The amendments to the Illinois Limited Liability Company (LLC) Act took effect July 1, 2017, and affect all current and future LLCs.
The first major change is that the Act now recognizes oral or implied operating agreements where it can be proven that such an agreement existed. Because of this change, a written operating agreement is more important because the members can no longer rely on the default operating provisions contained in the LLC Act to control. Now past practices may be interpreted as the terms of an oral or implied operating agreement, and potentially as amendments to the operating agreement.
This may raise some concerns whether conversations between members of an LLC throughout the year may give rise to amendments to the operating agreement. One potential solution to this issue is to have all members sign an affirmation at the LLC’s annual meeting stating that no amendments to the operating agreement have been made throughout the year. Written operating agreements should contain a provision stating that amendments must be in writing and approved according to the terms of the Operating Agreement. Such a provision is permitted under the LLC Act section permitting operating agreements to supersede the default operating provisions contained in the Act.
The Act was also amended to provide for the option for the LLC to submit to the Secretary of State a “Statement of Authority” or a “Statement of Denial” to give notice to the public that certain members have authority or have limited rights to act as on behalf of the LLC.
Next, a default rule was added so that a LLC will be member-managed unless otherwise specified in the operating agreement.
Also, language was added to the Act that dictates how to dissolve an LLC or how organizations may become an LLC.
An organization other than an LLC or a foreign LLC may convert to an LLC, and an LLC may convert to an organization other than a foreign LLC as long as it is authorized by the other organization’s governing statute, is not prohibited by law, and the other organization complies with its governing statute when effecting the conversion.
Additionally, language has been added which states the operating agreement may restrict or eliminate certain fiduciary duties as long as the operating agreement is clear and unambiguous, except that a member must refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. The operating agreement may also identify certain actions that will not violate any fiduciary duty.
The amendments to the LLC Act also make some changes to the dissolution of an LLC. Once the LLC has been terminated, it no longer has to file “Articles of Dissolution,” but rather a “Statement of Termination” must be filed with the Secretary of State.
The above does not encompass all of the changes that the amendments to the LLC Act brought. All LLC operating agreements should be evaluated based on these recent changes to ensure your LLC’s operating agreement complies with your understanding.