LLC Member Disputes

Commercial Litigation Lawyers Assisting with LLC Member Disputes

The form of a limited liability company (LLC) gives its owners, known as “members,” more flexibility than the corporate structure as well as some of the same advantages. It also has some of the same benefits offered by partnerships. The LLC form 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.

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 form is still young, the law of how they should be governed is not yet fully developed.

LLC Disputes Can Affect Daily Operations

Many LLCs have a small number of members, which means that any sort of dispute can substantially affect daily operations. 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.

Members Have a Fiduciary Duty to the Company

In general, members have a fiduciary duty to the company. They have similar rights and obligations as corporate shareholders do.

Operating Agreement Provides for Events and Contingencies

Ideally, an operating agreement provides for various events and contingencies that are likely to arise from LLC operations. When a member leaves the LLC, dissociation terminates that member’s LLC interest.

LLC Dissociation Complexity

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 the operating agreement does not specify when a member may be expelled, another member of the company will have to ask the court to order dissociation. The court, in that case, may also have to value the business.

Other LLC Member Dispute Types

LLC member disputes may also arise over business operations, employment, management, real estate, or purchase of equity interest.

Protect Your Interests by Enlisting an experienced LLC Member Dispute Lawyer

Due to the recent creation of LLCs and the complexity of agreements, you may need a knowledgeable LLC dispute lawyer to resolve an LLCC member conflict successfully. 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.

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