Amendments to the Illinois LLC Act: Public Act 099-063

The amendments to the LLC Act generally make the processes involved in operating an LLC simpler and more flexible, allowing, for example, the LLC to conduct its business without a written operating agreement and allowing LLCs to more easily convert to other entity forms and vice versa. While some amendments may not make a resounding impact on how attorneys and clients, establish, maintain, and advise LLCs, there are certain notable changes to the LLC Act that can influence these decisions.

Following these amendments, attorneys and clients alike should take the time to review the LLC Act and make any changes necessary to an LLC’s organizational documents to ensure compliance with the new terms. What follows is a list of the most notable amendments, describing the impact they can have on clients, LLCs, and attorneys. This article then provides a comprehensive table discussing amendments to specific sections of the Act.

Notable Amendments

  1. The Operating Agreement

An operating agreement may now be enforced whether written, oral, implied, or in a combination thereof. Further, an LLC is bound to the operating agreement whether or not it manifested assent to it. The operating agreement may now take effect before, after, or at the time the Articles of Organization are filed; the operating agreement may also designate the time at which it will become effective. Because the Statute of Frauds is no longer applicable, LLCs may opt for an oral or “implied” operating agreement, incentivizing them to establish the entity and conduct business without the assistance of an attorney. Although this may simplify the process for a business owner, the absence of a written operating agreement could produce conflict or make the resolution thereof more complicated than it was previously.

This most likely will become a contentious issue in litigation, where parties dispute whether or not a member (or the LLC) violated the terms of the agreement. In the absence of a written operating agreement, litigators will have to spend more time and resources finding evidence of compliance or violation without pointing to a specific provision in the operating agreement. Attorneys can prevent these issues by making sure the operating agreement is written.

  1. Fiduciary Duties

An operating agreement may now revise or eliminate members’ and/or managers’ fiduciary duties, so long as the revisions are clear and unambiguous. This would allow an operating agreement to clearly express the members’ and managers’ expectations. The downside is that members, without proper counsel, could eliminate certain duties that could be disadvantageous to the LLC, such as allowing for situations leading to conflicts of interest. The Act does provide, though, a method to avoid liability under the duty of loyalty, which is to validate a particular act or transaction by disinterested or independent persons having been fully informed of the action at issue.

An operating agreement may now revise the duty of care, except to authorize intentional misconduct or a knowing violation of law. Should an LLC opt to reduce this duty, it would be even more difficult to initiate a claim against an LLC’s membership for failing to exercise proper care and prudence in business decision-making.

An operating agreement may also limit a member or manager’s liability to the LLC and its members for monetary damages, except for situations for breaches of certain duties, a financial benefit to which a member of manager is not entitled, an intentional infliction of harm, or an intentional crime.

  1. Inspection of Books and Records

The amendments to the LLC Act have provided members increased rights to access LLC information. Members may now make demands to the LLC for information, and the LLC must, within 10 days, provide the information or decline to do so; should the LLC decline, it must issue a record stating its reasons for declining. The LLC may, on the other hand, enact reasonable restrictions and conditions on access to and use of information. Should a dispute arise regarding the restrictions, the LLC has the burden of proving reasonableness. These rights extend to a dissociated member who seeks the information in good faith and for a proper purpose, but the rights do not extend to transferees.

Where litigation could arise are the definition of “reasonableness” in defending reasonable restrictions and “proper purpose” in asserting a dissociated member’s demand. The Act does not specify what would constitute “reasonableness” or a “proper purpose,” so the matter will likely have to be settled in the courts.

  1. Conversions

An organization may now convert to an LLC, and an LLC may now convert to an organization other than a foreign LLC. An organization is defined as a general partnership, limited partnership, LLC, business trust, corporation, or any other entity with a governing statute, whether or not its business is conducted for profit. The Act previously allowed only partnerships or limited partnerships to convert to an LLC, and it did not provide a procedure for an LLC converting to another organization. These amendments allow for more flexibility and an easier process of converting from one organizational form to another; nearly any organization can now convert to an LLC and vice versa, so long as the converting organization’s governing statute authorizes the conversion, and the conversion is not prohibited in the jurisdiction where the organization’s governing statute was enacted. After the plan of conversion is approved, a converting LLC must file either an Articles of Conversion with the Illinois Secretary of State, or an Articles of Organization if the converting organization was not previously an LLC.

Table of Amendments to the LLC Act

New

Old

Analysis

Section 1-5

A “legal representative” is an executor, administrator, guardian, personal representative and agent, including an appointee under a power of attorney.

This term was not included in the previous Act.

The Act allows legal representatives to exercise a number of powers in the foregoing sections, producing potential issues to litigate depending on who is considered/designated as a legal representative.

The term “manager” applies to anyone who has the properly vested authority in the LLC’s operating agreement.

The Act formerly provided that a manager was someone with the proper authority under the Act rather than the LLC’s operating agreement.

In establishing an operating agreement for a manager-managed LLC, it is important to remember that the Act now requires the operating agreement to determine who the managers are.

A “manager-managed” LLC is formed vesting authority in the LLC’s manager(s) in the operating agreement.

The Act previously stated that the articles of organization would determine whether the LLC is manager-managed.

This provision plays in to the previous definition, where the operating agreement determines whether the LLC is manager-managed and designates who the managers will be.

One of the biggest changes is the definition of an operating agreement (discussed more in Section 15-5), which now allows for oral and implied operating agreements.

Operating agreements were formerly required to be in writing.

An issue for litigation is determining what constitutes an “implied” operating agreement. What is actually included in an oral agreement will also likely be a subject of litigation should a dispute arise. Further, even though the Act now allows for oral operating agreements, it would be wise to nevertheless have a written agreement in order to ease or even avoid issues in litigation.

Section 1-6

Any electronic records must comply with the Electronic Commerce Security Act

This section did not exist previously.

It will be important for attorneys to keep the ECSA in mind when keeping the LLC’s records.

Section 1-30

Managers may now be “designated,” and “officers and other agents” may now be appointed.

The previous requirement was that managers were elected and only agents were appointed.

This section will simplify the process of choosing managers in that the Act no longer requires the members to elect the managers.

Section 1-40

Provisions were added to this section extending the right to inspect records to transferees of a distributional interest; however, the inspection must be for a “proper purpose.” The transferee must submit a written demand to which the LLC has 10 days to respond, either granting the demand or denying it, provided it supplies its reasons for declining the request. A legal representative (defined in Section 1-5) may also exercise these rights.

These provisions did not exist prior to the amendments.

The questions that arise out of this new section is what constitutes a “proper purpose”? Further, how will that be determined? Will it be a question of fact? This will likely be an issue that arises in litigation.

Section 1-46

This section was added to ensure the enforceability of an operating agreement regardless of whether it is written or oral, or if it can be performed within one year of its making, exempting operating agreements from the Statute of Frauds.

This section did not exist prior to the amendments.

The Statute of Frauds will no longer be a viable defense when contesting the enforceability of an oral operating agreement, which could make a litigator’s task a bit more difficult when his client is accused of violating the agreement.

Section 1-65

The law of the State of Illinois governs LLC internal affairs and the liabilities of members and managers.

This section did not exist prior to the amendments.

Attorneys assisting in the establishment, maintenance, and litigation of LLC affairs must now look to Illinois law in addition to the LLC’s governing documents.

Section 5-5

This section was amended to revise the requirements of the articles of organization. Specifically, the articles must include a confirmation that there are one or more members at the time of filing, or there will be one or more members at the time the filing becomes effective; the articles must also include the names and business addresses of all managers and members having manager authority.

The previous version of the Act required members and managers to submit their names and addresses, rather than just the managers. The provision on membership confirmation did not exist prior to the amendments.

Section 5-45

Documents that are required to be executed by the LLC must be signed as follows:

- The initial articles of organization by the organizer(s)

- A document filed for a dissolved LLC with no members by the person winding up the LLC

- Any other document by the person authorized to sign on behalf of the LLC

The Act previously required filings to be executed in ink rather than “signed,” and the articles of organization (not the “initial” articles) had to be executed by the organizer(s). Other documents had to be signed by either a manager or, if the LLC was member-managed, by a member designated by majority vote.

When establishing and organizing an LLC, attorneys must now be sure to acquire the necessary signatures of the parties designated in this section of the Act.

Section 5-47

This section was amended by removing Section 5-47(e)(4)-(6).

Previously, this section prohibited a statement of correction from altering:

- (4) An LLC’s articles of organization with respect to its name, purpose, ability to establish a series, or the names/addresses of the members, managers, or organizers

- (5) Provisions of the application for admission to transact business with a foreign LLC

- (6) Provisions of the application to adopt or change an assumed LLC name

A statement of correction may now be utilized to amend/alter the documents previously enumerated in (4)-(6), allowing more flexibility in amending the articles of organization and other applications. Attorneys should carefully track these documents in case statements of correction have been filed.

Section 10-1

One becomes a member of an LLC upon formation, or after the formation of the LLC…

- As per the operating agreement

- As a result of a Section 37 transfer

- With consent of all members

- If within 180 consecutive days after the LLC exists, a legal representative or last remaining member designates a new member and that designated person consents

This provision originally required unanimous consent in admitting new members or allowing membership rights to transferees.

Litigation could arise under this section should a transferee wish to exercise membership rights when they are not available; the reverse of this scenario is also possible, where the constituent members of the LLC wish to prevent a transferee from acquiring membership rights.

Attorneys should note the circumstances in which someone becomes an LLC member, and advise the client as to the expectations of gaining membership credentials.

If a person is a transferee, that person does not become a member. A transferee may ultimately become a member without acquiring a distributional interest and without the requirement to make a contribution to the LLC.

Section 10-15

This section was substantially revised to provide:

- Within 10 days after receiving a demand for information, the LLC must provide the information or decline, stating the reasons for declining.

- A dissociated member may have access to information to which the person was entitled to while a member, if sought in good faith and for a proper purpose.

- The LLC may impose reasonable restrictions and conditions on access to and use of information; in a dispute; the LLC has the burden of proving reasonableness.

- The rights of this section do not extend to transferees.

Prior to the amendments, this section of the Act only provided a member’s rights to information. The LLC could allow access only to members and their agents/attorneys.

This section would aid an attorney in procuring LLC information for a client who is a dissociated member of an LLC, and attorneys representing an LLC should advise accordingly when the LLC receives a demand for information.

In terms of litigation, compliance with the terms of the Act could be a point of contention if a person was improperly denied access to information requested.

Section 13-5

A member is no longer an agent of the LLC solely by reason of being a member.

Prior to the amendments, members were agents of the LLC for the purpose of its business. An act of a member for carrying on, in the ordinary course, the LLC’s business bound the LLC.

Issues could arise in litigation when a transaction is disputed on agency grounds (e.g. a party argues that a member did not have proper authority), regardless of whether the transaction was entered into in the ordinary course of business.

Attorneys should now advise members to be mindful of their vested authority and potential transactions/agreements that could bind the LLC.

Nothing in the Act shall be deemed to limit the effect of law other than the Act, including the law of agency.

A person’s status as a member does not prevent or restrict law other than the Act from imposing liability on a LLC because of the person’s conduct.

Section 13-15

A Statement of Authority may be filed with the Illinois Secretary of State specifying the authority or limitations on authority for any member or manager to execute transfers of property or enter into transactions. An LLC may amend or cancel a Statement of Authority by filing the amendment or cancellation with the Illinois Secretary of State.

This section did not exist prior to the amendments.

LLCs should specify a member’s authority or limitations thereon should it decide to file a Statement of Authority with the Illinois Secretary of State.

Section 13-20

A person named in the Statement of Authority may also file a Statement of Denial with the Illinois Secretary of State denying a grant of authority. A Statement of Denial operates as a restrictive amendment to the Statement of Authority.

This section did not exist prior to the amendments.

If an LLC member-client who is vested certain authorities wishes to restrict them, an attorney should advise the client of his right to do so to avoid certain liabilities for acting in ways that were outside or within the scope or his authority.

Section 15-1

An LLC is member-managed by default, but the operating agreement may specify otherwise.

This designation was previously made in the articles of organization.

If an LLC wishes to be manager-managed, the operating agreement’s drafting attorney must now make the designation in the agreement.

The Act further amended this section to remove certain actions requiring unanimous consent, which were the redemption of an interest and the waiver of a right to have the LLC’s business wound up and the LLC terminated. Unanimous consent is required in order to convert to another entity type, merge with another entity, or domesticate the LLC under Section 37.

The Act previously required unanimous consent to make interim distributions and to waive the right to have the business wound up and the company terminated.

Attorneys (and LLCs) must now be conscious of the decisions requiring unanimous consent when advising the clients of the proper course of action when these matters arise.

Section 15-5

The operating agreement for an LLC may establish that the LLC is manager-managed and provide for the rights and duties of a person in their capacity as manager. (15-5(a))

This was not in the Act prior to the amendment.

If an LLC wishes to be manager-managed, the operating agreement’s drafting attorney must now make the designation in the agreement. Additionally, when drafting the operating agreement, attorneys must remember to designate the managers’ authority on certain matters.

Removed 15-5(b)(6), which prevented an operating agreement from eliminating or reducing fiduciary duties.

The operating agreement may now restrict or eliminate a fiduciary duty other than the duty of care, but only to the extent the elimination/restriction is clear and unambiguous.

The operating agreement may identify specific types of activities that do not violate a fiduciary duty.

The operating agreement may alter the duty of care, so long as it does not authorize intentional misconduct or knowing violation of law.

The operating agreement may specify actions which would otherwise violate the duty of loyalty that may be ratified by one or more disinterested and independent persons after full disclosure of all material facts.

The Act previously provided that the operating agreement could not eliminate the LLC’s duty to purchase a dissociated member’s distributional interest, and that it may not eliminate or reduce the members’ fiduciary duties.

Attorneys must be sure to identify which duties members wish to alter or eliminate, and clearly do so in the operating agreement.

This could also be an issue subject to litigation, where a member/manager’s actions allegedly violate a fiduciary duty that may have been eliminated or altered in some way.

The operating agreement may alter or eliminate the right to payment or reimbursement for a member or manager and may eliminate member/manager liability to the LLC and its members for money damages, except for:

- The breach of certain duties.

- A financial benefit received that should not have been.

- Intentional inflictions of harm or violations of criminal law.

This provision was not in the Act previously.

The issue of reimbursement could be subject to litigation where a member is not reimbursed when it believes it ought to be. Attorneys drafting the operating agreement should inform clients of the ability to decide what circumstances allow for reimbursements and to be mindful of those that require it in order to reduce the risk of litigation.

An LLC is bound by and may enforce the operating agreement whether or not the company itself had manifested assent to the operating agreement, and the operating agreement may be entered into before, after, or at the time of the filing of the articles of organization.

This was not in the Act prior to the amendment.

The Act is silent in specifying precisely when an operating agreement takes effect, so this could be an issue for litigation when a member allegedly is not in compliance with the operating agreement’s terms (member could argue his actions were before or after the operating agreement was effecting/governing, for example).

Section 15-7

An LLC must reimburse a member or manager for debts incurred in the course of activities on behalf of the LLC if the member/manager complied with Sections 15-3 and 25-35.

The provision required reimbursement for liabilities incurred in the ordinary course of business in the preservation of the LLC’s business or property.

The issue of reimbursement could be subject to litigation where a member is not reimbursed when he believes he ought to be. Attorneys should also inform clients of the circumstances when reimbursement is required.

An LLC may also purchase insurance on behalf of a member/manager against liabilities asserted against or incurred by a member/manager.

This was not in the Act prior to the amendment.

Client LLCs should be advised of the option to purchase insurance when it could be beneficial do so.

Section 20-1

A contribution now includes “other benefits.”

Previously, the Act only provided for contributions in cash, property, or services rendered.

It is now easier for a member to make a contribution because contributions are not restricted to what was previously enumerated in the Act.

Tax and accounting issues for the LLC could arise in determining and tracking the appropriate values and bases for the “other benefits.”

“Other benefits” is also fairly open-ended, so that could be a point of contention.

Section 20-5

Establishes remedies for the LLC against members who fail to make required contributions. Remedies include:

- Loss of voting rights

- Loss of ability to participate in management or operations

- Dilution or sale of interest

The previous rendition of the Act did not provide remedies for failure to contribute.

Attorneys representing an LLC should be mindful of these remedies when advising LLCs on available courses of action should a member fail to make an appropriate contribution. Litigation could also result in seeking the remedies or defending against the assertion of them.

Section 25-35

This section states that a member or manager that consents to a distribution that violates the operating agreement or articles of organization is personally liable to the LLC. Further, a person who receives a distribution knowing it was a violation of the operating agreement and articles of organization is personally liable to the LLC.

The Act previously held a member or manager liable for voting in favor of or assenting to an improper distribution.

If an LLC seeks guidance on whether or not to make a dissolution, an attorney must be familiar with the distribution rules, because members could be liable for making improper distributions. Additionally, if an attorney represents a member individually, the member should be advised as to whether he should accept the distribution.

Section 30-5

Added that a transfer of a distributional interest in whole or in part does not by itself dissolve and wind up the LLC’s activities and is subject to Section 30-10 (below).

The remainder of the section did not change and remains as it was originally.

Dissolution should comply with Article 35.

Section 30-10

A transferee who does not become a member is no longer able to seek a judicial determination (35-1(5)) that it is equitable to dissolve and wind up the LLC’s business.

The Act previously allowed transferees to seek judicial action to dissolve and wind up the LLC.

A transferee’s rights to seek judicial action have been restricted, so attorneys should be aware of the proper courses of action a transferee can take.

Section 30-20

The amendments to this section gives judgment creditors of a member or transferee the ability to obtain a charging order constituting a lien on distributions. Courts may issue additional orders and foreclose the lien, and order a sale of the distributional interest.

Under the previous provisions of the Act, courts did not retain the right to exercise a broad range of powers to aid creditors in satisfying the debts owed. The Act previously allowed the debts to be satisfied by way of property as well.

This section gives courts fairly broad discretion in enforcing a charging order, including the foreclosure of the resulting lien and sale of the distributional interest. The purchaser at such sale does not become a member, but has merely transferee rights.

Section 30-25

If a member dies, the deceased’s personal representative or other legal representative may exercise the rights of a transferee under Section 30-10(e) and rights of a member to information under Section 10-15.

This section was not in the Act before the amendments.

If a client dies during his membership in an LLC, attorneys should be aware that they have certain member and transferee rights, and understand the limitations on those rights.

Section 35-1

An LLC must dissolve/wind up when:

- All members consent.

- An event specified in the operating agreement occurs.

- The passage of 180 days in which the LLC has no members.

- By judicial decree upon the application of a member, dissociated member, or transferee.

o The court, though, may order a remedy other than dissolution, such as a buyout.

- By administrative dissolution under 35-25.

The Act previously provided that an LLC will be dissolved upon the consent of a specified number of members rather than all of them; when carrying on the business would be unlawful; and upon a judicial determination, following a transferee’s petition, that winding up the LLC is equitable.

Attorneys advising LLCs must now recognize the situations where dissolution is mandated, and subsequently begin the processes necessary for dissolution and winding up.

Section 35-3

If there are no members, and the LLC is to continue after dissolution, the legal representative of the last remaining member may agree in writing to continue the LLC within 1 year of the dissolution. This does not apply in judicial or administrative dissolutions.

This section previously described events whose occurrence effected the waiver of the right to have the LLC wound up and terminated; the Act now states that the LLC’s business resumes once the waiver is elected.

If an attorney represents a member individually, that attorney may elect to continue the LLC after it has been dissolved. The Act, though, does not specify the proper purpose for doing so.

Section 35-4

A legal representative of the last person to be a member, having the authority of a sole manager, may wind up the LLC if a dissolved LLC has no remaining members. If the legal representative fails to wind up the business, a person may be appointed to do so, exercising the same authority reserved for the representative. The circuit court may also order judicial supervision of the process.

Judicial supervision in winding up the LLC’s business had to be petitioned by a member, a member’s legal representative, or a transferee.

Such legal representatives now have the power of a sole manager and have the authority to wind up the LLC so long as the LLC no longer has any members.

Section 35-15

When an LLC has been wound up, the LLC must submit a statement of termination containing the LLC’s name, address to which process may be mailed for service, and a statement that the LLC has been terminated.

The Act previously required the payment of debts, the distribution of property, and adequate provision for pending suits.

Attorneys must now take extra steps to terminate the LLC because dissolution does not complete the process, and they should notify clients of the additional requirements.

Section 35-20

The phrase articles of dissolution was replaced with statement of termination.

Other than the phrasing changes, the section was unchanged.

The change to phrasing supports the significance of filing a statement of termination signifying the end of the LLC’s existence, which affirms the notion that the process does not end with dissolution.

Section 35-37

The Secretary of State will not allow another domestic LLC to use the name of an LLC that has been administratively dissolved until 3 years have elapsed. If reinstated within 3 years, the domestic LLC will resume the use of its prior name.

This section was not in the Act before the amendments.

To avoid potential litigation, attorneys should advise clients to choose a name that is not subject to the terms of this provision. Should the 3-year period be close to expiration, the client LLC may wait until the name becomes available.

Section 35-45

This section added a new event that could lead to a member’s dissociation. In the case of a merger, a member is dissociated if the company is not the surviving entity, or otherwise as a result of the merger the person ceases to become a member. Domestication and conversion can also dissociate members.

The remainder of the section did not change and remains as it was originally.

Should a member decide that it wants to carry its membership over to the surviving LLC, its attorney should advise it of its status and that it could potentially petition the surviving LLC for membership.

Section 35-55

A person’s dissociation does not itself discharge the person from any debt, obligation, or other liability to the company or the other members which the person incurred while a member. Additionally, any distributional interest owned by a dissociated member is owned by that person as a transferee.

The Act previously required a dissociated member’s interest to be purchased by the LLC.

Attorneys should notify a dissociated member that his liabilities remain in existence and should be dealt with. Additionally, the client should be advised that his rights as a member have changed to those of a transferee.

Section 37-5

The amendments added new definitions relevant to conversions and domestication.

The Act formerly included definitions relevant to other entity forms.

Attorneys should become familiar with these terms in the early stages of dealing with LLCs under the Act’s amendments. Attorneys should use definitions which comply with the provisions of Section 37, but judicial interpretation of them will not be known until the provisions are the subjects of litigation.

Section 37-10

The Act now allows an LLC to convert to different kinds of entity forms and vice versa. A plan of conversion must be in a record and must include the name of the organization both before and after the conversion, the terms and conditions of the conversion, and the organizational documents of the converted organization that are, or are proposed to be, in a record.

The Act formerly provided the procedures for partnerships and limited partnerships to convert to an LLC; there was no procedure in place for an LLC to convert to another entity.

This section now allows greater flexibility in determining choice of entity. Attorneys should also become familiar with the conversion principles in general, because clients may wish to convert either to an LLC or from an LLC due to the newfound ability and relative ease in doing so.

Section 37-15

All property, debts, and liabilities of the converting LLC are vested in the converted LLC. Additionally, conversion does not dissolve a continuing LLC.

These provisions did not exist prior to the amendment.

If a client LLC converts to another entity, attorneys must exercise the proper procedures to dissolve it.

Further, attorneys representing or counseling a foreign LLC should advise it that it may nevertheless be sued in Illinois, even if it is not authorized to conduct business in the state. The Illinois Secretary of State serves as the LLC’s registered agent, but how the LLC will be notified that it has been sued is not specified in the Act.

Foreign LLCs who are not authorized to transact business in Illinois (i.e. have not yet filed for authority) appoint the Illinois Secretary of State as agent; parties wishing to file suit against the LLC may serve the Illinois Secretary of State.

Section 37-16

All members of the converting LLC must consent to the conversion. A converting LLC may also amend or abandon the plan according to the conversion plan.

This section did not exist prior to the amendments.

Attorneys must now advise client LLCs of the consent requirements before it converts. Litigation could also arise when an LLC converts, but a member asserts that he did not consent to the conversion.

Section 37-17

After a plan of conversion is confirmed, the converting LLC must notify the Illinois Secretary of State and file articles of conversion. If the converting entity is not an LLC, the entity must file articles of organization.

This section did not exist prior to the amendments.

Attorneys should be sure to submit the proper documents to the Illinois Secretary of State, with the specific documents depending on whether the organization was or was not previously an LLC.

An LLC may merge with another constituent LLC if the merger would be allowed by the organization’s governing statute and state law, and if the organizations comply with their governing statutes.

The amendments to this section removed the consent requirement and moved it to the next section.

Attorneys should be certain that the LLC’s operating agreement and Illinois law allow the merger, and that the merger plan clearly and accurately describes the terms of the merger.

The merger plan must include the name and form of each constituent and surviving organization, and the terms of the merger.

Section 37-21

All members of the constituent LLC must consent to the merger plan, and the plan may be amended or abandoned according to the plan.

This section did not exist prior to the amendments.

Because unanimous consent is still required, attorneys should draft a plan that is favorable to all members.

Section 37-25

Articles of merger must be signed on behalf of the constituent LLC and each other constituent organization, and must include information specified in the section, including the name and form of the surviving and constituent organizations, the date the merger is to take effect, and articles of organization should a surviving entity be a new LLC.

The Act previously provided the details required to be included in the articles of merger, such as the governing documents of the participating organizations (as well as their execution dates) and the merger plans.

Attorneys should be cognizant of the amendment’s new requirements, and take the necessary steps so that the articles comply with this section.

Section 37-30

The amendments essentially rewrote and clarified this section on the effect of a merger. The new section provides that a surviving organization continues or comes into existence, and the other merging entities cease to exist; all property, liabilities (including pending suits), and debts are transferred to the surviving entity; and the governing documents take effect. A surviving, foreign organization thereby consents to Illinois’ jurisdiction, and may not conduct business in Illinois until it has filed an application for authority.

The Act formerly provided the procedures for serving the surviving, foreign entity through the Illinois Secretary of State. It also removed a provision stating that a member of the surviving LLC is liable for all obligations of a party to the merger for which the member was personally liable before the merger. It also removed a provision stating that an entity that is not a surviving entity in the merger is not required to dissolve and wind up business. 

The effects of a merger remain largely unchanged.

Section 37-31

A foreign LLC may domesticate if its governing statute authorizes the domestication, if domestication is not prohibited in the jurisdiction that enacted the governing statute, and the foreign LLC complies with Illinois law. The same rules apply if an LLC wants to become a foreign LLC.

This section did not exist prior to the amendments.

Attorneys now must do a bit of homework to ensure a foreign LLC seeking their services is authorized to domesticate under the law of its home state; the same applies if a domestic LLC was to domesticate in another state.

Additionally, attorneys will likely bear the responsibility of drafting a plan for domestication and of counseling clients as to what should be included in the plan.

There must exist, in a record, a plan of domestication that includes the LLC’s name before and after domestication, the terms and conditions of domestication, and the LLC’s organizational documents.

Section 37-32

A domestication plan must be consented to by all members of the LLC. A domesticating LLC may also amend or abandon the plan so long as the plan allows.

This section did not exist prior to the amendments.

Just as all members must consent to a conversion plan, the same applies for domestication. The plan’s drafters should craft it in a way that can gain the approval of every member.

Section 37-33

The LLC must file articles of domestication with the Illinois Secretary of State.

This section did not exist prior to the amendments.

This section provides another form for attorneys to prepare and file with the Illinois Secretary of State’s office.

Section 37-34

Essentially, all property, liabilities, debts, and pending proceedings against the domesticating organization accompany the organization. A domesticating organization also consents to Illinois’ jurisdiction and must file an application for authority with the Illinois Secretary of State in order to conduct business in Illinois.

This section did not exist prior to the amendments.

Attorneys should advise foreign LLCs wishing to domesticate in Illinois that domestication is not a means of escaping liabilities or detaching themselves from ownership of property; whatever property or liabilities existed for domestication follow the LLC to Illinois.

Section 37-36

If a member will have personal liability as a result of a merger or conversion, that member’s consent thereto is required, unless the operating agreement provides for approval with the consent of fewer than all of the members and the member has consented to the provision of the operating agreement.

This section did not exist prior to the amendments.

An attorney representing a member of a merging or converting LLC should advise him that it need not consent to the merger if the member will have personal liability with respect to a surviving or converted organization.

Section 50-10

This section added new fees for filing a certificate of designation ($50), articles of domestication ($100), statements of authority ($50), and statements of denial ($10).

These provisions were created to accommodate the earlier amendments.

Attorneys should be mindful of these new fees and ensure that they are properly and timely paid.

Section 55-1

The Act’s policy is to give maximum effect to the freedom of contract and the enforceability of operating agreements.

The existing provision under this section was that the Act would be applied to effectuate its purpose.

This provision allows for flexibility in drafting and executing operating agreements, whether oral, implied or written. Recognizing the freedom of contract means that attorneys should be aware that operating agreements, of any form, will be enforced, and that they should advise their clients accordingly.