CHANGES TO THE ILLINOIS LIABILITY COMPANY ACT
The Illinois General Assembly has made sweeping changes to the Illinois Limited Liability Company Act (“LLC Act”), all of which are encompassed within a lengthy and detailed 112-page bill. These changes were effective July y 1, 2017, and apply to all Illinois limited liability companies, even those limited liability companies that already have an operating agreement in place as the LLC Act governs wherever an operating agreement is silent.
This article does not attempt to identify all of the changes that have been made to the LLC Act; instead it focuses on the major changes and those that are most likely to impact business owners. All references within this article are to the newly revised LLC Act.
ELIMINATION OR WAIVER OF FIDUCIARY DUTIES OF MEMBERS OF LIMITED LIABILITY COMPANIES
The new LLC Act allows members, via the operating agreement, to eliminate or waive the fiduciary duties owed to a limited liability company (other than the duty of care) provided that elimination/waiver is clearly and unambiguously stated in the operating agreement. Additionally, the new LLC Act allows the members to alter the duty of care, except to allow intentional misconduct or knowingly violations of the law. For the first time, members are allowed to identify, within the limited liability company’s operating agreement, specific types or categories of activities that do not constitute a violation of a member’s fiduciary duty. (See §15-3 and §15-5(c)).
DEFAULT MANAGEMENT OF LIMITED LIABILITY COMPANIES
Unless the operating agreement expressly states that the limited liability company is to be managed by a manager(s), Illinois will automatically assume it to be “member-managed”. (See §15-1(a)).
ALLOWANCE OF ORAL OPERATING AGREEMENT FOR LIMITED LIABILITY COMPANIES
The new LLC Act eliminates the requirement that an operating agreement must be in writing and allows members to have an oral operating agreement.
ELIMINATION OF ASSUMED AGENCY STATUS FOR MEMBERS OF LIMITED LIABILITY COMPANIES
Previously, the LLC Act stated that a member was automatically an agent of the limited liability company and that the member’s actions, on behalf of the limited liability company, were consider to be the acts of the limited liability company. The new LLC Act states that a member is not an agent of the limited liability company solely by being a member of the limited liability company. (See §13-5). Additionally, the new LLC Act adds a provision which allows a limited liability company to file a “statement of authority” with the Illinois Secretary of State which states the authority, or limitations thereon, of any member, manager or other person to transfer real estate on behalf of the limited liability company or enter into any other transaction which binds the limited liability company. (See §13-§15).
ELIMINATION OF FORCED PURCHASE UPON DISSOCIATION FROM LIMITED LIABILITY COMPANIES
Before the new revisions, the members of a limited liability company were required to purchase the membership interest held by a dissociating member as part of the dissociation process. This requirement has been removed completely from the new LLC Act as a result of the revisions to Section §35-55 and the repeal of Section §35-60. Under the new LLC Act, the membership interest held by a dissociated member is to be treated as the same as transferee of a member. (See §35-55).
MEMBER’S RIGHTS TO INFORMATION
While a limited liability company is still required to keep the same information as before under §1-40, a limited liability company is no longer required to automatically give this information to a dissociated member (who is now treated as a transferee) unless such member submits a written demand upon the limited liability company stating the records request and the purpose of the request. Additionally, the new LLC Act now requires that the purpose for the request must be proper or it can be denied by the limited liability company. It is important to note that the new LLC Act imposes time limits on the limited liability company’s response to the dissociated member’s request. (See §1-40(c), §10-§15(a) and §10-§15(g))
ALTERNATIVES TO DISSOLUTION FOR A LIMITED LIABILITY COMPANY
Even though a limited liability company may be required to be dissolved pursuant to the LLC Act, the new LLC Act allows the members to petition the court to allow the limited liability company to resolve the issue causing the dissolution in a different method, including the purchase of a separating member’s interest.
CONVERSION OF A LIMITED LIABILITY COMPANY TO A DIFFERENT TYPE OF ENTITY
The new LLC Act expands the ability of a limited liability company to convert to a different entity (i.e. a corporation) and vice versa. In order to convert, the converting entity must satisfy certain criteria and the laws currently applicable to the organization must allow such a conversation.
ENFORCEMENT OF THE LIMITED LIABILITY COMPANY’S OPERATING AGREEMENT
The new LLC Act automatically binds a limited liability company to the operating agreement executed by its members’ regardless if the limited liability company assented to the operating agreement or not. Additionally, the new LLC Act assumes (and enforce the assumption) that any individual who becomes a member of a limited liability company accepts and assumes the current operating agreement. (See §15-5(f) and §15-5(g)).
Should you have any questions about changes to the Illinois Limited Liability Company Act, how the changes to the Act are going to affect your Operating Agreement, or any other laws that may affect your business, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
This article constitutes attorney advertising. The material included within is for informational purposes only and does not constitute legal advice.
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