Extensive Changes to Illinois LLC Act
Illinois House Bill HB 4361 Background
Limited liability companies (“LLC”) have been a popular type of business entity due to the tax benefits that limited liability offered to owners and ease of governance. The Illinois LLC Act (805 ILCS 180) governs the organization and operations of LLCs in Illinois. Recently, Illinois House Bill HB 4361 (the “Bill”), which has been six (6) years in the making by the Institute of Illinois Business Law, was signed into law and significantly revises the Illinois LLC Act.
The Bill was designed to make the Illinois LLC Act more in line with the Revised Uniform Liability Company Act, a model act promulgated by the National Conference of Commissioners on Uniform State Laws. Currently, fifteen (15) other states and the District of Columbia have enacted versions of the Revised Uniform Liability Company Act.
The Bill was first introduced by Representative Elaine Nekritz in December 2015. The Bill passed the House and Senate in spring 2016 and was signed into law by Governor Rauner on July 28, 2016. The Bill will become effective as of July 1, 2017.
Impact on LLC Owners
So, what does this mean for LLC owners? Below are a few of the more significant changes to be aware of:
- Expands the definition of Operating Agreement to include oral agreements. The Bill specifically provides for an exemption from the Illinois Statute of Frauds by stating an Operating Agreement is enforceable “whether or not there is a writing signed or record authenticated by a party against whom enforcement is sought, even if the agreement is not capable of performance within one year of its making”;
- Removing statutory obligations of an LLC to purchase certain dissociated members’ distributional interests;
- Setting the default management structure of an LLC as “member-managed” unless explicitly stated in the Operating Agreement;
- Allowing for the restriction or elimination of fiduciary duty to the extent it is clear and unambiguous in the Operating Agreement and altering the duty of care, except to authorize intentional misconduct or knowing violation of law;
- Binds the LLC to the Operating Agreement regardless of whether the LLC is a named party to the agreement;
- Grants rights to a transferee who is not currently a Member, but holds distributional interest, to access and inspect books and records, but only for a proper purpose;
- Denies authorizing a member as an agent of a LLC solely by reason of being a member and further allows the LLC to place limitations on authority of any member (or manager) by filing a Statement of Authority to authorize the execution instruments transferring real estate property held in the name of the LLC and entry into other transactions on the LLCs behalf;
- Allowing the member or manager to file a Statement of Denial to deny any authority granted by the LLC;
- Providing for alternative remedies to a court ordered dissolution, including, but not limited to, a buyout of the applicants’ membership interest;
- Granting specific rights of a judgment creditor against the LLC;
- Expanding on the ability and procedure to convert entities to or from an LLC; and
- Providing rules and procedures for the domestication of foreign entities.
Note that the above is not a comprehensive list of changes. Owners of LLCs are advised to review all of the changes to ensure their businesses are operating in accordance with the Bill prior to the effective date. Amendments to Operating Agreements may be necessary. If you have any questions as to how the Bill may affect the operation of your LLC, or need additional information, please contact a corporate attorney at Golan Christie Taglia.