Seriously, all businesses formed as a Minnesota limited liability company (LLC) and operating Minnesota Chapter 322B should have their operating and member control agreements reviewed. This is especially true for any LLC with, or contemplating, multiple members.

Effective January 1, 2018, all Minnesota limited liability companies formed under 322B will automatically be operating under the new 322C. The difference in the way the law applies to LLCs is significant.

322C was designed to take a flexible approach as to how a business operates. In other words, it is more like a partnership approach to business by allowing custom business arrangements by agreement of its members. However, with that flexibility comes some pitfalls.

Many LLCs formed under 322B used “gap fillers” in their operating and member control agreements by referring to various provisions found in 332B. Those gap fillers are eliminated in 322C. For instance, 322B.666 governing conflicts of interest and the procedure to resolve them is gone. 322B.606, subd. 2 that allowed members to vote to take any action that would normally fall to the board of governors is also gone from 322C.

Of particular importance, is that under 322B.37 only written and signed member control agreements were valid. Under 322C an “Operating Agreement” means the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all the members of a limited liability company, including a sole member. This means whether or not written, a provision based on the member(s) course of conduct can be read into an operating agreement.

In summary, all Minnesota LLC organizations review their written operating agreements and the way they conduct business with respect to its management. It is better to make certain that business operation agreements truly reflects how the business operates with respect to its members than to have disputes arise in the future.

Our firm routinely provides advice and counsel to LLCs on the management of the business. Don’t hesitate to contact us for a review of your business operating and member control agreements.