Member Not Removed Prior to Death

                                                    Member Not Removed Prior to Death

A recent decision from Illinois considered whether an individual was disassociated from an LLC by the actions of his parents or in contrast he remained a member through his death to the effect his estate became his assignee? It was the latter. Haohlbaugh v. Hohlbaugh, 2025 IL App (5^th) 240826-U (Oct. 2, 2025).

KBK, LLC was organized in Illinois in 2001 by Ken and Babara, husband and wife, and their son Kevin; all were names as members in the filed articles. In 2003 Ken filed with the Illinois Secretary of State an amendment to the article deleting Kevin from the listing of members. Still, Ken and Barbara directed that KBK make certain payments to Kevin through his death in 2020. The backstory is that this suit was brought by Kevin’s widow, she’s asserting the estate held a one-third economic interest in KBKB while Kevin’s parents asserted he had no interest to be transferred to his estate.

As explained by the court:

Ken testified that he and Barbara thought it was prudent to remove Kevin as a member of the company because Kevin and his wife were separated, and Kevin was not paying his bills. Ken admitted his intent in filing the amendment to KBK’s articles of organization was to take away Kevin’s ownership share in KBK. Ken also admitted saying that “he put [Kevin] in, so I can take him out.” Ken thought that a majority of the members of a limited liability company could vote to remove another member. Ken testified that “the majority” removed Kevin. Ken believed that the filing of the articles of amendment made the dissociation valid. Ken also acknowledged that the members of KBK did not enter into a written operating agreement.  2025 Il. App. (5^th) 240826-U, ¶ 12.

Rejecting that assertion and reversing the trial court, the Court of Appeals wrote:

At the time of these events, the consent of all members of a member-managed company was required for an amendment to the company’s articles of organization. There is no evidence that all three members of KBK consented to the amendment of the articles of organization as required in the Act. Ken testified that he and Barbara agreed that Kevin should withdraw as a member, and that a majority agreed to the amendment. Ken also acknowledged saying that he made Kevin a member of KBK and that he could remove Kevin from membership. Barbara did not testify. Therefore, the evidence indicates that only two of three members agreed to amend the articles of organization. 

The circuit court, however, determined that in the absence of terms for disassociating in an operating agreement, a member could be disassociated by majority vote of the other members. This determination is at odds with the provisions in section 35-45 of the Act. The circuit court departed from the plain language of the Act by reading into it an exception or new event resulting in dissociation that was not included in the text of the statute, and this was error. In addition, the circuit court’s concern that the members of a company would be “unable to break the LLC relationship until one member dies” is unfounded. Under the Act, members of a limited liability company have options for the dissociation of a member or dissolution of the company. For example, under specified circumstances, the company or a member could file an application for another member’s expulsion by judicial determination. A member could also be expelled by unanimous vote of the other members under specified circumstances. And, a member could apply for a decree of judicial dissolution of the company. Finally, the members could have opted to enter into an operating agreement to regulate the affairs and conduct of the company and to govern the relationships among the members. 

Given the failure of the members of KBK to comply with the statutory provisions governing amendments to the article of organization and the statutory provisions governing dissociation, the filing of the articles of amendment in June 2003 did not effectuate the dissociation of Kevin as a member of KBK. In keeping with the provisions of section 35-45, which are controlling, Kevin was dissociated from KBK on his death in April 2020, and not before. Id. ¶¶ 36-38 (citation omitted)

The lesson is clear; if you want a right to expel a member, and it is not clear that the underlying state law creates that right, you need to put it into a written operating agreement.