Wisconsin Senate Bill 566 enacts a new limited liability company (LLC) law and a new limited partnership (LP) law. The new laws are based on the Revised Uniform Limited Liability Company Act and Revised Uniform Limited Partnership Act respectively, with some non-uniform provisions as well.
Applicability of new LLC and LP laws
The new laws will apply to all LLCs and LPs formed on or after January 1, 2023. The new laws will also apply to pre-existing LLCs and LPs on January 1, 2023, except as follows:
- If an LLC or LP files a statement of applicability with the Department of Financial Institutions (DFI) before January 1, 2023, the new law will apply to that LLC or LP on the effective date of the statement of applicability.
- If an LLC or LP files a statement of non-applicability with the DFI before January 1, 2023, the LLC or LP will not be subject to the new law (except for requirements relating to filing or obtaining copies of records with the DFI, receiving or responding to notices from the DFI, and complying with administrative rules promulgated under the new laws) and will remain governed by the law in effect before the changes made by SB 566.
- An LLC or LP that filed a statement of non-applicability can thereafter file a statement of applicability with the DFI and will be governed by the new law as of the effective date of the statement of applicability.
The election to be governed by the new law or to not be governed by the new law that precedes the filing of the statements of applicability or non-applicability must be made by the LLC or LP in a manner allowed by law for amending an operating agreement or partnership agreement. A statement of applicability is irrevocable upon filing.
Limited Liability Company Act: New law vs. old law
Below is a summary of some of the differences between the LLC law as enacted by SB 566 (which will be referred to as the “new law”) and the law in effect before the changes made by SB 566 (which will be referred to as the “old law”).
Articles of Organization – Under the new law, as under the old law, the articles of organization must contain certain required items of information. However, the new law, unlike the old law, also permits the articles of organization to set forth optional provisions. In addition, under the new law, the articles of organization no longer have to set forth whether the LLC will be managed by managers.
Purposes – The new law, unlike the old law, specifically provides that an LLC may be formed for a non-profit purpose.
Operating Agreement – The new law provides that an operating agreement may be oral, in a record, or implied. The old law defines an operating agreement as an agreement in writing. However, under the new law, certain provisions must be set forth in a written operating agreement to be effective, including a provision providing for manager-management and a provision altering the fiduciary duties owed by members or managers.
Non-economic Members – The new law provides that a person may be admitted without acquiring a transferable interest or making or being obligated to make a contribution to the LLC. The old law does not so provide.
Member’s Authority to Bind the LLC – The new law states that a member in a member-managed LLC is not an agent of the LLC solely by reason of being a member. The old law states that a member in a member-managed LLC is an agent of the LLC for the purposes of its business. The new also allows an LLC to file a statement of authority identifying the authority of any position or the authority or restriction on authority of any person to sign instruments or enter into transactions on the LLC’s behalf.
Charging Order Protection – The new law, unlike the old law, distinguishes between the charging order protection provided for single-member LLCs and multi-member LLCs. Under the new law, in the case of a single member LLC, the member’s entire ownership interest may be transferred upon foreclosure on the charging order lien.
Fiduciary Duties – The new law provides that members in member-managed LLCs and managers in manager-managed LLCs owe fiduciary duties of loyalty and care. The new law also defines those duties. The old law does not specify or define the duties of members and managers to the same level of detail.
Mergers, Conversions, Exchanges, and Domestications – The new law authorizes LLCs to enter into mergers, interest exchanges, conversions, and domestications with any other domestic or foreign LLC or other types of legal entity. The old law authorizes mergers and conversions with or into domestic or foreign LLCs, corporations, partnerships, or LPs. In addition, the new law authorizes these transactions with foreign entities if the foreign jurisdiction does not prohibit the transaction. The old law authorizes transactions with foreign entities if the foreign jurisdiction permits the transaction.
Limited Partnership Act: New law vs. old law
Below is a summary of some of the differences between the LP law as enacted by SB 566 (which will be referred to as the “new law”) and the law in effect before the changes made by SB 566 (which will be referred to as the “old law”).
Certificate of Limited Partnership – Under the new law, the certificate of limited partnership no longer has to set forth the latest date upon which the LP will dissolve.
LP Name – Under the new law, an LP’s name may contain the name of a limited partner. Under the old law, it could contain a limited partner’s name only if the limited partner was also a general partner. In addition, an LP’s name must now be distinguishable upon the records of the DFI from the names of other entities. Under the old law, the name cannot be the same as, or deceptively similar to, other names.
Limited Partner’s Liability – The old law provides that a limited partner who participates in the control of the LP can be held personally liable for the LP’s debts, obligations, or other liabilities to a person who reasonably believed that the limited partner was a general partner. The new law does not have a similar provision.
Fiduciary Duties – The new law provides that general partners owe fiduciary duties of loyalty and care. The new law also defines those duties. The old law does not specify or define the duties of general partners to the same level of detail.
Mergers, Conversions, Exchanges, and Domestications – The new LP law, like the new LLC law, authorizes LPs to enter into mergers, interest exchanges, conversions, and domestications with any other domestic or foreign LP or other type of legal entity.
Annual Report – The new law requires domestic and foreign LPs to file an annual report. The old law did not have a similar requirement.
Limited Liability Limited Partnership (LLLP) – The new law allows an LP to form as or become an LLLP by including a statement to that effect in the certificate of limited partnership. In an LLLP, a general partner is not personally liable for a debt, obligation, or other liability of the LLLP solely by reason of being a general partner. The old law did not contain a similar provision.
Conclusion
This article has pointed out just a few of the changes made to the Wisconsin LLC and LP laws by Senate Bill 566. Anyone planning on forming a Wisconsin LLC or LP in 2023 should review the new laws in their entirety.
In addition, anyone with an interest in an existing LLC or LP should review the new laws to (a) determine if they want to be governed by the new law or continue being governed by the old law, and (b) if they want to be governed by the new law to ensure that their LLC or LP is compliant with the new law and to make any changes to governing documents that are necessary or desirable.
SB 566 can be accessed here: 2021 Senate Bill 566.
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