CLIENT ALERT: Wisconsin's New LLC Law, Part 2

06 Jun

CLIENT ALERT: Wisconsin’s New LLC Law, Part 2

By: Attorney James A. Spella, Schloemer Law Firm, S.C.

Following a decade of work by Wisconsin business attorneys, Wisconsin has recently taken steps to modernize its business laws by adopting the Revised Uniform Limited Liability Company (LLC) Act and the Revised Uniform Limited Partnership (LP) Act, with modifications.

This blog will address LLC Formation and the elimination of ‘apparent authority’ of members and managers.

This blog is a follow up to an earlier blog on this same topic. Our previous blog addressed the impact on Operating Agreements. To read more about the changes and how they relate to LLC Operating Agreements, check out our previous blog: CLIENT ALERT: Wisconsin’s New LLC Law – Part 1.

NEW WISCONSIN BUSINESS LAWS: EFFECTIVE DATE

On April 15, 2022, Wisconsin enacted ‘2021 WISCONSIN ACT 258’. This Act made significant revisions to Wisconsin business statutes, including a complete amendment and restatement of Chapter179 – the Uniform Limited Partnership Law, and Chapter 183 – the Uniform Limited Liability Company Law. The new Chapters become effective on January 1, 2023, for LLCs and LLPs formed on or after January 1, 2023. Existing LLCs can opt in or opt out by filing with the DFI prior to that date.

ORGANIZING A WISCONSIN LLC: ARTICLES OF ORGANIZATION

Prior to the Act, an LLC was formed by a filing with DFI providing basic information: name of the LLC; name and address of the registered agent and office; whether the LLC is member managed or manager managed; the name and address of the organizer; and, if applicable, the delayed effective date of organization. No additional information could be added.

Under the Act, additional information is allowed to be added to the LLC Articles of Organization:

If management of the LLC is vested in one or more managers, a statement to that effect – note, this was required prior to the Act, but will now be permissive.
The purpose for which the LLC is organized.
Provisions managing the business and regulating the affairs of the LLC.
Provisions defining, limiting, and regulating the powers of the LLC, its managers, and members.
Provisions setting a par value for transferable interests or classes or series of transferable interests.

Comments as to Organization

The ability to include additional provisions in the Articles of Organization suggests that the organizer or members have come to an agreement as to these additional provisions. As allowed, the additional provisions would include matters customarily included in an Operating Agreement.
Many times, the understandings of the members have not been agreed to at the time of organization. This permissibility could provide an organizer/member to impose certain provisions on other post organization members, perhaps preempting discussion.
These additional permissible provisions are ‘public’, and therefore their inclusion in the Articles of Organization should be carefully considered.
Since the Act does require the designation of a ‘member managed’ or ‘manager managed’ LLC, this is a permissible provision which should be considered.
Prior to the Act, the organization of the LLC could be viewed as perfunctory. Under the Act, and depending on the intent of the organizer, the permissible provisions may provide the organizer leverage in the development of the Operating Agreement.

AUTHORITY OF MEMBERS & MANAGERS TO ACT ON BEHALF OF AN LLC

Another area where Wisconsin LLC law saw important changes is in the provisions relating to the authority of members to act on behalf of the LLC.

Prior to the Act, each member in a member managed LLC, and each manager in a manager managed LLC, has the ‘apparent’ authority to bind the LLC in carrying out its business affairs. Third parties could rely upon this ‘apparent authority’.

Under the Act, a member does not have apparent authority to bind the LLC. The Act allows an LLC to file a Statement of Authority with DFI identifying the name of the LLC, street address of its registered office, and the name an email address of it registered agent. The Statement of Authority may state:

With respect to a position in the LLC, the authority, or limitations on the authority of all persons holding the position to do any of the following:

Sign an instrument transferring real property held in the name of the LLC.
Enter into other transactions on behalf of, or otherwise act for or bind, the LLC.

The authority, or limitations on the authority, of a specific person to do any of the following:

Sign an instrument transferring real property held in the name of the company.
Enter into other transactions on behalf of, or otherwise act for or bind, the company.

Comments as to Authority

If the LLC is a ‘manager managed’ LLC, the Articles of Organization (or an amendment thereto) should include the authority granted the manager as set forth in the Operating Agreement. This should provide third parties comfort in dealing with the manager, though many third parties for significant matters may still want a certified LLC resolution.
Even a single member LLC may want to file the Statement of Authority since knowledgeable third parties will know that the Act eliminates ‘apparent authority’.
The importance of an Operating Agreement (even for a single member LLC), the provisions in the Articles of Organization, and confirmed by the Statement of Authority become requisite documents requiring careful consideration, and in doing so, avoidance of conflicting provisions.
LLCs may wish to consider inserting into the Articles of Organization prior Act wording stating affirming the ‘apparent authority’ of members and managers.

Next Steps

If you are interested in reviewing your LLCs governing documents or would like to establish an LLC, call our office at 262-334-3471 to schedule an appointment with one of our Business Law Attorneys.

Originally published: June 6, 2022