Minnesota’s New LLC Act – Increases Value of Operating Agreement

Minnesota’s New LLC Act – Increases Value of Operating Agreement

Every small business has to adapt and change to succeed. Changing often brings friction among co-owners that can lead to expensive lawsuits. Before Minnesota passed its revised LLC Act, effective in 2015, the dissenters’ rights provision was a tool where members that opposed a major change such as a merger could assert “dissenters’ rights.” By doing so, the dissenting members could force the Company to buy them out for their proportionate share of company value rather than go along with the proposed merger or other similar transaction. This was a tool that allowed the majority to proceed despite the dissention without involving the courts.

The new LLC act eliminates the dissenters’ rights provision such that without an agreement to the contrary, to engage in a major transaction such as a merger, unanimous member consent is required.

In our view, this change for the LLC act places even greater importance on having an Operating Agreement that deals with dissenter issues. Founding members who anticipate potential dissention down the line can give the company or members the tools to deal with possible deadlock in the Operating Agreement. An Operating Agreement can deal with dissention in a number of ways. The Operating Agreement can provide that major decisions can occur on less than unanimous consent of the members. Alternatively, it can provide for a buyout mechanism in the event of dissention that gives the company or buying members more fairness in pricing and timing of payment.

In the absence of such an agreement, where the members of an LLC are deadlocked over disagreements regarding major decisions such as whether to merge or sell substantially all company assets, they are forced into the much riskier, more time consuming and more costly scenario of a lawsuit.

With the Minnesota LLC act it is more important than ever to hire a lawyer to help with drafting an Operating Agreement long before any conflicts arise. At Peters Law Firm, we are happy to provide a free initial consultation regarding your LLC.