Who are LLC Members, Governors, and Managers?

Composition of Members and Governors

You have decided to form your company as a limited liability company. In Minnesota you do that under Minnesota Statutes section 322C.0201: one or more organizers sign and file articles of organization with the secretary of state. Minn. Stat. § 322C.0201, subd. 1 (available at https://www.revisor.mn.gov/statutes/cite/322C.0201). The next question is how the members, governors, and managers of an LLC interact and fill their respective roles.

One framing point matters before you go further. Because Chapter 322C now governs every Minnesota LLC, the document that displaces the statutory defaults is your operating agreement, not your articles of organization. Under the 2018 transition, a former Chapter 322B company’s articles, bylaws, operating agreement, and member control agreement are folded into a single Chapter 322C operating agreement (available at https://www.sos.mn.gov/business-liens/business-help/2018-llc-law-change-info/).

Members

Members of an LLC are similar to shareholders of a corporation.

A Minnesota LLC is “an entity distinct from its members.” Minn. Stat. § 322C.0104, subd. 1 (available at https://www.revisor.mn.gov/statutes/cite/322C.0104). What you hold as a member is a “transferable interest,” which “is personal property.” Minn. Stat. § 322C.0501 (available at https://www.revisor.mn.gov/statutes/cite/322C.0501).

By default, distributions made before dissolution must be in equal shares among the members and dissociated members, a per-capita rule, unless your operating agreement provides otherwise. Minn. Stat. § 322C.0404, subd. 1 (available at https://www.revisor.mn.gov/statutes/cite/322C.0404). This is a real change from the older law. Under repealed Chapter 322B the default was contribution-proportional; under Chapter 322C that contribution-proportional rule survives only as a transition default for LLCs formed before August 1, 2015. Minn. Stat. § 322C.1204, subd. 3 (available at https://www.revisor.mn.gov/statutes/cite/322C.1204). If you want distributions to track ownership percentage or capital contributions, your operating agreement has to say so; the statutory default will not do it for you.

Under current law a member’s interest is not divided into “financial rights” and “governance rights.” That terminology came from repealed Chapter 322B. Chapter 322C instead recognizes a “transferable interest,” meaning the right to receive distributions from the company. Minn. Stat. § 322C.0102, subd. 28 (available at https://www.revisor.mn.gov/statutes/cite/322C.0102).

Your transferable interest is freely transferable: a transfer is permissible and “does not by itself cause a member’s dissociation or a dissolution and winding up of the limited liability company’s activities.” Minn. Stat. § 322C.0502, subd. 1 (available at https://www.revisor.mn.gov/statutes/cite/322C.0502). But transferring it conveys only the right to distributions. The transfer “does not entitle the transferee to . . . participate in the management or conduct of the company’s activities.” Minn. Stat. § 322C.0502, subd. 1 (available at https://www.revisor.mn.gov/statutes/cite/322C.0502). Your management, voting, and information rights stay with you unless the transferee is admitted as a member. To acquire member status, the default rule is that a person becomes a member only “with the consent of all the members,” absent a contrary operating-agreement provision. Minn. Stat. § 322C.0401, subd. 4(3) (available at https://www.revisor.mn.gov/statutes/cite/322C.0401).

You are not required to manage the LLC yourself. It may be member-managed (the default), manager-managed, or board-managed, so you can delegate management to managers or to a board of governors. Minn. Stat. § 322C.0407 (available at https://www.revisor.mn.gov/statutes/cite/322C.0407). Even so, the consent of all members is required for certain fundamental actions: disposing of all or substantially all of the LLC’s property outside the ordinary course of business, amending the operating agreement, and approving a merger, conversion, or domestication. Minn. Stat. § 322C.0407, subds. 2-4 (available at https://www.revisor.mn.gov/statutes/cite/322C.0407). The consent of all the members is also an event that dissolves the company. Minn. Stat. § 322C.0701 (available at https://www.revisor.mn.gov/statutes/cite/322C.0701).

Governors

Board management is an opt-in structure: a Minnesota LLC is member-managed by default unless your operating agreement expressly provides that the company is “manager-managed” or “board-managed.” Minn. Stat. § 322C.0407, subd. 1 (available at https://www.revisor.mn.gov/statutes/cite/322C.0407). Your LLC has governors only if it is board-managed; the term “governor” means a member of the board of a board-managed company. Minn. Stat. § 322C.0102 (available at https://www.revisor.mn.gov/statutes/cite/322C.0102). (The governor-managed framework of former Minn. Stat. § 322B.606 was repealed effective January 1, 2018.)

In a board-managed LLC, the activities and affairs of the company “are to be managed by and under the direction of a board of governors, which shall consist of one or more governors as determined by members holding a majority of the voting power of the members.” Minn. Stat. § 322C.0407, subd. 4(1) (available at https://www.revisor.mn.gov/statutes/cite/322C.0407). So there must be at least one governor, and there may be more, but management is vested in the board collectively, not in a single governor.

The members determine the number of governors and the method of election, and governors are elected by a plurality of the voting power. There is no statutory annual term and no required yearly reappointment. A governor “holds office for the term for which the governor was elected and until a successor is elected, or until the earlier death, resignation, disqualification, or removal of the governor,” and may be removed at any time, without cause, by a majority of the members’ voting power. Minn. Stat. § 322C.0407, subd. 4 (available at https://www.revisor.mn.gov/statutes/cite/322C.0407).

Managers

If your LLC is manager-managed, the managers run its day-to-day activities. Chapter 322C imposes no mandatory officer positions: there is no required “chief manager” or “treasurer.” What offices your company has, if any, is a matter for your operating agreement, not a statutory command. Minn. Stat. § 322C.0407 (available at https://www.revisor.mn.gov/statutes/cite/322C.0407).

In a manager-managed or board-managed LLC, the duty of care of a manager or governor is, subject to the business judgment rule, “to act with the care that a person in a like position would reasonably exercise under similar circumstances and in a manner the [person] reasonably believes to be in the best interests of the company.” Minn. Stat. § 322C.0409, subds. 3, 7, 8 (available at https://www.revisor.mn.gov/statutes/cite/322C.0409). A manager or governor must also discharge his or her duties consistently with the contractual obligation of good faith and fair dealing. Minn. Stat. § 322C.0409, subd. 4 (available at https://www.revisor.mn.gov/statutes/cite/322C.0409).

Learn more about the three management structures available under Minnesota’s LLC Act: Minnesota’s distinctions between a member-managed, manager-managed, and board-managed LLC.