Limited liability Company (LLC) Member Disputes arise between the members (sometimes referred to as partners) of an LLC. When member issues do arise, our Chicago corporate lawyers stand ready to protect your interests. Despite being similar to partnership disputes or shareholder disputes, different Illinois corporate laws and obligations apply for members of an LLC.
Common member disputes include breach of fiduciary duty, disputes over profit distributions and disputes relating to financial obligations of the members. Other disputes include breach of contract (oftentimes the LLC’s operating agreement), disputes regarding the management, control, operations and objectives of the business, disputes relating to withdrawal or dissociation of a member, as well as disputes relating to the appropriate (or inappropriate) use of corporate opportunities.
While the Illinois Limited Liability Company Act (805 ILCS 180/1 et seq.) governs LLCs in Illinois, our business lawyers strong advise members of an LLC to negotiate and execute an LLC operating agreement, which may in some instances supersede certain statutory provisions provisioned in the LLC Act. Members of an LLC have a fair amount of discretion to negotiate and specifically tailor certain provisions of the operating agreement, which include each member’s respective rights and duties as parties to the operating agreement and about the business, internal affairs and taxation of the LLC. Generally speaking, when a specific right or obligation or procedure is not memorialized in an operating agreement, the courts will defer to the LLC Act whenever possible.
LLC Member Fiduciary Duties
Members of an LLC have a fiduciary duty of loyalty to the company and have similar rights and remedies as those available to shareholders of a corporation in the event of a breach. The fiduciary duty of members has been a source of litigation, and the LLC Act, 805 ILCS 180/15-3 (“General standards of a member and manager’s conduct”), helps to define the extent of those duties:
(a) The fiduciary duties a member owes to a member-managed company and its other members include the duty of loyalty and the duty of care referred to in subsections (b) and (c) of this Section.
(b) A member’s duty of loyalty to a member-managed company and its other members includes the following:
(1) To account to the company and to hold as trustee for it any property, profit, or benefit derived by the member in the conduct or winding up of the company’s business or derived from a use by the member of the company’s property, including the appropriation of a company’s opportunity;
(2) To act fairly when a member deals with the company in the conduct of winding up of the company’s business as or on behalf of a party having an interest adverse to the company; and
(3) To refrain from competing with the company in the conduct of the company’s business before the dissolution of the company.
(c) A member’s duty of care to a member-managed company and its other members in the conduct of and winding up of the company’s business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
(d) A member shall discharge his or her duties to a member-managed company and its other members under this Act or under the operating agreement and exercise any rights consistent with the obligation of good faith and fair dealing.
(e) A member of a member-managed company does not violate a duty or obligation under this Act or under the operating agreement merely because the member’s conduct furthers the member’s own interest.
(f) This Section applies to a person winding up the limited liability company’s business as the personal or legal representative of the last surviving member as if the person were a member.
In the event of an LLC Member Dispute, Contact Our Chicago Law Firm
LLC’s are no stranger to internal disputes as it is common for members of closely held businesses to disagree over various issues, including but not limited to some of those listed above. Even a small dispute can prove to be devastating to an LLC. Again, whenever a dispute arises, an operating agreement will be the first—and usually the most efficient—place to look.
In the unfortunate event that a dispute does arise between the members of an LLC, our business litigation attorneys can assist with resolving and/or litigating limited liability company member disputes. We regularly assist clients with member disputes between members of limited liability companies, including disputes relating to contractual obligations, operating agreements, noncompete covenants and other restrictive covenants, misuse and misappropriation of funds, misappropriation corporate opportunity, dissociation of members, and other control, operational and management disputes. We have also obtained temporary restraining orders (TRO’s), preliminary injunctions, and other emergency equitable relief for our limited liability company clients.
If you are involved in a limited liability company member dispute or would like consultation relating to a member dispute, please contact our Chicago law firm to inquire about your dispute at 312-789-5676. Our experienced Chicago business litigation attorneys represent clients in Cook County, DuPage County, Lake County, McHenry County, Will County and throughout the Chicagoland area and Illinois.