Minnesota’s New LLC Act Adds Simplicity and Flexibility – Part 1

On April 8, 2014, Governor Dayton signed into law the Revised Uniform Limited Liability Company Act, or “322C.” The law will go into effect on August 1, 2015, bringing many changes and opening the door to new legal possibilities. Although LLCs filed prior to August 1, 2015 will be grandfathered in, by January 1, 2018, all LLCs will be required to follow 322C’s provisions. As such, 322C affects not only existing limited liability companies (LLCs), but also the future LLC landscape. Current and prospective LLC owners can benefit from understanding five significant 322C provisions. Below, we list two important changes to formal LLC documentation. Check back with us next week for three more!

1. Shorter Articles of Organization

Under the old LLC law, Articles of Organization must address a variety of topics ranging from the period of the LLC’s existence to a prohibition on cumulative member voting. In 322C, Articles of Organization are much simpler. Only three pieces of information are required: 1) the name of the LLC (which must still contain the words ‘limited liability company’), 2) the street address of the LLC’s registered office and an agent for service of process, and 3) the name and street address of each organizer (usually the lawyers who file the Articles of Organization). The other elements that used to be included in the articles of organization are now diverted for inclusion in the “Operating Agreement,” a private document between the owners of the LLC, who are called members.

This change has both benefits and consequences. On the benefits end, generally speaking, it is best to keep as much information about private companies out of the public domain. The change could also benefit owners if they would like to make changes to voting rights protocols, for example, because voting rights terms can be in the Operating Agreement. It is sometimes much easier to amend documents other than Articles of Organization. Therefore, this change could make it easier for members to change LLC governing provisions that used to be integral parts of Articles of Organization. However, making these and other changes easier may have a negative effect on minority-stake members, who before had greater power to stop revisions since unanimity is sometimes required to amend the Articles of Organization.

2. The Operating Agreement

The old LLC law used to provide for the creation of By-laws and Member Control Agreements. These two documents governed different aspects of the company’s operations and the relationships between members and managers (those who are hired to run the company). With 322C, these two different documents are combined, along with the above-mention parts in the old Articles of Organization, into the Operating Agreement. As a result, all relationships, duties, and rules are stationed in one document, for all to see.

Consolidating all of these operational documents into one clarifies each stakeholder’s rights and obligations. It also makes it much easier for owners to adapt how the company is run; members only need to amend one document now. Lastly, in some circumstances, when members contract in advance to form a new LLC, they can actually use the joint agreement between them as an Operating Agreement. This allows prospective members to hash out operational details in advance and clarify their duties to each other before filing the Articles of Organization. However, by merging LLC governing documents into the Operating Agreement, everything is out in the open, making it harder for any sensitive information to be kept confidential internally and externally. It may also threaten some members’ interests because other members may attempt to bargain and negotiate for changes to multiple parts of the document in exchange for the introduction or amendment of single, specific terms.

 

Check back next week for three more interesting changes. If you are a current LLC member or are looking to start an LLC, you should work with an attorney to structure your future company in accordance with future legal requirements, aligned to your specific needs. This two-part article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.

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