Minnesota Gives an LLC Three Management Forms, and You Elect One in the Operating Agreement — Not the Articles

Ask most people what kinds of LLCs there are and you’ll hear two: member-managed or manager-managed. Minnesota has a third. Minn. Stat. § 322C.0407 provides for member-managed, manager-managed, and board-managed limited liability companies, and the third one — a board of governors, with elections, quorums, notice rules, written actions, and statutorily described officer roles — is a corporation’s governance machinery dropped into an LLC.

You can tell from the vocabulary. Section 322C.0407, subdivision 4, doesn’t talk about members or managers deciding things. It talks about a board of governors acting only through an act of the board, officers designated by that board, and quorums, vacancies, and written action in lieu of a meeting. Those are corporate concepts, and the statute spends more words installing them than it spends on the other two forms combined.

Here’s the part that costs people money, and it’s why I wrote this piece. You pick among the three in the operating agreement. Section 322C.0407, subdivision 1, says a company is member-managed “unless the operating agreement” expressly provides otherwise. The articles of organization don’t come up. And under Minn. Stat. § 322C.0201, subdivision 2, the articles don’t even have to state a management form. So the LLC whose articles announce “manager-managed” and whose operating agreement says nothing is, as among its members, member-managed. Every member has equal management rights, and any act outside the ordinary course requires unanimity. I’ve seen that mismatch more than once, and nobody ever finds it at a convenient time.

How a company ends up in one of the three forms

Subdivision 1 sets a default and gives you one way out of it:

Except as provided in section 322C.1101, subdivision 5, with respect to nonprofit limited liability companies, a limited liability company is a member-managed limited liability company unless the operating agreement:

(1) expressly provides that:

(i) the company is or will be “manager-managed” or “board-managed”;

(ii) the company is or will be “managed by managers” or “managed by a board”; or

(iii) management of the company is or will be “vested in managers” or “vested in a board”; or

(2) includes words of similar import.

Here’s what that text tells you.

Member-managed is the fallback, not a choice. A company that never adopted an operating agreement, or adopted one that’s silent on management, is member-managed by operation of statute. Nobody picked it.

The way out is the operating agreement. Not the articles. Not a resolution. Not the Secretary of State’s website. The statute names one document.

The statute hands you the magic words, and there’s a safety valve. Clause (1) lists the exact formulations that work. Clause (2), “words of similar import,” saves a document that says the same thing in different words. That’s a real safety valve, but it’s one you have to litigate. The listed language costs nothing and takes the question off the table. That’s why I use it verbatim, every time.

Look at the cross-reference up top: nonprofit LLCs under Minn. Stat. § 322C.1101, subdivision 5, are carved out of the default. If you’re forming a nonprofit LLC, read that provision before you assume subdivision 1 governs.

What changes between the three forms?

These differences aren’t cosmetic. They reach who decides, who votes, who owes fiduciary duties, and how hard it is to change anything.

Member-managed — § 322C.0407, subd. 2

Five rules, and these are the ones that surprise co-owners:

1. “The management and conduct of the company are vested in the members.”
2. “Each member has equal rights in the management and conduct of the company’s activities.”
3. A difference “as to a matter in the ordinary course” may be decided “by a majority of the members.”
4. “An act outside the ordinary course of the activities of the company may be undertaken only with the consent of all members.”
5. “The operating agreement may be amended only with the consent of all members.”

Read clause (2) carefully: equal rights, not proportional rights. Under the default, a member holding two percent gets the same management vote as a member holding eighty. Clause (3) then settles ordinary-course disputes by “a majority of the members” — a headcount. Capital doesn’t weigh in. Owners who assume their percentages control management are describing a company they didn’t form.

Clauses (4) and (5) are where a member-managed company locks up. Anything outside the ordinary course, and any amendment to the operating agreement, takes unanimity. One holdout — including one whose interest is small, or who has stopped showing up, or who is in the middle of a fight with everyone else — can block a sale, a restructuring, or the fix to the very provision causing the problem. That’s the engine behind most Minnesota LLC deadlocks, and it runs at any ownership split, not just fifty-fifty.

Manager-managed — § 322C.0407, subd. 3

Authority consolidates. “Except as otherwise expressly provided in this chapter, any matter relating to the activities of the company is decided exclusively by the managers.” Each manager has equal rights, and ordinary-course differences among managers go by majority of the managers.

Members don’t disappear, but their role shrinks to a reserved list. Subdivision 3(4) requires the consent of all members to: dispose of all or substantially all of the company’s property outside the ordinary course; approve a merger, conversion, or domestication under §§ 322C.1001 to 322C.1015; undertake any other act outside the ordinary course; and amend the operating agreement.

Choosing and removing managers is majority rule, and it’s blunt. Under subdivision 3(5), “[a] manager may be chosen at any time by the consent of a majority of the members,” and “[a] manager may be removed at any time by the consent of a majority of the members without notice or cause.” A manager doesn’t have to be a member. But under subdivision 3(6), dissociation of a member who’s also a manager removes him as manager, while ceasing to be a manager doesn’t by itself dissociate him as a member. Subdivision 3(7) preserves liabilities incurred while serving.

Board-managed — § 322C.0407, subd. 4

This is the least familiar of the three — seventeen clauses covering board composition, election, vacancies, meetings, notice, quorum, remote participation, written action, and officers.

The core split is in subdivision 4(1): the company’s activities and affairs “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.” Then, except as specifically stated elsewhere in subdivision 4 and in § 322C.0202, subdivision 5, and subject to § 322C.0302:

(i) the board acts only through an act of the board;

(ii) no individual governor has any right or power to act for the limited liability company; and

(iii) only officers, managers, or other agents designated by the board or through a process approved by the board have the right to act for the limited liability company, and that right extends only to the extent consistent with the terms of the designation.

Item (ii) is the sharpest practical difference in the whole section. In a board-managed LLC, an individual governor cannot bind the company. Not by signing, not by promising, not by acting in the ordinary course. Authority runs through board action and through persons the board designates. A counterparty who negotiates with one governor and takes his signature hasn’t necessarily dealt with anyone authorized.

What else you should know before you pick this form:

• Governors must be natural persons (subd. 4(2)) — unlike managers, which may be entities. An entity can’t sit on the board.
• Voting power is proportional here. Subdivision 4(17) provides that, subject to § 322C.1204, subd. 3, “each member possesses voting power in proportion to the member’s interest in distributions of the limited liability company prior to dissolution,” and a majority of that voting power is a quorum at a members’ meeting. That’s the opposite of the equal-rights rule in the member-managed default, and it’s a reason owners who think in terms of capital often prefer this form.
• Governors are elected by plurality of the voting power present and entitled to vote at a duly called meeting with a quorum (subd. 4(3)), and may be removed “at any time, without cause and without advance notice, by a majority of the voting power of all of the members” (subd. 4(5)).
• Vacancies run on a clock. Subdivision 4(6): the company “shall immediately notify all members in a record of the vacancy, stating the cause of the vacancy and the date the notice is sent.” The members then have 30 days from that date to fill it. If they don’t, the remaining governors may fill it “by the affirmative vote of a majority of the remaining governors, even though less than a quorum.”
• Meetings run on corporate procedure. A governor may call a board meeting on “at least ten days’ notice in a record,” which “need not state the purpose of the meeting” (subd. 4(8)); notice is waivable, including by attendance (subd. 4(9)); a majority of governors currently holding office is a quorum (subd. 4(10)); and written action is available, with the protection that “[a] governor who does not sign or consent to the written action has no liability for the action or actions taken by the written action” (subd. 4(13)).
• Officer titles come with statutory job descriptions. If the board designates a “chief manager,” “president,” “chief executive officer,” “CEO,” or a title of similar import, subdivision 4(14) attaches six duties to that person by statute, including “general active management of the business of the limited liability company, subject to the supervision and control of the board.” Subdivision 4(15) does the same for “treasurer,” “chief financial officer,” “CFO,” or similar. Call someone CEO in a board-managed Minnesota LLC and you’ve imported a statutory role.
• Member consent is still required for the big items under subdivision 4(16) — disposition of all or substantially all property outside the ordinary course, merger/conversion/domestication, and amending the operating agreement — with two express carve-outs from the first: granting a security interest in all or substantially all of the company’s property, “whether or not in the usual and regular course of its business,” and transferring property to a wholly owned organization. Lenders, take note of that first carve-out. It’s why a blanket security interest doesn’t trigger the unanimity requirement.

The form decides who owes fiduciary duties

Nothing moves more between the forms than this, and it moves on its own when the form changes. Minn. Stat. § 322C.0409 sets the duties and then reassigns them.

Subdivision 1 sets the baseline: “A member of a member-managed limited liability company owes to the company and, subject to section 322C.0901, subdivision 2, the other members the fiduciary duties of loyalty and care stated in subdivisions 2 and 3.”

Then the form changes who owes them:

The one thing that doesn’t move is the contractual obligation of good faith and fair dealing in subdivision 4: under subdivision 7(3) it “applies to the members and managers,” and under subdivision 8(3) “to the members and governors.” So a member of a manager-managed or board-managed Minnesota LLC still owes good faith and fair dealing — but not the fiduciary duties of loyalty and care.

Electing manager-managed or board-managed status therefore strips fiduciary duties from the members. That’s a real change in who owes what, and in my experience it’s frequently done by people who thought they were picking an org chart. If you’re a minority member, moving to manager-managed status takes away the fiduciary duty the majority owed you in that capacity. My piece on fiduciary duty versus the operating agreement covers how far those duties can be contracted around.

And Minn. Stat. § 322C.0110, subd. 3(4), prohibits an operating agreement from eliminating “the duty of loyalty, the duty of care, or any other fiduciary duty,” subject to the authorized modifications in subdivisions 4 to 7 — and subdivision 3(5) likewise protects the good-faith obligation. Reassigning duties by choosing a management form, which § 322C.0409 contemplates, is a different animal from eliminating them by contract, which § 322C.0110, subd. 3, restricts. My article on what a Minnesota operating agreement cannot override walks the full list of eleven restrictions.

Does the management form determine who can bind the company?

No. This is the second widely held misconception in Minnesota LLC practice.

Minn. Stat. § 322C.0301, subd. 1, is one sentence: “A member is not an agent of a limited liability company solely by reason of being a member.” Chapter 322C split management authority off from agency authority. Even in a member-managed LLC, membership alone gives you no power to bind the company as to third parties.

What does establish authority to outsiders is a filed statement of authority under Minn. Stat. § 322C.0302 — and the articles of organization won’t do that job. Section 322C.0201, subd. 3, permits optional content in the articles but ends with a flat limit: “a statement in articles of organization is not effective as a statement of authority.” Writing “John Smith, Manager” into your articles gets you nothing on the authority question. See the Minnesota statement of authority for the tool that does work.

Board-managed companies get told twice, since § 322C.0407, subd. 4(1)(ii)–(iii), separately confines authority to board action and board-designated persons.

When the articles and the operating agreement conflict, the answer splits

Minn. Stat. § 322C.0112, subd. 4, provides that where an effective filed record conflicts with a provision of the operating agreement:

(1) the operating agreement prevails as to members, dissociated members, transferees, managers, and governors; and

(2) the record prevails as to other persons to the extent they reasonably rely on the record.

So the same company can be manager-managed in the eyes of a bank that pulled the articles and member-managed in the eyes of its own members. Inside the company, the operating agreement wins. Outside, a third party who reasonably relied on the filed record can hold the company to it. “Reasonably” is doing work in that clause. A third party who has seen the operating agreement, or who had reason to ask, is on weaker ground.

Two more provisions finish it off. Section 322C.0112, subd. 3, provides that if a filed record contains a provision that would be ineffective under § 322C.0110, subd. 3, if it appeared in the operating agreement, “the provision is likewise ineffective in the record” — you can’t get by filing what you couldn’t get by agreement. And § 322C.0202, subd. 5, puts an affirmative duty to correct on people: a member of a member-managed company, a manager of a manager-managed company, or a governor of a board-managed company who “knows that any information in articles of organization filed with the secretary of state was inaccurate when the articles were filed or has become inaccurate owing to changed circumstances” shall promptly cause the articles to be amended or, if appropriate, file a change of registered office under § 322C.0114.

Put those together and a stale filing is more than a nuisance. It’s a document a third party may hold you to, and somebody in your company has a statutory obligation to fix it.

Changing the form later means unanimity

Can a Minnesota LLC change its management form? Yes — by amending the operating agreement, and that’s exactly where the trouble is.

Amendment takes the consent of all members in every one of the three forms: § 322C.0407, subd. 2(5) (member-managed), subd. 3(4)(iv) (manager-managed), and subd. 4(16)(iii) (board-managed). Unanimity is the constant across the section.

So the time to choose is at formation, when unanimity is free. Once members have drifted apart, changing the form takes the agreement of the person the change is most likely to hurt. A member-managed company that has outgrown unanimity can’t convert to manager-managed over a holdout’s objection, because the conversion itself is an amendment.

Two mechanics worth keeping in the file. Under § 322C.0407, subd. 5, any member may demand a members’ meeting to take action requiring member consent “upon not less than 20 days’ notice to each member in a record of the date and time of the meeting” — and any such action may instead be taken without a meeting “by the written consent of the members holding the voting power required to take such action at a duly called meeting at which all members were present.” And under subdivision 6, dissolution doesn’t switch off § 322C.0407 — but “a person that wrongfully causes dissolution of the company loses the right to participate in management in any capacity.”

One last default that catches owners who work in the business: subdivision 7 provides that chapter 322C “does not entitle a member to remuneration for services performed for a member-managed limited liability company, except for reasonable compensation for services rendered in winding up the activities of the company.” If a member is going to get paid for working in a member-managed LLC, the operating agreement has to say so.

How I choose

Two or three owners, all active, roughly equal contributions: member-managed is honest about what’s going on. Go in knowing that clauses (4) and (5) of subdivision 2 hand every member a veto over extraordinary acts and amendments, and decide in advance whether you want that.

Passive money, one or two operators: manager-managed. It puts the decisions where the work is, and it takes the passive members’ fiduciary duties away — which is usually what those members want and sometimes not what the operators expected.

Multiple investor classes, outside directors, an eventual sale or financing, or owners with materially unequal capital: board-managed. You get proportional voting under subd. 4(17), a governance record institutional counterparties recognize, and clear limits on individual authority. You also get seventeen clauses of procedure to follow. If nobody’s going to keep minutes and honor the ten-day notice rule, don’t pick it.

Whatever you pick, use the statutory language from subdivision 1 verbatim instead of leaning on “words of similar import,” make the articles match the operating agreement, and file a statement of authority under § 322C.0302 if third parties need to rely on someone’s signature.

The bigger drafting question — what an operating agreement should cover and where chapter 322C’s defaults will fill gaps you didn’t know you left — is in my guide to Minnesota LLC operating agreements.

Madgett Law, LLC

I draft and repair Minnesota operating agreements, and management structure is the provision I most often find missing or out of step with what the owners believe. The usual repairs: an LLC whose articles say one thing and whose operating agreement says another; a company running as though percentages control management when the member-managed default gives every member an equal vote; and a board-managed company that has never held a meeting that complies with subdivision 4. If you’re forming a company, buying into one, or trying to get something done over a holdout, call 612-470-6529 or send us a message.

Sources: Minn. Stat. § 322C.0407 (Management of Limited Liability Company) — subd. 1 (member-managed default; election in the operating agreement by the listed formulations or words of similar import; nonprofit carve-out referencing § 322C.1101, subd. 5), subd. 2(1)–(5) (member-managed rules: management vested in members; equal rights; ordinary-course majority; unanimity for acts outside the ordinary course; unanimity to amend), subd. 3(1)–(7) (manager-managed rules: exclusive manager decision-making; equal manager rights; manager majority; four unanimous member items; choice and removal of managers by majority of members without notice or cause; manager need not be a member; survival of liabilities), subd. 4(1)–(17) (board-managed rules: board of governors sized by majority voting power; board acts only through board action; no individual governor authority; only board-designated persons may act; governors must be natural persons; plurality election; removal without cause or notice by majority voting power; 30-day member window to fill a vacancy and fallback to a majority of remaining governors; ten-day notice in a record and permitted delivery methods; waiver of notice; majority-of-governors-in-office quorum; remote participation; written action and the nonsigning governor’s nonliability; statutory duties of a designated CEO/president/chief manager and of a designated CFO/treasurer; unanimous member consent items with security-interest and wholly-owned-transfer carve-outs; proportional member voting power subject to § 322C.1204, subd. 3), subd. 5 (20-day member demand for a meeting; location; written consent without a meeting; proxies), subd. 6 (dissolution does not affect the section; wrongful dissolution forfeits management participation), subd. 7 (no remuneration for services in a member-managed company except reasonable compensation for winding up); § 322C.0110 (Operating Agreement; Scope, Function, and Limitations) — subd. 1 (matters the operating agreement governs), subd. 2 (chapter supplies defaults), subd. 3(4)–(5) (may not eliminate the duty of loyalty, duty of care, or any other fiduciary duty, or the contractual obligation of good faith and fair dealing, subject to subds. 4 to 7); § 322C.0112 (Operating Agreement; Effect on Third Parties and Relationship to Records) — subd. 3 (provision ineffective under § 322C.0110, subd. 3, is likewise ineffective in a filed record), subd. 4(1)–(2) (operating agreement prevails as to members, dissociated members, transferees, managers, and governors; the filed record prevails as to other persons to the extent they reasonably rely on it); § 322C.0201 (Formation; Articles of Organization) — subd. 2 (required contents: name, registered office address and agent, organizers’ names and addresses — management form is not required content), subd. 3 (optional contents permitted, but “a statement in articles of organization is not effective as a statement of authority”); § 322C.0202 (Amendment or Restatement of Articles) — subd. 5 (duty of a member, manager, or governor who knows filed information is or has become inaccurate to promptly amend or file a change of registered office under § 322C.0114); § 322C.0301 (No Agency Power of Member as Member) — subd. 1 (a member is not an agent solely by reason of being a member); § 322C.0302 (Statement of Authority) (cited by name as the mechanism for establishing authority to third parties); § 322C.0409 (Standards of Conduct for Members, Managers, and Governors) — subd. 1 (member-managed members owe loyalty and care), subd. 4 (contractual obligation of good faith and fair dealing), subd. 7(1), (3), (5) (manager-managed: subds. 1, 2, 3, and 5 apply to the manager or managers and not the members; subd. 4 applies to members and managers; no member fiduciary duty solely by reason of being a member), subd. 8(1), (3), (5) (board-managed: same allocation as to governors) — Minnesota Office of the Revisor of Statutes, 2025 edition. Section 322C.0407’s history line reads 2014 Minn. Laws ch. 157, art. 1, § 36; 2015 Minn. Laws ch. 39, §§ 33, 34; 2016 Minn. Laws ch. 135, art. 4, § 19. Chapter 322C’s .02xx series ends at § 322C.0208; there is no § 322C.0209. No case law is cited in this article. This is general legal information about Minnesota law, not legal advice, and reading it does not create an attorney–client relationship. Which management form suits a particular company, and what a particular operating agreement actually elected, depend on the documents and the facts. No outcome is promised or implied.