Illinois - The Land of Lincoln...and Limited Liability

Whether it is true or not, many people have heard that they must incorporate in Delaware or Nevada when forming a corporation.  No consensus has yet formed regarding what state is best to incorporate a limited liability company.  This entity is extremely new compared to the corporation and courts have therefore been unable to establish clear common law rules.  However, with the recent Illinois 1st Appellate District ruling in Dass v. Yale, 2013 IL App (1st) 122520 (Dec. 20, 2013), Illinois may become a favored state for those seeking protection in the form of a limited liability company.

In Dass, defendant Craig Yale was individually sued for alleged fraudulent misrepresentations in the sale of a Chicago condominium unit.  The selling and representing entity in this case was Wolcott LLC.  Yale was the sole member and manager of this limited liability company and at all relevant times acted “solely in his capacity as a manager.”  The Appellate Court held that unless the articles of organization for the LLC provide that Yale could be personally liable and Yale consented in writing, he could not be individually liable for his acts as manager of the LLC.  The court cited to Section 10-10 of the Illinois Limited Liability Company Act, which states, “[T]he debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company. A member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager.”

While some may read this case as simply re-affirming the plain language of the Illinois Limited Liability Company Act, the implications are actually far greater.  Dass establishes that members or managers of LLC’s are not personally liable when acting in such capacity for cases arising in “contract, tort, or otherwise.”  This sets Illinois apart as other states have not extended limited liability to tortious actions. See 6 Jade St. LLC v. R. Design Constr. Co., LLC, 728 S.E.2d 448, 451 (S.C. 2012); Salzano v. Goulet, No. CV0402875675, 2005 WL 1154225, at *6, 2005 Conn.Super. LEXIS 1071, at *20–22 (Conn.Super. Ct. April 18, 2005); Rothstein v. Equity Ventures, LLC, 299 A.D.2d 472, 474, 750 N.Y.S.2d 625 (2002). 

Even with Dass, individuals can still be personally liable in Illinois if a plaintiff alleges they acted outside their capacity as a member or manager or if the plaintiff alleges piercing the corporate veil.  We still await a decision as to what circumstances the Illinois courts will pierce the corporate veil in an LLC.  However, corporation law suggests that the courts should be reluctant to do so and the Section 10-10(c) of the Illinois Limited Liability Company Act clearly shows that unlike corporations, observance of the corporate formalities is not a factor in the courts decision to pierce an LLC.  As such, individuals looking to protect their personal assets should strongly consider Illinois when looking to form a limited liability company.

Photo by anika_b47.