Part one of our series introduced the New Act that has a direct impact on all LLCs in Minnesota.
While derivative claims are a large part of this New Act, that’s
not all that will change beginning August 1. Dissenter’s rights
are uniquely affected by the law and can be a good thing or a bad thing
for your company, depending on how it is handled.
You can increase the control and predictability you have over disputes
in your business if you apply the following information. Why take any
chances with legal troubles?
Dissenter’s Rights under the New Act
Second, the New Act eliminates the dissenter’s rights granted to
all members under ch. 322B (subject to elimination in a Member Control
Agreement). Dissenter’s rights allowed a disgruntled member to dissent
from and obtain payment for the “fair value” of his membership
interest. Under ch. 322B, these rights were triggered if the governing
body authorized certain events, including non-exclusively, eliminating
a preferential right of a membership interest or to contribute, changing
a member’s rights to resign or retire, and changing the conditions
or consequences for expulsion, affecting a member’s ability or rights
to vote or eliminating a right to payment on a buyout. If a member asserts
her dissenter’s rights promptly through proper procedure, she can
compel the LLC to make an estimate of the defined fair value of the member’s
interest, how the value was calculated and must offer to pay the determined
amount. If an inevitable disagreement arose, the disgruntled member can
ask a court for help. Courts’ value determinations are highly unpredictable
and some say on average 30% higher.
Since Minnesota arguably has always had a judicial system that bends towards
protecting the “little guy,” when that is combined with the
power granted under ch. 322B (borrowed from the ch. 302A corporation statute)
to do what the court believes is equitable, the results can be highly
unpredictable. The New Act permits the members to define and restrict
the classic topics that have historically generated ownership disputes
in Minnesota. Ch. 322C allows members to define their “reasonable
expectations,” the standards of conduct they are subject to and
the duties they owe one another. For example, the duty of loyalty can
be adapted to an LLC’s needs by defining and customizing what constitutes
a conflict of interest. Similarly, the duty of care can be refined by
defining fiduciary duties and obligations of good faith and fair dealing.
Rather than being subject to the luck of the judicial draw and what can
seem like unfettered discretion of the trial court when litigating owner
dispute claims, the New Act limits the discretion by setting out the importance
and binding nature of contractual agreements. This creates a judicial
deferral to the parties’ controlling instructions in written agreements.
Once again, this enables a higher predictability and control if litigation
ensues as long as the agreements were properly adopted by the LLC and
are not “manifestly unreasonable.”
At MKT Law, we want to ensure that your LLC is grounded on stability and
security, even under the New Act. To find out how we can help you and
your company,
schedule your confidential consultation with our Minneapolis and St. Paul business law attorney today!