Limited Liability Issues

Properly conducting a business as an LLC (or corporation) permits entrepreneurs and investors to protect their personal assets from liability from both the torts and contract breaches of the LLC. The Illinois Limited Liability Act provides that “the debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company.” 805 ILCS 180/10-10, amended by P.A. 90-424, § 10, effective Jan. 1, 1998.

Because an LLC can limit the liability of both members and managers, the LLC can be preferable over traditional limited partnership, wherein each general partner is subject to unlimited liability for partnership or partner acts. The limitation on a limited partner’s to his or her investment also is a limitation on such partner’s ability to be involved in any daily decision making or control. Any limited partners can be liable as if they are general partners should they participate in any partnership. Whereas, the LLC allows members freely to participate while with protection from personal liability. Similarly, corporate shareholders do not participate in management, where LLC members may do so.

This protection does not always protect the LLC managers, because, especially with torts, there is no protection of intentional torts for LLC managers, through whom the LLC acts and who are agents of the entity. Under Illinois law, an LLC manager is only liable for any debt, obligation or liability of the LLC or of another member or manager to the extent that a director of the corporation would also be similarly liable. Managers can be held liable if they effectuate distributions or return of contribution that render the LLC insolvent or reduce the net assets to less than zero. Pursuant to the Act, however, an LLC may indemnify its manager, employees and agents. But, a manager or member who personally guarantees an LLC debt (e.g., financing) is personally liable for that debt.

The historic business purpose for limited liability in corporations or LCCs is to facilitate aggregation of capital by investors, and to recruit the most competent people to manage and run daily operations without personal exposure. When an individual investor’s relationship to the LLC is limited to the investment itself with no right to elect the managers, the investor’s risk is surely limited to what the investor paid for his or her membership stake.

Exceptions to limited liability are intended to address abuse. To protect against abuse, the common law has developed the concept of piercing the corporate (or LLC) veil. Like a corporation, an LLC is not a license for the members or managers to act fraudulently, negligently or criminally, especially if a member is also the a Manager with direct contact or dealings with the third parties that do business with the LLC.

The LLC lawyers at Lubin Austermuehle have many years of experience defending and prosecuting claims involving LLC members including breach of fiduciary duty and fraud claims and claims involving the freeze-out of members in the federal and state Chancery courts in Illinois in a wide variety of business dispute lawsuits. We are knowledgeable regarding the changes and complexities of LLC law. We are committed to fighting for our clients’ rights in LLC dispute cases at both the trial and appellate court levels. We have successfully defended or prosecuted LLC cases achieving large settlements for our clients or winning them control of their business. Conveniently located in Chicago and Elmhurst, Illinois, we have successfully litigated business separation, accounting and breach of fiduciary duty cases for clients all over the Chicago area. To schedule a consultation with one of our skilled attorneys, you can contact us online or give us a call at 630-333-0333.