Wisconsin’s "Next Economy" law took effect Oct. 1, making it easier and less expensive for a company to form, reorganize or merge.
The new legislation changes the Wisconsin Uniform Securities Law, reforms Wisconsin’s LLC Act and reduces many of the costs and legal burdens that businesses previously had to endure through the Wisconsin Department of Financial Institutions.
Some examples of the new law’s impact include:
"I think it’s significant. It certainly allows you to do transactions you otherwise wouldn’t have been able to do," said Thomas Nichols, attorney and shareholder at Meissner, Tierney, Fisher & Nichols, Milwaukee.
The law makes it easier for a company to reorganize from being a corporation to becoming a limited liability company (LLC), a limited liability partnership (LLP) or a non-stock corporation, or vice-versa.
Prior to the new law, a Wisconsin company would have needed to incorporate in Delaware, where the laws are less restrictive, and go through a battery of legal hoops – and bills – to make such a change back in Wisconsin.
"It allows you to do transactions much more easily than it had in the past," Nichols said.
"I think it is very helpful legislation to make certain kinds of transactions easier," said Ann Murphy, the new managing partner of Quarles & Brady’s Milwaukee office and an attorney with a background in tax-exempt financing and commercial lending. "You can really stay a Wisconsin corporation. It’s good legislation for the business community."
The law already is having an impact on merger-and-acquisition activity in Wisconsin. From Oct.1, when the law enacted, through Oct. 25, 46 Wisconsin-based companies had filed for a merger or and acquisition, according to the Wisconsin Department of Financial Institutions, up from 38 filings for the same period a year ago.
Of course, companies reorganizing may incur one-time tax implications, Nichols said.
"The biggest ‘gotcha’ in all this is if you move from corporate status to a limited liability company for tax purposes. That’s a taxable transaction," Nichols said. "For a guy that owns a gasoline station, that might not be that big of a deal, but for a guy that owns a $10 million company, it could be. You don’t move without paying a toll fee."
The majority of new companies being formed today are LLCs, which can be more flexible than traditional incorporations. However, self-employment taxes can be avoided by changing to a traditional incorporation.
The new law also will make it easier and less expensive for Wisconsin companies to acquire businesses in other states, Nichols said.
The state’s high-tech economy, which is treading water since the crash of the late 1990s, should receive a boost from the new law, according to Gregory Meier, attorney in Michael Best & Friedrich’s Venture Best Practice, a Milwaukee initiative that brings together investors and entrepreneurs.
"Venture capital financing has dried up to a trickle, but we haven’t had to dissolve our companies," Meier said, adding that the Midwest’s traditionally conservative investment style actually has been a bonus for Wisconsin tech companies, compared with their West Coast counterparts who were less prepared to weather the downturn. "It’s tough. They’re struggling. But I remain an optimist."
The State Bar of Wisconsin and many of its attorneys helped write the Next Economy law, even though the legislation actually reduces the amount of legal fees paid to attorneys.
"At the end of the day, for any state to be effective from a business standpoint, it must be more efficient," Meier said. "It’s better to grow a bigger pie than to squeeze from a smaller pie everything we can."
Nov. 8, 2002 Small Business Times, Milwaukee
