Important Changes To Wisconsin’s Limited Liability Statute

Business
 Claudia DraceIn this article, West & Dunn student associate, Claudia Drace, addresses the new changes to Wisconsin statutes that govern how Wisconsin's Limited Liability Companies are organized and operated.
Do you currently own a Limited Liability Company (“LLC”) in Wisconsin or are you interested in starting one? If yes, you should know that on April 15, 2022, Wisconsin Governor Tony Evers signed the “2021 Wisconsin Act 258” that made important changes to Chapter 183 of the Wisconsin statutes that govern how Wisconsin LLCs are organized and run. With the passage of Act 258, Wisconsin joins 23 other states in modeling their LLC statutes after the Revised Uniform Limited Liability Company Act and the Revised Uniform Limited Partnership Act. Prior to these modifications, Wisconsin’s business laws have undergone minor revisions, but this is the first significant change since the enactment of the original Wisconsin LLC laws in 1994. To prepare for this change, we recommend reviewing and updating all LLC operating agreements to reflect the following changes:

The new law will govern all existing and future LLCs starting January 1, 2023. Pre-existing LLCs may elect to be governed by the new law prior to January 1, 2023, by amending their operating agreement and filing a Statement of Applicability with the Wisconsin Department of Financial Institutions (DFI).[1] Pre-existing LLCs can also opt-out of being governed by the new law and continue to operate under the old law by filing a Statement of Nonapplicability with the DFI on or before December 31, 2022.[2]

Under the old law, an LLC was not required to have an operating agreement. If an LLC did not have an operating agreement, then the provisions of Chapter 183 controlled. If an LLC did have an operating agreement, then the operating agreement had to be in writing. Under the new law, an operating agreement may exist even if the members of an LLC did not intend it. This is because the new law expands the definition of “operating agreement” to include agreements that are verbal, implied, in a record, or in any combination thereof.[3]  Accordingly, it is strongly recommended that all LLCs create a clearly drafted operating agreement defining the rights and obligations of members and the company instead of relying on past acts, verbal communications or implications to create an operating agreement that may or may not carry out the intent of the members.

The new law also more clearly defines the scope of what can and cannot be included in the operating agreement. Many examples hinge on clarifying the duty of loyalty members have to each other such as: (1) specifying what does and does not violate the duty of loyalty; (2) altering or restricting the remedies if a duty of loyalty is breached; (3) specifying what activities violate the obligation of good faith and fair dealing; (4) changing the duty of care members have to each other; and (5) expanding or restricting member fiduciary duties.[4] Some examples of what a written operating agreement cannot do under the new law are: (1) it cannot eliminate or restrict remedies owed for a breach of the duty of good faith and fair dealing; (2) it cannot allow for indemnification of a member where that member knowingly fails to deal fairly in matters in which that member has a material conflict of interest; (3) it cannot allow for indemnification for violations of criminal law; (4) it cannot allow for indemnification for transactions resulting in an improper personal profit to a member; and (5) it cannot allow the company to indemnify a member for engaging in willful misconduct.[5]

Whether you have an operating agreement that predates Act 258 or if you want to create a new LLC, we recommend meeting with an attorney to ensure that your operating agreement is in compliance with these new guidelines. Therefore, if you have questions about these recent, significant changes to the LLC law, how to create or amend your LLC’s articles of organization, how to form a new LLC., or any other legal matter related to business organizations, please feel free to reach out to the legal professionals at West & Dunn online or by telephone at (608) 490-9449.

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