You may have seen or heard something near the end of 2017 about a “new law” or “big changes” impacting Minnesota limited liability companies (LLCs). You may have even received an email or letter from the Minnesota Secretary of State about it. Well, in case you dismissed the news or weren’t paying attention, on January 1, 2018, Minnesota adopted a brand-new set of laws governing LLCs that were formed before August 1, 2015. This is not a small change, as the entire chapter is being replaced. More importantly, all the laws that your old LLC were governed by have now changed.
If your LLC was formed after August 1, 2015, you are already governed by this new law, so no changes will be required. However, all LLCs organized under Minn. Stat. 322B (or prior versions) automatically became governed by Minn. Stat. 322C on January 1, 2018. This new chapter (and set of laws) is called the “Revised Uniform Limited Liability Company Act” (RULLCA) and it significantly changes how LLCs will operate.
Some of the relevant highlights under RULLCA are as follows:
LLCs can now be governed by unwritten agreement (i.e. oral agreements among the members), by practices implemented through the members’ past actions, or by way of a written agreement (which is recommended now more than ever to resolve any disputes that may arise from the first two options);
LLCs will now be generally controlled by the members (i.e. like a partnership), as opposed to a Board of Governors; however, LLCs may still elect to be governed by a Board of Governors;
Unless otherwise agreed to by the members, distributions to members will need to be made in equal shares instead of in proportion to the members’ contributions or ownership interests;
Unless otherwise agreed by the members, the members will now have equal voting power, instead of power proportionate to their ownership percentage; and
Members, managers and governors (to the extent the latter two exist) will be subject to fiduciary duties of loyalty and care.
If these changes apply to your LLC and you have not taken appropriate measures, don’t panic! You can still make necessary adjustments. You should also know that if you had a member control agreement, there is a provision within RULLCA that allows that document (and the agreements contained therein) to continue to be relevant. Nevertheless, you are encouraged to review your governing documents to ensure they contain terms consistent with your intended governance plans and to protect against being subjected to the default language contained in RULLCA.