Minnesota’s New LLC Act Adds Simplicity and Flexibility – Part 2

Last week, we wrote about two important changes to Minnesota’s LLC laws, which you can read at this link. This week, we round off our discussion of the major changes with three more. These three changes concern the actual structure and incorporation of LLCs, not just the documents that govern an LLC’s operations and stakeholder relationships.


3. Member-, Manager-, or Board-Managed

As we discussed in our previous article, many of the changes to the old LLC law are aimed at simplification. Beyond just reducing redundancies and eliminating requirements, 322C also allows members to choose three unique governance structures for their company. In the past, all LLCs were required to have a Board of Governors, which oversaw and approved certain business actions. The members comprised their own body and made high-level, out-of-the-ordinary decisions.

Now, members can choose to eliminate the Board of Governors by choosing to label their LLC as “member-managed” or “manager-managed.” They can choose whether or not to give managers greater responsibility for business decisions (manager-managed) or to manage the company themselves and make all decisions together (member-managed). These changes could increase business responsiveness and cut down on unnecessary formalities, depending on how involved members are in the operation of the LLC. Members can also choose to create a Board of Governors, which must sign off on most business actions (board-managed). Non-profit LLCs must be board-managed. In addition, members may change the official management status of their LLC over time, providing greater flexibility for adding needed decision-makers and hierarchy.


4. Transferrable Interests

Another change affects the rights that can be bought or assigned among members and third parties. Under the old LLC law, members held both financial rights (to distributions of profits) and governing rights (to make decisions for the company). Both of these rights could be transferred, without the member losing his or her member status. Theoretically speaking, it could have been the case that a member could sell of all of his or her financial and governing rights, making them, effectively, a member in name only.

Under 322C, members still retain both kinds of rights, but they can only sell their financial rights, in the form of a “transferrable interest.” Additionally, members may transfer their financial interests to third parties (people outside of the company who may or may not be members of the company already), while retaining governing control of the company. This rigidity, yet flexibility, could benefit members who would otherwise be at the mercy of other members’ assignment decisions. However, members who sold off portions of their governing rights can no longer do so, which could affect some members’ willingness to become members in the first place.


5. Shelf LLCs

Lastly, 322C provides for the creation of an entirely new kind of LLC, the “Shelf LLC.” Shelf LLCs are created when an organizer files for an LLC without any identified members. By filing in this way, organizers can reserve a registered name for an upcoming full-fledged LLC, whose terms are being negotiated between prospective members. It also allows organizers to act quickly and fulfill filing requirements far in advance of when the LLC may need to begin operating. This could substantially reduce operational lag time between when members agree to an Operating Agreement and when the LLC must open its doors.


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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