Minnesota LLC Operating Agreements

Minnesota LLC Operating Agreements

Minnesota LLC Operating Agreements

Minnesota LLC Operating Agreements – Defined

M.S. § 322C.0102, Subd. 17 defines the term Minnesota LLC Operating Agreements 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.

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

  • internal governance,
  • Management issues, and
  • the respective rights and responsibilities of members,

are properly addressed in Minnesota LLC Operating Agreements.

Minnesota LLC Operating Agreements – Legal Effect

M.S. § 322C.0110, Subd. 1 identifies the legal effect of Minnesota LLC 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.

Minnesota LLC Operating Agreements – Default Rules

M.S. § 322C.0110, Subd. 2 identifies the default rules which are not otherwise addressed in Minnesota LLC Operating Agreements, by providing as follows:

Subd. 2.   Default rules supplementing operating agreement.

To the extent the operating agreement does not otherwise provide for a matter described in subdivision 1, this chapter governs the matter.

Since the adoption of a Minnesota LLC Operating Agreement is the only way in which a single member Minnesota Limited Liability Company can change the default rules under which it will be governed, it is not unusual for a single member Minnesota Limited Liability Company to have an Operating Agreement.

Minnesota LLC Operating Agreements – Restrictions

M.S. § 322C.0110, Subd. 3 identifies certain restrictions placed on Minnesota LLC Operating Agreements, by providing as follows:

Subd. 3.  Restrictions.

An operating agreement may not:

(1)     vary a limited liability company’s capacity under section 322C.0105 to sue and be sued in its own name;

(2)     vary the law applicable under section 322C.0106;

(3)     vary the power of the court under section 322C.0204;

(4)     subject to subdivisions 4 to 7, eliminate the duty of loyalty, the duty of care, or any other fiduciary duty;

(5)     subject to subdivisions 4 to 7, eliminate the contractual obligation of good faith and fair dealing under section 322C.0409, subdivision 4;

(6)     unreasonably restrict the duties and rights stated in section 322C.0410;

(7)     vary the power of a court to decree dissolution in the circumstances specified in section 322C.0701, subdivision 1, clauses (4) and (5);

(8)     vary the requirement to wind up a limited liability company’s business as specified in section 322C.0702, subdivisions 1 and 2, clause (1);

(9)     unreasonably restrict the right of a member to maintain an action under sections 322C.0901 to 322C.0906;

(10)    restrict the right to approve a merger, conversion, or domestication under section 322C.1015 to a member that will have personal liability with respect to a surviving, converted, or domesticated organization; or

(11)    except as otherwise provided in section 322C.0112, subdivision 2, restrict the rights under this chapter of a person other than a member, manager, or governor.

Minnesota LLC Operating Agreements – Permitted Provisions

M.S. § 322C.0110, Subd. 4 identifies certain permitted provisions which may be inserted into Minnesota LLC Operating Agreements, by providing as follows:

Subd. 4.   Provisions particularly but not exclusively authorized.

If not manifestly unreasonable,

and without limiting the terms that may be included in an operating agreement, the operating agreement may:

(1)     restrict or eliminate the duty:

(i)      as required in section 322C.0409, subdivisions 2, clause (1), 7, and 8, to account to the limited liability company and to hold as trustee for it any property, profit, or benefit derived by the member in the conduct or winding up of the company’s business, from a use by the member of the company’s property, or from the appropriation of a limited liability company opportunity;

(ii)      as required in section 322C.0409, subdivisions 2, clause (2), 7, and 8, to refrain from dealing with the company in the conduct or winding up of the company’s business as or on behalf of a party having an interest adverse to the company; and

(iii)     as required by section 322C.0409, subdivisions 2, clause (3), 7, and 8, to refrain from competing with the company in the conduct of the company’s business before the dissolution of the company;

(2)     identify specific types or categories of activities that do not violate the duty of loyalty;

(3)     alter the duty of care, except to authorize intentional misconduct or knowing violation of law;

(4)     alter any other fiduciary duty, including eliminating particular aspects of that duty; and

(5)     prescribe the standards by which to measure the performance of the contractual obligation of good faith and fair dealing under section 322C.0409, subdivision 4.

Minnesota LLC Operating Agreements – Duty of Loyalty

M.S. § 322C.0110, Subd. 5 identifies duty of loyalty issues which may be addressed in Minnesota LLC Operating Agreements, by providing as follows:

Subd. 5.   Duty of loyalty, authorization and ratification of otherwise violative conduct.

The operating agreement may specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty

  • may be authorized or ratified by one or more disinterested and independent persons
  • after full disclosure of all material facts.

Minnesota LLC Operating Agreements – Elimination of Fiduciary Duties

M.S. § 322C.0110, Subd. 6 addresses the elimination of fiduciary duties in Minnesota LLC Operating Agreements with respect to a Minnesota Member-Managed Limited Liability Company, by providing as follows:

Subd. 6.  Eliminating fiduciary duty when responsibility eliminated.

To the extent the operating agreement of a member-managed limited liability company expressly

  • relieves a member of a responsibility that the member would otherwise have under this chapter

and

  • imposes the responsibility on one or more other members,

the operating agreement may, to the benefit of the member that the operating agreement relieves of the responsibility, also eliminate or limit any fiduciary duty that would have pertained to the responsibility.

Minnesota LLC Operating Agreements – Indemnification

M.S. § 322C.0110, Subd. 7 addresses issues of indemnification and exculpation in Minnesota LLC Operating Agreements, by providing as follows:

Subd. 7.   Indemnification and exculpation.

The operating agreement

  • may alter or eliminate the indemnification for a member, manager, or governor provided by section 322C.0408, subdivision 2, and
  • may eliminate or limit a member’s, manager’s, or governor’s liability to the limited liability company and members for money damages,

except for:

(1)     breach of the duty of loyalty;

(2)     a financial benefit received by the member or manager to which the member or manager is not entitled;

(3)     a breach of a duty under section 322C.0406;

(4)     intentional infliction of harm on the company or a member; or

(5)     an intentional violation of criminal law.

Minnesota LLC Operating Agreements – Manner of Determining Manifestly Unreasonable

M.S. § 322C.0110, Subd. 8 identifies the manner in which the terms of Minnesota LLC Operating Agreements are determined to be manifestly unreasonable, by providing as follows:

Subd. 8.   Determining whether term is manifestly unreasonable.

The court shall decide any claim under subdivision 4 that a term of an operating agreement is manifestly unreasonable.

The court:

(1)     shall make its determination as of the time the challenged term became part of the operating agreement and by considering only circumstances existing at that time; and

(2)     may invalidate the term only if, in light of the purposes and activities of the limited liability company, it is readily apparent that:

(i)      the objective of the term is unreasonable; or

(ii)      the term is an unreasonable means to achieve the provision’s objective.

Minnesota LLC Operating Agreements – Enforceable Against the Company

M.S. § 322C.0111, Subd. 1 identifies that Minnesota Limited Liability Companies are subject to the terms of Minnesota LLC Operating Agreements which are adopted by their members, by providing as follows:

Subdivision 1.   Company’s assent not required.

A limited liability company is bound by and may enforce the operating agreement, whether or not the company has itself manifested assent to the operating agreement.

Minnesota LLC Operating Agreements – Enforceable Against its Members

M.S. § 322C.0111, Subd. 2 identifies that new members of Minnesota Limited Liability Companies are subject to the terms of Minnesota LLC Operating Agreements, by providing as follows:

Subd. 2.   Deemed assent by all members.

A person that becomes a member of a limited liability company

is deemed to assent to the operating agreement.

Minnesota LLC Operating Agreements – Preformation Agreements

M.S. § 322C.0111, Subd. 2 identifies that the members of Minnesota Limited Liability Companies may authorizeprior to the filing of Articles of Organization with the office of the Minnesota Secretary of State – the adoption of Minnesota LLC Operating Agreements which will be effective thereafter, by providing as follows:

Subd. 3.   Preformation agreement.

Two or more persons intending to become the initial members of a limited liability company may make an agreement providing that

  • upon the formation of the company
  • the agreement will become the operating agreement.

One person intending to become the initial member of a limited liability company may assent to terms providing that

  • upon the formation of the company
  • the terms will become the operating agreement.

Minnesota LLC Operating Agreements – Approval of Amendments by Third Parties

M.S. § 322C.0112, Subd. 1 identifies that all amendments of Minnesota LLC Operating Agreements may be conditioned upon:

  • the approval thereof by third persons, or
  • the satisfaction of certain conditions precedent,

by providing as follows:

Subdivision 1.  Approval of third party.

An operating agreement may specify that its amendment requires

  • the approval of a person that is not a party to the operating agreement or
  • the satisfaction of a condition.

An amendment is ineffective if its adoption does not

  • include the required approval or
  • satisfy the specified condition.

Minnesota LLC Operating Agreements – Effect on Transferees or Dissociated Members

M.S. § 322C.0112, Subd. 2 identifies that the terms of Minnesota LLC Operating Agreements will be effective against both:

  • transferees of any members’ interests, and
  • any dissociated members,

by providing as follows:

Subd. 2.   Transferees and dissociated members.

The obligations of a limited liability company and its members to a person in the person’s capacity as a transferee or dissociated member are governed by the operating agreement.

Subject only to any court order issued under section 322C.0503, subdivision 2, clause (2), to effectuate a charging order, an amendment to the operating agreement made after a person becomes a transferee or dissociated member is effective with regard to any debt, obligation, or other liability of the limited liability company or its members to the person in the person’s capacity as a transferee or dissociated member.

Minnesota LLC Operating Agreements – Records

M.S. § 322C.0102, Subd. 22 defines the term record in the following manner:

Subd. 22.   Record.

Record” means information

  • that is inscribed on a tangible medium or
  • that is stored in an electronic or other medium and is retrievable in perceivable form.

One example of a record on file with the office the Minnesota Secretary of State would be the Articles of Organization which were filed on behalf of a Minnesota Limited Liability Company.

Minnesota LLC Operating Agreements – Ineffective Records

M.S. § 322C.0112, Subd. 3 identifies when certain provisions of records on file with the Minnesota Secretary of State – which are otherwise effective – will not be effective, by providing as follows:

Subd. 3.   Ineffective provisions.

If a record that

  • has been delivered by a limited liability company to the secretary of state for filing and
  • has become effective under this chapter

contains a provision that would be ineffective under section 322C.0110, subdivision 3, if contained in the operating agreement,

the provision is likewise ineffective in the record.

Minnesota LLC Operating Agreements – Conflicts With a Record

M.S. § 322C.0112, Subd. 4 identifies the prevailing provisions in the event of any conflict between the terms of:

  • Minnesota LLC Operating Agreements, and
  • any record on file with the Minnesota Secretary of State,

by providing as follows:

Subd. 4.   Conflicting provisions.

Subject to subdivision 3,

if a record that has been delivered by a limited liability company to the secretary of state for filing and has become effective under this chapter conflicts with a provision of the operating agreement:

(1)     the operating agreement prevails as to members, dissociated members, transferees, managers, and governors; and

(2)     the record prevails as to other persons to the extent they reasonably rely on the record.

Therefore, M.S. § 322C.0112, Subd. 4(1) identifies that to the extent there is any inconsistency between:

  • the terms of Minnesota LLC Operating Agreements, and
  • the Articles of Organization – or any other record filed with the Secretary of State’s office,

the terms of the Minnesota LLC Operating Agreements will prevail – as between members and the Company.

Conclusion;

Minnesota LLC Operating Agreements

While Minnesota limited liability company “fill in the blank” legal forms can be obtained from a number of different Internet providers – such forms seem to be overpriced for the limited benefits they provide.

If all that Minnesota LLC operating agreements prepared by Internet based “legal firms” do is recite the statutory default rules, what have you received for your money?

Absolutely nothing.

In addition, the legal information provided by Internet based “legal firms”:

  • is often written by attorneys licensed in states other than Minnesota, and
  • may have been taken directly from the Minnesota Secretary of State web site.

There may not be a whole lot of value in such legal information.

Please contact Minnesota Attorney Gary C. Dahle for actual legal assistance with any Minnesota LLC Operating Agreements.

Minnesota LLC Operating Agreements can be produced which are based upon either a partnership governance model, or a corporate governance model.

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

Minnesota LLC Articles of Organization

Minnesota LLC Board Management

Minnesota LLC Contributions

Minnesota LLC Dissociation

Minnesota LLC Dissolution

Minnesota LLC Dissolution Distribution

Minnesota LLC Distribution

Minnesota LLC Governance

Minnesota LLC Members

Minnesota LLC Transferable Interest

Copyright 2017 – All Rights Reserved.

No claim to original government works.

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

Legal Disclaimer

Information provided herein is only for general informational and educational purposes.

The laws relating to Minnesota Limited Liability Companies involve many complex legal issues. If you have a specific legal problem about which you are seeking advice, consult with an attorney of your choice.

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