The State of Minnesota has finally made the change from a limited liability company act grounded on corporate law to a default system based on partnership law. The seeds of this advancement, which went into effect on August 1, 2015, were planted seven long years ago. In mid-2008, members of the Minnesota State Bar Association’s Partnerships and LLCs Committee began meeting to discuss recommendations on how to improve Chapter 322B of the Minnesota Statutes and, more specifically, how to create a law more in line with the Revised Uniform Limited Liability Company Act. In 2011, the study group’s recommendations were presented to the Minnesota legislature. Further revisions were made before a final vote was taken and the governor signed what is now known as the Minnesota Revised Uniform Limited Liability Company Act (the “Act”), into law on April 11, 2014.
The general purpose of the revised Act, codified in Chapter 322C, is to allow Minnesota LLCs to be less rigid, less corporate and more business friendly. One of the expressed hopes is that fewer Minnesotan companies will feel the need to organize in Delaware and more out-of-state groups will be comfortable organizing here. Future posts will explore the specifics of the new Act. However, I want to mention one area of significant change. Under Chapter 322C, the primary governing document will be the Operating Agreement, which may be “oral, in a record, implied, or in any combination thereof….” Minn. Stat. § 322C.102, Subd. 17. This provision is a substantial revision from Chapter 322B’s requirement that a Member Control Agreement must be in a writing signed by all members. See Minn. Stat. § 322B.37, Subd. 2. In essence, this means that a multi-member LLC can very easily operate with the Articles of Organization as its only formal written document; which, however, I would not recommend.
Many with pre-Act companies are asking what they should do. The Act provides that those companies organized before the new law went into effect may
1) elect now to be governed by the new Act or
2) continue to operate under the provisions of Chapter 322B, that is, until the automatic conversion date of January 1, 2018.
I recommend that all pre-Act companies have an attorney review its governing documents before January 1, 2018 to
a) prepare it for the changes that will take place and
b) advise it of the potential benefits of converting sooner rather than later.
If you would like to learn more about the Minnesota Revised Uniform Limited Liability Company Act and how it might affect your business, please feel free to contact one of our experienced attorneys – www.hansendordell.com / 651-482-8900.