Minnesota’s Revised Limited Liability Company Act

By June 20, 2016business

We Minnesotans like to be different. Just look at our football stadium, our beer, or our music scene. When Minnesota first created a limited liability company act, it did so in a unique way – most other states modeled LLCs after partnerships, but Minnesota mirrored laws governing corporations. In 2014, Minnesota decided to revise the limited liability company act, making it much closer to the majority rule. But as you may expect, the Revised Limited Liability Company Act retained characteristics unique to Minnesota.

The Minnesota Revised Uniform Limited Liability Company Act (yes, that’s its official name) came into effect in 2015. All LLCs formed on or after August 1, 2015 are governed by the MRULLCA (RULLCA? ULLCA? The New One? The Revised Act!) And any LLC formed before August 1, 2015 can elect to be governed under The Revised Act until January 1, 2018, at which point all LLCs are governed under The Revised Act.

The Revised Act changes some terminology. For example, there is no such thing as a member control agreement. Members may still adopt an agreement dealing with the relationships of the members, managers, and governors, but it is now an operating agreement.  The Revised Act creates three categories of LLCs: member-managed, manager-managed, and board-managed.

If an LLC does not adopt an operating agreement, it is member-managed by default.  Member-managed LLCs operate much like partnerships: the management is vested in the members. In a manager-managed LLC, the members elect managers, and the mangers run the business.

Under the Revised Act, a board-managed LLC looks a lot like an LLC under the original Act. Members set rules for electing a board of governors. The board of governors determines the process for electing officers, managers, and other agents of the LLC. Governors have no authority to act individually – they only act through board actions. The officers, managers, and agents actively manage the company, as guided by the board.

Most of the rules in the Revised Act apply to all three types of LLCs. The primary distinction is in the structure and management of the company, and the Revised Act gives members a lot of flexibility in defining rules for the LLC.

The Revised Act still has the duties of loyalty and care present in the original Act. The duty of loyalty essentially prohibits self-dealing, while the duty of care requires a person to generally act in the best interests of the company. In a member-managed company, the duties of loyalty and care apply to the members. In a manager-managed company, the duties apply to the managers since they are the ones making the decisions. And in a board-managed company, the duties of loyalty and care apply to the board.

In all LLCs, the members, managers and governors alike all share the obligation of good faith and fair dealing. This means everyone involved must act honestly, fairly, and reasonably.

This is not a comprehensive list of the Revised Act. If you form a Minnesota LLC, it will be governed by the Revised Act, so you should consult an attorney to understand exactly what that means for you and your company.