Llc Subsidiaries: Wisconsin Law And Your Business

As of January 1, 2023, Wisconsin has a new Uniform Limited Liability Company Law (the New LLC Law) that applies to all Wisconsin LLCs unless they opt out before December 31, 2022. The New LLC Law modifies how LLCs are governed in the state, including changes to how an LLC is merged or dissolved. While I cannot provide a definitive answer as to whether an LLC under Wisconsin law can have a subsidiary, the new law does allow for customization, meaning that LLCs can make changes with less paperwork. Additionally, the new law has made it easier for persons to become LLC members without acquiring a transferable interest in the LLC or making a monetary contribution.

The Wisconsin Uniform Limited Liability Company Law

One of the key changes under the New LLC Law is the expansion of members' access to information. Members now have greater rights to access company information and can make reasonable requests for information regarding the company's affairs, activities, financial condition, and other circumstances. The new law also precludes the operating agreement from unreasonably restricting members' access to information.

Another significant change is the modification of how members are treated in relation to the LLC. Under the new law, members are no longer considered agents of the LLC solely by reason of their membership, and their broad grant of authority to bind the LLC has been eliminated. LLCs now have the option to file a Statement of Authority with the Wisconsin Department of Financial Institutions (WDFI), specifying which persons have the authority to act on behalf of the LLC and any restrictions on that authority. This statement is publicly accessible and serves as notice to third parties, protecting the LLC from liability for claims of apparent authority.

The New LLC Law also introduces changes to how an LLC can be merged, dissolved, or wound up. Additionally, it allows for the presence of both economic and non-economic members in an LLC. Under the new law, persons can become LLC members without acquiring a transferable interest in the LLC or making a monetary contribution, which is particularly relevant for the use of LLCs as non-profit charitable organisations.

Furthermore, the New LLC Law mirrors corporate derivative action law, imposing more restrictions and requirements on members who wish to bring direct actions against each other for injuries to the LLC. This is a notable difference from the previous law, where members of LLCs had broader rights to sue each other directly.

Changes to the process of merging or dissolving an LLC

On April 2022, Wisconsin adopted the Wisconsin Uniform Limited Liability Company Law (the “New LLC Law"), which came into effect on January 1, 2023. While all Wisconsin LLCs created after this date are subject to the New LLC Law, pre-existing LLCs have the option to either be governed by the new law or opt out and continue to operate under the Old LLC Law. The New LLC Law introduces changes to how LLCs are merged or dissolved.

The specific changes to the process of merging or dissolving an LLC under the New LLC Law are not explicitly stated. However, here are some general steps and considerations for merging or dissolving an LLC in Wisconsin:

• Voting: The process of dissolving an LLC typically involves a vote among the members. The type of vote required varies by state and may include unanimous member approval, majority vote, or majority interest vote. In Wisconsin, the State LLC Act allows members to dissolve an LLC by providing the written consent of all LLC members.
• Notice: When dissolving an LLC, it is essential to give advance notice to all members.
• Meeting and Resolution: Before initiating the dissolution process, a meeting should be held with all LLC members to record a resolution to dissolve the LLC.
• Annual Reports and Fees: Ensure that all necessary annual reports are filed with the Wisconsin Department of Financial Institutions and that all required fees are paid. Failure to comply with these requirements may result in administrative dissolution.
• Articles of Dissolution: LLCs must submit Form 510 – Articles of Dissolution to the Department of Financial Institutions. This document should include specific information, such as the LLC name, the filing date of the articles of organization, the reason for dissolution, and the effective date of the dissolution.
• Operating Agreement: Review the operating agreement, if one exists, to identify any additional requirements or provisions related to the dissolution process.
• Tax Clearance: Some states require tax clearance from the state's taxing authority before officially dissolving an LLC.
• Statement of Authority: Under the New LLC Law, LLCs can file a Statement of Authority (or a Statement of Denial of Authority) to publicly identify who has the authority to act on behalf of the LLC.
• Economic and Non-Economic Members: The New LLC Law allows LLCs to have both economic and non-economic members. Persons can become LLC members without acquiring a transferable interest in the LLC or making a monetary contribution.

The ability to file a Statement of Authority

Wisconsin's New Limited Liability Company Law, which came into effect on January 1, 2023, allows LLCs to file a Statement of Authority. This statement publicly identifies the authority of a member or employee of an LLC to act on behalf of the company. It is a two-page document filed with the Secretary of State, currently with a $50 filing fee, that alerts third parties of the members or employees with the authority to bind the company in its business dealings with them.

The Statement of Authority is particularly useful in instances where a person or entity is a member of an LLC but has not been expressly granted authority by the LLC. In such cases, the member or employee may still have "apparent authority" to act on behalf of the LLC, such as by signing contracts that bind the LLC to certain obligations. The Statement of Authority helps to clarify and publicly declare who has the authority to make decisions and carry out plans, thereby creating clear guidelines for responsibility within the business.

While filing a Statement of Authority is not mandatory, it is highly recommended, especially for LLCs with potentially "rogue" members or those who frequently use agents who do not possess official titles but often enter into contracts with third parties. By filing a Statement of Authority, LLCs can help prevent any unauthorized obligations from being imposed on the company by third parties.

The ability to have economic and non-economic members

Wisconsin's New Limited Liability Company Law (or the "New LLC Law") came into effect on January 1, 2023, replacing the previous LLC law. The new legislation introduces significant changes to how LLCs are governed in the state, including the ability for LLCs to have both economic and non-economic members.

Under the New LLC Law, persons can become LLC members without acquiring a transferable interest in the LLC or making a monetary contribution. This change is particularly advantageous for non-profit charitable organisations, allowing them to operate similarly to non-stock corporations. The Act 258, which is part of the new legislation, provides clarity on the authority of LLC members. LLCs can now file a Statement of Authority (or a Statement of Denial of Authority) with the Wisconsin Department of Financial Institutions (DFI) to publicly identify who has the authority to act on their behalf. This statement can be accessed by third parties to verify a member's authority to act for the LLC.

The previous LLC law, or the "Old LLC Law," allowed members to inspect and copy relevant LLC documents upon request. However, it permitted access to be restricted by the operating agreement. In contrast, the New LLC Law expands members' access to information. Members are now entitled to request materials beyond those directly impacting their rights and duties, and the operating agreement cannot unreasonably restrict such access.

Another notable difference between the Old LLC Law and the New LLC Law is the treatment of members' authority. Under the Old LLC Law, an LLC could be either member-managed or manager-managed, with managers acting as agents of the LLC. In a member-managed LLC, each member was considered an agent with the power to bind the LLC, subject to certain exceptions. However, the New LLC Law does not automatically grant members the authority to act on behalf of the LLC solely based on their membership. Instead, the LLC must file a statement of authority with the DFI, specifying the positions or individuals authorised to act for the LLC.

The New LLC Law also introduces changes to the duties and obligations of members and managers. In a member-managed LLC, a member now has a fiduciary duty of loyalty and care, along with an obligation of good faith and fair dealing. On the other hand, in a manager-managed LLC, while members are not bound by a duty of loyalty or care, they still have the same obligation of good faith and fair dealing as in a member-managed LLC. Managers in a manager-managed LLC have more extensive duties, including a duty of loyalty, care, and an obligation of good faith and fair dealing. The new legislation also provides mechanisms for authorising and ratifying activities that might otherwise violate a member's duties.

Changes to the rights of members to bring actions against each other

In April 2022, Wisconsin adopted the Wisconsin Uniform Limited Liability Company Law (the "New LLC Law"), which came into effect on January 1, 2023. The New LLC Law modifies how LLCs are governed in the state and gives pre-existing LLCs the option to either be governed by the New LLC Law or to opt out and continue operating under the Old LLC Law.

The Old LLC Law permitted LLC members to bring a direct action in court in their individual name against other members, even if the LLC was the injured party. This was based on a decision of the Wisconsin Supreme Court, which held that the injury to the member and the LLC were one and the same since the income of the LLC was passed directly to the members for tax purposes. However, the New LLC Law supersedes this decision and imposes more restrictions and requirements on members who wish to sue for injuries to the LLC.

Now, members may only bring a direct action in their name if they can plead and prove a direct injury to them that is separate from any injury to the LLC. If the injury is suffered by the LLC, a member must bring a derivative action on behalf of the LLC instead of in their own name. The new statutes outline the procedure for filing a derivative action.

The New LLC Law also expands members' access to information. A member is entitled to request materials beyond those that directly impact their rights and duties, and the operating agreement cannot unreasonably restrict such access.

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