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New Limited Liability Company (LLC) Law

New Limited Liability Company (LLC) Law

WI Act 258 was passed into law on April 15, 2022 and takes effect on January 1, 2023. Below is a summary of the impactful provisions of the new law and the call to action.

Highlights

Subchapter 1, General Provisions: This section provides that an LLC operating agreement no longer must be in writing – it may now be an oral or implied agreement. Certain provisions to be present must be in writing. This provides certain flexibility for business owners, specifically, those who own a single-member LLC; however, in most cases it might be best to have a written agreement to avoid future conflict.

Subchapter 2, Formation; Articles of Organization; Other Filings: This section simplifies the formation process by changing the rules around the articles of organization. With the biggest change removing the requirement to specify the form of management, whether it be member-managed or manager-managed, which will be defined below. The default is member-managed unless the operating agreement indicates in writing otherwise.

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Subchapter 3, Member, Managers, and Third Parties: This section eliminates the idea that members are agents of the LLC solely because they are members. Instead, the LLC may file a statement of authority with the Wisconsin Department of Financial Institutions (DFI) identifying either the position or specific person with authority. These statements remain in effect for five years or until revoked or amended. Here is a link to the form:

https://wdfi.org/resources/indexed/site/corporations/dfi-corp-601.pdf

Additional Considerations

Member-managed LLC: The management and conduct of the company are vested in the members. Each member has rights in the management of the company’s activities and affairs proportioned to their ownership interest. Majority vote is required to resolve certain matters, while consent of all members would be required for others.

Manager-managed LLC: Any matter relating to the activities and affairs of the company are decided exclusively by the manager(s). if multiple, they would have equal rights and require majority vote. Unanimous consent of all members is still required for certain events.

The tax implications, specifically self-employment income, can vary significantly given the choice between the two options noted above.

Call to Action

All new LLCs formed after January 1, 2023 are required to be governed by the new law.

Existing LLCs have a few options to consider:

If no action is taken, all existing LLCs will be governed by the new law effective January 1, 2023.

Conclusion

As a business owner, you should consider talking with your accountant or attorney before year-end to determine the best course of action for you and your business. Lastly, please keep in mind that WI DFI has gone electronic and renewal notices are being sent electronically via email.

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