How Wisconsin’s New Business Entity Law affects LLCs
On April 15, 2022, Wisconsin enacted a new business entity law (2021 Wisconsin Act 258). Among other changes, the law restates Chapter 183 governing limited liability companies (LLCs) based on the Revised Uniform Limited Liability Company Act (RULLCA) already adopted by many other states. Below is more information about the law’s effective date and key changes for Wisconsin LLCs.
Fiduciary Duties: Under the old law, LLC members and managers were able to agree that they could waive fiduciary duties owed to each other including the Duty of Loyalty, the Duty of Care, and the imposed contractual obligations of Good Faith and Fair Dealing required under Wisconsin law. Such permissible waivers reflected the LLC statute drafters’ goal of respecting the “entity of contract” nature of LLCs, permitting a highly flexible and entity structure. The new law, on the other hand, now attempts to impede these waivers ostensibly to protect the interests of minority interest holders and avoid potential member and manager disputes. However, it remains to be seen how effective these efforts to restrict waivers will be in practice. The new law explicitly states that written Operating Agreements may prescribe the standards and methods for determining the extent of said duties and the steps necessary to waive or disclaim them. Moreover, given that the new law will honor any provision in an Operating Agreement effective under the old law so long as the provision was enforceable under the old law, it appears that LLCs who have already waived some or all fiduciary duties of members and managers under the old law will not be required to conform to the new law’s fiduciary duty provisions.
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