Minnesota LLC?


Effective January 1, 2018

…all owners will not only share equally in profits/losses but will also have equal voting power…  

Here’s more information about LLC’s and the change in the law.

MB2MB Magazine + Guide . V2 Issue 2 Fall 2017
Columnist Royee Vlodaver Esq.

I thoroughly enjoy answering the following question:

“Do I really need to form an LLC/entity for my business…I feel that it is maybe just something that is a waste of time and money.”

Working with businesses for over a decade has keyed me in to a very simple answer to this questions – Yes, but only if you plan on making money and being successful!

There are very few instances wherein a business owner I have met does not benefit from forming an entity. I say this, because by default, a business owner in Minnesota is liable for the damage caused by her or his business. IT folks know that when they provide service even remotely, they could accidently create havoc on an entire computer network for a client, thus shutting down that client. Service providers know that if they are hired to provide a deliverable by a certain date, should that deliverable not be provided timely or properly, will create problems for the customer. Consultants know that should they accidently disclose confidential information or “utilize” information without proper permission from their client they could be on the hook for huge problems.

A savvy business owner knows that aside from doing good work, providing top service, and having insurance, there is still the potential of liability for mistakes. Entity formation such as an LLC is one of the best shields in protecting oneself from financial loss for such mistakes. Entities have always been a great solution in shielding business owners from personal liability, and with the passing of MN Statute 322C, the legislature has provided for more options in the ways you can run your LLC.

There are essentially three types of LLC’s under MN Statute 322C – Board Managed, Manager Managed and Member Managed.

All Minnesota LLC’s will be governed by the new Act (322C) as of January 1, 2018. 

If your LLC was formed under MN Statute 322B, especially if it is a multi-member LLC – you will likely want to take steps to bring your LLC documents into compliance with the new Act sometime this year.

Minnesota LLC’s formed and operating under documents drafted under the old law will likely find that under the new law, those documents don’t accomplish the intent of the owners.  

There are many provisions in the new law that could affect your business. For example, under the new law, the default governance rule is a member – managed LLC as opposed to a board-of-governors-managed LLC under the old law. This means that unless you have a written operating agreement that states differently, as of January 1, 2018 all owners will not only share equally in profits/losses but will also have equal voting power. This is a huge divergence from before. If there are two “owners” of a business, but the reality is that one owner is putting forth all the effort and energy in the business, and the other owner is more of a part-time helper that put in some money up front, the law may treat them as EQUAL OWNERS unless otherwise agreed to in writing!

The new law is intended to benefit smaller LLC’s by minimizing previously required corporate formalities. Updating your LLC could have a major upside by allowing for more flexibility as it relates to corporate formalities.

Lastly, the new law provides an explicit framework that makes clear that the operating agreement shall control, unless “manifestly unreasonable”, all contractual arrangements between the members of the LLC and the company. This new framework provides much more flexibility to define the fiduciary duty and reasonable expectations of the members of the company while remaining protected from liability.

This of course is not a complete list of the advantages of updating your LLC to comply with MN Statute 322C. Claiming to do so would be practically ineffective and professionally irresponsible. However, one thing is for sure, the failure to adapt your LLC prior to January 1, 2018 may lead to risks, and these risks could be significant depending upon your current entity structure. We encourage you to contact your business law attorney when possible to revisit your entity structure and avoid any of the coming risks.

Our thanks to Vlodaver Law Offices, LLC for authoring this article – your local business law firm helping clients with their transactional business needs.