Wisconsin Non-stock Corporations
Overview
(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.
Insurance
(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.