Changes to Wisconsin LLC Law in 2023 Have Lasting Impacts

Sarah Haas

News,
Legal Updates

Wisconsin updated its laws related to limited liability companies and other entities effective on January 1, 2023. The new Wisconsin Uniform Limited Liability Company Law (the “New LLC Law”) incorporated major changes to LLC law and now automatically applies to any LLC (a) formed after January 1, 2023 and (b) any LLC formed on or by December 31, 2022, that did not opt out of the New LLC Law by submitting the required filing to the Wisconsin Department of Financial Institutions.   

The following business owners are most affected by the changes to the New LLC Law: 

  • Owners of multi-member LLCs that do not have an operating agreement.
    Previously, multi-member LLCs that did not create an operating agreement were subject to default rules set forth in the current LLC law. The New LLC Law allows a court reviewing an LLC-related dispute to construct an operating agreement based on oral, written, or implied understandings about the function of the LLC before looking to the default rules set forth in the New LLC Law. This will make disputes among members even more time-consuming and expensive. 
  • Owners of multi-member LLCs that have outdated or template operating agreements
    If you last looked at your operating agreement 10 years ago, haven’t updated your operating agreement to reflect how your business actually operates, or used a template operating agreement that isn’t customized to your business, it’s time to invest in an updated operating agreement.  
  • Owners of LLCs that may be unable to pay debts
    The New LLC Law includes a provision whereby a creditor can seek relief from a court via a charging order to effectuate the collection of a distribution. This means that a creditor with a judgment against an LLC can obtain a lien on a member's transferable interest, requiring the LLC to pay the creditor any distribution that would be paid to the member. See Wis. Stat. 183.0503. The court may, upon a showing that distributions will not pay the debt in a reasonable time, foreclose the lien and order the sale of the transferable interest. This is of particular note for single-member LLCs whereby foreclosure would result in the sale of the member's interest to a third party who would then become the sole member of the LLC. 

What should you do? It depends, but we’ve created flat fees to update operating agreements, draft new, customized operating agreements (starting at $3,000 for owners who are not married), and talk with you about how best to protect yourself as a single-member or multi-member LLC. If you’re interested in tackling any of the above, email us or set up a call to discuss. 

Sarah K. Haas

Sarah Associate Attorney

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