Many business owners are already familiar with limited liability companies (LLCs) and the benefits of operating a business through such entity, rather than as a sole proprietor or corporation. Small businesses, in particular, favor the LLC option as it allows the company to separate its assets and liabilities from those of its owners. While laws for organizing and operating an LLC are clearly set forth in Wisconsin’s Statutes, the state legislature has realized that there are some inconsistencies between the law and the practicality of operating an LLC. These legislative changes will modernize the law surrounding LLCs and answer a lot of questions for business owners and attorneys alike, when dealing with LLCs.
Changes made to chapter 183 of the Wisconsin Statutes will take effect January 1, 2023. These changes will affect multiple phases of the LLC organizational process, including filing the articles of organization, creating an operating agreement, and determining the management rights of the company. For example, under the new laws, while drafting the Articles of Organization there will be no need to certify the type of management. Before this change was enacted, the entity application form required the organizer to decipher if the company would be manager-managed or member-managed within the Articles of Organization. This often led to additional paperwork and filings if later on down the road, the members of the company wanted to change the management structure of the company. This change will hopefully cut down on the extra paperwork and give companies more freedom when it comes to making these decisions.
Particularly notable are the changes in the requirements of a company’s operating agreement. While we all know that an operating agreement must be written as the law currently requires, the new legislation indicates that moving forward, an operating agreement may be administered orally, in writing, in a record, or in any combination thereof and still be legally binding. This will have a huge impact on litigation involving member disputes, and what evidence or information can be used to prove a member’s rights, obligations, or authority.
Not surprisingly, the Wisconsin Supreme Court case Marx v. Morris, looks to have played a significant role in this legislation change. Especially as it relates to an LLC member’s fiduciary duty requirements. The new LLC laws will now require that fiduciary duties are outlined clearly in the Operating Agreement.
If you are considering starting an LLC or looking to better understand how these changes to the law might affect your existing LLC, consult with an attorney at OVB Law and Consulting, S.C.
