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Upcoming Changes to the Minnesota Business Organization Statutes

July 9, 2018

 We’re going to be seeing numerous revisions to several of the Minnesota business organization statutes. Governor Mark Dayton signed into law amendments to the Minnesota Business Corporation Act, the Minnesota Revised Uniform Limited Liability Company Act, the Uniform Limited Partnership Act 2001, the Uniform Partnership Act (1994), and the Minnesota Nonprofit Corporation Act. A few of the highlights are outlined below.

 

MINNESOTA BUSINESS CORPORATION ACT

 

The Minnesota Business Corporation Act (“MBCA”), codified in chapter 302A of the Minnesota Statutes, was first adopted in Minnesota in 1981. The most recent amendments to the MCBA include several provisions that work to modernize the corporate governance process and otherwise simplify certain types of transactions.

 

Written Actions by Email

It is not at all uncommon for board and shareholder resolutions to be approved via a written action as opposed to an in-person vote. Section 302A.011, Subd. 36 now specifies that a written action includes a record “consented to by authenticated electronic communication” by the persons required to approve the action under the corporation’s governing documents. While the MBCA already recognizes this idea of an “authenticated electronic communication,” this change to the definition of a “written action” clarifies that a written action could be circulated among board members or shareholders via email and the board members or shareholders could validly consent to the action by replying to the email. This change results in a simplified process, thus avoiding the need to send around a written document that must be printed, signed, and faxed or scanned back to the corporation.

 

Domestications

Domestication is the process by which an entity can change the organizational laws under which the entity is governed from one state to another without changing the form of the entity (i.e. moving from a Delaware corporation to a Minnesota corporation). Conversion, on the other hand, is the process by which an entity changes its organizational structure from one entity type to another (i.e. converting from a limited liability company to a corporation). The current provisions of the MBCA contain a single set of statutory provisions for both domestications and conversions set out in Section 302A.682 et seq. The MBCA has now been amended to include a new section 302A.682 Subd. 3, which explicitly states that conversion under the section includes a transfer to a new home state.

 

Exclusive Forum Bylaws

Minnesota corporations may now utilize a new section of the MBCA (Section 302A.191) that allows a Minnesota corporation to require all “internal corporation claims” – meaning those claims that deal with fiduciary duty claims, all derivative claims, and any claim arising under the MBCA or the corporation’s articles or bylaws – be brought exclusively in Minnesota courts and disallows any provision of the articles or bylaws of a Minnesota corporation that prevents a party from initiating litigation in another jurisdiction. This new provision should give corporations more control over where internal claims are litigated.

 

Pre-Authorization for Share Issuance

A corporation’s board of directors may now pre-authorize the issuance of shares in one or more transactions or at the direction of a person who need not be a director under new subsection (b) of Section 302A.401. In order to pre-authorize shares, the board’s resolution must specify the maximum number of shares that can be issued, the time period during which the shares can be issued, and the minimum consideration that must be received in connection with the issuance of shares. This change provides boards and corporations with more flexibility in approving the issuance of shares.

 

These amendments become effective August 1, 2018.

 

MINNESOTA REVISED UNIFORM
LIMITED LIABILITY COMPANY ACT

 

Minnesota recently adopted the Minnesota Revised Uniform Limited Liability Company Act, codified in Minnesota Statutes chapter 322C (“322C”), which became effective on January 1, 2018 for all limited liability companies statewide. Any company who had not elected to adopt 322C prior to the effective date automatically became subject to the new law without any action by the LLC.

 

Along with the numerous changes associated with the adoption of chapter 322C, the newest revision addresses reinstatement of administratively terminated LLCs. Section 322C.0706 provides that if an LLC “is administratively terminated” it may be reinstated according to the process set out in the statute. There was some question as to how this language affected LLCs that were formed under Chapter 322B, which has now been largely repealed, and had been administratively terminated before becoming subject to Chapter 322C. The revision to Section 322C.0706 clarifies that the reinstatement process applies equally to LLCs that were administratively terminated under Chapter 322B and Chapter 322C. This change is retroactive to January 1, 2018.

 

UNIFORM LIMITED PARTNERSHIP ACT 2001

 

Effective January 1, 2019, changes to the Uniform Limited Partnership Act 2001 (the “ULPA”) will reflect a distinction between and updates to the domestication and conversion provisions.

 

The current provisions of the ULPA do not make a distinction between changes in an entity’s form and changes in the selection of governing law. The changes to the ULPA reflect the statutory scheme set out in the Revised Uniform Limited Liability Act, which separates the domestication process from the conversion process. The changes to ULPA also permit a Minnesota limited partnership to domesticate to another jurisdiction as a limited partnership and a foreign limited partnership to domesticate to Minnesota as a limited partnership. The new domestication provisions provide the conditions to domestication, the manner of approval, and required filings to effect a domestication of a limited partnership.

 

The revised provisions of the ULPA provide for conversions of entities to a different entity form, whether domestic or foreign, to and from a Minnesota limited partnership, and reflect the separation of the conversion and domestication processes. The revisions also incorporate restrictions that prohibit conversions involving nonprofit corporations, organizations owning assets irrevocably dedicated to a charitable purpose, and public benefit corporations.

 

UNIFORM PARTNERSHIP ACT (1994)

 

Similar to the updates to the Uniform Limited Partnership Act 2001, amendments to the Uniform Partnership Act (1994) (the “UPA”) will implement domestication and conversion principles. Under current law, the UPA only permits conversions of a partnership to a limited partnership and a limited partnership to a partnership; domestications and other conversions were not permitted. The revisions to the UPA now permit domestication of partnerships and conversions from a partnership to other foreign or domestic organizational forms (i.e. corporations and LLCs). The revisions to the UPA also include provisions limiting conversions involving non-profit corporations, organizations owning assets irrevocably dedicated to a charitable purpose, and public benefit corporations.

 

These revisions become effective January 1, 2019.

 

OTHER UPDATES

 

We also will see changes to certain provisions relating to mergers, which affect the Minnesota Business Corporation Act (a new “fast-track” for two-step mergers is available to corporations to simplify the two-step merger process); the Revised Minnesota Limited Liability Company Act (updates to simplify the merger of a wholly owned LLC subsidiary into a parent Minnesota LLC, or a parent’s merger of two wholly owned subsidiaries into one of the wholly owned subsidiaries); and the Minnesota Nonprofit Corporations Act (clarified provisions related to mergers of subsidiaries).

 

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