New Law May Warrant Updates to LLC Documents
As of January 1, 2018 a new law the Minnesota Revised Uniform Limited Liability Company Act, or Chapter 322C, will apply to all Minnesota limited liability companies. Chapter 322C completely replaces the existing LLC statutes, differs significantly from the prior law, and may cause substantial problems for companies that fail to take action to update their member control agreements and related documents.
The Minnesota legislature adopted a phased approach to the implementation of Chapter 322C in an attempt to ease the transition for companies, with the new statute applying to all newly formed Minnesota LLCs on and after August 1, 2015, and to all Minnesota LLCs regardless of the date of formation as of January 1, 2018. In the interim, LLCs are eligible to opt-in to Chapter 322C on their own terms. But the new law will apply to all Minnesota LLCs next January, whether the LLCs have opted-in or not.
Owners, officers, and governors of Minnesota LLCs should review their LLC documents with counsel and discuss updating those documents to be consistent with Chapter 322C in order to avoid a number of potential problems presented by the transition, and to take advantage of new opportunities presented by the statute.
The technical and legal problems that can result from the transition to Chapter 322C are summarized in this article from Bench & Bar of Minnesota. Generally speaking, problems of interpretation will abound when the partnership-style Chapter 322C is applied to the corporate-style predecessor statute because:
- The operative terms and concepts are different.
- Some of the default rules that were present in the old statute are falling away.
- Other default rules are carried forward in a changed form.
Beyond the technical legal issues, there are good reasons to use the opportunity of this statutory change to revisit LLC documents. For example, Chapter 322C offers new opportunities in the form of differing management structures that were not previously available for Minnesota LLCs (such as the manager-managed company structure common in Delaware and many other jurisdictions) and new flexibility to depart from the statutory defaults in a written agreement (such as by customizing the fiduciary duties). Revisiting the LLC documents also allows companies to correct items that may have been overlooked in the past (like limiting the LLC’s indemnification obligations to exclude non-executive employees) and to make normal course updates to match the changing operations of business entities.