Illinois Business Litigation & Tax Disputes Blog
While members of limited liability companies form their companies with the intention of productively working together, the development of disputes between members is common. When those disputes cannot be resolved, it often makes sense for one or more of the members to exit the company. The exit may be accomplished through the redemption by the company or the purchase by the remaining members of the departing member’s interest.
Often a limited liability company’s operating agreement will provide a mechanism for members who no longer wish to remain members to exit the company by requiring the company to purchase their interests and will provide an agreed upon method for valuing those interests. However, where the company’s operating agreement does not address the situation in which a member wishes to exit the company and where the remaining members will not voluntarily agree to purchase or to have the company redeem the departing member’s interest, members of Illinois limited liability companies must look to the Illinois Limited Liability Company Act (the LLC Act), 805 ILCS 180/1 et seq., to determine their right to exit the company through the forced purchase of their interests. Amendments to the LLC Act that became effective on July 1, 2017 have provided a new right to members of Illinois limited liability companies, dissociated members, and transferees of distributional interests, in certain situations, to petition a court for an order requiring that their interests be purchased.
As amended, section 35-1(a)(4) of the LLC Act provides that members or dissociated members of limited liability companies may petition a court for an order requiring the buyout of their interests where: the economic purpose of the company has been or is likely to be unreasonably frustrated, the conduct of all or substantially all of the company’s activities is unlawful, or it is not otherwise reasonably practicable to carry on the company’s business in conformity with the articles of organization and the operating agreement. Additionally, section 35-1(a)(5) provides that members or transferees of distributional interests may petition a court for an order requiring the buyout of their interest where the managers or controlling members have acted, are acting, or will act in a manner that is illegal or fraudulent or the managers or controlling members have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant.