Minnesota LLCs Will Be Governed by New State Law on January 1, 2018
If your Minnesota limited liability company (LLC) was formed before August 1, 2015, it will be governed by a new state law beginning January 1, 2018. You should work with your attorneys to review your company’s operating agreements based on the new law and implement any necessary or desirable modifications. In some cases, it may make sense to keep existing agreements. Regardless of your situation, we strongly encourage you to discuss this with legal counsel.
Revised LLC act brings Minnesota in line with other states
Until Minnesota’s state legislature enacted the Revised Uniform Limited Liability Company Act (Section 322C) in 2014, LLCs in the state were governed by the previous version of the law (Section 322B). An LLC is a popular entity of choice for most entrepreneurs and business owners because of the legal protections and tax advantages it provides their companies and themselves. But Minnesota’s provisions under Section 322B were much different from those of other states. The new act (Section 322C) is designed with best practices and better compatibility with other state laws in mind.
LLC framework changes in the new law
Section 322C affects several legal components of your Minnesota LLC’s framework, most notably those related to:
- Requirements of the governing agreement
- Management structure
- Default distribution and profits rights
- Voting rights
- Dissenter’s rights
- Indemnification obligations
What you should do
On January 1, 2018, all LLCs in the state will be bound by the provisions of the new law. If your Minnesota LLC was formed after August 1, 2015, it is already governed by Section 322C, and there is no need for you to review or update your agreements.
LLCs formed before August 1, 2015, that don’t update their operating agreements will automatically retain those they originally drafted under Section 322B. Many legal experts, however, suggest this could create some transitionary complexities and problems.
Consult with your legal counsel to discuss how the new law may affect your LLC.
How we can help
CLA’s tax professionals have a great deal of experience helping businesses and their owners understand the tax implications of entity selection and restructuring. Our people can work with you and your legal team to evaluate how your entity formation impacts your tax plan.