IM
MPLEM
MENTIN
NG TH
HE MIN
NNESOTA RE
EVISED
D
UNIF
FORM
M LIMIT
TED LIABILITY CO
OMPA
ANY AC
CT
Stepphen M. Quiinlivan
David C. Jenson
Jenifer L. F
Frohne
R
Robert D. Rominski
Stinson L
Leonard Street LLP
April 233, 2014
11000385v4
TABLE OF CONTENTS
I. Executive Summary ............................................................................................................ 1 II. Considerations When Forming New Minnesota LLCs Prior to August 1, 2015
under the Existing Statute ................................................................................................... 2 III. Considerations When Forming New Minnesota LLCs after August 1, 2015 under
the Revised Act ................................................................................................................... 5 IV. Considerations for Existing LLCs in Preparing to Become Subject to the Revised
Act ....................................................................................................................................... 8 V. Investing in or Acquiring a Minnesota LLC ....................................................................... 9 11000385v4
IMPLEMENTING THE MINNESOTA REVISED UNIFORM LIMITED LIABILITY
COMPANY ACT
I.
Executive Summary
The Minnesota Revised Uniform Limited Liability Company Act (the “Revised Act”) has
been adopted in Minnesota and will replace Minnesota’s current limited liability company
(“LLC”) statute set forth in Chapter 322B of the Minnesota Statutes (the “Existing Statute”).
The Revised Act, which will be found in Chapter 322C of the Minnesota Statutes provides
increased flexibility and freedom to contract of members in an LLC through increased reliance
on a single contractual arrangement among the members, termed an “operating agreement.”
The timing for the effectiveness of the Revised Act and its applicability to Minnesota
LLC is as follows:

Beginning August 1, 2015, all newly formed LLCs will be governed by the Revised Act.

On and after August 1, 2015 and until January 1, 2018, Minnesota LLCs that were
formed under the Existing Statute may elect to opt-in to the Revised Act and become
governed by the Revised Act instead of the Existing Statute.

On and after January 1, 2018, the Revised Act will apply to all Minnesota LLCs,
regardless of when they were formed and whether they have made an election to be
governed by the Revised Act.
When forming new LLCs under the Existing Statute before the Revised Act becomes
effective, practitioners should consider the following considerations relating to the Revised Act,
which will ease the eventual transition to the Revised Act:

Exculpatory provisions relating to the liability of governors under the Existing Statute
should be placed in the member control agreement and not the articles.

Exculpatory provisions tailored to the Revised Act can be included in the member control
agreement with the proviso that they will become operational and will replace any other
exculpatory provisions when the Revised Act becomes effective.

Include amendment procedures in the operating agreement to make it easy to adopt the
early application of the Revised Statute after it becomes effective on August 1, 2015 and
before it becomes mandatory on January 1, 2018.

Place minimal reliance on statutory defaults under the Existing Statute to prevent having
to renegotiate these items when the entity becomes subject to the Revised Statute.
The extent to which documentation for Minnesota LLCs developed under the Existing
Statute will need to be revised or re-drafted to operate under the Revised Statute will depend on
the facts and circumstances on an entity-by-entity basis. The governing documentation for some
11000385v4
LLCs will require little or no modification, while the need for modification will be greater in
other situations. Items to consider include:

Simplifying the articles of organization.

Creating an operating agreement for purposes of the Revised Act by consolidating
substantive provisions in the articles of organization, member control agreement, and bylaws.

Eliminating reliance on statutory defaults in the Existing Statute when drafting the
operating agreement.

Eliminating terms which relate solely to the Existing Statute when drafting the operating
agreement.

Identifying rights under the Existing Statute that the parties wish to preserve in the
operating agreement.
The transition to the Revised Act should also be considered when investing in or
acquiring a Minnesota LLC.
II.
Considerations When Forming New Minnesota LLCs Prior to August 1, 2015 under
the Existing Statute
A.
Exculpatory Language
When forming an LLC under the Existing Statute, it is permissible to include language
exculpating directors in the articles of organization or member control agreement. See Section
322B.663 Subd. 4. The practice of many has been to include the language in the articles of
organization, dove tailing with corporate practice. While that can continue until the Revised Act
becomes effective on August 1, 2015, there are a couple of points to consider.
1.
Exculpatory Language Should be placed in the Member Control Agreement
The Revised Act states that exculpatory language should go in the “operating
agreement,” which is the single document (in addition to the Revised Act itself) governing the
rights and duties of the members under the Revised Act. The definition of “operating
agreement” can include the articles of organization under statutory construction, but many may
wish to avoid any ambiguity in this area. As a result, until the Revised Act becomes effective, it
is preferable to place exculpatory language in the member control agreement as opposed to the
articles of organization.
2.
Agreement
Consider Including 322C Exculpatory Language in the Member Control
The Existing Statute only explicitly permits exculpation of governors, while the Revised
Act permits exculpation of members, managers and governors. It’s important to realize how
2
11000385v4
those terms are used. The Existing Statute refers to “managers” as those acting in an officer type
capacity, while the Revised Statute uses the term to refer to a “manager” in a “managermanaged” LLC. Since manager-managed and board-managed (i.e., managed by a board of
governors) LLCs are apparently mutually exclusive under the Revised Act, providing for
exculpation of both managers and governors may be nonsensical.
On the other side of the coin however, use of the word “member” in the Revised Act is
not limited to member-managed LLCs, and perhaps some could make the case that exculpation
only applies to members in their management capacity in a member-managed LLC.
The quantum of exculpation is different in the Revised Act (322C) than under the
Existing Statute (322B) as shown in the table below, and the Revised Act arguably provides for
somewhat broader exculpation:
Non-Exculpable Under 322B.663
Subd 4 (Existing Statute)
Comparison of Exculpation Provisions
Non-Exculpable Under 322C.0110 Comments
Subd 7 (Revised Act)
Breach of governor’s duty of loyalty
Breach of duty of loyalty
Essentially the same because only
those in charge of the governance
structure have a duty of loyalty
under 322C
For any transaction where the
governor received an improper
personal benefit
Financial benefit received by
member or manager to which the
member is not entitled
Why does 322C not cover
governors?
Breach of 80A.76 (Minnesota blue
sky provision on civil liability) or
322B.56 (improper distributions)
Breach of 322C.0406 (improper
distributions)
322C has narrower carve out to the
extent civil liability under blue sky
statutes can be exculpated under the
Existing Statute
Not in good faith
Not addressed by 322C
322C does not have a carve out
Intentional misconduct
Intentional infliction of harm on the
LLC or a member
322C has narrower carve out, in
theory allows for exculpation for
some intentional misconduct
Knowing violation of law
Intentional violation of criminal law
322C has narrower carve out, in
theory allows for exculpation for
some knowing violations of law
Act or omission occurring before
exculpatory provision became
effective
Not addressed by 322C
Those wishing to address exculpation once the Revised Act becomes effective in newly
formed and existing LLCs subject to the Existing Statute could include language such as the
following in the member control agreements:
Exculpation Under the Minnesota Revised Uniform Limited Liability Company Act.
From and after the time the Company becomes subject to the Minnesota Revised
3
11000385v4
Uniform Limited Liability Company Act, a member or [manager/governor] of the
Company shall not be liable to the Company and members of the Company for money
damages, except for (i) breach of the duty of loyalty; (ii) a financial benefit received by
the member or [manager/governor] to which the member or [manager/governor] is not
entitled; (iii) a breach of a duty under section 322C.0406 of the Minnesota Statutes; (iv)
intentional infliction of harm on the Company or a member; or (v) an intentional
violation of criminal law. If the Minnesota Revised Uniform Limited Liability Company
Act hereafter is amended to authorize the further elimination or limitation of the liability
of members, or [managers/governors], then the liability of members or
[managers/governors] of the Company in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
Minnesota Revised Uniform Liability Company Act. Any repeal of this provision as a
matter of law or any modification of this paragraph by the members of the Company shall
be prospective only, and shall not adversely affect any limitation on the personal liability
of a member, manager or governor of the Company existing at the time of such repeal or
modification.
Including the broadest possible exculpation in an operating agreement requires careful
thought on a case-by-case basis and is not appropriate in all (or maybe even most) circumstances.
The terms manager and governor are bracketed because, as mentioned above, under the Revised
Act an LLC cannot simultaneously be manager-managed and governor-managed; either one or
more governors, or one or more managers will bear responsibility for governance.
If the foregoing approach is used, exculpatory language under the Existing Statute should
also be included which sunsets once the Revised Act becomes effective. An example may be:
Exculpation Under the Minnesota Revised Uniform Limited Liability Company Act. Until
such time as the Company becomes subject to the Minnesota Revised Uniform Limited
Liability Company Act, no governor of this Company shall be personally liable to the
Company or its members for monetary damages for breach of fiduciary duty by such
governor as a governor; provided, however, that this Article shall not eliminate or limit
the liability of a governor (i) for any breach of the governor's duty of loyalty to the
Company or its members, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Sections 322B.56 or
80A.76 of the Minnesota Statutes, (iv) for any transaction from which the governor
derived an improper personal benefit or (v) for any act or omission occurring prior to the
effective date of this Article. No amendment to or repeal of this Article shall apply to or
have any effect on the liability or alleged liability of any governor of the Company for or
with respect to any acts or omissions of such governor occurring prior to such
amendment or repeal. If the Minnesota Limited Liability Company Act is hereafter
amended to eliminate or limit further the liability of a governor, then, in addition to the
elimination and limitation of liability provided by the preceding provisions of this
Article, the liability of each governor shall be eliminated or limited to the fullest extent
permitted by the Minnesota Limited Liability Company Act as amended. Any repeal or
modification of this Article, by the members of the Company or any repeal of the
Minnesota Limited Liability Company Act effected by the Minnesota Revised Uniform
Limited Liability Company Act or otherwise, shall not adversely affect any right or
4
11000385v4
protection of a governor of the Company under this Article, as in effect immediately prior
to such repeal of modification.
B.
Early Application of Revised Statute.
Section 322C.1204 of the Revised Act provides that an existing LLC may elect into the
Revised Act prior to the mandatory transition date of January 1, 2018 “in the manner provided in
its operating agreement or bylaws for amending the operating agreement.” Those forming new
LLCs may wish to have a clean amendment provision to facilitate a smooth, early transition.
Provisions describing permissible amendments should include a reference to elect to be governed
by the Revised Act. In addition, language such as the following may be appropriate:
On or after August 1, 2015 and before January 1, 2018, this Agreement may also be
amended to elect application of the Minnesota Revised Uniform Limited Liability Act (a
“Revised Act Election”). Such amendment may be made by [an act of the Board of
Governors of the Company as set forth in Section [●]] [by the vote of a majority of the
outstanding Voting Interests]. Each member of the Company hereby grants the
[Secretary] of the Company an irrevocable power of attorney coupled with an interest to
amend this Agreement to reflect the fact that a Revised Act Election has been made.
C.
Minimal Reliance on Statutory Defaults
In general, the Revised Act places less reliance on statutory defaults than the Existing
Act. Therefore, operating agreements and member control agreements should be drafted with
minimal reliance on statutory defaults set forth in the Existing Statute to prevent the operating
agreement from having to be redrafted when the Revised Act takes effect. Practitioners should
look not only for areas in which the operating agreement or member control agreement typically
refers to provisions of the Existing Statute, but also for areas in which the Existing Statute
provides a default rule not typically addressed in operating agreements or member control
agreements and which is not covered by the Revised Act.
III.
Considerations When Forming New Minnesota LLCs after August 1, 2015 under
the Revised Act
The following checklist sets forth some of the items to consider in drafting an operating
agreement under the Revised Act:

Specify in the operating agreement whether the LLC is member-managed, managermanaged or board-managed. If no specification is made the Company will be membermanaged by default.

Include an appropriate exculpatory clause (see above).

Specify in the operating agreement the method by which a specific act or transaction that
would otherwise violate the duty of loyalty may be authorized or ratified by one or more
disinterested and independent persons after full disclosure of all material facts.
5
11000385v4

In member-managed LLCs, clearly define those members with management duties and
relieve other members of any related fiduciary duty. Also consider:

Relieving a non-managing member of liability for inaccurate filings with the
secretary of state;

Relieving a non-managing member of liability for inaccurate distributions.

Consider whether rights to indemnification and advancement should be limited from the
statutory standard. In general, the rights to indemnification and advancement closely
parallel the Existing Statute with appropriate changes to account for member-managed
and manager-managed governance structures.

If not manifestly unreasonable, the operating agreement may:

Restrict or eliminate the duty to account to the LLC and to hold as trustee for it
any property, profit, or benefit derived by the member in the conduct or winding
up of the LLC’s business, from a use by the member of the LLC’s property, or
from the appropriation of a LLC opportunity;

Restrict or eliminate the duty to refrain from dealing with the LLC in the conduct
or winding up of the LLC’s business as or on behalf of a party having an interest
adverse to the LLC;

Restrict or eliminate the duty to refrain from competing with the LLC in the
conduct of the LLC’s business before the dissolution of the LLC;

Identify specific types or categories of activities that do not violate the duty of
loyalty;

Alter the duty of care, except to authorize intentional misconduct or knowing
violation of law;

Alter any other fiduciary duty, including eliminating particular aspects of that
duty;

Prescribe the standards by which to measure the performance of the contractual
obligation of good faith and fair dealing.

Consider limitations on statutory information rights set forth in 322C.0410, although
these rights cannot be “unreasonably restricted.”

Consider whether the sole power of a court is to declare dissolution, as opposed to
ordering a buy-out or other remedy, when a member makes application to the court that
the managers, governors, or those members in control of the LLC:

Have acted, are acting, or will act in a manner that is illegal or fraudulent; or
6
11000385v4


Have acted or are acting in a manner that is oppressive and was, is, or will be
directly harmful to the applicant.
Consider whether the statutorily prescribed (322C.0602) events of dissociation1 are
appropriate, including:

On application by the LLC, the person is expelled as a member by judicial order
because the person:

Has engaged, or is engaging, in wrongful conduct that has adversely and
materially affected, or will adversely and materially affect, the LLC’s
activities;

Has willfully or persistently committed, or is willfully and persistently
committing, a material breach of the operating agreement or the person's
duties or applicable standards of conduct; or

Has engaged, or is engaging, in conduct relating to the LLC’s activities which
makes it not reasonably practicable for the LLC to carry on the activities with
the person as a member;

In the case of a natural person, the person dies;

In a member-managed LLC:

If the person is a natural person, a guardian or general conservator for the
person is appointed;

If the person is a natural person, there is a judicial order that the person has
otherwise become incapable of performing the person's duties as a member
under this chapter or the operating agreement;

The person becomes a debtor in bankruptcy;

The person executes an assignment for the benefit of creditors; or
1
Note that “dissociation” is different than “dissolution.” Upon dissociation (i) the
person’s right to participate as a member in the management and conduct of the LLC’s activities
terminates; (ii) if the LLC is member-managed, the person’s fiduciary duties as a member end
with regard to matters arising and events occurring after the person’s dissociation; and (iii)
generally any transferable interest owned by the person immediately before dissociation in the
person’s capacity as a member becomes owned by the person solely as a transferee.
7
11000385v4

IV.
The person seeks, consents to, or acquiesces in the appointment of a trustee,
receiver, or liquidator of the person or of all or substantially all of the person's
property;

In the case of a person that is a trust or is acting as a member by virtue of being a
trustee of a trust, the trust's entire transferable interest in the LLC is distributed;
and

In the case of a person that is an estate or is acting as a member by virtue of being
a personal representative of an estate, the estate's entire transferable interest in the
LLC is distributed.
Considerations for Existing LLCs in Preparing to Become Subject to the Revised
Act
All LLCs will become subject to the Revised Act on January 1, 2018. Not all LLC
documentation will need to be redone as a result of becoming subject to the Revised Act. Most
single-member LLCs can probably survive with little or no modification to their governance
documents. The extent to which multi-member LLCs will require revised documentation and the
extent of the documentation will depend on:
A.

The degree to which the governance documents relied on the statutory defaults or were
tailored to embody the parties’ transaction; documents that are already highly tailored,
with minimal reliance on statutory defaults, will likely require less revision, and vice
versa.

The parties’ assessment of the costs and benefits of redoing documentation based on the
workability of existing documentation under the Revised LLC Act.
Articles of Organization
It is preferable that exculpatory language be revised and moved to the operating
agreement for the reasons set forth above. Contrary to the existing practice of many in
Minnesota, under the Revised Act the articles of organization should only contain the bare
minimum of statutory information. The Revised Act looks to the articles to merely reflect the
existence of the entity, as opposed to governing the rights of the parties. It is preferable to revise
the articles of organization to reflect this structure of the Revised Act and move provisions
regarding the rights of the parties to an operating agreement or member control agreement prior
to opting into or becoming mandatorily subject to the Revised Act.
B.
Revising (or Creating) the Operating Agreement
The Existing Statute uses the confusing nomenclature “member control agreement” and
“by-laws” and goes on further to state that the “bylaws” can be referred to as an “operating
agreement.” As mentioned above, the Revised Act contemplates articles of organization with
minimal information and a single governing contract setting forth the rights of the parties, termed
an “operating agreement” under the Revised Act. In light of this, it is preferable for LLCs to
8
11000385v4
consolidate the member control agreement, by-laws or operating agreement, and any substantive
provisions in the articles of organization into a single document prior to opting into or becoming
mandatorily subject to the Revised Act.
The checklist above under “Considerations When Forming New Minnesota LLCs after
August 1, 2015 under the Revised Act” should be consulted when crafting the operating
agreement.
C.
Identify and Eliminate Any Reliance on Statutory Defaults Set Forth In the Existing
Statute
The Revised Act places minimal reliance on statutory defaults and to the extent it does
they are likely different than the Existing Act which has the potential to upset the parties’
expectations. As such, the relied upon statutory defaults should be identified and eliminated.
Many are likely to relate to governance matters, such as election of governors, the manner of
holding board and shareholders meetings and the like. Other types of reliance on statutory
defaults are more subtle and will be more difficult to identify. For instance, the Existing Statute
has procedures for approving governor conflicts-of-interest transactions which apply whether
specifically mentioned in an operating agreement or member control agreement or not, while the
Revised Act does not. As a result, areas where application of the Revised Act will leave a “void”
in the provisions that apply to the LLC should be considered, and appropriate provisions added
to governance documents as necessary.
D.
Eliminate Terms Related to the Existing Statute
Terms peculiar to the Existing Statute which have no meaning under the Revised Act
should be eliminated. Those terms include “governance rights,” “financial rights,” and “bylaws.”
E.
Identify Rights to Preserve Under the Existing Statute
The Existing Statute may grant parties rights they wish to preserve that are not present
under the Revised Act. For instance, the Existing Statute provides for mandatory dissenters’
rights in certain circumstances while the Revised Act does not address dissenters’ rights. If
dissenters’ rights are important to the parties then the new operating agreement should provide
for such rights.
V.
Investing in or Acquiring a Minnesota LLC
While the process of investing in or acquiring an LLC will not be complicated greatly by the
transition to the Revised Act, parties should be mindful of the following:

On and after August 1, 2015 and prior to January 1, 2018, an entity and its members can
elect into early application of the Revised Act. That election does not need to be publicly
filed, so it should be the subject of due diligence and appropriate representations and
warranties.
9
11000385v4

Governing documents of the target for an investment or acquisition should be reviewed to
assess any issues that may be encountered in the transition to the Revised Act.
10
11000385v4