Wisconsin has adopted the most recent version of the Revised Uniform Limited Liability Company Act which will become effective January 1, 2023 (the “New Law”). The New Law will apply to all Wisconsin limited liability companies unless an existing LLC decides to opt out of the New Law prior to the December 31, 2022 deadline. This is an important decision for all LLCs to consider. The New Law could impose some major changes to the structure and governance of your LLC depending on your operating agreement. Companies that decide to opt out of the New Law may always opt in at a later date. Here are three important changes to consider when deciding whether opt in or opt out:
- Access to Information: The New Law grants members of an LLC greater rights and access to the company’s information. While the prior law limited information accessible by members only to information that had an effect on the members and could be further limited by the company’s operating agreement, the New Law specifically eliminates both restrictions and the operating agreement may no longer unreasonably restrict a member’s access to company information as long as the information is material to such member’s duties with the company.
- Fiduciary Duties of Managers and Members: The New Law provides that certain fiduciary duties, including (i) the duty of loyalty, (ii) the duty of care, and (iii) obligations of good faith and fair dealing, now expressly apply to managers and members of an LLC. These duties may be limited by an operating agreement but may not be completely waived. One important repercussion to be aware of is the restrictions the New Law places on actions of managers and members as it relates to potential competing activities with the LLC’s business. Assuming all members/managers are aware of such relationship, it is good practice to carve these activities out in the operating agreement as to not run afoul of the New Law.
- Mergers: Lastly, the default rule under the New Law requires that all members of an LLC approve of a merger; however, this default rule can be modified pursuant to the operating agreement.
The foregoing only outlines a few of the major changes to Wisconsin’s limited liability company law. We strongly encourage members, managers, and officers to discuss the New Law with their partners, review their operating agreement, and reach out to us at Rose & deJong with any questions. If you do not already have an operating agreement in place, now may be an ideal time to create one. Each company will be affected by the New Law differently, and it is important to have legal counsel review and advise on the best course of action for your company.