Chicago Business Litigation Lawyer Blog
Limited Liability Companies (LLCs) are a popular business structure known for providing liability protection to its members. However, conflicts and wrongdoing within an LLC can occur, leading to disputes among members. When an LLC suffers harm due to actions taken by its management or majority members, a derivative suit can be an effective legal recourse for members seeking to address these issues in Illinois.
Understanding LLC Derivative Suits: An LLC derivative suit is a legal action brought by one or more members on behalf of the LLC against a third party, typically the management or majority members, alleging wrongdoing or harm done to the company. In essence, it allows individual members to sue on behalf of the LLC when the company itself fails to take action against internal misconduct.
In Illinois, the procedures and rules governing derivative suits for LLCs are outlined under the Illinois Limited Liability Company Act (805 ILCS 180) and relevant case law.
Requirements for LLC Derivative Suits in Illinois: For a member to file a derivative suit on behalf of an LLC in Illinois, several key requirements must be met:
- Ownership Status: The member initiating the derivative suit must be a current member at the time of filing the lawsuit and must have been a member at the time the alleged wrongdoing occurred.
- Exhaustion of Remedies: Generally, the member bringing the suit must show that they made a demand on the LLC’s management to take action against the alleged wrongdoing but that the demand was either rejected or ignored, or waiting for a response would be futile.
- Injury to the LLC: The alleged misconduct must have caused harm or damage to the LLC, affecting its financial interests or causing other significant negative effects.
- Representation of LLC’s Interests: The member bringing the derivative suit must adequately represent the interests of the LLC and not have conflicting interests.