What is a B corporation?
A benefit corporation is a new type of entity created by the Wisconsin legislature to allow for-profit businesses to adopt a corporate structure that requires consideration of the public good as well as profits. Accordingly, the best interests of a benefit corporation (sometimes called a B corporation) extend beyond the corporation’s bottom line. A benefit corporation requires officers and directors to evaluate the effects of action or inaction on the public, the corporation’s community, and the local or global environment.
Must benefit corporations sacrifice profit for the greater good? Is a benefit corporation a non-profit?
No, benefit corporation officers and directors must also consider how its choices affect shareholders, employees, customers, and the entity’s short and long-term interests.
What are the requirements for a B corporation?
A benefit corporation shall have a purpose that creates a “general public benefit,” meaning “a material positive impact on society and the environment.” Benefit corporations must also:
- Designate one director as a “benefit director” tasked with monitoring the corporation’s adherence with its public benefit mission;
- Annually evaluate the corporation’s compliance with its public benefit purpose and provide shareholders with an annual benefit statement reflecting this analysis; and
- Comply with Wis. Stat. Chapter 180, except if it conflicts with Chapter 204, the public benefit corporation statute.
Can I form a benefit LLC?
No, Chapter 204 of the Wisconsin Statutes only allows benefit corporations.
When can I form a benefit corporation in Wisconsin?
The benefit corporation statute takes effect on February 26, 2018.
Can I convert my existing Wisconsin corporation to a benefit corporation?
Yes, existing corporations may amend their articles of incorporation to add a statement that the corporation is a benefit corporation.
I might be interested. Where can I find more information?
Wisconsin statutes Chapter 204 establishes benefit corporations. You’ll find general information about B corporations here. For help analyzing whether your specific business plan or existing corporation’s mission align with the benefit corporation benefits and requirements, please contact Stephanie at (262) 241-8900 or firstname.lastname@example.org.
Finding the right investment advisor and understanding your investments is daunting. For novice investors or people who want to do more due diligence before investing, we’ve put together simple explanations and tips to help you better understand financial industry jargon and point you to helpful resources.
What’s the difference between a financial planner, broker, and investment advisor?
Workers in the financial industry go by dozens of different monikers—some of which indicate the individual’s qualifications and educational achievements, while others are merely descriptive. Brokers, financial planners, and investment advisor representatives all provide different services. For example:
A person or company that buys and sells stock or other securities. These individuals must be registered with the Securities and Exchange Commission (SEC) and the independent, not-for-profit organization Financial Industry Regulatory Authority (FINRA) and work for firms called broker-dealers.
A person (investment advisor representative) or company (investment advisor) that provides investment advice to clients. Investment advisors must be registered with the SEC or the Wisconsin securities regulator, the Wisconsin Department of Financial Institutions. These professionals may also be referred to as asset managers, investment counselors, investment managers, portfolio managers, and wealth managers.
Unlike investment advisor representatives, there is no precise definition of a “financial planner.” Instead, financial planners engage in a variety of financial activities: some assess a client’s comprehensive financial situation while others sell clients specific investments only. Although financial planners who give investment advice must be registered investment advisor representatives, financial planners can also be brokers and hold insurance licenses.
In addition to the titles listed above, financial professionals also frequently list one of dozens of professional designations on their business cards and firm websites. For example, a person whose business card reads Jane Smith, CFP (Certified Financial Planner) indicates that Jane Smith has (a) a bachelor’s degree; (b) three years of full-time personal financial planning experience; (c) completed a CFP-board registered program or hold, for example, an attorney’s license or CPA; and (d) passed a certification examination. Be sure to look up the designations on FINRA’s glossary of professional designations.
What resources should I use to research a prospective financial planner or investment manager?
The SEC offers an excellent resource to research financial professionals: the Investment Adviser Public Disclosure website. The tool allows consumers to lookup information regarding both individual advisors and investment advisor firms. The database pulls data from the individual’s firm’s filings, FINRA’s BrokerCheck system, and state securities regulators. For investment advisor firms, the database also includes the firm’s Form ADV. The reports include employment history, disciplinary actions, professional registrations, criminal convictions, civil judgements, and arbitration awards—all details you should know before investing your money with someone.
When reviewing the report, pay particular attention to the section titled “Disclosure Event Details,” where any so-called disclosure events are listed, including, “certain criminal charges and convictions, formal investigations and disciplinary actions initiated by regulators, customer disputes and arbitrations, and financial disclosures such as bankruptcies and unpaid judgments or liens.”
What resources should I use to understand a prospective investment firm’s scope of services and strategies?
Reading the firm’s Form ADV – Part 2A and 2B will provide a wealth of background information about the firm’s practices and strategies. Look up the firm on the SEC’s Investment Adviser Public Disclosure search tool and select “Part 2 Brochures.” These brochures, created by the firm, are meant to provide a plain language explanation of the firm’s services. Information you can glean from these filings include information regarding the firm’s: compensation of its professionals, investment strategies, types of clients served, and the educational background of the firm’s professionals.
How do I research the investments my advisor suggests?
First, understand the type of investment your advisor is encouraging by reviewing information from FINRA or the SEC. Then, if your investor has identified a specific mutual fund for your consideration, look up the specific fund on FINRA’s Fund Analyzer database. The database includes information “on over 18,000 mutual funds, Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs).” The tool allows you to review the fees and expenses associated with the investment as well as average annual returns and the fund’s investment objective. You can also review market data for specific mutual funds, bonds, and companies at FINRA’s Market Data Center, which is powered by independent investment and market analyzer Morningstar, Inc.
A new Department of Labor (DOL) rule requires financial professionals advising retirement savers to advance their clients’ best interests above their own profits. Known as the Fiduciary Rule, the White House Council of Economic Advisors estimates that it will save retirement savers $17 billion annually.
What is a conflict of interest?
A conflict of interest arises when financial professionals recommend investments that benefit themselves financially (e.g., high commissions) but are not necessarily in their clients’ best interests.
How will the new rule affect me?
Financial professionals who offer advice regarding your retirement accounts must recommend investments that are in your best interests. In other words, financial professionals must act as a fiduciary in regard to your retirement accounts. There is a caveat, however. Advisors can continue receiving commissions if they sign a contract promising to charge “reasonable” fees and disclose conflicts of interest, among other things (see “Will I see new documentation?” on page 4).
What is a fiduciary? Why is important that my financial advisor is a fiduciary?
A fiduciary is required to put his client’s interests first and to eliminate or at least disclose conflicts of interest. In contrast, financial advisors who recommend investments based on “suitability” must have a “reasonable basis to believe” an investment is suitable for an investor based on various factors (e.g., age, tax status, investment objectives, liquidity needs, and risk tolerance). Here’s a common example: Mutual fund A pays a higher commission to the broker and is more expensive for the client to purchase and own. The broker can still recommend it as long as it’s suitable—even if mutual fund B is much cheaper for the client.
Who must follow the new rule?
Financial professionals—including brokers, insurance agents, and investment advisors—who provide retirement investment advice in exchange for a fee must act in the clients’ best interests (i.e., as a fiduciary).
Will I see new paperwork?
Yes, probably. Firms who will elect to continue to receive fees, including commissions, that may conflict with investors’ interests need to provide investors with a contract (the Best Interest Contract or BIC/BICE) promising the firm will: (1) act in the investors’ best interests; (2) charge “reasonable compensation”; (3) disclose how they are paid (including on the firm’s website); and (4) adopt policies and procedures to ensure compliance with the new rules. New customers will sign the contract when completing paperwork to open an account. Existing customers may receive a notice (by mail or email) disclosing the investors’ new rights. Investors are not required to take action, unless they wish to object to the terms outlined. The Best Interest Contract is not required until January 1, 2018.
Do investors have any recourse if an advisor fails to act in their best interests?
Investors have the right to pursue legal action if financial professionals do not comply with the new standards. Most disputes must still be resolved through arbitration (not in court), with a new and notable exception—investors may bring class action lawsuits.
When does the new rule take effect?
The rule takes effect on April 1, 2017 but some requirements (e.g., the Best Interest Contract Exemption) allow phased implementation with full compliance required by January 1, 2018.
What’s not covered?
Educational materials—if no specific investments are recommended
Advice provided before April 10, 2017
“Hire me” recommendations—financial advisors can urge you to hire them or their firms even if doing so is not really in your best interest.
Could the new administration block the rule?
Maybe, but not easily. The Fiduciary Rule is final and effective beginning on April 1, 2017. As a result, the new Secretary of Labor cannot repeal the Fiduciary Rule; although, he could delay implementation. The DOL could replace it, but the process—new regulations, public comment, modifications, and Office of Management and Budget’s analysis—is slow. Congress could pass legislation that would overturn or amend the rule but that, too, would be difficult, considering the makeup of the Senate and time-consuming process involved. The new administration could also choose not to enforce the Fiduciary Rule or decline to defend it in pending litigation. Notwithstanding the new administration’s opinion concerning the Fiduciary Rule, large wealth management firms have expended time and money preparing to comply, including using the new fiduciary standard as a marketing opportunity. And, buzz surrounding the Fiduciary Rule has awakened investors to the importance of hiring a fiduciary. As a result, political will to stop or delay the Fiduciary Rule may not be enough to motivate the new administration or Congress to take on the intricate and time-consuming task.
Where can I read more about the Fiduciary Rule?
For a thorough explanation of the background and applicability of the rule, read: “Consumer Protections for Retirement Investors – FAQs on Your Rights and Financial Advisers” prepared by the DOL in January 2017. To watch the DOL announce the rule, including speeches by U.S. Secretary of Labor Thomas E. Perez and Senator Elizabeth Warren, visit: https://youtu.be/uDe_T9IrAjU and https://youtu.be/jkpbLet9T8U.
What’s the status of the Fiduciary Rule as of August 2017?
In August 2017, the Wall Street Journal reported that the DOL proposed to delay the Fiduciary Rule’s compliance deadline by eighteen months-to July 1, 2019.. According to the Wall Street Journal, the DOL included the proposal in court documents “as part of a lawsuit in the U.S. District Court for the District of Minnesota.”
Business owners and managers encounter contracts—varying in type, purpose, and complexity—daily. The finer points of how contracts are formed, what the essential provisions are, and when a breach excuses performance are legal questions; but, the answers vary depending on each fact-driven scenario. To help you spot the thorny issues, we highlighted key general principles below.
What are the elements of an enforceable contract?
Enforceable contracts have three required components:
- Offer—party A must offer party an arrangement with definite terms;
- Acceptance—party B must agree to party A’s terms; and
- Consideration—something of value must be exchanged (e.g., goods or services for money). See C.G. Schmidt, Inc. v. Permasteelisa N. Am., 825 F.3d 801, 805 (7th Cir. 2016).
What if party A and party B agree to make a deal but the specifics are TBD. Is that enforceable?
No, agreements to agree are not enforceable contracts in Wisconsin. For example, a general contractor for an eighteen-story office building in downtown Milwaukee solicited bids from subcontractors for a glass “curtainwall.” C.G. Schmidt, Inc. v. Permasteelisa N. Am., 825 F.3d 801, 805 (7th Cir. 2016). The contractor selected one subcontractor’s bid but never entered into an agreement. The subcontractor bailed on the project, after negotiating with the general contractor for more than one year, and the general contractor sued. The court considered the parties’ conduct and writings (including two letters of intent) to determine their intent—not to be bound by the subcontractor’s bid but to reach a final, binding agreement.
Are oral contracts enforceable?
It depends. Some contracts must be in writing including, for example, contracts concerning real property (e.g., leases, offers to purchase, and mortgages; see Wis. Stat. § 706.02), settlement agreements (for actions pending in court; see Wis. Stat. § 807.05), contracts which cannot be performed within a year (see Wis. Stat. § 241.02(1)(a), and agreements to be liable for the debt or default of another person (see Wis. Stat. § 241,02(1)(b)). That said, many oral contracts are valid. But, enforceability requires that courts consider the parties’ conduct (including texts, emails, and other writings) and intent. See Associated Milk Producers, Inc. v. Meadow Gold Dairies, Inc., 27 F.3d 268, 271 (7th Cir. 1994) (“Even if the parties’ writings do not constitute a contract, however, the parties may nonetheless be found to have established a contract through their actions.”).
Are there limits on who may enter into a contract?
Yes, only competent adults (at least 18 years old) may enter into contracts.
Are there limits on activities for which people or entities may form contracts?
Yes, the activity required under the contract must be legal. For example, a contract to supply marijuana is illegal, and therefore, unenforceable in Wisconsin.
What clauses should be included in every contract?
Price, term, and the parties’ obligations are the basics of every contract. But, how they are defined and what other clauses are required varies depending on the type of contract (e.g., lease, sale of goods, service agreement), parties involved, and complexity of the transaction. As are result, there’s no one-size-fits-all approach to drafting or negotiating contracts.
What constitutes a breach of contract?
Only a “material” breach of contract will excuse the other party from performing.9 A breach is material when it is “so serious a breach of the contract . . . as to destroy the essential objects of the contract.” See Management Computer Services, Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis. 2d 158, 183 (1996). Examples of material breaches include:
- Failing to complete construction project phases at agreed dates. See International Prod. Specialists Inc. v. Schwing Am. Inc., 580 F. 3d 587, 597-98 (7th Cir. 2009).
- Converting a gym to a “women’s facility” when the lease required the tenant to operate an “athletic club.” See 44 Assocs. Ltd. P’ship v. Capital Fitness LLC, No. 2005AP3091, 2007 WL 704179 (Wis. Ct. App. Mar. 8, 2007).
- Operating repeatedly outside a franchisee’s territory. See Manpower Inc. v. Mason, 405 F. Supp. 2d 959, 970-73 (E.D. Wis. 2005).
What is the “right to cure” a breach of contract? How can a breach be cured?
The right to cure, or fix a problem, exists to an extent in common law, but more clearly, and with defined requirements, in certain Wisconsin statutes. For example:
- Sellers of goods have a right to cure delivery of goods that don’t satisfy the contract’s specifications. Wis. Stat. § 402.508 (2)
- Residential contractors have a limited right to cure flawed construction before the homeowner may sue. Wis. Stat. § 895.07
- Tenants have a limited right to cure various breaches, including failure to pay rent, but the timeframe depends on the lease’s term. Wis. Stat. § 704.17
When statutes don’t provide the right to cure, contracts may define them. Courts are apt to apply well-defined cure provisions and contracting parties are wise to define terms clearly, rather than leaving their contract open to a court’s interpretation.