Illinois has enacted several important amendments to the Limited Liability Company Act of Illinois (the “Act”) (805 ILCS 180/1-1 et seq.), and the changes go into effect as of July 1, 2017. The following is a survey of several significant changes.
Previously, oral operating agreements were not explicitly recognized by Act. Now under Section 1-46, oral operating agreements may be effective and enforceable. Lenders will want to ensure that they are seeing the most current operating agreement and require borrowers to advise them of any changes.
Previously, a member of a member managed LLC would be considered an agent of the LLC. Now, Section 13-5 expressly states that a member is not an agent of the LLC “solely by reason of being a member.” Agency law still applies regarding good faith reliance, but a third party can no longer rely solely on an individual’s membership when determining whether his or her acts bind the LLC.
Section 13-15 creates a statement of authority and Section 13-20 creates a statement of denial. This allows the company or individual members to file such statements to specify the level of authority they will assume by virtue of being a member. Lenders should search Illinois Secretary of State filings to ensure the signatories have adequate authority.
Under Sections 15-3 and 15-5, an operating agreement of a manager-managed company may now eliminate or reduce certain member’s fiduciary duties (except for the duty of good faith and fair dealing and the duty of care). This could provide personal protection against claims and reduce leverage of lenders seeking recovery from members.
Section 30-20 clarifies the procedure whereby a creditor with a judgment against an LLC member can apply to a court for an order charging the member’s interest to cause all distributions from the company be paid to the creditor. A creditor could also see to force a judicial sale of the LLC interest toward the satisfaction of the judgment.
Section 35-55 repeals the requirement that the company must purchase a disassociating member’s interest if the company does not dissolve or wind down following a member’s disassociation. This section also clarifies that a member’s disassociation does not by itself discharge that person from any debt, obligation or other liability they would have had as a member.
Under Section 35-1, in a proceeding brought by a member, disassociated member or transferee for judicial dissolution, the court may order a remedy other than dissolution, including for example a buyout of the applicant’s interest. This could have an effect on a lender’s ability to recover more if the company has greater value as a going concern.
Previously, the Act that would only allow a general partnership or limited partnership to convert itself into an LLC. LLCs and corporations were prohibited from converting into other entities. Now Section 37-5 et seq. provides a process for converting Illinois LLCs into other entities and domesticating an LLC organized under a different state into an Illinois LLC. This will eliminate much of the need for complicated merger structures and tax planning to achieve entity changes businesses need to make as their situations change.
This content is for educational and informational purposes only and should not be construed as legal advice. This content is considered advertising under applicable state laws.
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