Dear Friends, I mentioned in my previous Newsletter that I would actually provide some legal advice about Minnesota’s new LLC law. I never planned on so much substance, and I already regret going this direction,but here we go.
Minnesota recently adopted the Revised Uniform Limited Liability Company Act (322C), which applies to all limited liability companies formed on or after August 1, 2015. And, beginning January 1, 2018, the new Act will apply to all limited liability companies regardless of when formed and the old Limited Liability Company Act (322B) will be repealed (that paragraph was all business).
Some of the reasons for the new law, they say (“they” being the overactive, espresso drinking, bow tie wearing busybodies in my profession who find great pleasure in hearing themselves talk – here’s some real advice – skip your weekly visit to the haberdashery and spend some time with some real people), is that our old LLC’s governance model was more like that of a corporation than that of a true partnership, i.e., it had a Board, Managers (officers) and Members (owners), rather than being managed by the partners or members themselves. This, they say, was different than the LLC laws of most of the other states. Okay,whatever (copyright, my son Jordan). Now, by default, a newly formed LLC is managed by the partners or members unless another form of governance is chosen.
Another reason given for the law change is that our old LLC law did not permit the company to sufficiently water down certain aspects of the duty of loyalty, the duty of care, fiduciary duties or the contractual obligation of good faith and fair dealing. The new LLC permits the company to modify some of these duties if the modifications are not “manifestly unreasonable”. What? Who talks like that? Answer-guys in bow ties, over thinking all things unimportant. Is there any wonder why people bash my profession? When is the last time you heard someone say, “Hey son, why don’t you go to law school?”
Anyway, getting back to the substance, the new law therefore was designed to make it more attractive for investors to invest in, form and manage companies under our laws, so we could be more like Delaware, for example. Since when did any real Minnesotan want to be like other states, especially of all places Delaware? They lead the country in sewage plants per capita, I heard. I am upset, almost shaky, but will manage to go on. I certainly hope we become more popular with our new law. That would be fun and we could talk about it with others.
From my perspective, and maybe I am just too Minnesotan, but having more investors form companies under our law so they can limit their obligations of good faith and their fiduciary duties seems to lack character. I take time to explain to my clients who are forming new companies that they need to take care of their investors and minority owners with the highest level of good faith and fair dealing. Maybe I should suggest instead they opt to shirk those virtues and act like they’re from Delaware?
For those of you who formed an LLC under Minnesota law prior to August 1, 2015, you may need to review your organizational documents, or hire an experienced, cost effective attorney. I can suggest someone. Look for a middle aged man or woman with a mustache.
The new law says that by default, (i) each partner will have an equal vote in the management of the company (regardless of your ownership percentage), and (ii) distributions will be equal to each partner (again, regardless of the ownership percentage). However, the new LLC law provides that these provisions do not apply to the old LLC’s and that the voting and distributions for those entities will be made in proportion to the value of the contributions of the members of the company, subject to the operating agreement. Here is the point: if your current arrangement provides that member voting or distributions is based on something other than each member’s contributions (for example membership percentage or some other index), the new law will default you to an arrangement based on your contributions unless you have an agreement that says otherwise, and that may be different than what you expect.
Quote of the Week:
Legend has it that Clint Blaiser, a hip, ageless developer of fine commercial and residential projects in the metro, was heard to say:
“If it wasn’t for Rich Pakonen and me, well ….. What was I saying”?
In addition to the newsletter, you can find out more about Snelling Law Office, LLC at the company website, www.stevesnellinglaw.com. I will post versions of these newsletters to the website, just in case you can’t believe I actually said it in writing.
My nicely decorated office is located in Suite 100 on the first floor of the Stonebridge Professional Building in Lilydale, Minnesota, near the northwest intersection of Highways 13 and 35E.
Long’s Auto Place
My client spotlight for this edition of the Snelling Law Office, LLC Newsletter is Jim Long and his company Long’s Auto Place. Jim has been a long-term client and friend of mine and I have assisted Jim and his company with a number of commercial transactions over the years.
Long’s Auto Place began in May, 1981 as a subsidiary to Long Cadillac. However, Long Cadillac was sold in January, 1991, so Jim changed the name from Long’s Other Place to Long’s Auto Place. Clever. In 2011, Jim expanded the business, purchasing five additional lots next to the dealership, raising the existing building and building a brand new, larger facility.
There are currently three departments at Long’s:
- retail vehicle sales,
- service department, and
- wholesale department.
Long’s Auto Place generates between $5M and $8M in annual sales and employs eleven full-time employees. Jim’s dealership has a long and well-earned reputation of excellent customer service and uncompromised integrity. Long’s Auto Place is an active supporter of the Rice Street community and the City of St. Paul. The company has sponsored the Rice Street Festival, as well as many Rice Street Festival Queen Candidates, St. Paul Winter Carnival Guards, St. Paul Winter Carnival Queen Candidates and St. Paul Winter Carnival Princes of the North Wind. Jim himself served as Prince of the North Wind in 2000, and he has served as both President and Vice President of the North End Business Association. Jim holds a Bachelor of Science Degree in Automotive Management from Ferris State University in Michigan and lives with his lovely wife Connie.
James Long, Owner and President
Long’s Auto Place, Inc.
1566 Rice St.
St. Paul, MN 55117