What Illinois Law Protects Minority Shareholders or LLC Members from Breaches of Fiduciary Duty in Closely Held Companies?

In Illinois, the protections for minority shareholders or LLC members from breaches of fiduciary duty in closely held companies can be found in a combination of statutory provisions and case law.

Firstly, the Illinois Limited Liability Company Act (805 ILCS 180/15-3) specifies that a member of a manager-managed LLC does not owe a fiduciary duty to the LLC unless they are a manager under the terms of the operating agreement (Katris v. Carroll, 362 Ill.App.3d 1140 (2005))(Tully v. McLean, 409 Ill.App.3d 659 (2011)). This means that members of an LLC who are not managers do not owe a fiduciary duty to the company or to other members (Katris v. Carroll, 362 Ill.App.3d 1140 (2005)(800 South Wells Commercial LLC v. Cadden, 2018 IL App (1st) 162882 (2018). However, members in a member-managed LLC do owe each other fiduciary duties of loyalty and care (Anest v. Audino, 332 Ill.App.3d 468 (2002)(Schultz v. Sinav Limited, — N.E.3d —- (2024).

Secondly, under the Illinois Business Corporations Act (805 ILCS 5/12.50), a minority shareholder may sue a corporation directly for its dissolution if they can establish that the majority shareholders have acted in a way that is illegal, oppressive, or fraudulent. This provides a means for minority shareholders to recover their investment from the corporation when no other methods are available (Kalabogias v. Georgou, 254 Ill.App.3d 740 (1993).

Moreover, under common law, a controlling shareholder in a cash-out merger owes the minority shareholders the default fiduciary duties of loyalty and due care, and courts apply an exacting standard of judicial review known as “entire fairness” (Schultz v. Sinav Limited, — N.E.3d —- (2024). Additionally, LLCs can contractually impose fiduciary duties on their managers. Furthermore, the Illinois courts have held that minority shareholders in closely held corporations may sue company directors for breaches of fiduciary duty (Elleby v. Forest Alarm Service, Inc., 2020 IL App (1st) 191597 (2020)).

However, it’s important to note that a case, Coduti v. Hellwig, which dealt with a minority shareholder seeking dissolution of a corporation due to alleged improper benefits received by the controlling shareholder, was overruled by Schirmer v. Bear. The latter case clarified that judicial dissolution is an extreme remedy and that the courts have the discretion to award less severe remedies when the conduct does not warrant dissolution but warrants some other form of relief (Schirmer v. Bear, 174 Ill.2d 63 (1996)).

Finally, it should be noted that the title or position held by a person in an LLC does not necessarily impose fiduciary duties on them. For instance, a person holding the title of vice president in an LLC does not necessarily owe fiduciary duties to the LLC, unless the operating agreement of the LLC specifies otherwise.

Are you a minority shareholder in a closely held Illinois company experiencing breaches of fiduciary duty? Don’t let your rights and interests be undermined. Protecting your stake in a company requires not just legal experience and competence, but a partner who understands the intricacies of Illinois corporate law and the unique challenges of closely held enterprises.

Choose Lubin Austermuehle to champion your cause. With years of dedicated experience in business litigation and a deep understanding of fiduciary duties, our team is uniquely equipped to navigate the complexities of your case. We pride ourselves on our client-centric approach, ensuring that your legal strategy is personalized and effective, tailored to your specific needs and business goals.

Take the first step towards safeguarding your investment and your future. Contact Lubin Austermuehle today for a consultation, and let us show you how we can deliver the justice and peace of mind you deserve. Don’t wait—ensure your interests are protected by a team that fights as hard as you do. Call us now for a free consultation at 630-333-0333 or contact us online!

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