For anyone who established a limited liability company (LLC) prior to August 1, 2015, you probably received an email from the Minnesota Secretary of State recently letting you know of certain changes in the law. Effective January 1, 2018 all LLCs will be subject to the new Minnesota statutes chapter §322C.
Without getting too bogged down in details, under the old statute (§322B), LLC’s were treated similar to corporations in terms of their governance, makeup, and default rules. Under the new statute, there is significantly more flexibility in terms of member makeup and management structure and far fewer default rules. Fiduciary responsibilities can be modified and even reduced. The new statute allows LLC members to more freely define their business relationship.
For example, under the new statute, “dissenter’s rights” are eliminated and rights of minority members are significantly reduced. Allocation of profits is based on the number of members (rather than their specific contribution). Thus, if there are four members, each is entitled to a one quarter share regardless of the amount of contribution unless some operating agreement states otherwise. Nevertheless, by written agreement (or even oral agreement in some cases), these rules can be modified. This is the key provision of the new LLC statute. With some limited exceptions, and operating agreement can be created to change almost any of these default rules.
So what does this mean to existing LLCs? The statute that converts existing LLCs contains provisions that allow certain aspects of the LLC to remain in effect without further action. Specifically, the existing governing documents, if any, are treated as an operating agreement. There are limited dissenter’s rights. The voting power of each membership interest is in proportion to the value of the contributions of the members reflected in the company records as are distributions of profits and losses.
Thus, it is unlikely that you are required to do anything with the conversion other than recognize certain new default rules will now apply. However, it would be a good time to contact an attorney and review your existing operating agreement. There may be certain aspects of the new statute you will want to incorporate.