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Structure Matters, Just Ask The Three Little Pigs

  • July 10, 2016
July 10, 2016
Attorney At Law Magazine – Minnesota Edition
Author: Janel M. Dressen

With the enactment of Minnesota’s Revised Uniform Limited Liability Company Act, new limited liability companies (LLCs) (and effective as of Jan. 1, 2018, existing LLCs) are no longer governed by a single board-managed governance structure. Does that matter? In answering this question, I am reminded of the children’s fable, “The Three Little Pigs.” As it turned out, the three little pigs learned that structure matters during critical times, like when a big bad wolf is trying to eat you. The same is true under the revised act. The selected governance structure matters and will be particularly important at critical times during a company’s existence.

The “old” LLC Act, Chapter 322B, provides that “[t]he business and affairs of a limited liability company is to be managed by or under the direction of a board of governors,” and requires at least two manager positions (which can be held by the same person). Minn. Stat. §§ 322B.606, 322B.67. By contrast, the revised act, Chapter 322C, establishes three alternative governance structures for an LLC: member-managed, manager-managed or board-managed. Minn. Stat. § 322C.0407. The alternative governance structures allow an LLC to fashion the company after either a close corporation under the manager- or boardmanaged LLC regimes, or after a partnership, under a member-managed LLC regime.

Unless the operating agreement (which can be written, verbal, implied or a combination of all three) expressly provides otherwise, newly formed LLCs are considered member-managed. Minn. Stat. § 322C.0407, subd. 1. An LLC is membermanaged unless the operating agreement expressly provides that it is “manager- managed,” “managed by managers,” management is “vested in the managers,” “board-managed,” “managed by a board,” or management is “vested in a board.” Id. That being said, a nonprofit LLC must be board-managed. Minn. Stat. § 322C.1101, subd. 5.

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