Capitalizing the Illinois Limited Liability Company
Member contributions to the Illinois LLC may be in the form of cash, property, services, a promissory note, or an obligation to contribute cash or property or to perform future services.
Non-Tax Consideration in Selecting an Illinois Limited Liability Company
The Illinois limited liability company, similar to the corporate form of entity, limits the liability of its members to the extent of their contributions to the company. Generally, the personal assets of the members are protected against claims by creditors of the limited liability company, even in the event of bankruptcy. The liability of a manager of a manager-managed limited liability company is also generally limited by statute, except when the manager breaches his or her fiduciary duty. Like a corporation, the limited liability company itself can be found liable for tortious acts committed by employees acting on behalf of the company. A limited liability company should thus obtain insurance against tort liability and thereby protect the business against such risks.
Some courts have displayed a willingness to apply the theory of “piercing the corporate veil” to limited liability companies, thereby increasing the risk that a member could be personally liable for the obligations of the limited liability company. The factors considered in determining whether the corporate veil would be pierced in a limited liability company situation may include all of the factors considered when applying the theory to a corporation, with the exception of strict corporate organizational formalities imposed by statute. For example, because the Limited Liability Company Act does not require annual meetings of members, as the Illinois Business Corporation Act does, the failure to conduct such meetings would not be used in the determination of whether to hold a particular member liable for the obligations of the limited liability company. However, if a limited liability company imposed on itself, through its LLC operating agreement, any corporate-like formalities then failed to follow such formalities, a court might look to such failure as further reason for allowing the “corporate” veil to be pierced in order to hold the LLC members personally liable.
Similar to a corporation’s limited liability protection, the benefit of limited liability to an LLC may be illusory if the LLC intends to borrow funds or executes a lease or other agreement and the lender or other party to the agreement requires that a member personally guarantee the LLC’s obligation.
Other Illinois LLC Forms
With the effectiveness of Public Act 96-126 on January 1, 2010, low profit limited liability companies, or L3Cs, have been introduced in Illinois. The new low profit limited liability company is a cross between a nonprofit, charitable organization and a for-profit limited liability company. The L3C’s primary purpose is to provide an important social benefit rather than to generate economic profit. The low profit limited liability company is expected to revitalize certain small businesses by attracting more investments from foundations and charitable business ventures.
Illinois is one of a handful of states that permits the organization of a type of limited liability company commonly referred to as a “Series LLC.” Such an LLC has the ability to create within itself separate “series” or “cells” that have their own interests, liabilities, and members. Series LLCs are most commonly used in Real Estate ventures.