Limited Liability Company Act “Events Causing Dissolution” and “Right to Wind Up”

A limited liability company (“LLC”) allows members limited liability, but LLCs aren’t perpetual. Section 180/35-1 of the Limited Liability Company Act details the events that cause the dissolution of LLCs. 805 ILCS 180/35-1. Section 180/35-1(4)(E) indicates that LLCs can be dissolved “on application by a member or a disassociated member, upon entry of a judicial degree that the manager or members in control of the company have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent with respect to the petitioner.” 805 ILCS 180/35-1(4)(E).

This article addresses members’ rights to wind up a LLC’s business post-dissolution as well as the liabilities and rights during winding up of a LLC. Aside from administrative winding up of a LLC’s affairs under judicial supervision, individuals can wind up the LLC’s business. The individuals who have the right to wind up a LLC’s business after dissolution are: (a) members who have not wrongfully dissociated from the LLC; and (b) legal representatives of the last surviving member of the LLC. 805 ILCS 180/35-4.

The persons winding up a LLC’s affairs may preserve the company’s business or property for a reasonable time as well as prosecute and defend actions and proceedings on behalf of the LLC. These persons may also settle and close the company’s business, dispose of and transfer the company’s property, discharge the company’s liabilities, distribute the assets of the company, settle disputes by mediation or arbitration, and perform other necessary acts. 805 ILCS 180/35-4(c).

Although members of LLCs are generally not personally liable for the debts or obligations of the company, courts in some states have held that a LLC member or manager may be held individually liable during the winding up process post-dissolution. 49 A.L.R. 6th 1 §64 (2009). Examples of winding up situations in which LLC members can be held individually liable include:

• Members of an LLC fraudulently attempting to use the provisions of the state’s Limited Liability Companies Act to avoid liability;
• Members who wind up an LLC and do not comply with the provisions of the Act governing distribution of a dissolved LLC’s assets; and
• Members who, with knowledge of the dissolution, subject an LLC to liability by an act that is not appropriate for winding up for the company’s business. 49 A.L.R. 6th 1 §64 (2009).

\u200bDissolution of an LLC, on its own, however, does not make members personally liable for debts, obligations, or liabilities of the LLC. That is, solely being a member or manager of the LLC or having the authority to wind up the company’s business following its dissolution does not place the individual under any obligation or liability. 49 A.L.R. 6th 1 §65 (2009).