Minnesota’s New LLC Act

Minnesota has recognized the legal entity of “Limited Liability Company” or “LLC” since 1993. Currently, there are about 200,000 registered LLCs in Minnesota, which is not surprising since LLCs offer many great benefits to business owners. Unlike a sole proprietorship or partnership, LLCs provide limited liability protection to their owners, which means that they are not personal responsible for the debts of the LLC. In other words, LLCs provide the same sort of protection a corporation would get, but without all of the extensive formalities that come with a corporation. LLCs can create their own flexible management structure without having the requirement of a board of directors like a corporation would need.

However, a change is on the horizon. In the most significant change to the LLCs statute since its inception, on April 8, 2014, Governor Dayton signed into law the Minnesota Revised Uniform Limited Liability Company Act (“Revised Act.”) Minnesota’s Revised Act is based upon the Revised Uniform Limited Liability Company Act. The Revised Act will put into place some major changes to Minnesota’s current law. It goes into effect automatically for all new LLCs formed after August 1, 2015 and will apply to all existing LLCs on January 1, 2018.

Essentially, the Revised Act shifts the LLC formation from a corporation-based model to a partnership-based model. The partnership-based model is the model used by all other states. Some of the other changes are that the duty of loyalty among members may now be modified, the members can agree to limit remedies for oppression, and no longer a need for designated natural persons as managers.

The Revised Act was originally introduced to the legislature in 2011. However, the law never went to final vote until 2014 due mainly to negotiation of some provisions with the Minnesota Attorney General’s office and to vet certain issues. The Revised Act passed without any opposition. Alabama, California, the District of Columbia, Florida, Idaho, Iowa, Nebraska, New Jersey, South Dakota, Utah and Wyoming have all adopted similar legislation.

Many have wondered why there needed to be a change now. The reason is because other than North Dakota, Minnesota was the only other state that implemented a corporate approach—which as described above, was one of the major changes to the statute. This became a practical problem for Minnesota LLCs and their attorneys because if a transaction dealt with parties in other states, those parties would rarely agree to use Minnesota’s statute. The “default” statute then became Dela
ware’s LLC provisions, which are complex and in turn, create significant cost issues for parties in Minnesota.

Lastly, the Revised Act should, in practice, be better suited for the businesses it will effect. Minnesota’s current act does not recognize any informal or unwritten agreements between LLC members/owners and requires that any agreements be in writing. If they are not in writing, then the members/owners must resort to the default statute rules. Under the Revised Act, operating agreements can be oral or even implied. One caveat though, it is always recommended to have an operating agreement in writing, even if the Revised Act recognizes such informal agreements.



This article was written by attorney Maureen A. Carlson.