14 Sep Wisconsin’s Act 258 Frequently Asked Question
Authored by: Attorney Joseph W. Boucher, Assisted by: Law Clerks Patrick O’Malley and Julijana Englander
Earlier this year, Wisconsin passed a new law, Act 258, which updated every business entity statute. In particular, the chapter governing limited liability companies (“LLCs”) underwent significant changes. Below are some frequently asked questions that we have received regarding what those new changes entail.
Question: When does Act 258 go into effect?
Answer: Act 258 goes into effect on January 1, 2023. All LLCs formed in Wisconsin on or after that date will be governed by the new law.
Question: Does my existing LLC need to take any action to become governed by Act 258?
Answer: No. Existing LLCs will automatically become governed by Act 258 on January 1, 2023.
Question: What if my existing LLC would like to remain governed by the prior LLC law?
Answer: Existing LLCs can file a Statement of Nonapplicability with the Wisconsin Department of Financial Institutions (“DFI”) by December 31, 2022, to remain governed by the prior LLC law (but will still be subject to particular provisions of Act 258 for processes like filings). This form can be found on the DFI’s website here.
Question: How likely will it be that my existing LLC will want to be governed by the prior LLC law?
Answer: It will be very unlikely that an LLC will choose to remain governed by the prior LLC law, but there are rare cases. Please consult legal counsel to discuss what is best for your LLC.
Question: What requirements have changed in order to file Articles of Organization and form a new LLC?
Answer: To file Articles of Organization, an e-mail address is now required for an LLC’s Registered Agent as service and notices may be sent electronically. The LLC’s form of management (whether manager-managed or member-managed) on the other hand, is now optional and can be added to the LLC’s operating agreement.
Question: When existing LLCs become governed by Act 258, will they need a written operating agreement?
Answer: No, Act 258 does not require them. Particular provisions must be in writing to be enforceable, but a single unified document is no longer necessary. For best practices on this subject, consult with legal counsel.
Question: What does a person or entity need to contribute in order to become a member of an LLC?
Answer: Member contributions are defined broadly and need not be economic. In this way, LLCs may now be used as 501(c)(3) vehicles.
Question: Do managers and members of LLCs owe each other fiduciary duties?
Answer: Possibly. By default, in manager-managed LLCs, only managers owe fiduciary duties to other managers and members. In member-managed LLCs, all members owe fiduciary duties to each other. These default duties may be altered or eliminated, to an extent, in a written operating agreement.
Question: What is the difference between a conversion and a domestication?
Answer: A conversion is a transaction whereby a domestic LLC may change into another type of domestic entity or into a foreign entity, as well as enabling another type of domestic entity or foreign entity to change into a domestic LLC. A domestication is a transaction whereby a domestic LLC may be simultaneously governed by Wisconsin Statutes Chapter 183 and by the law applicable to a non-United States entity (whether or not it is the same type of entity under its non-United States governing law), provided the entity meets the definition of an LLC under Wisconsin Statutes Chapter 183.
This article was written to help answer a handful of the questions we have received concerning Act 258’s updates. How these changes, and others not covered in this article, will impact you or your LLC is highly fact dependent. Readers are encouraged to reach out to legal counsel to determine the applicability of these issues to their LLC’s needs. If you have questions, would like your LLC’s governing documents reviewed and/or updated, or if you would like to schedule a consultation with a business attorney, please reach out to Neider & Boucher. We have highly qualified legal professionals who would be pleased to work with you. Please call us at (608) 661-4500.