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Keep the “Limited Liability” in your “Limited Liability Company”

John J. Laubmeier

March 15, 2017

Forming a limited liability company (“LLC”) in Wisconsin is easy.  All you need is $130.00 and the creativity to come up with a name that has not been previously registered.  However, simply paying the filing fee and registering your business as an LLC with the Department of Financial Institutions (“DFI”) is not, in and of itself, sufficient to ensure that your business is actually protected with limited liability.  To receive the statutory protections of being a limited liability company, including protecting your personal assets, you must keep in mind the following:

  1. Hold your business out to the public as an LLC. Registering your business as an LLC with the DFI will not limit your liability unless you hold yourself out to the public as an LLC. This means using the the legal name, including the “LLC”, in all legal documents, formal advertising, contracts, brochures, business cards, and on your website.  Many times people will register their business as “Company Name LLC,” but only have “Company Name” (and not LLC) on their website, contracts, etc.  This is not sufficient to receive limited liability.  Rather, you must identify your business as an “LLC” to receive the benefits of being organized as an LLC.  The same is true for any contracts or agreements you sign on behalf of your business. Always make sure that the party signing the contract is “Company Name LLC” and that you are signing in your capacity as a member.
  1. Make sure to treat the LLC as an entity separate from you, personally. Assuming you hold yourself out to the public as an LLC as discussed in No. 1, above, you can still lose the limited liability protection if you don’t treat your LLC as an entity separate from yourself.  This means that the LLC should have a separate bank account, separate checks and a separate credit card in its formal legal name.  You should not use profits from the LLC for your personal use, and you should not use your personal funds to pay LLC expenses.  This “comingling” of assets could later be used by a creditor or plaintiff to argue that the LLC should be disregarded and you should have personal liability.
  1. Keep up with annual reports and filing fees. Keep in mind that the initial registration and filing fee with the DFI does not provide perpetual registration of your LLC.  Rather, your LLC must file annual reports and pay all applicable annual fees.  Failing to do so will cause the DFI to administratively dissolve (i.e., end) your LLC, together with the legal protections that go with it.
  1. Understand that personal liability can still exist.  Following Nos. 1-3, above, will help ensure that your LLC receives the limited liability protections provided by law.  However, under Wisconsin law, keep in mind that individuals remain liable for their own torts.  This means that a party could still sue you personally if he or she is injured as a result of your negligence.  For this reason, having appropriate and sufficient insurance for your LLC remains a critical component of protecting your personal assets.

If you have any questions about how the information in this article may affect you or your business, please contact John Laubmeier at jlaubmeier@stroudlaw.com or (608) 257 2281 or your Stroud attorney.

DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice.  This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship.  You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.