Wisconsin’s New Limited Liability Company Statutes: Operating Agreements and Member Authority
Robert P. Hameister | 10.18.22
This third article in Boardman Clark’s Wisconsin Uniform Limited Liability Company Law Series highlights certain changes to Subchapters I and III of Chapter 183 (the Wisconsin Uniform Limited Liability Company Law, which in this article will be referred to as the “New Law”) that will be of interest to those doing business in Wisconsin. For our earlier articles, please see here and here.
This article is an overview of the changes to Subchapters I and III and does not substitute reading the New Law in its entirety.
On April 15, 2022, Tony Evers signed Senate Bill 566/Act 258 into law (the “Act”), repealing and recreating Chapter 183 the Wisconsin Uniform Limited Liability Company Law, which governs limited liability companies (“LLCs”). Among the Act’s various provisions, it generally adopts the Revised Uniform Limited Liability Company Act, subject to certain intentional differences. All statutory references are to Wisconsin Chapter 183, unless otherwise noted.
One of the largest departures from current Wisconsin practice contained in the New Law are the provisions regarding an LLC’s operating agreement. The term “operating agreement” no longer necessarily means a written agreement. The New Law defines the operating agreement as the agreement between the members or sole member, “whether or not referred to as an operating agreement and whether oral, implied, in a record, or in any combination thereof.” Moreover, the New Law creates the concept of a “written operating agreement” in Section 183.0102(26). In addition, a member does not necessarily need to sign an operating agreement to be bound by its terms. Under Section 183.0106(2) a person is considered to agree to the operating agreement simply by becoming a member. Taken together, this means that an operating agreement does not need to be one integrated document, signed, or reduced to writing at all.
Of note, under the New Law, there are some things a written operating agreement may do that cannot be done by an operating agreement that is oral or implied. For instance, a written operating agreement may: alter or eliminate aspects of or restrict remedies respecting the duty of loyalty in Section 183.0409(2) and (9); identify specific categories or activities that do not violate the duty of loyalty or the obligation of good faith and fair dealing; and alter the duty of care. However, even a written operating agreement cannot authorize the behaviors prohibited under Section 183.0405(3)(g) or alter or eliminate any other fiduciary duty.
Because of these changes under the New Law to the prior understanding of an operating agreement, members and managers of any Wisconsin LLC are encouraged to review their operating agreements and discuss the impacts of the New Law with their legal advisor.
The New Law rejects the concept of apparent authority for members and instead provides that an LLC may file a statement of authority with the Wisconsin Department of Financial Institutions (the “Department”). The statement of authority can either grant or restrict authority with respect to a position, such as a member or manager of the LLC or a specific person, and specify specific authority, for example, to transfer real estate or otherwise bind the LLC. However, a person who is named in a filed statement of authority may file a statement of denial to that authority with the Department.
A statement of authority is effective for five years (unless revoked) and may be renewed for additional five-year terms. Generally speaking, these statements of authority will provide reasonable assurance to third parties purchasing real estate or otherwise contracting with an LLC about who has authority to sign contracts for the LLC.
If you have any questions on the Act or the items discussed in this article, please contact your usual Boardman Clark attorney or any member of our business practice group.
DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.