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Bench & Bar Of Minnesota (February 2018)


Twenty-five years ago, when an MSBA task force drafted Minnesota’s first limited liability company(LLC) statute, the drafters copied chapter 302A, the corporate statute, to the maximum extent possible. Labels were changed—e.g., member instead of shareholder; board of governors instead of board of directors— and substance was modified to the extent necessary to comply with the then-applicable tax classification regulations. But otherwise, the task was an exercise in replication.

The approach was far out of the mainstream. Almost everywhere else LLC statutes were being derived from partnership law. The task force’s rationale for going rogue was straightforward. At the time, most business lawyers—even the most experienced ones—had no grasp of the law of general and limited partnerships. Using the corporate model eliminated a huge and widespread learning curve. As an added benefit, case law arising from the corporate statute would inform the law of Minnesota LLCs (and perhaps eventually, vice versa).

It seemed like a good idea at the time. It was a good idea at the time. But eventually the state bar committee on LLCs decided that it was time to return to the herd. Again, the rationale was straightforward. Minnesota’s almost unique approach meant that any LLC deal involving participants outside Minnesota would likely have to use the very abstruse Delaware statute.

Accordingly, the new Minnesota LLC statute, Chapter 322C, follows the partnership paradigm and is derived from the Uniform Limited Liability Company Act (2006) (Last Amended 2013). This change in approach has many consequences. The rest of this brief article illustrates the consequences of Minnesota LLCs having left the pod that was 302A-322B.