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In this article, our business attorneys answer the question, “what rights do LLC members have in Illinois?” We explain Illinois LLC members’ financial rights, Illinois LLC members’ voting rights, Illinois LLC members’ rights to inspection of records, dissenters rights in Illinois LLCs, and derivative action rights of LLC members.
For more information on LLCs in Illinois check out our article: Fiduciary Duties of LLC members in Illinois.
Members of an LLC have the following rights with respect to one another:
Illinois LLC members’ financial rights explained
Members obviously have certain financial rights. These rights include the right to share in allocations of the company’s profits and losses and the right to share in distributions of the LLC’s assets during its existence and also when it dissolves and liquidates. The exact nature of these financial rights depends on the operating agreement, which outlines whether they will be shared equally or based on capital contributions or some other type of criteria. The state of Illinois has default provisions that outline how these financial rights will be allocated, if the operating agreement does not outline these rights.
Illinois LLC members’ voting rights explained
Members of an LLC have the right to vote. Voting rights vary, depending on if members or managers are managing the LLC. Members in member-managed companies may vote on all aspects of the business, while members in a manager-managed company have limited voting rights. Voting includes electing and removing managers or major company changes, like an amendment to the operating agreement or articles of organization, a merger, adding a new member, or dissolution.
Illinois LLC members’ rights to inspection of records
Members of an LLC have the right to inspect certain records of the company. These records include the names, addresses, contributions, and shares of profits and losses of each member, the names and addresses of managers, and certain tax returns. The details of these inspection rights, similar to other rights, can be outlined in the operating agreement.
Dissenters’ rights in Illinois LLCs explained
Members of an LLC have the right to an appraisal, or the right to sell a membership interest back to the LLC for the fair value of the interest, if the LLC enters into a transaction that would alter the character of the member’s investment without the member’s consent. Some examples of these situations include mergers, the selling of company assets, and conversions into other entities.
Derivative action rights of Illinois LLC members explained
Members of an LLC have the right to bring a derivative action. This is a lawsuit brought by a member on behalf of the LLC to protect it from wrongs committed against it by management or others. Because the member proposes the suit, if the member wins the lawsuit, the damages awarded by the court go to the LLC. There are some stipulations behind this right, including being a member at the time of the alleged wrongdoing and having first demanded that the LLC bring the suit itself.
If you are interested in forming a LLC after reading this article, check out How to Form an LLC in Illinois.
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