Not every limited liability company lasts indefinitely. No matter how much time and effort you put into building your business, there may come a time when you decide it’s the right time to close it. However, it’s important to understand that there are certain steps that must be followed when it comes to dissolving an LLC. Failure to complete the dissolution process and wind up the company’s affairs can ultimately mean the business continues to exist under Illinois law — leading to tax problems and liability issues in the future.

Reasons for Dissolving an LLC

When you file the necessary paperwork to start an LLC in Illinois, your business is officially registered with the state. But while you may have started the company with a purpose or specific vision in mind, there can be many reasons to close an LLC. To end the company’s existence and stop the state from recognizing it as an entity, you will need to go through the dissolution process and wind up the company’s affairs.

Specifically, the reasons for dissolving an LLC should be addressed in the company’s operating agreement. In the event the company is no longer profitable, or members cannot agree on important decisions concerning business operations, it might be time to close the company. Other reasons for dissolving an LLC can include disagreements concerning the future of the company or how to distribute profits. In addition, an LLC might also be dissolved due to the death of the owner, decreasing demand for the LLC’s products or services, or another reason that makes it impossible to run the business.

What are the Steps for Winding Up an LLC?

For effective LLC dissolution, seek guidance from Litico Law Group in Rolling Meadows. We offer dependable representation for various business needs across Illinois. Schedule a consultation and explore how we can help your business.

An LLC can’t simply be closed by shutting the doors of the business — there are specific dissolution and wind-up procedures that must be followed. If you’re considering dissolving an LLC, it’s vital to review the operating agreement. This document should address the LLC’s dissolution process and specify the triggering events that can lead to dissolution.

The steps in winding up an LLC include the following:

• Vote to dissolve the LLC — The first step that must be taken to dissolve an LLC is for the members to officially agree to close the company. In many cases, the operating agreement will specify how the vote will happen, when the meeting will occur, and how members will be notified regarding the vote. Under Illinois law, an LLC can be dissolved with a unanimous vote by all members.
• File final tax returns — As you close the LLC’s financial affairs, all required state tax returns must be filed, including the following if applicable: the Illinois Withholding Income Tax Return, the Sales and Use Tax Return, and the Corporation Income and Replacement Tax Return. The Illinois Secretary of State requires an LLC to obtain tax clearance before a company can be closed, showing that you’ve paid all taxes that are due. You will also need to file the required final federal tax returns.
• Inform creditors — Creditors of the LLC must be notified that the company is being dissolved. Illinois law also requires a minimum of five years notice be given to unknown creditors.
• Wind up business affairs — The wind-up process may look different for every business, depending on the type of operation. Typically, winding up includes satisfying remaining invoices, distributing employee severance packages, notifying customers, closing bank accounts, canceling any business licenses, and negotiating the remaining terms for any finance agreements. Steps must also be taken to settle any debts that are owed.
• Distribute remaining assets to members — Once taxes, debts, and other obligations have been paid, the remaining assets can be distributed to the LLC’s members. The operating agreement should specify how the funds are split.
• File Articles of Dissolution — The last step in closing an Illinois LLC is filing dissolution paperwork. In order to officially dissolve the LLC, an Illinois Statement of Termination must be submitted to the Secretary of State after winding up the business. However, an LLC must be in good standing to be voluntarily dissolved. The company’s status must not have been revoked or expired, and the LLC must not have been administratively dissolved.

LLC dissolution and completing the wind-up process can be complex — but it is necessary to ensure these procedures are carried out properly to avoid incurring liability and unintended consequences. Critically, as long as a company still exists, it must file annual reports, pay taxes, and satisfy its legal obligations. It’s essential to have a skillful business attorney by your side to help ensure you comply with the necessary requirements for closing your LLC.

Contact an Experienced Illinois Business Attorney

If you are considering dissolving an LLC, it’s important to have the guidance of an experienced business law attorney to help you navigate the process. Located in Rolling Meadows, Litico Law Group provides reliable representation to LLCs and entrepreneurs throughout Illinois for a wide array of business matters. We welcome you to contact us by filling out our online form or call 847-307-5942 to schedule a consultation to learn how we can assist you.

Members of a Limited Liability Company (LLC) owe certain fiduciary duties to the LLC and each other under Illinois law. Among the most important are the duties of care and loyalty. Unfortunately, LLC members can sometimes violate their fiduciary duties to the company by placing their own interests above the interests of the company or other LLC members. It’s vital for LLC members to fully understand their obligations — and the repercussions of breaching these duties.

What is an LLC Member’s Fiduciary Duty?

A fiduciary duty is a legal obligation that requires an LLC member to act in the best interests of the company. In a member-managed LLC, all members owe a fiduciary duty to one another since they all have input regarding the LLC’s operations. In contrast, in a manager-managed LLC, one member — the manager — is responsible for handling the operations of the company and owes a fiduciary duty to the other members.

Specifically, the fiduciary duties of LLC members help to ensure all members or managers of an LLC put the interests of the LLC above their own. These duties include both the duty of loyalty and the duty of care, as well as the duty to refrain from competing with the LLC and the duty to act fairly toward the company.

What is the Duty of Care?

The duty of care is a fiduciary duty that requires the LLC members to act in good faith, with the same level of care that a reasonably prudent person would set forth when fulfilling their obligations to the company. For example, an LLC member is expected to be thoughtful and prudent when purchasing property and advising other members. As long as an LLC member complies with the duty of care, they would likely be protected from liability in the event the deal did not work out.

Pursuant to the duty of care, an LLC member may not:

• Engage in intentional or reckless conduct
• Engage in grossly negligent conduct
• Knowingly violate the law when it comes to the LLC

Significantly, an LLC member’s duty of care and good faith also extends to wind-up situations. In such cases, they must still act fairly to the LLC, even if they have adverse interests. An LLC member must not compete with the interests of the company until the LLC has been dissolved.

What is the Duty of Loyalty?

Simply put, the duty of loyalty requires that an LLC member put the interests of the company above their own. An LLC member must not only account to the LLC, but they must also not engage in any conflicts of interest when it comes to their own financial interests and the company’s objectives. In addition, an LLC member may not use the LLC’s property for their own personal use — or capitalize on an opportunity that would benefit the LLC for their own economic gain.

In other words, an LLC member must act honestly, avoid conflicts of interest, and not take advantage of the LLC’s business opportunities for themselves. In some instances, an LLC member may be permitted to receive a personal benefit, as long as they’ve disclosed the deal and received approval from the LLC.

What Happens if an LLC Member Violates Their Fiduciary Duties?

Breaching a fiduciary duty can come with serious consequences. If it can be established that an LLC member breached their fiduciary duty, the LLC may be entitled to recover monetary damages to compensate for things like loss of business opportunities, loss of profits, and the wrongdoer’s unjust enrichment. In cases where fraud or egregious conduct can be shown, a court might award punitive damages — this category of damages is meant to serve as a deterrent to others and punish the defendant. A judge might also impose equitable remedies in cases involving an LLC member’s breach of duty of care or loyalty, such as an injunction or the appointment of a receiver.

Can an LLC Member Waive Their Fiduciary Duties?

As of 2017, the Illinois Limited Liability Company Act permits LLC members to waive their fiduciary duties or eliminate them, except for the duty of care. However, this must be specified in the operating agreement using clear and unambiguous language. An operating agreement may also alter the duty of care — but it may not authorize a violation of the law or intentional misconduct.

Contact an Experienced Business Law Attorney

If you are facing an LLC breach of fiduciary duty claim, it’s crucial to have the guidance of an experienced attorney. Located in Rolling Meadows, Litico Law Group serves the needs of LLCs and LLC members throughout Illinois for a wide variety of legal matters. We welcome you to contact us or give us a call at (847) 307-5942 to schedule a consultation to learn how we can assist you.

If you’re an entrepreneur, selecting an entity type for your company is one of the most important decisions you will make. For many small business owners, a limited liability company (“LLC”) is the ideal business structure due to the flexibility, tax advantages, and liability protection it can offer. However, there are certain legal and procedural requirements that must be met under Illinois law if you are considering forming an LLC.

Here are the steps that must be taken to start an LLC in Illinois:

Select a Name for Your LLC

The first thing you must do to start an LLC is to choose a name. Importantly, the name you select must be different from those that are already on file with the Illinois Secretary of State. You can determine whether the name you are considering is already taken by searching the Secretary of State Business Services database. In the event you aren’t ready to register your LLC yet, you can hold a business name for up to 90 days by filing an Application to Reserve a Name.

To comply with Illinois law, an LLC name must contain the words “limited liability company,” “L.L.C.,” or “LLC.” But it’s important to understand that you do not need to use the LLC’s official legal name when conducting business. You may drop the “LLC” and use an assumed business name — also referred to as a trade name — by filing a “DBA” (doing business as).

Appoint a Registered Agent

If you are starting a business, it’s crucial to select an entity type that meets your objectives. At Litico Law Group, our business attorneys are dedicated to serving the needs of business owners in Illinois for a broad scope of legal matters, including LLC formation.

Every LLC in Illinois must designate a registered agent for service of process. Any individual who is at least 18 years old and an Illinois resident can serve as a registered agent. A company can act as a registered agent if it is authorized to conduct business in Illinois and maintains an office address there.

Prepare and File Articles of Organization

To register an LLC in Illinois, you must file Articles of Organization with the Illinois Secretary of State Department of Business Services. This document must set forth a variety of information regarding the LLC including the LLC’s name, the address of the LLC’s principal place of business, the date the Articles take effect, and the LLC’s purpose. It must also include a statement regarding the LLC’s duration and whether it will be member-managed or manager-managed.

Prepare an LLC Operating Agreement

Although an LLC operating agreement isn’t a legal requirement in Illinois or filed with the state, the document can establish the foundation of the LLC and specify how it will be run. An operating agreement outlines financial decisions, the rights of its members, and the responsibilities of its managers. If there are any conflicts concerning finances or the roles that each member will play, the operating agreement can address how these issues should be resolved in advance.

Obtain an EIN and Open a Business Bank Account

An IRS Employer Identification Number (EIN) must be obtained if an LLC has more than one member — regardless of whether it has employees. If you are the sole member of your LLC and do not have employees, you are exempt from this requirement. However, a single-member LLC must secure an EIN if it elects to be taxed as a corporation rather than a sole proprietorship. An EIN can be obtained through the official IRS website.

Once you have your EIN number, you should open a business bank account. This can help to ensure that your personal and business funds remain separate — and you sustain liability protection.

Comply With the Ongoing Requirements

Once you have set up an LLC, you must comply with the ongoing requirements. This means filing an annual report with the Secretary of State each year the LLC is in existence. The report is due before the first day of the LLC’s anniversary date every year. If you fail to file the annual report, the LLC will be dissolved and lose its limited liability protection.

To bring a company back into good standing after it has been dissolved, you must file for reinstatement with the Secretary of State. In addition, you must file an annual report and pay any accrued penalties, interest, and franchise tax due for each year the company did not file an annual report.

Contact an Experienced Illinois Business Attorney

If you are starting a business, it’s crucial to select an entity type that meets your objectives. At Litico Law Group, our knowledgeable business law attorneys are dedicated to serving the needs of business owners in Illinois for a broad scope of legal matters, including LLC formation. We welcome you to contact us by filling out our online form or calling (847) 307-5942 to schedule a consultation to learn how we can assist you.

Within ten days of a member’s demand, the company is required to either: 1) produce the requested documents; or 2) respond in writing describing the documents that will be provided and stating a reasonable time and place at which the documents will be provided. Additionally, if a member demands to inspect company records, the company must designate a reasonable time and place for the member to do so, and the member may make copies of documents. If the company refuses to make requested records available, it must provide the member its reasons for refusing in writing. 180 ILCS 180/10-15(a), (b). If the reasons for withholding are spurious or asserted in bad faith, a member may need to seek relief from a court.

While the LLC Act does not define “proper purpose,” Illinois courts have interpreted the meaning of “proper purpose” in the context of shareholder demands for records under the Business Corporation Act. Seeking information to protect the interests of a member or the company are proper purposes, and a member is “entitled to know anything and everything” reflected in the company’s books and records relevant to protecting her interest. See Weigel v. O’Connor, 57 Ill. App. 3d 1017, 1025 (1st Dist. 1978) (interpreting Business Corporation Act). Evidence of mismanagement or wrongdoing is not necessary to establish proper purpose. See id.

An LLC member may demand company records such as QuickBooks files, bank account statements, credit card statements, and tax returns in order to determine whether the company is being appropriately managed and whether profits are being recorded and distributed fairly.

This article addresses members’ rights to wind up a LLC’s business post-dissolution as well as the liabilities and rights during winding up of a LLC. Aside from administrative winding up of a LLC’s affairs under judicial supervision, individuals can wind up the LLC’s business. The individuals who have the right to wind up a LLC’s business after dissolution are: (a) members who have not wrongfully dissociated from the LLC; and (b) legal representatives of the last surviving member of the LLC. 805 ILCS 180/35-4.

The persons winding up a LLC’s affairs may preserve the company’s business or property for a reasonable time as well as prosecute and defend actions and proceedings on behalf of the LLC. These persons may also settle and close the company’s business, dispose of and transfer the company’s property, discharge the company’s liabilities, distribute the assets of the company, settle disputes by mediation or arbitration, and perform other necessary acts. 805 ILCS 180/35-4(c).

Although members of LLCs are generally not personally liable for the debts or obligations of the company, courts in some states have held that a LLC member or manager may be held individually liable during the winding up process post-dissolution. 49 A.L.R. 6th 1 §64 (2009). Examples of winding up situations in which LLC members can be held individually liable include:

• Members of an LLC fraudulently attempting to use the provisions of the state’s Limited Liability Companies Act to avoid liability;
• Members who wind up an LLC and do not comply with the provisions of the Act governing distribution of a dissolved LLC’s assets; and
• Members who, with knowledge of the dissolution, subject an LLC to liability by an act that is not appropriate for winding up for the company’s business. 49 A.L.R. 6th 1 §64 (2009).

\u200bDissolution of an LLC, on its own, however, does not make members personally liable for debts, obligations, or liabilities of the LLC. That is, solely being a member or manager of the LLC or having the authority to wind up the company’s business following its dissolution does not place the individual under any obligation or liability. 49 A.L.R. 6th 1 §65 (2009).