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Be Careful What You Wish For: The “Power” To Dissociate Under Minnesota’s Revised LLC Act

June 11, 2018
Attorney at Law Magazine - Minnesota Edition
Author: Janel M. Dressen

Minnesota’s Revised Uniformed Limited Liability Company Act (the Revised Act), which applies to all Minnesota limited liability companies (LLCs) as of Jan. 1, 2018, introduces a new legal concept applicable to Minnesota LLC’s referred to as “dissociation.” While an undefined term, it essentially means the right to legally break up as business owners. After all, people can legally break up with their spouses by filing for a divorce, why can’t business owners legally break up? Now they can.

Dissociation runs both ways – a member can break up with the company and the company and its members, in many desired circumstances, can break up with a member. Either way, the consequences to the dissociated member can be harsh under the Revised Act default rules, and therefore need to be understood by members of Minnesota LLCs.

The Revised Act now details: (1) a member’s power to dissociate; (2) wrongful dissociation by a member; (3) events causing a member to be dissociated; and (4) the effects of a member’s dissociation. Minn. Stat. § 322C.0601-0603. These new statutory provisions are default provisions that can be altered, restricted, replaced or expanded by the terms of an operating agreement. See Minn. Stat. § 322C.0110, subds. 2 and 3. Thus, parties can agree upon break up rules if they so choose. If they do not agree upon break up rules, then the default provisions of the Revised Act control.

A Member Initiates the Break Up

Like at an-will employee, a member of an LLC has the power to “dissociate” at any time, for any reason, rightfully or wrongfully, from the LLC. Minn. Stat. § 322C.0601, subd. 1. To dissociate, a member need only provide notice to the LLC of its express will to withdraw from the LLC. Minn. Stat. § 322C.0602(1).

Circumstances by Which the Company May Break Up With a Member

The Revised Act broadly describes 14 ways in which the LLC can “dissociate” with a member of the LLC in Minn. Stat. § 322C.0602:

1. A member provides notice to the company of its express will to withdraw.

2. An event stated in the operating agreement as causing the person’s dissociation occurs.

3. The person is expelled as a member pursuant to the operating agreement.

4. The person is expelled as a member by the unanimous consent of the other members and other conditions detailed in the statute are met (including that it is not reasonably practicable to continue to be business partners).

5. The person is expelled as a member by judicial order for reasons detailed in the statute.

6. Certain conditions involving death, disability and/or appointment of a guardian or conservator.

7. In a member-managed LLC, certain conditions involving the member’s bankruptcy, assignment for the benefit of creditors, and related events.

8. In the case of a person that is a trust or is acting as a member by virtue of being a trustee of a trust, the trust’s entire transferable interest in the company is distributed.

9. In the case of a person that is an estate or is acting as a member by virtue of being a personal representative of an estate, the estate’s entire transferable interest in the company is distributed.

10. In the case of a member that is not an individual, partnership, LLC, corporation, trust, or estate, the termination of the member.

11. Certain conditions involving a merger.

12. Certain conditions involving conversion.

13. Certain conditions involving participation in a domestication.

14. The company terminates.

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