Wisconsin LLCs: Deadline to Opt Out of New LLC Law Approaches
The law governing Wisconsin limited liability companies (LLCs) will change on January 1, 2023. In April 2022, Wisconsin adopted a version of the Revised Uniform Limited Liability Company Act. The new law will bring Wisconsin in line with the majority of states and provide more uniformity between Wisconsin LLCs and LLCs from other jurisdictions. Existing LLCs can opt in or out of the new law. All LLCs formed after January 1, will be governed by the new law.
A description of all the changes in the new law is beyond the scope of this article. Here is a list of several of the more significant ones.
- Operating agreements: an operating agreement establishes the rules for managing important aspects of an LLC like distributions, voting, and transfers of membership interests. Under the current law, the operating agreement must be a written document signed by the members of the company. Under the new law, the definition of what constitutes an operating agreement is expanded to include verbal or implied agreements, in addition to written ones. This change may create some confusion over what terms govern an LLC.
- Member acts or transactions: If included in the operating agreement, the new law allows members to engage in acts or transactions that would normally violate the duty of loyalty to the LLC, provided the conflicted member discloses the facts, and the LLC authorizes or ratifies the act. Similarly, the operating agreement can contain provisions limiting the LLC’s remedies for breach of the duty of loyalty or exclude certain activities from violation.
- How management is identified: The new law does away with the requirement that the articles of organization state whether the LLC is member-managed or manager-managed. Rather, the LLC will need to file a Statement of Authority designating whether the LLC is managed by its members or a manager. Entities with whom the LLC does business will rely on this document for determining who is authorized to execute documents on behalf of the LLC.
Wisconsin LLCs Need to Make an Election
Existing LLCs may opt out of the new law. If they don’t, the new law will automatically apply. Members of Wisconsin LLCs should understand how the new law affects their LLC and determine how they want to proceed. If a current LLC decides to opt out of the new law, that election must be filed with the Wisconsin Department of Financial Institutions on or before December 31, 2022.
On January 1, 2023, significant changes to Wisconsin’s law regarding LLCs will go into effect. Existing LLCs should consult their attorney and determine whether to opt out of the new law. Opting out requires filing a statement of non-applicability with the Wisconsin Department of Financial Institutions before December 31, 2022.