On April 15th, 2022, Wisconsin Governor Tony Evers signed the 2021 Wisconsin Act 258 into law, which will bring forth changes to Wisconsin’s LLC laws. The new Wisconsin Uniform Limited Liability Company Law (WULLCL) is set to take effect on January 1, 2023. The new WULLCL will apply to all existing Wisconsin LLCs and all new Wisconsin LLCs created after January 1, 2023. However, all LLCs that exist prior to January 1, 2023, are given the option to “opt out” of the changes and continue to be governed by the previous LLC laws. To opt out, an LLC must file a Statement of Nonapplicability with the Wisconsin Department of Financial Institutions (WDFI) no later than December 31, 2022. If an LLC chooses to opt out, it can opt back in to the new WULLCL at any time by filing a Statement of Applicability with the WDFI.
Important changes implemented by the enactment of the new WULLCL include, without limitation, the following:
- Members and managers of an LLC can no longer agree to waive their fiduciary duties of loyalty and care to each other. However, under the WULLCL, the fiduciary duties can be defined in the Operating Agreement of the LLC, in order to specifically describe what the fiduciary duties entail.
- A member is no longer an agent of an LLC solely by reason of being a member. The authority or limitations of specific positions, persons, and members of the LLC may be outlined by filing a Statement of Authority with the WDFI, or otherwise set forth in the Operating Agreement.
- For LLCs taxed as partnerships, distributions will be based on the value of the members’ relative contributions as measured by the partnership capital accounts for that fiscal year in which the distributions are made, rather than based on the initial contributions made by the members as reflected in the Company’s records unless otherwise set forth in the Operating Agreement.
- Members of an LLC may now be “non-economic members”, which includes persons who became members without acquiring a transferable interest or without making or being obligated to make a contribution.
- Creditors may seek court ordered sales of a member’s membership interest in single member LLCs, which would allow the creditor to obtain the full and entire right, title, and membership interest of the member against which judgment was awarded (“Judgment Member”), without having to obtain the consent of the Judgment Member. The Judgment Member would then be dissociated from the LLC and the creditor would own the LLC.
The members and managers of existing LLCs should review their operating agreements and determine how these new changes will affect their business. Based on this review, the members and managers of the LLC must determine whether to proceed and be governed by the new laws, or whether opting out would be better for their business.
Any single member and multi-member LLCs that wish to opt out of the new WULLCL must do so with the WDFI no later than December 31, 2022. If an LLC does not opt out by such date, it will automatically be deemed to have opted in and will be subject to the new WULLCL.
Please note that the new WULLCL will apply to any LLC(s) that you own, and therefore the decision as to whether you should opt out should be addressed for each entity.
To determine whether opting out of the WULLCL before December 31, 2022, is best for your LLC(s), or if you have any questions about the WULLCL, we strongly advise that you contact legal counsel to discuss how to move forward with your LLC(s).
