5 minute read
WISCONSIN TAXATION
Everything Old Is New Again: Wisconsin’s Proposed New LLC Law
Wisconsin’s original LLC law became effective Jan. 1, 1994. Since then, there have been several amendments, almost none of which changed the law in any substantive fashion. The most recent change, for example, 2017 Act 177, created a student entrepreneur program and a reduced filing fee for creating such entities. Additionally, relatively few Wisconsin court decisions have interpreted the law, meaning that the statutory language itself continues to be of primary importance. Since the LLC’s inception in Wisconsin almost 30 years ago, LLCs have become by far the most popular entity choice for business owners. In 2020, over 90% of all new entities in Wisconsin were LLCs. CPAs have undoubtedly become comfortable working with LLCs in their normal tax and accounting practices. Wisconsin’s proposed new LLC law, Senate Bill 566 and Assembly Bill 566 (S.B./A.B. 566), had its first public hearing on Oct. 21, 2021, as a joint hearing between the Senate Committee on Veterans and Military Affairs and
Joseph W. Boucher, CPA, JD and
Constitution and Federalism and the Assembly Committee on Financial Institutions. Currently, its chances look favorable to be passed yet this year and take effect on Jan. 1, 2023. It is important for all business owners in Wisconsin to know about this new law and how it differs from the old law. Eric W. Klemm, JD It is also important for all people who work with and advise Wisconsin business owners to know about the differences. The bill is, in fact, an update to all of Wisconsin’s entity laws, not merely LLCs. It includes corporations, limited partnerships, partnerships, etc., but this article will focus only on the changes affecting LLCs, which are by far the most popular entities in the state. Assuming S.B./A.B. 566 passes, it is important to note what is not changing: There are no provisions in the new law that change the tax treatment of LLCs. All tax-related
provisions remain the same. This is obviously good news for CPAs trying to understand how the new law will impact their clients. What is changing, however, can still be impactful and important to the practice of CPAs across the state. Some of the changes will simply streamline the process for communicating with the Department of Financial Institutions (DFI) and updating fee schedules. For example, the DFI will be communicating by email instead of sending out new paper cards to remind business owners to file their annual reports (see proposed sections 178.0913, 179.0212 and 180.1622(1) of the bill). However, some changes are more substantial, and while [as of this writing] the final bill has not yet been passed and signed, it is helpful to prepare in advance for the more significant changes. The initial steps in creating an LLC will change, and some of these changes will affect or be affected by the CPAs who work with LLCs. For example, under the new law there will be no requirement for a written operating agreement, since operating agreements can be “oral, implied, in a record, or in any combination thereof …” (proposed 183.0102(13)). This means that any type of information about the business can be used to create an “operating agreement” — anything from emails to tax returns and K-1s for LLC members. While written operating agreements will still be advisable for people who go into business together without a written plan, it will be more important than ever for CPAs to ensure that the tax returns and financial statements they’re preparing for their LLC clients accurately
reflect the intentions of the LLCs’ members, since those returns and financial statements will be evidence of member intent in the event of a dispute. The items required to be included in the articles of organization for an LLC will also change. Under proposed 183.0201, the address of the company’s principal office and the email address of the initial registered agent are new requirements, while the current requirement to state whether the company is manager or member managed would be optional. The proposed updates to the annual report requirements (183.0212) would require the name of at least one member if the company is member managed or at least one manager if the company is manager managed. Also important is the expanded ability of the DFI to administratively dissolve entities, which would be expanded to entities that fail to pay any dues, fees or penalties they owe to the DFI. For businesses that undergo a merger, there would no longer be a requirement to file the actual plan of merger. Instead, under 183.1024, the entity could simply file the articles of merger that state that the plan of merger has been properly approved and adopted. If passed, the new law will become effective for all entities as of Jan. 1, 2023. However, under proposed section 183.0110(2), entities formed before Jan. 1, 2023, will be able to file a statement with the DFI opting to continue to be governed by the old law if they so choose. Many portions of the law governing Wisconsin’s most popular business entity are staying the same. However, the early steps in creating an LCC — many of which can now happen without a written operating agreement, including ensuring that annual report reminders are sent to a functional email and that annual reports contain the correct updated information — will be more important than ever. While the law isn’t yet in effect, it is never too early to be prepared.
Joseph W. Boucher, CPA, MBA, JD, is a shareholder with Neider & Boucher S.C., a Madison law firm. Contact him at 608-661-4535 or jboucher@neiderboucher.com. Eric W. Klemm, JD, is an attorney with Neider & Boucher and can be reached at 608-441-2526 or eklemm@neiderboucher.com.
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