Legal Considerations in Getting Ready for Wisconsin's 2023 New LLC Law
Wisconsin’s new Limited Liability Company (LLC) law, which completely replaces Chapter 183 of the Wisconsin Statutes, goes into effect January 1, 2023 (“New LLC Law”).
Existing LLC member owners have options prior to the New LLC Law’s effective date.
Before 2023, LLC owners can opt in or opt out New LLC Law by filing a Statement of Applicability (opt in) or a Statement of Non-Applicability (opt out) with the Wisconsin Department of Financial Institutions (DFI). If no action is taken by the end of 2022, the LLC will be governed by the New LLC Law as of January 1, 2023.
In deciding whether opting in, opting out or doing nothing is the right choice, the following considerations are relevant.
1. Do you not have an Operating Agreement for your LLC? Consider opting out.
If your LLC has been functioning without a written Operating Agreement, it may make sense to opt out of the New LLC Law or immediately take steps to put a written Operating Agreement into place. The business lawyers at Murphy Desmond can provide advice on this depending on the specific circumstances of your business. A written Operating Agreement is almost always preferred.
2. Do you have an Operating Agreement that you follow, and you want to keep it as is? Consider opting out.
Owners who do not want their business governed by the New LLC Law can opt out through the DFI. The LLC can always opt in later to the New LLC Law, but the ability to opt out ends on December 31, 2022.
If opting out, the LLC’s operations and written Operating Agreement will continue to be governed by the old law, even after the new law takes effect. However, amendments or restatements of an existing Operating Agreement after January 1, 2023, should be discussed with your counsel to ensure the best course is taken for your business.
3. Do you have an Operating Agreement in place, but you need to review it to ensure certain protections and prevent liability from other members under the new law? Consider opting out.
Because the New LLC Law is somewhat more restrictive as to what you can and cannot do via a written Operating Agreement, you may want to restate or amend your current written Operating Agreement to address those restrictions. If this cannot be accomplished before the end of 2022, it may make sense to opt out of the New LLC Law.
4. Do you have concerns about fiduciary responsibilities and roles among members? Consider opting out.
The New LLC Law contains updates to the duties of care, loyalty, good faith, and fair dealing among and between members, and limits the ability to change these duties via a written Operating Agreement. If your LLC limits fiduciary duties -- or you are interested in this -- you should consider opting out and discussing options with counsel.
5. Are you a single member LLC, with or without an Operating Agreement? Consider opting in or doing nothing.
The change in the law will have less practical effect on Single Member LLCs, as there are no issues related to liability among members. If you do nothing, the New LLC Law will automatically apply as of January 1, 2023. It is still a best practice to put in place a written Operating agreement, even for Single Member LLCs.
Published November 18, 2022