In addition, the Minnesota Revised Uniform Limited Liability Company Act contains default rules that will apply in the absence of an agreement by the member (for example, each member has equal management rights and the right to an equal percentage of nonliquidating distributions made by the Limited Liability Company. Members of Limited Liability Companies need to be familiar with these rules. They often will want a formal written agreement where their intentions differ from the law’s default rules. For these and many other reasons, owners of a Limited Liability Company may need to consult often with their professional advisors, increasing their costs. Under the Treasury Regulations dealing with the federal income tax classification of business entities, the members of a Limited Liability Company have some flexibility in choosing the tax status of their entity. Professional advice in this area is strongly encouraged. As is the case for Minnesota corporations, members of a Limited Liability Company may agree to have the company governed by the default provisions of the governing statute – Minn. Stat. Chapter 322C. In that case, standard form articles of organization may be used to organize the company. The law, however, permits the members of these entities to vary many of the default provisions of Minn. Stat. Chapter 322C through agreements called “operating agreements”. While it is advisable in most instances to reduce an operating agreement to writing, that is not required. Like a partnership agreement, an operating agreement may be oral, in a record (e.g., in written or electronic format), implied by conduct, or in any combination thereof, as long as it is the agreement of all persons who are members when the agreement is entered into. Further information on forming a Limited Liability Company appears in the section of this Guide on Forming a Minnesota Limited Liability Company. Liability of the Business Owners Sole Proprietorship. The sole proprietor is personally liable for the debts of the business, even if those debts exceed the owner’s investment in the business. All of the owner’s assets – both those used in the business and personal property (subject to certain exemptions) – can be attached by creditors and sold to pay business debts. The sole proprietor may be able to minimize certain risks such as property loss, personal injury or product liability by obtaining adequate insurance. Partnership. In a non-LLP general partnership , each partner may be personally liable for up to the full amount of the debts of the business, even if the debts exceed the owners’ investment in the business. The partner with greater personal assets thus risks losing more than a partner with fewer personal assets. As with a sole proprietorship, many business risks can be lessened by obtaining adequate insurance. However, in a Minnesota limited liability partnership, partners are not personally liable for the wrongful acts or omissions in the ordinary course of business of other partners, for the misuse of money or property of a non-partner by another partner, or for the debts or obligations of the partnership, subject to certain exceptions. It is uncertain how this kind of partnership will be treated in other states, although most states have adopted some form of limited liability partnership legislation. In a limited partnership , so long as the statutory formalities are met and the limited partner is not relied upon by others as a general partner, the limited partner generally is not liable for the obligations of the limited partnership. Thus the limited partner risks loss only up to the amount
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