United States: Overhaul Of Illinois LLC Act Provides Modernization, Increased Flexibility

Tom Kinasz is a partner in our Chicago office.


  • Extensive changes made to the Illinois Limited Liability Company Act (the Act) will impact both existing and new LLCs.
  • The changes are designed to adopt a "freedom of contract" approach for Illinois LLCs as well as give business owners and investors increased flexibility in drafting the governing provisions for their LLCs.
  • The changes, which took effect on July 1, 2017, bring the Act into closer conformity with the Revised Uniform Limited Liability Company Act adopted by other states.

Significant changes have been made to the Illinois Limited Liability Company Act (the Act) that will impact both existing and new LLCs. These changes, which took effect on July 1, 2017, were designed in part to bring the Act into closer conformity with the Revised Uniform Limited Liability Company Act that has been adopted by numerous other states. The primary intentions of the changes are to adopt a "freedom of contract" approach for Illinois LLCs as well as give business owners and investors increased flexibility in drafting the governing provisions for their LLCs.

Key Highlights

A summary of the more significant changes of interest include the following:

  1. Members are not automatically agents of the LLC. A member no longer is an agent of the LLC solely by reason of being a member. (Prior to the change, each member of a member-managed LLC and each manager of a manager-managed LLC was considered an agent of the LLC.) An LLC may file a Statement of Authority with the Illinois Secretary of State to identify a manager or member authorized to execute instruments related to the transfer of real property or other transactions. Similarly, the LLC may file a Statement of Denial with the Secretary of State to deny any authority granted in the Statement of Authority.
  2. Oral and implied operating agreements are now recognized. The Act states that 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."
  3. Binding effect of operating agreement. The LLC is automatically bound by its operating agreement, even if does not expressly consent to the agreement. Any individual who becomes a member is deemed to agree to the operating agreement. The operating agreement may be entered into before, after or at the time of the filing of the LLC's Articles of Organization.
  4. Presumed member-managed status of LLC. The LLC is deemed to be member-managed unless otherwise expressly stated in the operating agreement. The Articles of Organization filed with the Secretary of State will no longer specify management by members or managers. However, managers and members with manager authority must be reported in the Articles of Organization.
  5. Member status. A person may become a member without acquiring an economic interest in the LLC or being obligated to contribute to the capital of the LLC.
  6. Fiduciary duties. The operating agreement may eliminate or reduce a member's fiduciary duty of loyalty owed to the LLC by clear and unambiguous language. Also, the fiduciary duty of care may be altered, except to authorize intentional wrongdoing or knowing violations of law. The obligations of good faith and fair dealing may not be restricted or eliminated.
  7. Rights to inspect LLC records. The Act changes a member's right to information so that the LLC is no longer required to automatically give the information to a dissociated member unless such member submits a written demand upon the LLC stating the records request and purpose, and the purpose must be proper or it may be denied. The LLC will have 10 days to respond to a member's request for records. Transferees of distributional interests have limited rights to request LLC records.
  8. Judgment creditors of members. The rights of a judgment creditor of a member are modified, including limiting the creditor to a lien on a member's distributional rights.
  9. Dispute resolution. Courts will now have the authority to resolve disputes between LLC members by ordering a remedy other than dissolution, including the purchase of a separating member's interest.
  10. Dissociated members. The LLC is no longer required to purchase the interests held by a dissociated member.
  11. Conversion/domestication. The Act provides expanded rights permitting conversion of an LLC into a different entity form (such as a corporation) and vice versa. The Act will now permit domestication of a foreign LLC whereby it may become an Illinois LLC, and for an Illinois LLC to become an LLC in a foreign state.
  12. Documenting the dissolution. Upon completion of the winding-up process in dissolution, a Statement of Termination (replacing the Articles of Dissolution) is filed with the Secretary of State. Other changes apply to events of dissolution and how an LLC continues operation after dissolution.
  13. Recognition of electronic records. Greater recognition of electronic records is available. The definition of "record" now reads "information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form." All "writing" requirements are now subject to the Illinois Electronic Commerce Security Act. The act of signing a document has been expanded to cover electronic records: "sign" with respect to a record means to "adopt a tangible symbol" or "to attach to or logically associate with the record an electronic symbol, sound or process."

The preceding is not an exhaustive list of all changes that took effect on July 1. Because of these changes, amendments to operating agreements and/or the manner in which an LLC conducts business may be necessary. For a review of your Illinois LLC and how the recent changes to the Act could impact your company's governance and activities, contact your Holland & Knight attorney.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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