By Steven P. Lipowski, J.P. La Chapelle, Paul J. Mirr and Jordan C. Sundell
October 6, 2022
Under new Wisconsin laws coming into effect soon, some important rules governing how limited liability companies (LLCs) operate will change. This article will describe some of the key changes, what LLC owners need to be thinking about, and some approaching deadlines for those wishing to be governed under the “old” rules.
The New LLC Law
On April 15, 2022, Wisconsin enacted new laws for LLCs. The legislation – 2021 Wisconsin Act 258 – will completely replace the existing LLC chapter in the Wisconsin statutes with a version of the Revised Uniform Limited Liability Company Act, which is intended to modernize the law and provide greater uniformity for companies in Wisconsin and beyond.
Deadline to Opt-Out from New Rules
The new statutes will take effect for LLCs on January 1, 2023. If your existing LLC does nothing, the new statutes will govern your LLC effective as of that date. However, the new statutes allow an existing LLC to opt-in prior to that effective date, or, perhaps more importantly, to opt-out from the new statute entirely. The deadline to either opt-in or opt-out is effectively December 31, 2022, but any action to opt-in early or opt-out entirely should be taken well before that date if possible.
Key Changes Under New Rules
What follows is a brief description of some of the key changes in the new Wisconsin LLC statutes set to take effect.
- Operating Agreements: Written to Implied
Operating agreements are agreements among members of an LLC setting up the rules for how the LLC owners wish to operate the company. For example, the operating agreement may cover how the LLC will be managed, what votes are required for company action, or how profits will be shared. Under the old Wisconsin statutes, operating agreements must be written. The new statutes, however, define an operating agreement to include any agreement, written or “oral, implied, in a record, or in any combination thereof, of all the members of a limited liability company.” Wis. Stat. § 183.0102(13). This means the LLC can now be governed not only by a written document signed by all members, but also by any verbal or implied agreement that was not part of any signed written agreement – perhaps as part of an e-mail chain among the members, or in a conversation between owners on management topics. It remains to be seen how this will be applied by courts, but LLC owners will want to consider this change on their future operations and consider adding language to their written operating agreements to minimize the potential for misunderstandings.
- Fiduciary Duties
The new law provides explicit details on what constitutes a member or manager’s duty of loyalty and duty of care, and defines certain ways they may be altered in an operating agreement. For example, under the new rules Wis. Stat. § 183.0105(4)(a) allows an LLC to specify how an LLC may permit a member to take action that would normally be considered a violation of the duty of loyalty – such as when a member also has membership interest in a competitor. These changes may impact the way in which LLC members resolve disputes among themselves concerning LLC operations and how members interact with the business.
The new law states the articles of organization do not need to specify whether the company is managed by its members or by designated managers. This means the LLC can choose to modify its management designation without amending its articles of organization (if that designation is not included in the articles in the first place). However, a public filing, which the new law calls a Statement of Authority, can be filed to designate whether management authority is vested in the members or with managers.
Filing to Opt-Out or Opt-In
Again, if your LLC does nothing, the new law will automatically apply to that LLC effective as of January 1, 2023. However, if an LLC wishes to remain subject to the previous LLC law, the LLC must file a Statement of Nonapplicability with the Wisconsin Department of Financial Institutions by December 31, 2022 (well before that deadline would be advisable).
In addition, an LLC could elect to speed up the new law’s applicability by filing a Statement of Applicability prior to the end of 2022, if desired. If it does so, the LLC becomes governed by the new law once the Statement of Applicability is filed.
While this article is only a summary of certain aspects of the new law, our team at Ruder Ware can assist you in the assessment of these new rules and their impact on your LLC and assist with taking necessary action. Please contact your Ruder Ware attorney for assistance.
The content in the following blog posts is based upon the state of the law at the time of its original publication. As legal developments change quickly, the content in these blog posts may not remain accurate as laws change over time. None of the information contained in these publications is intended as legal advice or opinion relative to specific matters, facts, situations, or issues. You should not act upon the information in these blog posts without discussing your specific situation with legal counsel.
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