Illinois small business: Providing for a partner's death

Starting a business in Illinois with friends can often be related to a marriage. When things are going well with a small business, everyone is happy, but when something goes wrong, the situation can turn into a contentious situation. One of the ways to prevent this is to have a well written operating agreement that provides for as many eventualities as possible, including what will happen if one partner dies.

Without provisions in the operating agreement for the death of a partner, that partner's spouse could end up owning a piece of the business through the deceased partner's estate. In one case, a spouse came in not understanding the business and ended up filing a lawsuit against the company. That lawsuit cost the company and the other partner not only in attorneys' fees, but also in a portion of the company and other money.

Avoiding this kind of issue can easily be solved by including provisions in the operating agreement about what will happen to a deceased partner's portion of the business. How it is handled is up to the partners. Regardless of how the partners decide to handle the issue, it should be in writing and agreed to by all of the partners.

In order to avoid the agreement being invalidated in court, it should be drawn up by a professional. If the agreement is not drawn up correctly or does not comply with Illinois law, it could be thrown out in the event of litigation. Every small business deserves the best chance at success, and having a good operating agreement that protects not only the partners, but the business as well is a good start.

Source: 

Huffington Post, "In Business With Your Partner's Spouse?" A. Jude Avelino, Aug. 5, 2013

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