MADISON – Suppose you’re a venture capitalist in San Francisco or Boston, and you’re on the verge of investing big bucks in a promising high-tech firm in Wisconsin. Everything looks right: The management team is in place, the business plan is tight, and the technology is novel.
But then a lawyer steps into the room, clears her throat and asks if you’ve ever heard of Wisconsin’s “shareholder wage lien” law. Better not write that check, she says, until you learn more about it.
Alone among the 50 states, Wisconsin has what is essentially a “double jeopardy” law for out-of-state investors in state companies. Under the law, shareholders in a corporation are personally liable for an amount equal to the total value of their shares for all wages owed to employees as long as the proceeding six months. This is true even if the shareholder had no part in running the company.
In other words, an investor can lose the original investment, and keep paying long after the company has gone under.
A bill that would repeal the “shareholder wage lien” law and help remove doubt in the minds of investors outside Wisconsin is awaiting Gov. Jim Doyle’s signature. He should sign it and continue the steady improvement in Wisconsin’s investment climate.
“No other state has a provision like this in its corporate statutes, and potential investors are often shocked when they find out about it,” noted a July 2003 memorandum by the Wisconsin Technology Council’s Investment Capital Committee to Doyle and the Legislature. “An out-of-state angel investor or venture capitalist does not want to hear that if he or she invests $10 million in a Wisconsin corporation… he or she may be subject to paying out another $10 million, if that corporation is unsuccessful.”
Some might argue: “Well, investors outside of Wisconsin probably would never hear about this law. What they don’t know won’t stop them from investing.”
Not true. The legal counsel for the state company is required by law to provide an opinion as to whether or not the investor could be personally liable for any obligations, and if the shares purchased will be owned “free and clear.” With Wisconsin’s shareholder wage lien law, the answer is no. Those shares are subject to a wage lien.
The bill repealing current law (Assembly Bill 1163) passed the Assembly, 60-38, and also cleared the Senate, 18-14. Its chief sponsors have been Rep. Jean Hundertmark, R-Clintonville, and Sen. Ted Kanavas, R-Brookfield. They have argued that Wisconsin is disadvantaged by this unique law, and other Wisconsin laws help protect workers who lose their jobs.
Corporations are designed so that a shareholder’s risk does not extend beyond the investment itself. That’s fundamental to a free market, which acts to apportion liability as part of the balancing act between risk and reward.
“It is not overstating the matter to say that limited liability, as opposed to unlimited liability, is one of the key foundation stones upon which Western economic vitality has been built,” the Tech Council’s 2003 report noted.
Because Hundertmark is seeking the Republican nomination to run for lieutenant governor against Lt. Gov. Barb Lawton, Doyle’s running mate in the November election, the governor may get political advice to veto the bill. He should resist that advice. Doyle can sign AB 1163 knowing that bipartisan organizations such as the Tech Council, the Wisconsin Economic Development Association and the Wisconsin Venture & Growth Capital Association have all supported repeal.
It’s hard enough to capture the attention of investors outside Wisconsin. Let’s change a law that can prevent them from investing their dollars in Wisconsin companies.
Still is president of the Wisconsin Technology Council. He is the former associate editor of the WisconsinState Journal in Madison.
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