Minnesota LLC Changes - What You Need to Know - Davis Law Office

Minnesota LLC Changes – What You Need to Know

Minnesota LLC Changes – What You Need to Know

Was your Minnesota LLC formed before August 1, 2015?

If so, look alive! Your company was formed under Minnesota Chapter 322B. As of January 1, 2018 you will be governed by a new law — Minnesota Chapter 322C. There are important differences between the old Act and the new Act that will affect your company. Here are some highlights:

Governing Agreement: Under the OLD law, member control agreements had to be in writing. Under the NEW law, member control agreements or operating agreements (no matter what they’re called) can be oral, written, or implied by the members’ course of conduct, but it is still a best practice to get ALL agreements in writing to avoid confusion and argument.

Management Structure: Under the OLD law, LLCs were managed by a board of governors. Under the NEW law, LLCs must elect whether they’ll be managed by governors, managers, or members.

Voting and Distribution Rights: Under the OLD law, members received a percentage of membership interest, with voting and distribution (monetary) rights, in proportion to what they contributed to the LLC. So if Member A contributed $100,000 and Member B contributed $50,000, then Member A would have 2/3 of the voting and distribution rights and Member B would have 1/3 of the voting and distribution rights. Under the NEW law, the membership interest is “per capita.” So under the new law, Member A would have 1/2 of the voting and distribution rights and Member B would have 1/2 of the voting and distribution rights.

Additional Notes: First, this is a high-level overview. There are nuances and qualifications for each of the above examples. Second, these are the new DEFAULT rules. You can change them, as you see fit, by amending your Articles of Organization or entering into one or more written Operating Agreements. This is why it’s so important to consider the implications of 322C now and to discuss it with your attorneys, accountants, and other trusted business advisors.

The Minnesota Secretary of State recently sent a notice to all such LLC owners to alert them to the change and recommend that they speak with their attorneys and tax professionals well before the end of the year to address the changes. Read the MN SOS comments here.

2 responses to “Minnesota LLC Changes – What You Need to Know

  1. I am running the home-based business as the sole proprietor and have filed out LLC to protect personal assets from a lawsuit related to my business. So do I understand that NEW LLC LAW has no huge impact on my business at all?

    1. Great question! You’re right that most of the changes have little effect on single-member LLCs. You do want to be careful if you’re working closely on a regular basis with anyone, as they could argue that you had an oral agreement that they would become an owner of the company. If you do have someone working with you or in the business, it’s best to have a written agreement with them clearly spelling out what their interest in the business is and is not.

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