The LLC’s Origin Story

If you’re starting a business in Minnesota today, the Limited Liability Company (LLC) is likely your go-to choice. But it wasn't always this way. In fact, for most of Minnesota’s history, business owners had to choose between the rigid structure of a corporation or the personal risk of a partnership.

Wyoming 1977. The Hamilton Brothers Oil Company began lobbying the Wyoming state legislature to create a new business structure. They wanted to replicate the Limitada business structure they had seen in Panama that avoided corporate double taxation (like a partnership) while shielding personal assets from their risky exploration endeavors (like a corporation). Eventually Wyoming passed the nation's first LLC law creating a legal hybrid designed to offer the best of both worlds.

However, for the next 11 years, the IRS declined to confirm how these new entities would be taxed at the federal level. Due to the uncertainty of the tax treatment, businesses owners remained wary and stayed away.

1988 IRS Ruling. Clarity finally came when the IRS issued a landmark ruling (Revenue Ruling 88-76) that officially recognized Wyoming LLCs as partnerships for tax purposes. Once the federal government gave the green light, all other states began enacting their own LLC legislation.

Minnesota 1992. Minnesota joined the LLC movement in 1992 with the passing of the Minnesota Limited Liability Company Act. This original act utilized a “corporate-style” structure and required many of the formalities found in corporations such as bylaws and boards of governors.

2014 Modernization. Minnesota adopted the Revised Uniform Limited Liability Company Act which shifted the framework towards a “contract-based” structure. This gave business owners significantly more freedom to decide how they wanted to run their internal operations through their Operating Agreements.

Why the LLC Won. The history of the LLC is a story of American innovation - adapting old legal structures to meet the needs of the modern economy. The LLC succeeded by de-formalizing the business structure and shifting from strict mandates to empowering owners to define their company's "rules of the road."