Minnesota LLC Board Management

 Minnesota LLC Board Management

Minnesota LLC Board Management

The Minnesota Revised Uniform Limited Liability Act – Minn. Stat. (M.S.) Chapter 322C – became effective on August 1, 2015, with respect to all newly formed Minnesota limited liability companies.

However, the former body of law – M.S. Chapter 322B – will continue in effect with respect to certain Minnesota limited liability companies formed prior to August 1, 2015, until January 1, 2018, when all Minnesota limited liability companies organized under M.S. Chapter 322B:

  • which have not previously elected to be governed by S. Chapter 322C,
  • will generally be subject to the provisions of S. Chapter 322C.

Minnesota LLC Board Management – Chapter 322B

(i)  Governors or Directors

M.S. § 322B.606 required the appointment of a board of governors, by providing in part as follows:

[t]he business and affairs of a limited liability company is to be managed by or under the direction of a board of governors, . . .

In contrast, under the member-management default structure identified in M.S. Chapter 322C, no governors or directors need be appointed.

(ii)  Managers or Officers

M.S. § 322B.67 required the appointment of company managers or officers, by providing in part as follows:

A limited liability company must have one or more natural persons exercising the functions of the offices, however designated, of

  • chief manager and
  • treasurer.

– which could be held by the same person.

Such default rules recognized that Minnesota limited liability companies governed by M.S. Chapter 322B followed a corporate governance model.

In contrast, M.S. Chapter 322C, authorizes, but does not require, a corporate governance model.

Minnesota LLC Board Management – Chapter 322C

Unlike the limited governance provisions of M.S. Chapter 322B, M.S. § 322C.0407 offers three alternative governance structures for Minnesota limited liability companies:

  • member-management,
  • manager-management, or
  • board-management.

Minnesota LLC Governance – Alternative Structures

M.S. Chapter 322C allows Minnesota limited liability companies to be organized in a manner similar to either:

  • closely held corporations – operating under either a manager-managed structure, or a Minnesota LLC board-managed structure, or
  • partnerships – operating under a member-managed

Minnesota LLC Governance – Operating Agreements

M.S. § 322C.0102, Subd. 17 defines the term Minnesota Limited Liability Company Operating Agreement – in the following manner:

Operating agreement” means the agreement,

  • whether or not referred to as an operating agreement and
  • whether oral, in a record, implied, or in any combination thereof,
  • of all the members of a limited liability company,
  • including a sole member,
  • concerning the matters described in section 322C.0110, subdivision 1.

The term includes the agreement as amended or restated.

M.S. § 322C.0110, Subd. 1 identifies the legal effect of Minnesota Limited Liability Company Operating Agreements, by providing as follows:

Subdivision 1.  Operating agreement.

Except as otherwise provided in subdivisions 2 and 3,

the operating agreement governs:

(1) relations among the members as members and between the members and the limited liability company;

(2) the rights and duties under this chapter of a person in the capacity of manager or governor;

(3)  the activities of the company and the conduct of those activities; and

(4)  the means and conditions for amending the operating agreement.

Therefore, under M.S. Chapter 322C, all matters relating to:

  • internal governance,
  • management, and
  • the respective rights and responsibilities of members,

are subject to the provisions of an Operating Agreement.

Minnesota LLC Governance – Supplemental Principles of Law

M.S. § 322C.0107, identifies that in addition to the terms of an Operating Agreement, other legal principles may govern the activities of Minnesota limited liability companies, by providing as follows:

322C.0107 SUPPLEMENTAL PRINCIPLES OF LAW.

Unless displaced by particular provisions of this chapter,

the principles of law and equity supplement this chapter.

Such principles of law may perhaps be identified in other statutes, judicial decisions, or governmental regulations.

Matters of equity may perhaps be identified primarily in judicial decisions.

Minnesota LLC Board Management – Chapter 322C

M.S. § 322C.0407 Subd. 4 identifies the rules applicable to the management of a Minnesota limited liability company operating under a corporate governance model, by providing in part as follows:

Subd. 4.  Board-managed company rules.

In a board-managed limited liability company, the following rules apply:

Board of Governors

(1)   The activities and affairs of a limited liability company are to be managed by and under the direction of a board of governors,

  • which shall consist of one or more governors
  • as determined by members holding a majority of the voting power of the members.

Except as specifically stated in this subdivision and section 322C.0202, subdivision 5, subject to section 322C.0302:

Board Action

(i)  the board acts only through an act of the board;

No Governor Action

(ii)  no individual governor has any right or power to act for the limited liability company; and

Officer Action

(iii) only officers, managers, or other agents designated

  • by the board or
  • through a process approved by the board

have the right to act for the limited liability company,

and

that right extends only to the extent consistent with the terms of the designation.

Minnesota LLC Board Management – Qualifications of Governors

M.S. § 322C.0407 Subd. 4(2) identifies the qualifications for governors of a Minnesota limited liability company operating under a corporate governance model, by providing in part as follows:

A governor must be a natural person.

A person need not be a member to be a governor,

but the dissociation of a member who is also a governor

disqualifies the person as a governor.

If a person who is both a governor and a member ceases to be a governor,

that cessation does not by itself dissociate the person as a member.

A person’s ceasing to be a governor does not discharge any debt, obligation, or other liability to the limited liability company or members which the person incurred while a governor.

Minnesota LLC Board Management – Election of Governors

M.S. § 322C.0407 Subd. 4(3) identifies the manner in which governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model are to be elected, by providing in part as follows:

The method of election and any additional qualifications for governors will be as determined by members holding a majority of the voting power of the members.

Governors are elected by a plurality of the voting power present and entitled to vote on the election of governors at a duly called or held meeting at which a quorum is present.

Minnesota LLC Board Management – Waiver of Notice of the Meeting for an Election of Governors

M.S. § 322C.0407 Subd. 4(4) addresses issues relating to the waiver of notice of a meeting at which governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model are to be elected, by providing in part as follows:

A member may waive notice of a meeting for the election of governors.

A member’s waiver of notice under this clause is effective

  • whether given before, at, or after the meeting, and
  • whether given in a record, orally, or by attendance.

Attendance by a member at a meeting for election of governors is a waiver of notice of that meeting, except where the member 

  • objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and
  • does not participate in the meeting after the objection.

Minnesota LLC Board Management – Terms of Office For Governors

M.S. § 322C.0407 Subd. 4(5) identifies the terms of office for governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model, by providing in part as follows:

Once elected, a governor holds office for the term for which the governor was elected and 

  • until a successor is elected, or
  • until the earlier death, resignation, disqualification, or removal of the governor.

Minnesota LLC Board Management – Resignation of a Governor

M.S. § 322C.0407 Subd. 4(5) identifies that a governor of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model may resign from office, by providing in part as follows:

A governor may resign at any time.

Minnesota LLC Board Management – Removal of a Governor

M.S. § 322C.0407 Subd. 4(5) identifies that a governor of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model may be removed from office, by providing in part as follows:

A governor may be removed at any time, without cause and without advance notice, by a majority of the voting power of all of the members.

Minnesota LLC Board Management – Vacancies in the Office of a Governor

M.S. § 322C.0407 Subd. 4(5) and (6) identify issues relating to a vacancy in the office of a governor of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model, by providing in part as follows:

The existence of vacancies does not affect the power of the board to function if at least one governor remains in office.

When a vacancy occurs, the limited liability company shall immediately notify all members in a record of the vacancy, stating the cause of the vacancy and the date the notice is sent.

Within 30 days of that date, the members may fill the vacancy in the same method the members may elect governors under clause (3).

If the vacancy is not filled by the members under this clause, the vacancy may be filled by the affirmative vote of a majority of the remaining governors, even though less than a quorum.

Minnesota LLC Board Management – Meetings of Governors

M.S. § 322C.0407 Subd. 4(7) identifies issues related to the meetings of the governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model, by providing in part as follows:

The board shall meet from time to time

  • as determined by members holding a majority of the voting power of the members,
  • at a place decided by the board.

If the day or date, time, and place of a board of governors meeting have been provided in a board resolution, or announced at a previous meeting of the board of governors, no notice is required.

Notice of an adjourned meeting need not be given other than by announcement at the meeting at which adjournment is taken.

If notice is required for a meeting, notice shall be made in the manner stated in clause (8).

Minnesota LLC Board Management – Calling for a Meeting of Governors

M.S. § 322C.0407 Subd. 4(8) identifies the manner in which a meeting of the governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model may be called, by providing in part as follows:

A governor may call a board meeting by giving at least ten days’ notice in a record to all governors of the date, time, and place of the meeting.

The notice need not state the purpose of the meeting.

As to each governor, the notice is effective when given.

(i)  Notice may be:

(A)  mailed to the governor at an address designated by the person or at the last known address of the person;

(B)  deposited with a nationally recognized overnight delivery service for overnight delivery or, if overnight delivery to the governor is not available, for delivery as promptly as practicable to the governor at an address designated by the governor or at the last known address of the governor;

(C)  communicated to the governor orally;

(D)  handed to the governor;

(E) given by facsimile communication, electronic mail, or any other form of electronic communication, if the governor has consented in a record to receive notice by such means; or

(F) by any other means determined by members holding a majority of the voting power of the members.

 (ii) The notice is deemed given if by:

(A)  mail, when deposited in the United States mail with sufficient postage affixed;

(B) deposit for delivery, when deposited for delivery as provided in item (i), subitem (B), with delivery charges prepaid or otherwise provided for by the sender; 

(C)  facsimile communication, when directed to a telephone number at which the governor has consented in a record to receive notice;

(D) electronic mail, when directed to an electronic mail address at which the governor has consented in a record to receive notice; and

(E) any other form of electronic communication by which the governor has consented in a record to receive notice, when directed to the governor.

Minnesota LLC Board Management – Waiver of Notice of a Meeting of Governors

M.S. § 322C.0407 Subd. 4(9) identifies issues relating to the waiver of notice of a meeting of the governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model, by providing in part as follows:

A governor may waive notice of a meeting of the board of governors.

A waiver of notice by a governor entitled to notice is effective whether given before, at, or after the meeting, and whether given in a record, orally, or by attendance.

Attendance by a governor at a meeting is a waiver of notice of that meeting, except where the governor 

  • objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and
  • does not participate in the meeting after the objection.

Minnesota LLC Board Management – Quorum for a Meeting of Governors

M.S. § 322C.0407 Subd. 4(10) identifies a quorum for a meeting of the governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model, by providing in part as follows:

A majority of the governors currently holding office is a quorum for the transaction of business.

Minnesota LLC Board Management – Voting Percentage at a Meeting of Governors

M.S. § 322C.0407 Subd. 4(11) identifies the percentage vote required of the governors for action taken when there is a quorum for a meeting of the governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model, by providing in part as follows:

When a quorum is present at a duly called or held meeting of the board,

the vote of a majority of the directors present constitutes an act of the board.

If a quorum is present when a duly called or held meeting is convened, the governors present may continue to transact business until adjournment, even though the withdrawal of a number of governors originally present leaves less than the proportion or number otherwise required for a quorum.

Minnesota LLC Board Management – Meeting of Governors by Remote Communication

M.S. § 322C.0407 Subd. 4(11) identifies that any meeting of the governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model may be held by remote communication, by providing in part as follows:

Any meeting among governors may be conducted solely by one or more means of remote communication through which all of the governors may participate with each other during the meeting, if the number of governors participating in the meeting would be sufficient to constitute a quorum.

Participation in a meeting by that means constitutes presence in person at the meeting.

M.S. § 322C.0407 Subd. 4(12) identifies that a governor may participate by remote communication in any meeting of the governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model, by providing in part as follows:

A governor may participate in a board of governors meeting by means of remote communication, through which the governor, other governors so participating, and all governors physically present at the meeting may participate with each other during the meeting.

Participation in a meeting by that means constitutes presence in person at the meeting.

Minnesota LLC Board Management – Written Action Taken by Governors

M.S. § 322C.0407 Subd. 4(13) identifies that the governors of a Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model may take written action in lieu of holding an actual meeting of the governors, by providing in part as follows:

An action required or permitted to be taken at a board meeting may be taken by written action signed by the number of governors that would be required to take the same action at a meeting of the board of governors at which all governors were present.

The written action is effective when signed by the required number of governors, unless a different effective time is provided in the written action.

When written action is permitted to be taken by less than all governors,

all governors must be notified immediately of its text and effective date.

Failure to provide the notice does not invalidate the written action.

A governor who does not sign or consent to the written action has no liability for the action or actions taken by the written action.

Minnesota LLC Board Management – Chief Manager or Officer

M.S. § 322C.0407 Subd. 4(14) identifies that any Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model may designate a person to be the chief manager or officer of the Company, by providing in part as follows:

If the board designates a person as “chief manager,” “president,” “chief executive officer,” “CEO,” or another title of similar import, that person shall:

(i)  serve as an agent of the limited liability company at the will of the board, without prejudice to any rights the person may have under a contract with the limited liability company;

(ii)  have general active management of the business of the limited liability company, subject to the supervision and control of the board;

(iii)  see that all orders and resolutions of the board of governors are carried into effect;

(iv) sign and deliver in the name of the limited liability company any deeds, mortgages, bonds, contracts, or other instruments pertaining to the business of the limited liability company, except in cases in which the authority to sign and deliver is required by law to be exercised by another person or is expressly delegated by the board of governors to some other officer or agent of the limited liability company;

(v)  maintain records of and, whenever necessary, certify all proceedings of the board of governors and the members; and

(vi)  perform other duties prescribed by the board of governors.

Minnesota LLC Board Management – Chief Financial Manager or Officer

M.S. § 322C.0407 Subd. 4(15) identifies that any Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model may designate a person to be the chief financial manager or officer of the Company, by providing in part as follows:

If the board designates a person as “treasurer,” “chief financial officer,” “CFO,” or another title of similar import, that person shall:

(i)  serve as an agent of the limited liability company at the will of the board, without prejudice to any rights the person may have under a contract with the limited liability company;

(ii) keep accurate financial records for the limited liability company;

(iii) deposit all money, drafts, and checks in the name of and to the credit of the limited liability company in the banks and depositories designated by the board of governors;

(iv)  endorse for deposit all notes, checks, and drafts received by the limited liability company as ordered by the board of governors, making proper vouchers for them;

(v)  disburse limited liability company funds and issue checks and drafts in the name of the limited liability company, as ordered by the board of governors;

(vi)  give to the chief executive officer and the board of governors, whenever requested, an account of all transactions by the chief financial officer and of the financial condition of the limited liability company; and

(vii)  perform other duties prescribed by the board of governors or by the chief executive officer.

Minnesota LLC Board Management – Member Consent

M.S. § 322C.0407 Subd. 4(16) identifies when member consent is required with respect to any Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model, by providing in part as follows:

The consent of all members is required to:

(i)  sell, lease, exchange, or otherwise dispose of all, or substantially all, of the company’s property, with or without the good will, outside the ordinary course of the company’s activities;

provided that member consent is not required for:

(A)  the grant of a security interest in all or substantially all of the company’s property and assets, whether or not in the usual and regular course of its business; or

(B)  transfer of any or all of the company’s property to an organization all the ownership interests of which are owned directly or indirectly through wholly owned organizations, by the company;

 (ii)  approve a merger, conversion, or domestication under sections 322C.1001 to 322C.1015; and

 (iii)  amend the operating agreement.

Minnesota LLC Board Management – Member Voting Power

M.S. § 322C.0407 Subd. 4(17) addresses issues relating to the voting power of each member with respect to any Minnesota limited liability company operating under a Minnesota LLC Board Management corporate governance model, by providing in part as follows:

Subject to section 322C.1204, subdivision 3, for purposes of this subdivision

  • each member possesses voting power in proportion to the member’s interest in distributions of the limited liability company prior to dissolution and
  • a majority of the voting power of the members is a quorum at a meeting of the members.

Please note that such member voting power provisions are different for member-managed Minnesota limited liability companies, or for Minnesota manager-managed limited liability companies, than they are for Minnesota limited liability companies operating under a Minnesota LLC Board Management corporate governance model.

Conclusion;

Minnesota LLC Board Management

Please contact Minnesota Attorney Gary C. Dahle for legal assistance with respect to any Minnesota LLC Board Management governance issues.

Legal fees will be applicable for services rendered – and advance payment may be required.

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Gary C. Dahle – Attorney at Law

2704 County Road 10, Mounds View, MN 55112

Phone: 763-780-8390  Fax: 763-780-1735

Gary@dahlelaw.com

Minnesota Secretary of State

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