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Wisconsin Enacts New Limited Liability Company Laws

 Posted on December 16, 2022 in Uncategorized

Wisconsin recently enacted new laws for LLCs, which will take effect January 1, 2023. The updated laws are intended to modernize Wisconsin’s business entity laws, harmonizing them with each other and making Wisconsin a more attractive place to do business. Businesses and holding companies operating as Wisconsin LLCs should pay very close attention to these changes, a few of which we highlight below.

Category Prior Law New Law
Articles of Organization Must contain a fixed set of information, no more, no less. Information may contain is broadened.
Additional information may be included.
Notably, an LLC is no longer required to list its management type (member-managed or manager managed); however, they may still include management if you choose.
Operating Agreement Operating agreements are not required, but if they exist, they must be in writing. An operating agreement is required but it may be written or oral and express or implied.
Fiduciary Duties Members and managers could agree to waive fiduciary duties owed to each other, including the Duty of Loyalty, the Duty of Care, and the imposed contractual obligations of Good Faith and Fair Dealing required under Wisconsin law. These duties are mandated to protect the interests of minority interest holders and avoid potential member and manager disputes, but will allow for a written operating agreement to contract around those duties to a certain extent.
Authority of Members There were issues of "apparent authority." Eliminates the concept of "apparent authority" and makes clear that a member is not an agent of an LLC solely because of being a member.
An LLC may file a "Statement of Authority" identifying the authority of any position with the LLC.
Distributions & Voting   Modifies the existing rule with respect to LLCs treated as partnerships for tax purposes stating that the value of members’ relative contributions will be measured by using partnership capital accounts (as maintained for tax purposes, not book or other accounting purposes), rather than the initial contribution reflected in the company’s records, because a capital account will be the most recent and accurate measure.
The new law retains the provisions of current law that, absent a written operating agreement providing otherwise, the voting power of membership interests is allocated proportionally on the basis of the value of the contributions made by each member. This, too, will be measured with reference to partnership capital accounts (as maintained for tax purposes, not book or other accounting purposes) if the LLC is a partnership for tax purposes.
Charging Order A creditor of an LLC member (as opposed to the LLC itself) cannot generally foreclose on the LLC membership interest of that member. Instead, the creditor may obtain a "charging order lien" on the economics (e.g., rights to distributions and allocation of profits and losses) associated with that membership interest. Includes provisions related to the foreclosure of "charging-order liens" and distinguishes between multi-member LLCs and single-member LLCs.
There is now a possibility for a transfer of the entire membership interest of a sole member upon the foreclosure of a charging-order lien, not just a "transferrable interest," as well as the dissociation of the person whose interest was the subject of the foreclosure.
Dissolution of Entities DFI could dissolve an LLC one year after it failed to file an annual report. Added several additional reasons justifying the DFI to dissolve an LLC, including failure to pay fees or penalties and the lack of a registered LLC agent.

The new law provides for an "opt-in" or "opt-out" decision.

  • Any LLC interested in having the new laws apply sooner can file a Statement of Applicability with the Wisconsin Department of Financial Institutions (WDFI) before January 1, 2023.
  • An existing LLC may also take no action and, as a result, on January 1, 2023, the LLC will be governed by the new law by operation of law.
  • If an LLC is interested in staying under the current Chapter 183, it will have to opt-out of the new law by filing a Statement of Nonapplicability with the WDFI by December 31, 2022.

LLCs that opt out of the new law may later "opt in" by filing a Statement of Applicability at any time. Additionally, it is important to note that all LLCs organized in Wisconsin on or after January 1, 2023, will be governed by the new law automatically.If you would like assistance in determining what path is right for you or have any additional questions regarding these material chances to the Wisconsin’s LLC Laws, please contact Mallery s.c.

SB 566 can be accessed here:2021 Senate Bill 566

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