On April 8th, 2014, the Minnesota Revised Uniform Limited Liability Company Act was signed into law, impacting all LLCs formed in the state of Minnesota. Owners of LLCs created before August 1, 2015 have until January 1 or 2018 to convert their LLC to be governed by the new statute. After January 1, LLCs will convert automatically. It’s important for a business owner or operator to know what this new act means and why it’s a good idea to go ahead and update LLC operating agreements and member agreements..
What happened in 2014 was that Minnesota adopted a standardized set of laws, which brings its LLC law into line with many different states. This law adopts best practices from business law and shifts from a model where LLCs are similar to corporations to one where they are similar to partnerships. Many other states have enacted most of this act and most remaining states have older LLC laws based on the previous version of the revised statute.
The biggest advantages of this shift in the law is that Minnesota will become a more attractive jurisdiction for businesses wanting to open or locate a facility. LLCs have grown in popularity as the business structure of choice, so having a statute that is in line with the rest of the country makes Minnesota a friendlier place to do business.
Major changes to the current law include the ability by members to contractually agree to various changes in how the business is run and how the LLC law is applied. For example, members can choose to reduce or eliminate the standard business duties of loyalty and care and define the duty of good faith and fair dealing so long as it’s not manifestly unreasonable. In the past, Minnesota has been very protective of shareholders rights. Courts had a wide ability to enforce and companies had little ability to draft and define these duties and responsibilities in ways that may have made sense and perhaps differed from the default. With this lack of control and predictability, people often elected for form their companies in states such as Delaware.
The new LLC Act also allows LLCs to use special litigation committees, something previously only available to corporations, to protect owners and managers from lawsuits. In essence, if one member brings a lawsuit against others in the corporation, this is a derivative claim. Previously, this would trigger various procedural mechanisms designed to protect shareholders. Now the other members or board of the business can appoint a special litigation committee to determine whether the company should pursue the litigation.
Finally, the new LLC Act has significant changes in the documentation required to set up and operate an LLC as well as changes to the default rules for governance and distributions. Many of these rules can now be drafted around in the businesses operating agreement, so it is wise for business owners to seek legal advice to determine the best changes to make to their documentation and adopt a new set of governing documents before the changes fully take effect.
For help reviewing your current LLC documents and updating them to reflect the changes in the law, or setting up a new LLC to take advantage of the act, call Virtus Law Firm at 612.888.1000 or email us at email@example.com. We have significant experience setting up and operating businesses and we can help you make the changes you need to take advantage of this new law.