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Minnesota's New LLC Law: Part Two

Part one of our series introduced the New Act that has a direct impact on all LLCs in Minnesota. While derivative claims are a large part of this New Act, that’s not all that will change beginning August 1. Dissenter’s rights are uniquely affected by the law and can be a good thing or a bad thing for your company, depending on how it is handled.

You can increase the control and predictability you have over disputes in your business if you apply the following information. Why take any chances with legal troubles?

Dissenter’s Rights under the New Act

Second, the New Act eliminates the dissenter’s rights granted to all members under ch. 322B (subject to elimination in a Member Control Agreement). Dissenter’s rights allowed a disgruntled member to dissent from and obtain payment for the “fair value” of his membership interest. Under ch. 322B, these rights were triggered if the governing body authorized certain events, including non-exclusively, eliminating a preferential right of a membership interest or to contribute, changing a member’s rights to resign or retire, and changing the conditions or consequences for expulsion, affecting a member’s ability or rights to vote or eliminating a right to payment on a buyout. If a member asserts her dissenter’s rights promptly through proper procedure, she can compel the LLC to make an estimate of the defined fair value of the member’s interest, how the value was calculated and must offer to pay the determined amount. If an inevitable disagreement arose, the disgruntled member can ask a court for help. Courts’ value determinations are highly unpredictable and some say on average 30% higher.

Since Minnesota arguably has always had a judicial system that bends towards protecting the “little guy,” when that is combined with the power granted under ch. 322B (borrowed from the ch. 302A corporation statute) to do what the court believes is equitable, the results can be highly unpredictable. The New Act permits the members to define and restrict the classic topics that have historically generated ownership disputes in Minnesota. Ch. 322C allows members to define their “reasonable expectations,” the standards of conduct they are subject to and the duties they owe one another. For example, the duty of loyalty can be adapted to an LLC’s needs by defining and customizing what constitutes a conflict of interest. Similarly, the duty of care can be refined by defining fiduciary duties and obligations of good faith and fair dealing.

Rather than being subject to the luck of the judicial draw and what can seem like unfettered discretion of the trial court when litigating owner dispute claims, the New Act limits the discretion by setting out the importance and binding nature of contractual agreements. This creates a judicial deferral to the parties’ controlling instructions in written agreements. Once again, this enables a higher predictability and control if litigation ensues as long as the agreements were properly adopted by the LLC and are not “manifestly unreasonable.”

At MKT Law, we want to ensure that your LLC is grounded on stability and security, even under the New Act. To find out how we can help you and your company, schedule your confidential consultation with our Minneapolis and St. Paul business law attorney today!