The Minnesota Revised Uniform Limited Liability Company Act (the “Revised Act”) has been adopted in Minnesota and will replace Minnesota’s current limited liability company (“LLC”) statute set forth in Chapter 322B of the Minnesota Statutes (the “Existing Statute”). The Revised Act, which will be found in Chapter 322C of the Minnesota Statutes provides increased flexibility and freedom to contract of members in an LLC through increased reliance on a single contractual arrangement among the members, termed an “operating agreement.”
We have set forth our thoughts on implementing the Revised Act here. We have also included a summary below.
The timing for the effectiveness of the Revised Act and its applicability to Minnesota LLC is as follows:
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Beginning August 1, 2015, all newly formed LLCs will be governed by the Revised Act.
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On and after August 1, 2015 and until January 1, 2018, Minnesota LLCs that were formed under the Existing Statute may elect to opt-in to the Revised Act and become governed by the Revised Act instead of the Existing Statute.
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On and after January 1, 2018, the Revised Act will apply to all Minnesota LLCs, regardless of when they were formed and whether they have made an election to be governed by the Revised Act.
When forming new LLCs under the Existing Statute before the Revised Act becomes effective, practitioners should consider the following considerations relating to the Revised Act, which will ease the eventual transition to the Revised Act:
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Exculpatory provisions relating to the liability of governors under the Existing Statute should be placed in the member control agreement and not the articles.
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Exculpatory provisions tailored to the Revised Act can be included in the member control agreement with the proviso that they will become operational and will replace any other exculpatory provisions when the Revised Act becomes effective.
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Include amendment procedures in the operating agreement to make it easy to adopt the early application of the Revised Statute after it becomes effective on August 1, 2015 and before it becomes mandatory on January 1, 2018.
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Place minimal reliance on statutory defaults under the Existing Statute to prevent having to renegotiate these items when the entity becomes subject to the Revised Statute.
The extent to which documentation for Minnesota LLCs developed under the Existing Statute will need to be revised or re-drafted to operate under the Revised Statute will depend on the facts and circumstances on an entity-by-entity basis. The governing documentation for some LLCs will require little or no modification, while the need for modification will be greater in other situations. Items to consider include:
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Simplifying the articles of organization.
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Creating an operating agreement for purposes of the Revised Act by consolidating substantive provisions in the articles of organization, member control agreement, and by-laws.
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Eliminating reliance on statutory defaults in the Existing Statute when drafting the operating agreement.
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Eliminating terms which relate solely to the Existing Statute when drafting the operating agreement.
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Identifying rights under the Existing Statute that the parties wish to preserve in the operating agreement.
The transition to the Revised Act should also be considered when investing in or acquiring a Minnesota LLC.
We have included our description of the Revised Act here.
