In Illinois a Minority Member can Bring a Derivative Lawsuit as a LLC Member on Behalf of the LLC

In Illinois, the situation regarding LLC minority members bringing a derivative lawsuit for member oppression is quite specific. The Illinois Limited Liability Company Act allows LLC members to file a derivative action to protect the interests of the LLC. This is particularly relevant when the LLC itself has a cause of action, but the managers or members have failed to pursue it. Such a derivative action enables members to enforce the rights of the LLC and recover damages on its behalf.

However, it’s important to understand that a derivative action is distinct from a member oppression claim. While derivative actions are filed on behalf of the LLC for wrongs against the LLC, certain types of member oppression claims are brought by individual members against the controlling members for actions that unfairly prejudice the minority members’ rights or interests and case-specific injury to the minority member but not the LLC as a whole.

For a derivative action to be initiated, certain conditions must be met. The member initiating the action should not be a manager of the LLC, and they must have made a written demand on the managers or members of the LLC to take action to enforce the right. If the managers or members fail to take action within 90 days, the member can then file a lawsuit on behalf of the LLC. It is crucial to note that derivative actions are complex and can be costly, so seeking advice from an experienced business attorney is recommended.

For member oppression, minority LLC members in Illinois have legal options to protect their interests and seek remedies, such as judicial dissolution, breach of fiduciary duty claims, specific performance or injunctive relief, and buyout or monetary damages. Again, legal counsel is crucial in navigating these options and understanding the rights and legal remedies available under the Illinois Limited Liability Company Act.

A minority member of a Limited Liability Company (LLC) can bring a derivative lawsuit on behalf of the LLC as per the Illinois Limited Liability Company Act. This allows the action to recover a judgment in favor of the LLC when members or managers with authority have refused to bring the action or an effort to cause those members or managers to bring the action is not likely to succeed.

The plaintiff must have been a member at the time of the transaction of which they complain, and they must maintain their status as a member throughout the entire pendency of the action [4]. In a derivative action, the judgment or settlement proceeds go to the corporation, not to the nominal plaintiffs. Hence, members cannot recover personally on LLC derivative claims except for their attorneys’ fees and costs if they prevail as those damages are available under the LLC Act.

The concept of “demand futility” is a prerequisite in a derivative action alleging a breach of fiduciary duties. It is established when the plaintiff sufficiently alleges facts that raise a reasonable doubt as to the directors’ disinterestedness or independence or whether the challenged transaction was the product of a valid business judgment. An example of this can be seen in the case of Shirley v. Jed Capital, LLC, where a member raised reasonable doubt as to a manager’s disinterestedness, thus adequately alleging that demand on the LLC’s manager would have been futile.

The Illinois Limited Liability Company Act also provides that an LLC member-manager owes fiduciary duties not only to the LLC but also to the other members. A member may maintain an action against another member to enforce their rights under the Act. However, it is important to note that in the case of Katris v. Carroll, it was held that a member of a manager-managed LLC did not owe the LLC or its other members any fiduciary duty. The nature of the LLC management structure may affect the fiduciary duties owed by the members.

Choosing Lubin Austermuehle for defending or prosecuting LLC member derivative claims is a decision influenced by several key factors:

  1. Experience and Competence: Lubin Austermuehle has a team of attorneys with significant experience in litigating business disputes, including LLC member derivative claims. Their lawyers have been involved in such cases for over three decades, giving them a deep understanding of the nuances and complexities of these disputes.
  2. Comprehensive Approach: The firm is known for its thorough approach to handling cases. They spend considerable time analyzing all business and accounting issues involved in a case to develop a comprehensive strategy. This is particularly important in derivative actions, where the details of business operations and financials can be complex and pivotal.
  3. Collaboration with Experts: In complex litigation involving accounting and financial irregularities, Lubin Austermuehle collaborates closely with forensic accountants and other experts. This collaboration is crucial for uncovering and presenting evidence effectively in court.
  4. Client-Focused Service: Lubin Austermuehle offers free consultations, allowing potential clients to understand their legal options without commitment. This client-centric approach helps in building a relationship based on trust and understanding.
  5. Reputation and Recognition: The firm has received positive reviews and testimonials from past clients, reflecting their commitment to client satisfaction and legal excellence.
  6. Customized Legal Strategies: They are known for tailoring their legal strategies to the specific needs and goals of their clients, ensuring that each case is handled in a way that aligns with the client’s best interests.
  7. Effective Communication: Effective communication is key in legal disputes, and Lubin Austermuehle is noted for maintaining open lines of communication with their clients, keeping them informed throughout the process.
  8. Proven Track Record: The firm’s track record of successfully resolving complex legal disputes, including LLC member derivative claims, speaks to their capability and expertise in this area.

For anyone considering legal action related to LLC member derivative claims, whether in defense or prosecution, choosing a law firm like Lubin Austermuehle can provide the necessary legal expertise, strategic approach, and client-focused service that are critical for navigating these complex legal waters.

For a free consultation, contact us at 630-333-0333 or online.

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