LLC Member Disputes

Commercial Litigation Attorneys Counseling Entities in the Chicago Area

The form of a limited liability company (LLC) gives its owners, known as "members," more flexibility than the corporate form as well as some of the same advantages. It also has some of the same advantages offered by partnerships. The LLC form is relatively new, and it is governed by the Illinois Limited Liability Act, which took effect in 1994. It is not uncommon for disputes between the members of an LLC to get complicated, especially if there has been a failure to observe formalities or to treat the LLC as a separate legal entity. If disputes have arisen in an entity in Chicago or the surrounding cities, the commercial litigation lawyers at the Voelker Litigation Group may be able to help.

LLC Member Disputes

Many LLCs have a small number of members, which means that any sort of dispute can substantially affect daily operations. Under state law, members of an LLC can run the business themselves ("member-managed") or appoint managers ("manager-managed"). Managers and members acting as member-managers serve a similar function to a board of directors in a corporation. Since the LLC is a young form, the law of how they should be governed is not fully developed.

In general, members have a fiduciary duty to the company. They have similar rights and obligations as corporate shareholders do. Their disputes may arise over business operations, employment, management, real estate, purchase of equity interest, or member withdrawal. In some cases, due to the disruptive effect of litigation and trial, it may be worthwhile to use methods of alternative dispute resolution, such as mediation or arbitration.

An operating agreement should provide for various events and contingencies that may arise during the life of the business. Among these events is the possibility that a member will want to "dissociate" from the LLC. Dissociation is the termination of a member's LLC interest. How dissociation happens depends on whether the LLC is manager or member-managed. A member of a member-managed LLC may voluntarily dissociate rightfully or wrongfully at any point. However, unless the operating agreement allows it, if a member of a manager-managed company wants to dissociate, he or she may not do so voluntarily until after the dissolution of the LLC. Under Section 45(2) of the Illinois Limited Liability Act, if the members have mutually agreed that a predetermined event allows dissociation, a member may be dissociated. Moreover, a member may be ousted when he or she acts wrongfully under Section 45(5). This might include when a member commits fraud or competes with the company.

If an operating agreement does not expressly spell out when a member may be expelled, another member or the company will have to ask the court to order dissociation. The court, in that case, may also have to value the business.

Protect Your Interests during a Business Dispute by Enlisting a Chicago Lawyer

A knowledgeable attorney may be needed to resolve a business dispute in Chicago or elsewhere in Cook County. In some cases, it is possible to handle a matter informally, but in other cases it may be necessary to go to court. The Voelker Litigation Group can provide aggressive legal representation to work towards the result you need. Call us at 312-870-5430 or contact us via our online form. We also represent clients in Evanston, Palatine, Schaumburg, Aurora, Decatur, and Springfield. Our firm additionally has assisted entities in other states throughout the nation, including California, Delaware, and Florida.

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