What Minnesota law does if your operating agreement is silent

By David J.S. Madgett

Minnesota attorney, license no. 390494 · Published August 7, 2026

Minnesota does not require an LLC to have an operating agreement. Plenty of companies operate for years without one and never have a problem.

The problem is that “no operating agreement” does not mean “no rules.” It means chapter 322C’s rules, which are complete, which are not obviously wrong, and which are not what most people picture. You do not avoid a governance structure by staying silent — you accept one sight unseen.

Here is what you are accepting.

Money is split equally, not by what you put in

This is the big one.

Any distributions made by a limited liability company before its dissolution and winding up must be in equal shares among members.

That is Minn. Stat. § 322C.0404, subd. 1. Equal shares among members. Not in proportion to capital. Not in proportion to anything.

So: you put in $90,000, your co-founder puts in $10,000, you agree you own it 90/10, and you never write it down. The company distributes $100,000. Under the statute you each get $50,000.

The 90/10 understanding is not worthless — it was your deal, and there are arguments to be made about it. But you are now making arguments instead of pointing at a document, and you are making them against a statute that says something different. That is an expensive place to be standing.

The fix is one sentence in an operating agreement. It costs nothing to write and it is the single highest-value paragraph most small Minnesota LLCs will ever have.

No one can demand a payout

Related, and also worth knowing:

A person has a right to a distribution before the dissolution and winding up of a limited liability company only if the company decides to make an interim distribution.

Section 322C.0404, subd. 2. A member cannot force money out of the company. If whoever controls the distribution decision does not want to distribute, there is no distribution — regardless of how profitable the company is or how much a member needs the money.

Combine that with the management default below and you can see the squeeze: a minority member can be outvoted on distributions indefinitely while the company retains earnings that are taxed to them. If that combination sounds bad, address it in writing. It is a normal thing to negotiate.

Votes are per person, not per percentage

Under Minn. Stat. § 322C.0407, an LLC is member-managed unless the operating agreement expressly designates it as manager-managed or board-managed. In a member-managed LLC:

• Each member has equal rights in the management and conduct of the company.
• A difference in the ordinary course of business is decided by a majority of the members.
• Anything outside the ordinary course, and any amendment of the operating agreement, requires unanimity.

Equal rights means one member, one vote. Ownership percentage does not carry voting power unless you say it does. A 90% owner and a 10% owner each get one vote, and in a two-member company that means the 90% owner cannot pass an ordinary-course decision over the other’s objection.

The unanimity rule cuts the other way and is just as sharp: in a company with more than one member, any single member can block anything outside the ordinary course, including any amendment to the operating agreement. That is a veto, held by everyone, forever, until the agreement says otherwise.

The other two structures exist, but you must ask for them

Manager-managed and board-managed are available, and both require an express designation:

Manager-managed. Management vests in the manager. Managers need not be members. A manager is chosen by the consent of a majority of the members and can be removed by a majority “with or without notice or cause.” Note the removal standard — a manager who is also a minority member can be removed by the others at any time, for no reason.

Board-managed. Governors manage the company and must be natural persons. Governors are elected by a plurality of voting power at a member meeting and removed by a majority of all members’ voting power, without cause. Member approval is still required for major transactions and for amendments. This is the structure to look at if you expect outside investors, because it looks like what they already understand.

Someone can sell their economic stake without asking

Under Minn. Stat. § 322C.0502, a member may transfer their transferable interest, and the transferee gets “the right to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled.”

What the transferee does not get is nearly everything else. A transferee does not become a member, may not “participate in the management or conduct of the company’s activities,” and has no right to company records or information.

And the transferor does not disappear. Under subdivision 7, a member who transfers a transferable interest “retains the rights of a member other than the interest in distributions transferred and retains all duties and obligations of a member.”

So the default produces a specific and slightly strange outcome: your co-owner can sell their share of the profits to a stranger without telling you, that stranger has no say and no right to see the books, and your co-owner keeps voting. Nobody designs that on purpose. It is simply what happens when the document is silent.

If you want a right of first refusal, or consent before any transfer, or a buyout formula for a departing member, all of that has to be written down.

What you are not allowed to change

An operating agreement is powerful but not unlimited. Section 322C.0110, subd. 3 lists what it may not do. Among them, an operating agreement may not:

• eliminate the duty of loyalty, the duty of care, or any other fiduciary duty — it may only alter them within the limits the statute sets;
• eliminate the contractual obligation of good faith and fair dealing;
• unreasonably restrict a member’s right to company information under § 322C.0410;
• vary a court’s power to decree dissolution under § 322C.0701;
• vary the winding-up requirements of § 322C.0702;
• unreasonably restrict a member’s right to bring an action under §§ 322C.0901 to 322C.0906;
• restrict the rights of a person who is not a member, manager, or governor.

That last one matters more than it looks. Your operating agreement binds the people who signed it. It does not bind your landlord, your bank, or anyone you owe money to.

What to actually do

If you take one thing from this page: write down how money gets split, and write down how decisions get made. Those two paragraphs prevent most of the disputes that end up in front of a judge.

The operating agreement builder walks through both, and shows you the statutory default next to each choice so you can see exactly what you are changing.

If members are contributing very unequally, if anyone is contributing work rather than money, if outside capital is coming in, or if you can imagine any of you wanting out — get someone to look at it. Those are the situations where a template stops being enough.