LLC Derivative Actions

The Right to Bring Derivative Actions Under the Illinois LLC Act

The Illinois Limited Liability Company Act (805 ILCS 180/) provides for a mechanism called a "derivative action" that allows an LLC member to bring a lawsuit on behalf of the LLC when the LLC itself has a cause of action, but the managers or members of the LLC have failed to take action.

A derivative action is a legal action brought by a member of an LLC on behalf of the LLC against a third party, typically a manager or another member of the LLC. This action is necessary when the LLC has a claim against someone, but the managers or members of the LLC have not taken action to pursue that claim. In such cases, a member can bring a derivative action on behalf of the LLC to recover damages or seek other relief.

The Illinois LLC Act provides for derivative actions under Section 15-7.1. According to this section, a member may bring a derivative action on behalf of the LLC if:

  • The member was a member of the LLC at the time the cause of action arose, or became a member through transfer by operation of law from someone who was a member at that time.
  • The member is suing to enforce a right that the LLC could enforce, but the managers or members of the LLC have failed to enforce.
  • The member is not a manager of the LLC.
  • The member has made a written demand on the managers or members of the LLC to take action to enforce the right, and the managers or members have failed to take action within 90 days.

If these conditions are met, the member can file a lawsuit on behalf of the LLC. The lawsuit must name the LLC as a nominal defendant and must provide notice to all other members of the LLC.

The derivative action provision in the Illinois LLC Act is intended to protect the interests of LLC members when the managers or members of the LLC are not acting in the best interests of the LLC. It allows members to take action to enforce the rights of the LLC and recover damages when necessary.

However, it's important to note that derivative actions can be complex and costly. Members who are considering bringing a derivative action should seek the advice of an experienced business attorney who can help them evaluate the merits of their case and navigate the legal process.

In conclusion, the derivative action provision in the Illinois LLC Act provides an important mechanism for protecting the interests of LLC members. By allowing members to bring legal action on behalf of the LLC when necessary, the provision helps ensure that the LLC is able to enforce its rights and recover damages when it has been wronged. However, members should be aware of the complexities involved in bringing a derivative action and seek the advice of an attorney before taking action.

If you are a LLC member that is facing or wants to bring a member derivative action you can call our Illinois LLC derivative action and member oppression lawyers at 630-333-0333.

Client Reviews
I was referred to Peter Lubin from someone in the car business to handle a law suit. From the moment I made the appointment Peter and his staff were outstanding. This wasn't an easy case, most lawyers had turned me down. However, Peter took the time to meet with me and review everything. He took on the case, and constantly communicated with me about updates and case information. We beat this non-compete agreement case in record time. I would use him again and recommend him to my closest family and friends. 5 stars is not enough to thank him for his service. Sebastian R.
I worked on two occasions with Peter Lubin and his staff. They took their time with me and discussed each and every item in detail. The group makes you feel like you are part of the family and not just another hourly charge. I recommend Peter to anyone who asks me for a referral. If you are looking for a top notch attorney at a reasonable rate, look no further than Lubin Austermuehle. Kurt A.
Excellent law firm. My case was a complicated arbitration dispute from another state. Was handled with utmost professionalism and decency. Mr. Peter Lubin was able to successfully resolve the case on my behalf and got me a very favorable settlement. Would recommend to anyone looking for a serious law firm. Great staff and great lawyers! Albey L.
I have known Peter Lubin for over 30 years. He has represented me on occasion with sound legal advice. He is a shrewd and tough negotiator leading to positive outcomes and averting prolonged legal hassles in court. He comes from a family with a legal pedigree and deep roots in Chicago's top legal community. You want him on your case. You need him on your opponents case. He won't stop fighting until he wins. Christopher G.
Peter was really nice and helpful when I came to him with an initial question about a non-compete. Would definitely reach out again, recommended to everyone. Johannes B.