Way back “in the day” — 1992 — the Minnesota Legislature rolled the dice, betting on the long-term success of a limited liability company statute modeled on Minnesota’s existing corporation statute with a few flexible “partnership” type features. The statute worked well, for a time, much like Sony’s Betamax videotape. Unfortunately, most of the rest of the country adopted a limited liability company statute modeled more on a partnership structure with a few “corporation” type features. The two statutes battled it out for about two decades. Unfortunately, in 2014 Minnesota threw in the statutory towel and agreed to deep-six its corporate-oriented LLC statute (i.e., Betamax) in favor of the more popular and accepted partnership-oriented LLC statute (i.e. VHS). The old law officially sinks to the bottom of the lake on January 1, 2018, a scant five months from now. What remains is the new “partnership” type statute.
So what? Well, there are hundreds, maybe thousands, of Minnesota LLCs organized under the old law which operated just fine for ten…almost 20…years. Those LLCs will need their organizational and operational documents (if any) reviewed closely and, if necessary, revised to jive with the owners’ existing practices and expectations. Why? Because many old law LLCs were thinly documented, relying significantly on the robust fill-in provisions of Minnesota’s old law. That old law provided many handy default provisions which usually meshed well with the owners’ expectations regarding distributions, voting, indemnification and conflicts of interest. Good times, no more. Those statutory backstops disappear on January 1, 2018. The far less robust, but more flexible, new law will either not have any backstop or will have backstop provisions opposite of the owners’ understanding, expectations and practices. For example, if an LLC had bare bones organization with no bylaws, member control agreements or other documentation, the old law filled in a “corporate” style board of governors, a proportionate share of profits and losses based on the number of shares, proportional voting, fairly strict conflict of interest provisions and sweeping indemnification for governors and officers, among other things.
Read the full article which was written by Mike Glover for the newsletter of Boeckerman Grafstrom Mayer in August of 2017.