9 Steps to Starting a Business - Wisconsin

Starting a business is excellent. You'll get to own something for yourself and enjoy the fulfillment of helping people with your product or service.

But to make this dream a successful reality, you must follow some steps.

In this article, we have laid out all the necessary actions that you must take to start your business in Wisconsin.

Let's get started.

1. Choose Your Business Idea

If you don't have a business idea, analyze your target market.

Study businesses already successful in your sector, assess their strengths and weaknesses and uncover areas where you can offer a better product or service.

2. Decide Your Business Structure

The most common structures are:

Sole Proprietorship

Legally speaking, sole proprietorships are an extension of their owner. In other words, you and your business are one.

If you choose this option, the good news is you can get started with your business faster without the need to fill up and submit piles of legal paperwork. Also, you can enjoy complete control over your business, all profits will go into your pocket, and you can save on registration fees.

However, these benefits come with downsides like no tax benefits or personal asset protections that come with an LLC or corporation.

In other words, if you get on the wrong side of your customer and they sue you, you will have to dip into your personal savings.

Partnership

Partnerships are an easy way to divide the responsibilities of starting and maintaining a business. There are three types of partnerships: general, limited, and limited liability.

In a general partnership, two or more individuals own and operate a business together. Each partner shares equal responsibility for the business's debts and liabilities.

Limited partnerships have one general partner who has unlimited liability and other limited partners who have limited liability.

The limited partners are not involved in the day-to-day operations of the business. They are not responsible for their debts beyond their investment.

The general partner, however, has unlimited liability and is liable for all debts and legal judgments against the partnership.

Limited liability partnerships (LLPs) give limited liability to every owner. There's no general partner in this structure. An LLP protects every partner from debts against the partnership so that you won't be responsible for the actions of other partners.

Limited Liability Company (LLC)

LLC is a formal business structure that protects you from personal liability.

It means your personal assets — like your vehicle, house, and savings accounts — won't be at risk if your LLC faces bankruptcy or lawsuits.

And this structure is treated as a pass-through organization. This means the entity passes its total income to the entity's owners, and therefore, taxes are calculated individually for each owner.

Corporation

A corporation is a legal business entity owned by a group of shareholders. The structure separates company assets from the personal assets of the business owner(s), protecting them in case of bankruptcy or a lawsuit.

Compared to other business structures, the legal structure of corporations is more complex. Hence, it requires more formalized accounting systems than LLCs or sole proprietorships.

The structure also facilitates welcoming new shareholders, shifting ownership, and raising capital for business expenses.

There are two common types of corporations - C Corporations and S Corporations. C Corporation contains almost all of the attributes of a corporation. S Corporation issimilar to C Corporation but differs in owner limitation and tax purposes.

Unlike a C corporation, an S Corporation cannot consist of over 100 shareholders and is not taxed as a separate entity. The shareholders shoulder the profits/losses on their personal income tax returns.

Which Structure Should You Choose?

Small business owners and side hustlers may operate safely as sole proprietorships and general or limited partnerships.

However, it's best to become an LLC if you want to keep your personal assets safe. It works for one or more owners with lower startup and maintenance requirements than a full corporation.

If your business is more complex with many people involved, and you want to avoid double taxation, an S corporation structure would likely be more appropriate. This is because complex companies need a board of directors and more regulatory requirements.

But you may want to make your business rise even higher by bringing in outside investment rounds and growing into a publicly traded company in the future. In that case, a C Corporation is the best business structure. It allows for more than 100 shareholders.

It's important to remember that the business structure you choose will have tax and legal implications.

Therefore, it's worth consulting with an attorney or tax expert for advice on the best business structure for your needs and goals.

3. Choose Your Business Name

To secure a name for your new Wisconsin business, you must:

• Register your original business name - Your business name in Wisconsin should be unique. So, before deciding on a name, look through the Corporate Records Name Availability database offered by The Wisconsin Department of Financial Institutions. If your name isn't already taken, you can reserve it for $15 with a Name Reservation Application submitted via mail.
• Include certain words - Your business name should include certain words like "Limited Liability Company" or its abbreviations ("LLC" or "LLC ”) if you choose LLC as your structure. Wisconsin business corporations must include "Corporation," "Company," "Incorporated," or "Limited," or abbreviations of these words.
• Consider a DBA - If you plan on communicating with your customers under a name different from your legal name, you should register a DBA in Wisconsin. You must file for a trademark with the Wisconsin Department of Financial Institutions. The fee is $15, and registration lasts ten years.
• Claim an online domain name and social media handles - If you're considering doing business online, you need a domain name and social media handles. Select an online domain name that goes with your formal name or DBA, and reserve social media handles similar to your domain, legal business name, or DBA.

4. Establish Your Business

• Sole proprietorship: To start your business as a sole proprietorship in Wisconsin, you don't need to file any organizational documents with the state.
• Partnership: General Partnerships also don't need to file any organizational documents with the state. Although not legally required, all partnerships should have a written partnership agreement. The partnership agreement can be beneficial if there is a partner dispute. If you want to form a limited partnership, you must register the venture, typically through the office of the local Secretary of State. You must file a Registration Statement with the Wisconsin DFI to establish a limited liability partnership.
• LLCs: If you're looking to form a limited liability company (LLC) in Wisconsin, you'll need to file Articles of Organization with the Department of Financial Institutions. You can either apply online or by mail by downloading and completing Form 502. Although not required by law, you should establish the basic rules of your LLC by making an operating agreement.
• Corporations: To establish a corporation in Wisconsin, you must file Articles of Incorporation with the Wisconsin DFI. You can either file online or by downloading and submitting the form 2. Preparing the bylaws to establish the corporation's internal operating rules is also recommended, although the law does not require this.

5. Obtain Business Licenses and Permits

Tax Registration

If you plan to sell goods, Wisconsin law requires you to register with the Department of Revenue (DOR) to collect sales tax.

If you're going to hire employees, you must also register with the DOR for withholding taxes. Depending on your business type, you can register online via the state's One Stop Business Portal or the DOR's Online Registration site.

EIN

If your business is separate from you and has employees, you must get a federal Employer Identification Number (EIN) from the IRS.

However, even if your business structure doesn't require an EIN, obtaining one is still a good idea since banks often need an EIN to open accounts in a business's name, and other companies may require an EIN to process its payments.

You can apply for an EIN online without a filing fee. Having an EIN also adds credibility to your business and makes it easier to establish business credit.

Regulatory Licenses & Permits

Various agencies in Wisconsin issue different licenses and permits. For tax-related licenses, the Department of Revenue is the go-to agency. Meanwhile, the Department of Natural Resources and the Department of Health Services handle other essential regulatory licenses and permits.

Professional and occupational licenses

Wisconsin's Department of Safety and Professional Services (DSPS) regulates occupational and professional licensing for various fields. For more information on the state's full range of licensed professions and occupations, visit the DSPS website.

6. Understand Your Tax Obligations

Here are the tax obligations according to business structures -

Sole proprietorships

One of the chief benefits of operating as a sole proprietorship is the simplicity with which it can be taxed.

There is no need for separate taxes for your business, as all income and losses can be reported on your personal income tax return.

t's important to remember to make estimated tax payments every quarter and to track all income and expenses diligently.

Partnerships

When it comes to partnerships, each partner is responsible for their share of the income and expenses, and they report it on their personal tax returns.

This means the partnership doesn't pay taxes, but the partners do. For instance, if two partners in a partnership split the income and expenses equally, they will each report half of the partnership income and expenses on their personal tax returns.

By doing so, the partnership can avoid paying taxes, and the partners will be taxed individually on their share of income from the partnership.

L.L.C

Limited liability companies (LLCs) can choose how they want to be treated from a tax standpoint. Depending on the structure of the LLC, it can be treated as a corporation, partnership, or part of the LLC owner's personal tax return.

For instance, an LLC with two or more members is usually considered a partnership unless it chooses to be treated as a corporation by filing Form 8832.

Conversely, if an LLC has only one member, it is seen as a "disregarded entity," and the owner's income taxes are included in their personal tax return.

Nonetheless, even single-member LLCs can also opt to be treated as a corporation.

Corporations

A C corporation is considered an individual legal entity and files its tax returns separately, allowing owners only to be taxed on amounts paid to them as dividends or salary. This structure can shield personal assets from the company's debts and legal issues.

On the other hand, an S corporation allows owners to be taxed on their personal tax returns.

As a pass-through entity, S corps do not pay federal income taxes; the owners report the profits and losses on their individual tax returns.

7. Consider Buying Business Insurance

Buying business insurance is essential to protect your company and your personal assets from unexpected disasters.

Here are some options that you should consider -

Commercial general liability insurance

A Commercial General Liability (CGL) policy is a type of insurance that shields businesses from financial claims related to property damage, injuries, false advertising, libel, and slander.

This coverage is essential for businesses looking to protect themselves from unforeseen risks and legal issues.

By investing in CGL insurance, businesses can ensure they are prepared for the unexpected and avoid costly lawsuits that can threaten their bottom line.

Professional liability insurance

Professional liability insurance is a must-have for any business that could face malpractice or gross negligence accusations. This policy offers essential protection against legal claims related to mistakes made on the job.

Whether running a small business or a large corporation, investing in professional liability insurance is a smart decision that will pay off in the long run.

Commercial property insurance

Business property insurance provides financial protection for businesses in case of loss or damage to their property, including real estate and cash.

Cyber liability insurance

Cyber liability insurance is a popular choice among companies that handle sensitive personal data, such as credit cards and Social Security numbers, as it provides coverage in the event of a digital data breach.

Unemployment insurance

Wisconsin employers are required to pay unemployment insurance, which is taxed. This insurance provides a safety net for employees who get laid off through no fault of their own and helps to mitigate the financial burden of job loss.

8. Open a Business Bank Account

Opening a separate business account is crucial for proper financial management for businesses of all types. In fact, for LLCs and corporations, having a separate bank account is necessary to maintain the corporate veil.

By separating business and personal finances, you can more easily track income and expenses, manage cash flow, and plan for the future.

9. Understand Your Financial Options

You can connect with The Wisconsin Economic Development Corporation and the Wisconsin Small Business Development Center. They provide information about grants, bond programs, and traditional financing options that help new companies get going.

You can also connect with the US Small Business Administration and review their funding programs.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Please consult a qualified attorney for advice on your specific situation.