On April 15, 2022, Governor Evers signed 2021 Wis. Act 258 into law. This legislation is a repeal and recreation of Chapter 183 of the Wisconsin Statutes regarding Limited Liability Companies (LLCs) and Chapter 179 relating to Limited Partnerships. The legislation also made several changes to Chapters 178, 180, and 181. This post focuses on selected changes within Chapter 183 and how they affect Wisconsin real estate transactions and title insurance considerations

REVELANT STATUTORY CHANGES
Effective: January 1, 2023

The New Law will take effect on January 1, 2023. All LLCs created on or after that date will be subject to the new legislation. LLCs in existence on or before January 1, 2023, have the option to either opt-in or opt-out of the New Law prior to the effective date. Sec. 183.0110 Wis. Stats.

1. Opt-in election – An LLC can elect to opt-in to the New Law prior to the effective date. The LLC would need to amend their operating agreement to opt-in and file a Statement of Applicability with the Department of Financial Institutions (DFI) stating they would be subject to the provisions of the New Law.
2. Opt-out election – Alternatively, the LLC can elect to opt-out of the New Law prior to the effective date and instead continue to be governed by the current version of Chapter 183 (Old Law). The LLC would file a Statement of Nonapplicability. The LLC would have the option to reconsider its decision and opt-in to the New Law at any time before or after the effective date.

If an LLC does not opt-in or opt-out, the New Law will automatically apply to all LLCs on January 1, 2023. However, any provisions of an operating agreement that were valid and in effect immediately prior to the New Law shall continue to be valid and applicable to the extent allowed under the Old Law. Sec. 183.0110(2)(d)2 Wis. Stats.

Management

The management structure has not changed. An LLC will continue to be either member-managed or manager-managed. Under the Old Law the decision of management structure was required to be stated in the articles of organization. That option is still available under the New Law but is not required. Sec. 183.0201 Wis. Stats. Rather, the management designation can be stated in the articles of organization or the operating agreement. If the LLC fails to designate a management structure, the New Law automatically designates the LLC to be member-managed. Sec. 183.0407 Wis. Stats.

Operating Agreement

The New Law provides that an operating agreement can be “oral, in a record, or implied or any combination thereof.” Sec 183.0102(13) Wis. Stats. This is a substantial departure from the Old Law that required the operating agreement to be in written form exclusively. If an LLC desires to have the written operating agreement to be the sole governing document the LLC should adopt into the operating agreement an integration clause, merger clause, or an entire agreement clause stating that intent.

Statement of Authority

The New Law eliminates the concept that a member of an LLC is automatically an agent of the LLC. Sec. 183.0301 Wis. Stats. Under the Old Law any member or manager of an LLC was considered an agent who could contractually bind the LLC under the concepts of actual or apparent authority. Under the New Law only managers are considered agents. Sec. 183.0102(9) Wis. Stats. Members of an LLC are not agents simply because they are a member. Sec. 183.0301 Wis. Stats. This legislative change intends to limit or control the apparent authority power of members. Unless agreed upon in the operating agreement members will not have broad agency authority powers to bind the LLC in contractual agreements.

This change in legislation could cause confusion in the marketplace. How does one know if a person is a member or manager, and to what is the extent is a person’s authority. To provide clarification the New Law adopts a new concept called Statement of Authority. Sec. 183.0302 Wis. Stats. This document is filed with the DFI and is valid for five (5) years. Its purpose is to designate either a position such as a president or treasurer, or a named individual to do any of the following:

1. Sign an instrument transferring real property in the name of the company.
2. Enter into other transactions on behalf of, or otherwise act for or bind the company.

A certified copy of the Statement of Authority can be recorded in the office of the Register of Deeds in the county where the property is located. Sec 183.0302(6) Wis. Stats. Upon recordation it is considered, “conclusive in favor of a person that gives value in reliance on the grant without knowledge to the contrary.” This conclusive evidence is subject to certain limitations under the law such as cancelation or recording restrictions.

TITLE INSURANCE CONSIDERATIONS

When dealing with an LLC in a Wisconsin real estate transaction, the first consideration is to determine whether the LLC is operating under the New Law or the Old Law. If the LLC has elected to opt-out of the New Law, statutory tools such as the Statement of Authority are not available for use. Under the Old Law, the underwriting standards to determine who has the authority to sign would not change. The articles of organization and, if available, the operating agreement would be reviewed to determine who has the authority to sign on behalf of the LLC. In addition, the member(s) would sign an Affidavit of Limited Liability Company Status stating the members have the authority to sign and have been authorized by the LLC to sign. Also, additional documents or resolutions may be needed to determine LLC authority.

If the LLC is operating under the New Law, still obtain a copy of the articles of organization and operating agreement to determine the management structure and authority issues. However, your reliance on these documents is somewhat limited. Unless the LLC adopts an integration clause expressly stating the written operating agreement is the sole agreement governing the management of the LLC, the operating agreement may have been modified by an oral or implied agreement. As discussed, the New Law allows for the operating agreement to be written, oral, or implied, or any combination thereof.

The best course of action is for the title company to require the LLC to file a Statement of Authority with the DFI and then record that document along with the deed and mortgage. The recording provides statutory protections for a good faith purchaser, which provides an added layer of risk protection for our insured property owner.

The DFI has stated the Statement of Authority document will be available for online use by January 1, 2023. It is recommended that as part of your closing procedures involving LLCs a Statement of Authority should be executed and filed with the DFI, and then recorded in the Register of Deeds office in the county where the property is located.

Questions? Contact Tom Cullen, Vice President and Managing Attorney, Wisconsin Operations.