The New Minnesota LLC Act

by | Aug 27, 2015 | Business + Corporate Law, Karlen Padayachee, News

Minnesota adopted the Revised Uniform Limited Liability Act (“RULLCA” or “new Act”), which took effect on August 1, 2015.

Here are some reasons for the adoption of RULLCA in Minnesota:

  1. Statewide Uniformity: Minnesota’s existing LLC Act under Minn. Stat. § 322B (“322B”) lacks uniformity with other states LLC acts apart from North Dakota. Consequently, this resulted in parties not using Minnesota’s LLC act when business transactions involved non-Minnesota parties, instead opting to use the Delaware LLC Act, which is more costly and complex for Minnesota parties.
  2. Easier to do business:  RULLCA provides rules that suit business owners better particularly by not requiring written operating agreements, but rather respecting oral or even implied by conduct agreements between owners. Generally, this allows business owners to focus on starting and managing their businesses without the reliance on legal counsel.

What are some of the major changes and differences from 322B?

  1. Partnership v. Corporate Model: The new Act contained in Minn. Stat. § 322C (“322C”) adopts a partnership model versus the corporate model under 322B in terms of management structure. Under 322C, LLCs have more entity management options (member managed, manager-managed or board-managed) as opposed to the organization found in 322B which is like a corporation.
  2. Governing Agreement: Under the new Act, the governing agreement which is called the ‘operating agreement’ can be oral, in writing or implied, whereas a LLC’s member control agreement must be in writing and signed by all the member to be effective under 322B.
  3. Voting: A member in a member-managed LLC under the new Act has equal voting rights (per capita) in the management of the LLC by default, whereas, unless specified otherwise in the LLC’s formation and governing documents or corporate actions, each member in a 322B LLC had voting power equal to their LLC contributions (per contributions).
  4. Profit/Losses: The new Act does not specifically address the allocation of “profit and losses” among members, whereas under 322B, subject to other provisions in the LLC’s formation or governing documents or corporate actions, the allocation of profit/losses is in relation to members’ contributions.
  5. Agency: A member of a 322C LLC has no statutory apparent authority by virtue of being a member of the LLC. This means that a member is not an agent of a LLC and cannot bind a LLC, unless authorized to do so. Under 322B, the Chief Manager in a LLC has the power to manage the LLC and sign documents.
  6. Dissenters Rights: There are no statutory dissenters rights under the new Act as opposed to 322B.

What does this mean for Minnesota businesses that operate as LLCs or want to?

  1. LLCs formed after August 1, 2015 will be governed by Minn. Stat. § 322C (RULLCA) and not Minn. Stat. § 322B.
  2. LLCs formed before August 1, 2015 have the option to elect to be governed by the new Act, but by January 1, 2018, all LLCs that have not opted to do so will automatically become subject to the new Act.