(039) However, there are certain statutorily prescribed situations where a corporation is not required to indemnify such person.
(040) Such as when a director or officer acts in a way that constitutes a willful failure to deal fairly with the corporation or its members in connection with a matter in which they have a material conflict of interest, when a director or officer violates the criminal law, when a director or officer receives an improper personal profit or benefit, or when a director or officer commits willful misconduct.
(041) A merger occurs when one corporation absorbs at least one other business entity.
(042) A Wisconsin non-stock corporation may merge with a for-profit corporation, an LLC or another non-stock corporation.
(043) Under Wisconsin law, the two (or more) business entities need not have similar purposes in order to merge.
(044) After each entity has performed the proper due diligence and has created a proper plan of merger pursuant to Wis. Stat. § 181.1101, the members of the non-stock corporation or the board of directors of the nonprofit corporation or both have to vote to approve of the plan to merge.
(045) If the merger has been approved, the surviving business entity must deliver the articles of merger to the WDFI pursuant to Wis. Stat. § 181.1105.
(046) Upon the effective date of the merger, the two (or more) entities become a single business entity thus completing the merger.
(047) Dissolution of a non-stock corporation means that the corporation ceases to legally exist.
(048) Dissolution of a non-stock corporation can occur in two ways: (1) voluntarily upon approval by its board of directors and any members entitled to a vote pursuant to Wis. Stat. § 181.1401, 03, 05 , or (2) involuntarily by the WDFI pursuant to Wis. Stat. § 181.1420-21, or by a circuit court pursuant to Wis. Stat. § 181.1430-31.
(049) The plan of dissolution must include how assets are to be distributed after all creditors have been paid.
(050) Anytime after the dissolution has been authorized, the corporation may officially dissolve after delivering the articles of dissolution to the WDFI.
(051) Non-stock corporations are required by statute to keep in written form records of the minutes of all meetings and actions taken by the members and board of directors of the corporation, all accounting records and all membership records.
(052) The corporation must keep at its principal office a copy of its articles and any amendments, its bylaws and any amendments, its resolutions adopted at board meetings relating to any impact on the members of the corporation, the minutes of all meetings by the members of the corporation for the last three years, any financial statements furnished for the last three years, a list of names and addresses of its current board of directors and officers, and its most recent annual report delivered to the WDFI.
(053) Every year a non-stock corporation must file an annual report with the WDFI pursuant to Wis. Stat. § 181.1622.
(054) The filing fee for the annual report is ten dollars.
(055) If the corporation seeks tax-exempt status, its articles must contain specific language limiting the organization’s purpose to one or more of the tax-exempt purposes under I.R.C. § 501(c)(3).
(056) The articles must also include a provision that ensures that no assets upon dissolution will inure to the benefit of a private individual.
(057) Most nonprofit corporations upon dissolution will distribute any remaining assets to other nonprofit corporations that are engaged in similar activities.
(058) Lastly, the articles must include language that satisfies the IRS’s requirements for operational limitations of the corporation.
(059) Nearly every type of activity by a non-stock corporation can become the target of some kind of a claim by a firm or an individual that alleges damage or injury by the corporation or individuals responsible for it (i.e., directors, officers or employees).
(060) Even if the claim is without merit, the costs of defending against the claim can be very substantial.
(061) To encourage qualified individuals to accept positions as directors and officers, many non-stock corporations purchase insurance to cover director and officer (D&O) liability.
(062) In addition, most responsible non-stock corporations purchase a basic comprehensive general liability policy that covers liability for accidents in the corporation’s offices, at sponsored meetings and the like.
(063) Wis. Stat. § 181.0883 specifically allows a Wisconsin non-stock corporation to purchase and maintain insurance on behalf of any employee, agent, director or officer of the corporation against liability asserted against and incurred by the individual in his or her capacity as a part of the corporation regardless if the corporation is required or authorized to indemnify the individual.
(064) Thus, Wis. Stat. § 181.0883 theoretically permits the corporation to insure its directors against judgments or amounts paid in settlement of derivative suits and against expenses incurred by a director.
(065) Liability insurance for non-stock corporations can be a very complicated matter.
(066) Consultation with an experienced and knowledgeable agent or consultant is essential in order to obtain the right coverage at the lowest premium.