Important Changes to Illinois LLC Act Take Effect July 1June 30, 2017 – Alerts Corporate Law Alert
Changes to the Illinois Limited Liability Company Act set to take effect on July 1, 2017 may impact either your current Illinois LLCs or your future ventures. The changes generally serve to conform Illinois law more closely to a model law for limited liability companies drafted by the National Conference of Commissioners on Uniform State Laws that has already been adopted by 15 states and the District of Columbia.
Among the changes to the Illinois law are:
Default Member Management
Under the revised law, an LLC will be member-managed by default unless there is explicit language in the operating agreement stating that the LLC is to be manager-managed. Similar to Delaware, when filing Articles of Organization for an Illinois LLC, you will no longer be required to specify whether it will be member-managed or manager-managed, but instead will only be required to provide information regarding each manager and each member having such management authority.
Oral Operating Agreements
Oral and implied operating agreements are now permitted and are also expressly exempted from the statute of frauds.
Designating Specific Authority of Members and Managers
Illinois LLCs can now file a “Statement of Authority” with the Illinois Secretary of State that establishes or limits the authority of a member or manager to transfer real estate or enter into other transactions on behalf of the LLC. If the member or manager named in a Statement of Authority wishes to deny the authority granted to them, they can file a Statement of Denial with the Illinois Secretary of State.
Waiver of Fiduciary Duties
With the exception of the duty of care, fiduciary duties may be restricted or eliminated by including clear and unambiguous language in the operating agreement. The operating agreement can now alter the duty of care so long as it does not authorize intentional misconduct or a knowing violation of law.
Limitation of Member’s or Manager’s Liability
The operating agreement can eliminate or limit a member or manager’s liability to the LLC and the other members, unless such liability relates to a breach of certain specified fiduciary duties, a financial benefit to which such member or manager is not entitled, an intentional infliction of harm on the LLC or another member or an intentional crime.
Elimination of Assumed Agency Status
A member of an LLC is no longer considered an agent of the LLC solely as a result of being a member.
Access to Books and Records
The provision regarding rights of members to inspect the books and records of an LLC has been revised to clarify the rights held by members, disassociated members and transferees, and to permit LLCs to impose reasonable conditions and restrictions on access to information.
Authorized Signatories for State Filings
Documents to be filed with the Illinois Secretary of State may now be signed by any person authorized by the LLC, not just a manager or member, provided that both the name and title of the person signing are typed or printed where indicated on the applicable form. In addition, digital signatures will now be accepted by the Illinois Secretary of State.
When an LLC is administratively dissolved (i.e., for failure to file an annual report), no other entity may use the name of the dissolved LLC for a period of three years after the dissolution. If the LLC is reinstated within such three-year period, it will resume use of its name unless it changes its name as part of the reinstatement process.
Conversion and Domestication
Instead of only permitting the conversion of a partnership or limited partnership to a limited liability company, the Act now provides for the conversion of a general partnership, limited partnership, business trust or corporation into an Illinois LLC, and vice versa. Prior to the changes to Illinois law, an entity other than a partnership could only convert to an Illinois LLC through a multi-step process involving a merger. Now, the converting entity simply files Articles of Conversion with the Illinois Secretary of State. The revised Act will also permit a foreign LLC to become an Illinois LLC through the filing of Articles of Domestication with the Illinois Secretary of State.
While it remains to be seen how the oral operating agreements play out, consider memorializing operating agreements in written documents executed by the members and managers. To that end, some of revisions to the Illinois LLC Act may even warrant revisions to existing operating agreements. As a result, we recommend that you consult with legal counsel.