Dissociation from an LLC

The Illinois Limited Liability Company Act allows for the dissociation of members from the LLC. This is the termination of a member’s interest in the LLC. 805 ILCS 180/35-45, 180/35-55(a).

Dissociation of a member’s interest in an LLC can occur by way of a statutorily required circumstance, upon the decision of a member to dissociate him or herself, or where the company or a member ousts another member.

The Illinois LLC Act sets a procedure for a member’s automatic dissociation when a mutually agreed upon event occurs. Such mutually agreed upon events, like the passage of time, the completion of certain tasks, or more adversarial events such as the conviction of a crime or violation of certain rules, may be defined in the LLC operating agreement.

The Illinois LLC Act also allows a company or another member to oust a member by way of court order. This is referred to in the Act as judicial dissociation. There are three specific circumstances defined in the Act which give rise to an action for judicial dissociation: (1) if a member engages in wrongful conduct that adversely and materially affects the company’s business; (2) if a member willfully or persistently committed a material breach of the operating agreement or of a duty owed to the company or other members; or (3) if a member is engaged in conduct relating to the company’s business that makes it not reasonably practicable to carry on the business with the member.

When a member is dissociated from an LLC, the dissociated member is divested of all rights as a member to participate in the management or operation of the company. Unless the member has dissociated by transferring all his or her distributional interest in the company or some other means as outlined in the company’s operating agreement, the dissociated member does not necessarily forfeit the value of his or her ownership interest in the company.

To speak to one of our lawyers, get in touch with us at (312) 223-1699 or email Thomas E. Patterson at tpatterson@pattersonlawfirm.com for more advice and information.