Tuesday, August 25, 2009

LLC Members to Have Additional Fiduciary Duties

The Illinois Limited Liability Company Act (this can be found in the Illinois Statutes at 805 ILCS 180) establishes the rules concerning formation, operation, and if necessary, dissolution of an LLC formed in Illinois. Many of the obligations set forth in the statute are "default" rules, meaning that they apply unless altered by an operating agreement stating something to the contrary. One of the benefits of the LLC form of organization is the flexibility the statute allows the company in its operations. In many instances, an LLC is free to operate as it sees fit, provided all the members agree in a signed agreement. There are, however, some rules in the Illinois statute that cannot be altered by an operating agreement.

Some of these rules relate to the duties members and managers owe the company and each other. Under the Illinois Statute, managers of an LLC owe fiduciary (and other) duties to the company. A fiduciary duty means that, because of the position of trust of the manager, he/she owes a particular standard of care in his/her dealings with and for the company. Basically, the manager must put the needs of the company ahead of his/her own needs.

The statute, as currently constituted, does not bestow the same fiduciary duties on members of LLCs that are managed by managers. However, Illinois Public Act 96-263 will extend these fiduciary duties to members, provided the member exercises some sort of managerial authority. This Act will become effective January 1, 2010.

For more information about fiduciary duties of members and managers of LLCs, or for other general business law questions, please contact the Ross Law Office to speak with an experienced business law attorney.

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