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10 Things Illinois Limited Liability Companies Should Know About The New Limited Liability Company Act

Incorporating Services, Ltd. (Incserv) is pleased to be able to share the below article from Mr. Tyler J. Pratt, an Associate with Heyl, Royster, Voelker & Allen, P.C. located in Chicago, IL.  This article was posted on The National Law Review on March 2, 2017 and can be viewed in its entirety below.

The Illinois Limited Liability Company Act (Act) recently underwent a significant overhaul. Although Public Act 99-0637 does not take effect until July 1, 2017, the magnitude of the changes warrant an early review and both well-established LLCs and those still being conceived should take time to contemplate the impact of the revisions. Here are 10 of the most substantial changes.

   1.  Oral and implied operating agreements are now recognized.

Previously, oral and implied operating agreements were not explicitly recognized by the Act. The best practice is still to have a written operating agreement. This revision may not always protect members, since courts may not always find that an oral operating agreement exists, but it gives those who have failed to draft an operating agreement an alternative avenue for asserting their rights.

   2.  LLCs are now member-managed unless the operating agreement specifies otherwise.

Both member-managed and manager-managed LLCs are still recognized, but unless the operating agreement expressly provides that an LLC is manager-managed, or that the management of the company is vested in its managers, the default is to treat the LLC as member-managed.

   3.  The Act clarifies the procedures when a member wants to inspect and copy records.

Under the Act, a company shall furnish information concerning the company’s activities, financial condition, or other circumstances of the company’s business necessary to properly exercise a member’s rights under the operating agreement or the Act upon member demand. If the company knows, however, that the member already knows the information, the company does not need to honor the demand. Under the Act, when a written demand is made, the company shall provide the information within 10 days after receiving it. If the company cannot comply with the deadline, it must provide a description of the information the company will provide and state the time and location in which it will be provided. If the demand is denied, the company must do so in writing. The company may still charge the person reasonable costs of copying. The Act also clarifies that a member or dissociated member can exercise these rights. Whenever a dispute arises concerning the reasonableness of a restriction or designation, the company bears the burden of proving reasonableness. A transferee is not entitled to inspect records.

   4.  A member is no longer an agent of the LLC solely by reason of being a member.

This new requirement does not prevent or restrict a member from acting as the LLC’s agent, but limits the impact. Previously, each member was an agent of the LLC for purposes of the company’s business. Additionally, an LLC may deliver to the Secretary of State a statement of authority which identifies the member or manager of the company authorized to execute instruments transferring real property or other transactions on behalf of the company.

   5.  Except for the duty of care, fiduciary duties can be eliminated and altered.

The operating agreement may now eliminate or reduce a member’s fiduciary duties. Previously, the LLC Act did not allow the operating agreement to eliminate or reduce a member’s fiduciary duties. That provision has been removed, allowing a member’s fiduciary duties to be eliminated or reduced. The operating agreement may not, however, eliminate or reduce the obligation of good faith and fair dealing and it may not restrict or eliminate the duty of care. The operating agreement can establish the standards by which a member’s duties or rights are to be measured. The elimination of any other fiduciary duties must be clear and unambiguous within the operating agreement. The operating agreement may not authorize intentional misconduct or a knowing violation of the law. The operating agreement may identify specific types or categories of activities that do not violate any fiduciary duty and may specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified after full disclosure of all material facts.

   6.  The operating agreement may provide for remedies and consequences for a member’s failure to make contributions.

The Act now allows an operating agreement to specify the consequences for a member’s failure to make required contributions. Those consequences include, without limitation: the loss of voting rights, the loss of the right to participate in the management or operating of the LLC, liquidated damages, the reduction or dilution of a member’s proportionate interest, the subordination of the member’s rights to receive distributions, a forced sale of the member’s interest, the adjustment of the interest rates for non-defaulting members, and the fixing of the value of a defaulting member’s interest by an appraisal or other formula.

   7.  A creditor’s charging order now constitutes a lien on distributional interests and transfer of distributional interests.

A charging order by a creditor now constitutes a lien on the judgment debtor’s distributional interest and requires the LLC to pay over the debtor’s distributional interest to the creditor. No other rights, however, are granted to the creditor. Consequently, the Act also provides that the transfer of a distributional interest alone does not require dissolution.

   8.  Dissolution is not always necessary.

The Act now specifically provides that a court may order a buyout of an applicant’s membership interest when the applicant has petitioned for relief due to alleged illegal, oppressive, or fraudulent conduct by the LLC’s managers or controlling members. Additionally, even if there are no members, an LLC may now continue to exist, so long as the legal representative of the last remaining member files an agreement to continue the LLC within one year after the event that caused the dissociation of the last member. In that instance, the legal representative is admitted as a member and the company will not be dissolved until a future event of dissolution occurs.

   9.  Dissociation does not relieve or discharge a member’s obligations.

Under the Act, a person’s dissociation alone does not discharge the person from any debt, obligation, or other liability owed to the company which the member incurred while a member.

   10.  The Act now provides a detailed procedure for converting and domesticating an LLC.

The Act now provides the procedures for conversion and domestication. When a company is converted, it changes its structure either from a non-LLC to an LLC or vice versa. Domestication on the other hand occurs when an LLC established under another state’s law becomes an LLC under Illinois’ laws and vice versa. In general, conversion and domestication are permitted so long as the applicable statutes permit such action and not prohibited by the laws of the U.S., Illinois, or other governing states.


Preparing and amending operating agreements is a very complex process and can result in unintended consequences if not done properly. The new ability to have an oral and implied operating agreement complicates this situation.

Nothing herein is intended to constitute legal advice on any subject or to create an attorney-client relationship. The materials presented here are in summary form. To be certain of their applicability and use for specific situations, we recommend an attorney be consulted.

About the author:

Tyler J. Pratt is an Associate Heyl, Royster, Voelker & Allen, P.C. Mr. Pratt concentrates his practice in the area of civil litigation, including: professional liability, tort litigation, Professional Regulation/Licensure, and truck and commercial transportation litigation.

Tyler joined Heyl Royster’s Peoria office as an associate in the fall of 2012. Prior to joining Heyl Royster, he spent nearly two years in general practice with another Peoria law firm. During law school, Tyler was a member of Valparaiso University’s Law Review and worked as an extern for Federal Judge Rudolph T. Randa in Milwaukee, Wisconsin, the U.S. Attorney’s Office in Hammond.

Contact information:

Special thanks to Mr. Pratt for this information on Illinois LLC’s.  Incserv is here to help, contact us for more information.


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March 24th – DE Secretary of State Cut-Off Times Altered!

Ondelaware 173x300 Friday, March 24, 2017 an Employee Recognition Luncheon is planned for all the employees of the Delaware Secretary of State – Division of Corporations.  State services have been altered.

All 30 Minute and One-Hour service filings must be received prior to 6:00 PM (ET) and Two-Hour service filings will need to be received prior to 5:00 PM (ET).  All other cut-off times will remain unchanged.

We will be able to secure filing dates and times until 10:30 PM (ET).

To meet these deadlines, Incserv must receive all filings AT LEAST 15 MINUTES

before the DE Secretary of State corresponding cut-off times.

Incserv will have full-staff available to meet all of your corporate and UCC needs. Contact us via email or call 800.346.4646 (International callers please dial 302.531.0855).

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Biennial Reports and Trade Name Renewals Washington, DC – Due April 1st

April 1st is the deadline for biennial reports to be filed in the District of Columbia. All entity types are required to file a report; a $100 late fee is assessed for failing to do so timely. An entity’s first biennial report shall be delivered for filing by April 1 of the year following the calendar year in which the domestic filing entity was formed or the foreign filing entity registered to do business in the District. Reports are due biennially (every two years) after that.  Additionally, any trade name due to expire this year, must be renewed by April 1st to avoid cancellation.

There is no need to worry about providing original copies; the DC Department of Consumer and Regulatory Affairs (DCRA) will accept copies for filing.

As always, if you have any questions about biennial reports or need assistance with filing, we are more than happy to help. Simply e-mail us at or call us at 202.386.7575 or 877.531.1131.

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Succeeding at Biz: 4 Easy Rules That Will Keep Your Delaware Corporation Alive.

Incorporating Services, Ltd. (Incserv) is very fortunate to repost a wonderful article originally published online at, The Kankakee Valley, Illinois. The author is Mr. Cliff Ennico of The Law Offices of Clifford R. Ennico located at 2490 Black Rock Turnpike, # 354 Fairfield, Connecticut 06825.

The article can be read below in its entirety.

Some friends and I started a high-tech business a couple of years ago and formed a Delaware corporation to run the business. We live and work in another state but were told that Delaware was the place to be for tech startups (it might have been one of your columns, actually).

We formed the corporation online to save money, and it seemed like everything was OK.

A couple of weeks ago, we signed a letter of intent with an angel investor who wants to put $3 million into our company. Needless to say, we were very excited.

But when the investor’s lawyer looked into our company, he made some horrifying discoveries. It seems Delaware killed off our corporation two years ago because we didn’t pay a “franchise tax,” whatever that is. Because our corporation was no longer active, somebody else grabbed our name in Delaware and is now trying to register it as a trademark. If that person succeeds in doing that, we will have to hand over our website domain name even though we’ve spent a fortune building a website around it.

The lawyer also told us that because we never registered in the state where we are actually doing business, we owe tons of money in penalties even though we’ve paid taxes here every year. Now the investor is not so excited about doing business with us. While we are embarrassed as hell, shouldn’t someone have told us we had to do this stuff?

While it could be true that I once wrote a column about the benefits of tech startups incorporating in Delaware, let’s be clear: I never, ever advised someone to form a corporation or limited liability company (LLC) online, and this is one of the reasons. While the online services can get you up and running quickly and cheaply, they don’t help you with the things you need to do on an ongoing basis to keep your corporation or LLC alive. This email is a perfect example of what can happen when you don’t stay on top of things compliance wise.

Having wagged my finger at this reader, I have to say I’m sympathetic to her plight. When you are building a fast-growing tech company, you are working 24/7 365 days per year, living on Red Bull, ramen noodles and three hours of sleep per week. Nobody is thinking about legal compliance. Yet failing to keep on top of things can kill your startup, as this reader’s email attests.

Here are four easy rules that will help keep your corporation or LLC on life support.

Rule No. 1: Hire a lawyer and an accountant, and listen to them! It is impossible to run a tech startup in the United States without a good lawyer and a good accountant. You need both, especially if you are too busy to deal with government paperwork. Whenever your lawyer or accountant tells you something needs to be done, do it immediately! They are not just trying to run up a bill. They are trying to save your butt.

Rule No. 2: Watch your mailbox and inbox. I am certain that the state of Delaware or the corporation’s registered agent sent this reader both emails and snail-mail reminders telling her when annual reports, franchise tax reports and other compliance paperwork were due. She probably threw them away thinking they were junk mail or spam.

This point is so important that I need to scream: WHEN YOU HAVE A CORPORATION OR LLC AND YOU GET MAIL FROM A STATE OR GOVERNMENT AGENCY ADDRESSED TO THE COMPANY, IT IS NEVER, EVER TO BE TREATED AS JUNK MAIL! If you are too busy to deal with it, you should forward the email, or scan and email the paper correspondence to your lawyer and accountant IMMEDIATELY. Let them tell you whether it’s important or not. If they say it’s important, follow Rule No. 1.

Rule No. 3: Pay your registered agent. If you are incorporated in Delaware or a state other than where you are actually located, your online service hired a registered agent in that state to act as your local presence. That company will send you a bill each year for its services. Pay it promptly. If it doesn’t get paid, it will withdraw as your registered agent, and the state will dissolve your corporation or LLC.

Rule No. 4: Register in your home state. Forming a Delaware corporation does not allow you to operate legally in your home state. For that, you need to register as a foreign corporation with your state’s secretary of state and pay taxes to the state tax authority. You have to do both. Failing to register with the secretary of state can lead to heavy penalties and bar you from your state courts if you ever have to sue someone.

Yes, doing these things costs money. But it’s money well-spent. Find the money, and get them done.

Cliff Ennico ( is a syndicated columnist, author and former host of the PBS television series “Money Hunt.” This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.

Special thanks to Mr. Ennico for his insight on properly forming and maintaining your corporate entity. Incserv is here to help, contact us for more information.