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Doing Business in United States: Wisconsin
Practical Law UK Articles 1-501-2498 (Approx. 14 pages)
Doing Business in United States: Wisconsin
by Gregory J Lynch, Timothy G Schally, José A Olivieri, Paul E Benson, Billie Jean Smith and Thomas A Miller, Michael Best & Friedrich LLP (Lex Mundi Member Firm)
| Law stated as at 01 Oct 2010 • USA, Wisconsin |
A Q&A guide to doing business in Wisconsin.
This Q&A gives an overview of the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.
This article is part of the PLC multi-jurisdictional guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/dbihandbook.
Foreign investment
2. Are there any restrictions on foreign investment (including authorisations required by central or local government)?
A foreign corporation must obtain a certificate of authority to conduct business in Wisconsin (Wis Stat § 180.1501). Once authorised to conduct business in the state, the foreign corporation must maintain a registered office and registered agent in Wisconsin (Wis Stat § 180.1507). In addition, the foreign corporation must file an annual report and pay a yearly fee to the state.
Business vehicles
5. What is the most common form of business vehicle used by foreign companies to conduct business in your jurisdiction? In relation to this vehicle, please provide details on:
- Registration formalities (including timing).
- Minimum (and maximum) share capital.
- Whether shares can be issued for non-cash consideration, such as assets or services (and any formalities).
- Any restrictions on the rights that can attach to shares.
- Any restrictions on foreign shareholders.
- Management structure and any restrictions on foreign managers.
- Directors' liability.
- Parent company liability.
- Reporting requirements (including filing of accounts) and cost of compliance.
The most common forms of business vehicle used by foreign companies are corporations and limited liability companies (LLCs).
- Registration formalities. Corporations and LLCs are organised by filing articles of incorporation (for corporations) and articles of organisation (for LLCs) with the Wisconsin Department of Financial Institutions (WDFI). Filing can generally be completed within one day. In addition, each entity must file a business registration statement with the Wisconsin Department of Revenue (WDR) to obtain a business licence.
- Share capital. There are no limits on share capital.
- Non-cash consideration. A corporation's board can authorise shares for consideration, consisting of any tangible or intangible property or benefit to the corporation (Wis Stat §180.0621).A member's contribution to an LLC can consist of cash, property or services rendered, or promissory notes or other written obligations to provide these (Wis Stat §183.0501).
- Rights attaching to shares. The rights attaching to a corporation's shares are set out in its articles. Default provisions are used if the articles are silent with respect to rights attaching to shares (Wis Stat Chap 180).The rights of LLC membership interests are typically set out in an operating agreement. Default provisions also exist (Wis Stat Chap 183).
- Foreign shareholders. There are no restrictions on foreign shareholders or LLC members.
- Management structure. The board of directors exercises all corporate powers (Wis Stat §180.0801). Management of an LLC will be exercised by its members or managers as provided for in the articles of organisation (Wis Stat §183.0401).
- Directors' liability. Wisconsin generally provides for mandatory indemnification of directors of corporations and LLC managers and members (Wis Stat §180.0851 and §183.0403).
- Parent company liability. Parent companies are not generally liable for subsidiaries' acts.
- Reporting requirements. Corporations and LLCs must file an annual report with the WDFI. The fee accompanying the report varies according to the type of entity. Foreign corporations must pay a fee based on the amount of capital employed in the state.
Employees
The main laws regulating employment relationships are as follows:
- Wisconsin Fair Employment Act (Wis Stat § 111.31) (WFEA). Employment discrimination includes discrimination in promotion, compensation or employment on grounds such as race, sex, age, making a complaint or assisting in any proceeding under the WFEA.
- Wisconsin Family or Medical Leave Act (Wis Stat § 103.10) (FMLA). The FMLA contains provisions different from and, in some instances, more liberal than counterpart federal law. It requires employers to provide qualified employees with time off for certain health and family reasons. The employee must be allowed to return to the same position (if available) or to an equivalent position.
- Wage claims requirements. Employers must pay wages due and owing to employees (Wis Stat Chap 109). Wages are defined broadly.
- Government posting requirements. Employers must display posters about various employment matters (Wis Stat §§ 109.97(7), 109.075(7), 103.10(4) and 111.37(3)).
- Wisconsin Employment Peace Act (Wis Stat § 111.01) (WEPA). The WEPA grants employees certain rights, such as the right to join labour unions and to engage in concerted activities for the purpose of collective bargaining (Wis Stat § 111.04).
- Minimum wage requirements. All private and public employers, including non-profit organisations, must pay at least a living wage, unless one of the limited statutory exceptions applies.
- Unemployment insurance. Employers make quarterly contributions based on each employee's wage, up to a statutorily determined maximum. Each employer's contribution rate varies according to its past history of unemployment claims. Regular unemployment benefits can only be claimed for up to 26 weeks. Under certain circumstances, employees may be disqualified from receiving benefits.
- Workers Compensation Act (Wis Stat Chap 102) (WCA). Workers injured or ill because of work activities are protected through a compulsory insurance scheme. Employees' injuries are categorised, and each category has a maximum possible damages award. If the employer refuses to rehire an employee who suffered a compensable injury, the employer may be liable to pay lost wages of up to one year of back pay.
- Overtime pay requirements. Employees must be paid 1.5 times the regular rate of pay for all hours worked above 40 hours per week if they are employed in certain jobs.
- Non-competition agreements (Wis Stat § 103.465). To be enforceable, non-competition agreements must only contain restrictions that are reasonably necessary for the employer's protection. In addition, these non-competition agreements are subject to normal common law principles, such as the requirement that the contract be supported by consideration. While a promise of at-will employment can constitute sufficient consideration for new employees, it is clear in most cases that continued employment is insufficient consideration for existing employees. However, the sufficiency of consideration is a question of fact for a judge or jury to decide.
In most cases, these laws apply to foreign employees working in Wisconsin, but they can also apply to US employees of Wisconsin employers working abroad.
The court generally permits parties to choose which substantive law applies to their contractual relationship, provided they expressly indicate a choice of law in their contract. However, parties to a contract cannot use a choice of law provision to override fundamental policies of the state whose law would be applicable if the choice of law provision were absent. For example, the court considers laws that limit the enforceability of covenants not to compete to embody a fundamental state policy, such that the courts will override the parties' choice of law provision.
7. Is a written contract of employment required? Are any agreements and/or implied terms likely to govern the employment relationship?
8. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as redundancies and disposals)?
Disputes over termination of employment are typically resolved through litigation or arbitration.
If there is no collective bargaining agreement, the terms of the employment contract, if there is one, determine the nature of the grounds for dismissal. Without an employment contract, employment is at-will, although statements made in an employee handbook or other employment document can alter the at-will employment status.
Unless provided for by an employment contract or collective bargaining agreement, there is no statutory minimum notice period except in certain cases, including:
- Mass layoffs.
- Business closings.
- When an employer engaged in manufacturing requires its employees, under penalty of forfeiture of a part of the employees' wages, to provide notice before voluntarily terminating employment.
There is no statutory requirement to pay severance, unless provided for by an employment contract or collective bargaining agreement.
Remedies available to employees for unfair or unjustified dismissals depend on the terms of applicable employment contracts or collective bargaining agreements. In addition, specific remedies are available under state laws regulating employment relationships, and can include some or all of the following:
- Back pay.
- Front pay.
- Interest.
- Reinstatement.
- Attorney fees and costs.
- Compensatory damages.
- Punitive damages.
- Other remedies.
Tax
According to the WDR, an individual's legal residence (domicile) is their true, fixed and permanent home where they intend to remain permanently and indefinitely and to which, whenever absent, they intend to return.
By statute, certain contacts (such as holding deposit accounts at Wisconsin financial institutions) do not, by themselves, create Wisconsin residency.
13. What income tax or social security contributions must the following pay:
- Tax resident employees?
- Non-tax resident employees?
- Employers, in relation to their employees?
Tax resident employees
Wisconsin imposes an income tax on resident individuals, estates and trusts on income from all sources. The highest personal income tax rate currently in effect is 7.75%.
Wisconsin has income tax reciprocity agreements with four states (Indiana, Illinois, Kentucky and Michigan). Under these agreements, there is generally no tax on the personal service income of residents of these states earned in Wisconsin and these states do not tax the personal service income of residents of Wisconsin earned in these states. The tax reciprocity agreement with Minnesota expired 1 January 2010.
Non-tax resident employees
An income tax is imposed on income derived from property located, services performed or business conducted in Wisconsin by non-resident individuals, as well as certain estates and trusts.
Employers
Employers must generally withhold income tax from:
- Wisconsin resident employees, regardless of where the services are performed.
- Non-residents for services performed in Wisconsin, with certain limited exceptions.
Employers must also make certain social security type payments (see Question 6).
15. Please give details of the main taxes that potentially apply to a tax resident business vehicle (including rates).
Corporate income and franchise tax
Wisconsin imposes a franchise tax based on foreign or domestic corporations' Wisconsin source income.
Corporations not subject to the franchise tax must pay income tax if they either:
- Own property in Wisconsin.
- Engage exclusively in interstate or foreign commerce in Wisconsin.
Most corporations are subject to franchise tax rather than income tax. The primary difference between the franchise and income tax is that interest from federal US obligations can be included in the measure of the franchise tax, but not the income tax.
Corporate franchise and income taxes are both imposed at a flat rate of 7.9% of Wisconsin taxable income (see below, Taxable income).
Taxable income
Wisconsin taxable income is generally determined according to the Internal Revenue Code, as in effect as of a specified date, with numerous Wisconsin statutory modifications.
For corporations engaged in business solely in Wisconsin, 100% of their income is taxable.
For corporations engaged in business in and outside Wisconsin, the resulting amount of income is multiplied by an apportionment formula, which (effective as of 1 January 2008) takes into account a single factor (sales). However, special apportionment rules apply to taxpayers in certain industries.
S corporations
S corporations are generally pass-through entities, but can be subject to corporate franchise or income tax under certain limited circumstances. Owners of these entities are generally subject to tax on their share of the entity's income derived from property located or business transacted in Wisconsin. Taxation on the owners depends in part on whether they are residents or non-residents of Wisconsin (see Question 13).
LLCs and partnerships
No Wisconsin franchise or income tax is imposed on an LLC or a partnership. However, owners of these entities are generally subject to tax on their share of the entity's income derived from property located or business conducted in Wisconsin. Taxation on the owners depends in part on whether they are residents or non-residents of Wisconsin, and whether they are individuals or business organisations (see Question 13).
Pass-through entity withholding for non-resident owners
Pass-through entities that have Wisconsin income that can be allocated to a non-resident partner, member, shareholder or beneficiary must generally pay a withholding tax with respect to the non-resident's share of distributable income.
Sales and use tax
The state-level sales and use tax is 5% on applicable transactions. In addition, many Wisconsin counties are authorised to impose additional taxes, which are piggybacked on the state tax for collection purposes. These generally amount to an additional 0.5% to 0.6%. In general, all retail transfers in Wisconsin (including sales, leases and licences) of tangible personal property and digital goods by retailers are subject to tax, unless an exemption applies. By contrast, only certain specific services are taxable, and even then exemptions can apply.
In 2009, Wisconsin passed legislation to align Wisconsin's sales and use tax laws with the Streamlined Sales and Use Tax provisions in effect in many states.
See Question 15.
17. Please explain how each of the following is taxed:
- Dividends paid to foreign corporate shareholders.
- Dividends received from foreign companies.
- Interest paid to foreign corporate shareholders.
- Intellectual property (IP) royalties paid to foreign corporate shareholders.
- Dividends paid. Dividends paid to foreign corporate shareholders may be taxed if the foreign corporate shareholder is subject to Wisconsin corporate franchise or income tax. However, a dividends received deduction may be available (Wis Stat § 71.26(3)(j)).
- Dividends received. Dividends received from foreign companies are generally included as income and subject to corporate franchise or income tax in the same way as any other income earned in Wisconsin. However, a dividend received deduction for corporations may be available (Wis Stat § 71.26(3)(j)).
- Interest paid. Interest paid to foreign corporate shareholders may be taxed if the foreign corporate shareholder is subject to Wisconsin franchise or income tax.
- IP royalties paid. IP royalties may be taxed if the foreign corporate shareholder is subject to Wisconsin franchise or income tax (Wis Admin Code § Tax 2.82).
See also Question 19.
18. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)? If so, please give details.
19. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)?
Effective for taxable years beginning on or after 1 January 2009, Wisconsin adopted mandatory unitary combined reporting. As part of this legislation, Wisconsin adopted a "water's edge" type of approach which, in certain limited situations, might result in a foreign subsidiary or its income being included in a combined Wisconsin return.
In addition, Wisconsin has:
- Certain "add back" rules for interest, rent, management fees and royalties, which might result in payments made to foreign subsidiaries being added back to a Wisconsin payor's net income.
- A statutory "economic substance" test which authorises the WDR to ignore transactions that do not have both a non-tax business purpose and a potential to generate a profit aside from tax benefits.
Wisconsin has a provision that is substantially similar to IRC § 482. See also Question 19.
Wisconsin is not a party to tax treaties with foreign nations or other states. However, Wisconsin is a party to reciprocity agreements with a limited number of states, dealing with the tax treatment of individuals who live in one state but work in another state. See Question 13.
Competition
23. Are restrictive agreements and practices regulated by competition law in your jurisdiction? If so, please give brief details.
Wis Stat Chap 133 governs trusts and monopolies, like its federal counterpart the Sherman Act.
General trade regulation also is administered and enforced (Wis Stat §100.20), which is modelled after the Federal Trade Commission Act and broadly prohibits unfair methods of competition and unfair trade practices.
Wis Stat § 103.465 specifically governs restrictive covenants in employment contracts, and they are enforceable only if they are reasonably necessary for the protection of the employer and narrowly tailored. Any unreasonable restraint is void and unenforceable even if part of it is reasonable. The specified territory can be a geographical limitation or a list of restricted competitors or customers.
Intellectual property
24. Please outline the main intellectual property rights that are capable of protection in your jurisdiction. In each case, please state:
- Nature of right.
- How protected.
- How enforced.
- Length of protection.
Trade marks
- Nature of right. A mark is defined as any label, trade mark, trade name, term, design, pattern, model, device, shop mark, drawing, specification, designation or form of advertisement that is both (Wis Stat § 132.001):
- adopted or used by any person to designate, make known or distinguish any goods or service as having been made, prepared or provided by that person; and
- registered by that person under Wis Stat § 132.01.
- How protected. To be protected, a trade mark must be registered. It is unlawful for any person to use, with intent to deceive, another person's registered mark or any counterfeit mark in conducting business without the express consent, licence or authority (Wis Stat § 232.02). Trade marks and trade names are also protected under common law.
- How enforced. Wis Stat Chap 132 sets out:
- the cause of action for infringement of any trade mark; and
- the penalties for violation.
Common law protection is available as long as the common law trade mark is in use and the protection is handled through litigation (Wis Stat § 132.25). - Length of protection. Trade mark registrations are valid for ten years and renewable for additional ten-year terms (Wis Stat §132.01(6)(b)).
Registered designs
Designs fall under the definition of marks covered by Wis Stat Chap 132 (see above, Trade marks).
Unregistered designs
Unregistered designs fall under the definition of marks covered by Wis Stat Chap 132 (see above, Trade marks).
Confidential information
- Nature of right. With minor modifications, Wis Stat § 134.90 adopts the Uniform Trade Secret Act and defines trade secret information as that which both:
- derives independent actual or potential economic value from not being generally known to and readily ascertainable by other persons; and
- is subject to efforts to maintain its secrecy.
- How protected. Confidential information is automatically protected and there is no registration requirement.
- How enforced. The right holder can file a civil action against a party that has misappropriated it.
- Length of protection. There is no time limit on confidential information protection.
Marketing agreements
25. Are marketing agreements regulated in your jurisdiction? If so, please give brief details in respect of the following arrangements:
- Agency.
- Distribution.
- Franchising.
- Agency. There are no specific laws on agency with respect to marketing agreements. In general, common law principles of agency apply to marketing agreements.
- Distribution. The main distribution issue that arises is whether the foreign entity whose products are distributed must qualify to do business or to pay or collect taxes. This depends on the nature of the relationship with the distribution:
- if the relationship is that of principal and agent, acts of the agent are deemed to be acts of the foreign principal;
- if the relationship is one of independent contractor, the foreign entity will not be treated as acting through the distribution (Wis Stat § 180.1501).
The Wisconsin Fair Dealership Law (Wis Stat Chap 135), governs dealerships and gives dealers rights against the entity granting the dealership. - Franchising. A franchise offer within Wisconsin must be registered unless exempted (Wis Stat § 553.21). Circumstances surrounding registration and other regulatory requirements for franchising are extensive and must be thoroughly considered (Wis Stat Chap 553).
E-commerce
Data protection
A financial institution, medical business or tax preparation business disposing of records containing personal information must take actions that it reasonably believes will ensure that no unauthorised person will have access to the personal information contained in the record, including shredding, erasing or modifying the record to make the personal information unreadable (Wis Stat § 134.97).
Certain businesses possessing personal information about an individual must notify that individual when the information is accessed by a person unauthorised to do so by the business (Wis Stat § 134.98).
Product liability
28. Are there any laws regulating product liability and product safety? If so, please give brief details.
Strict liability and negligence are alternative theories of recovery for product liability claims. Wisconsin does not recognise a product liability cause of action for breach of warranty.
For strict liability claims, Wisconsin refers to Section 402A of the Restatement (Second) of Torts. Wisconsin has abolished the doctrine of assumption of risk as an affirmative defence to a strict liability claim, but contributory negligence is a viable defence. Under a contributory negligence defence, a claim is barred if the claimant is found to be more at fault, on a percentage basis, than the product.
For negligence claims, Wisconsin is a minority Palsgraf jurisdiction, meaning that the claimant is not required to show that the injury was a foreseeable consequence of the defendant's breach of duty. Contributory negligence is also an affirmative defence to a negligence claim, meaning that a claim is barred if the claimant is found to be more negligent, on a percentage basis, than the defendant.
Wisconsin has adopted a unique form of liability called "risk contribution" where, in certain circumstances, a defendant can be found liable to a claimant even though the claimant cannot prove that a particular defendant's product was a cause of injury. To date, this doctrine has only been applied in the context of DES-based litigation and lead paint litigation.
Contributor details
Billie Jean Smith
Michael Best & Friedrich LLP
)
T +414 347 4770F +414 277 0656E [email protected]W www.michaelbest.com
Qualified. Wisconsin, 1992
Areas of practice. Intellectual property.
Paul E Benson
Michael Best & Friedrich LLP
)
T +414 225 2757F +414 277 0656E [email protected]W www.michaelbest.com
Qualified. Wisconsin, 1990
Areas of practice. Litigation; product liability.
José A Olivieri
Michael Best & Friedrich LLP
)
T +414 225 4967F +414 277 0656E [email protected] W www.michaelbest.com
Qualified. Wisconsin, 1981
Areas of practice. Labour and employment relations; immigration.
Gregory J Lynch
Michael Best & Friedrich LLP
)
T +608 283 2240F +608 283 2275E [email protected]W www.michaelbest.com
Qualified. Illinois, 1994; Wisconsin, 1998
Areas of practice. Litigation; business; renewable energy; venture capital.