Business partners forming an LLC together often assume good faith and fair dealing go without saying. Illinois law backs that assumption up with specific legal duties, and understanding what those duties actually require matters when a dispute arises.
What Duties Do LLC Members Owe Under Illinois Law?
Under 805 ILCS 180/15-3, a member of a member-managed LLC owes the company and other members fiduciary duties of loyalty and care, similar to the duties partners owe each other in a traditional partnership.
What Does The Duty Of Loyalty Actually Require?
The duty of loyalty generally requires a member to account for and hold as trustee any property, profit, or benefit derived from the LLC’s business, to refrain from competing with the LLC before dissolution, and to avoid dealing with the LLC on behalf of an adverse party without full disclosure.
What Does The Duty Of Care Require Instead?
The duty of care generally requires a member to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violations of law in connection with the LLC’s business, a considerably lower bar than ordinary negligence.
Can These Duties Be Modified By The Operating Agreement?
Yes, to a significant extent. Illinois law allows an operating agreement to modify or even eliminate certain fiduciary duties, provided the modification is not manifestly unreasonable, which makes reviewing the specific operating agreement essential before assuming what duties actually apply to a given LLC.
What Kinds Of Conduct Typically Trigger A Breach Claim?
Common allegations include a member secretly diverting a business opportunity that belonged to the LLC, using company funds for personal expenses, competing directly with the LLC while still a member, or entering into a self-dealing transaction without disclosing the conflict to the other members. Kravets Law Group sees this pattern of allegations come up in nearly every LLC dispute it handles.
What Remedies Are Available For A Breach Of These Duties?
Remedies can include monetary damages for losses caused by the breach, an accounting requiring the breaching member to disclose and return any improperly obtained profits, and in some cases injunctive relief preventing ongoing harmful conduct.
What Evidence Supports A Breach Of Fiduciary Duty Claim?
Because these claims often depend on financial records and internal communications, gathering the right evidence matters considerably:
- The LLC’s operating agreement and any amendments
- Financial records showing fund transfers or self-dealing transactions
- Communications relevant to any competing business activity
- Records documenting any disclosed or undisclosed conflicts of interest
How Does This Apply To A Chicago LLC Dispute?
Because the operating agreement can significantly modify these default duties, reviewing the specific agreement is essential before evaluating a potential claim. A Chicago commercial litigation lawyer can assess whether a member’s conduct breached applicable duties under the specific agreement in place.
What If The Operating Agreement Is Silent On These Duties?
When an operating agreement does not address fiduciary duties directly, the statutory default duties of loyalty and care generally apply in full. A Chicago commercial litigation lawyer can help evaluate a claim under these default statutory duties when the agreement itself is silent.
These duties exist to protect members who trust each other with a shared business, but enforcing them depends heavily on the specific operating agreement in place. If you are dealing with a dispute among LLC members in Chicago, reach out to our office to go over the specifics of your situation.