Earlier this year, the Wisconsin Legislature passed Act 258, which will bring updates to Wisconsin’s LLC Law. These changes are set to take effect on January 1, 2023. At a high level, the major updates include the following:

  1. An operating agreement, like it or not. Under the old LLC Law, if a Wisconsin LLC did not have an operating agreement (the governing document for an LLC), then the law set defaults that would dictate the governance of the LLC. Under the new law, it is assumed there is an operating agreement. If there is no written operating agreement, the operating agreement will be inferred based on oral agreements and/or the conduct of the members of the LLC.
  2. Managermanaged or member-managed? Under the old LLC Law, an LLC needed to specify in its Articles of Organization (legal formation document for LLCs) whether it was governed by the members or by an appointed manager (or managers) of the LLC. Under the new law, the management format does not need to be specified in the Articles, and it can instead be stated in the operating agreement.
  3. Fiduciary duties. Without going into too many details, members and managers of an LLC owe certain duties to the LLC, such as not operating the LLC carelessly and not using the authority within the LLC to self-enrich to the detriment of the LLC. The new law spells out these duties in more detail and places stricter requirements as to how those duties can be limited in the operating agreement.
  4. Are you in or out? For existing LLCs, the new law provides the option to either continue to be governed by the old law, or to transition over to being governed by the new law. If an existing LLC wants to be governed by the old law, they need to file a document to effectively “opt out” of the new law. Otherwise, if an LLC files similarly to explicitly “opt in” to the new law or does nothing, at least until after January 1, 2023, the new law will govern.

For those out there reading, you might be wondering, “What does this have to do with me?” If you are a member or a manager of an LLC, or if you are thinking about forming an LLC, I think there are a few takeaways:

  1. If you do not have a written operating agreement, think about creating one. The transition from old to new LLC law will not be nearly as impactful if you already have a written operating agreement in place. It is also better than the alternatives to a written operating agreement. Alternative #1  is to “opt out” and be governed by the old law defaults, which may not work well to the particular ways your LLC runs. Alternative #2 is to have an operating agreement under the new law based on conversations and conduct of the members. This is okay when things are going well and everyone interprets those conversations and conduct the same way, but when differing interpretations eventually emerge, it becomes a nightmare.
  2. If you have a written operating agreement, review what is in it. The operating agreement you have in force might have fit your situation when it was drafted, but does it still work? For example:
    1. Have you transitioned from member-managed to manager-managed or vice versa?
    1. Have new members or managers joined the LLC such that the rules in the operating agreement no longer help the LLC get things done effectively?
    1. Are the members or managers also employees/contractors/owners in the same/related industries to the LLC? If so, are the rules in the operating agreement clear about what the members can or cannot do without violating fiduciary duties?
  3. If this blog post has you asking questions, give us a call! Our attorneys would be happy to meet with you on discuss how to move forward with your LLC.

Thanks for reading!