You and your bestie decide to start a business together. One of you has the idea and the other has the expertise to make it work. You’re both going to devote time and money to the new venture. So, how should you divide the company? Fifty-50 seems fair. And sometimes it is – until you disagree.
Over the years, I’ve helped form a lot of businesses, most of them limited liability companies. Understandably, people starting a new business tend to focus on the immediate questions. What are we going to call it? How much money are we each putting in? Who will do what? These are important questions, but there are some less pleasant questions that should be answered at the same time.
Anytime I meet with clients in this setting, I ask a series of questions, most of which they’ve not discussed before. Questions like what happens if one person wants out or wants to stop working? Or what happens when one wants to invest profits back into the entity and the other wants distributions? Even more importantly, what happens if someone gets divorced or dies? Do you want to be in business with your friend’s family or ex? And, most importantly, what happens when you simply can’t agree?
That last question is particularly important in a 50/50 company. With a company owned 51/49, the minority owner may not like the decision, but at least one usually gets made. With two equal owners, however, neither can simply outvote the other.
Neither owner, obviously, wants the other to have complete control. Requiring agreement forces the parties to work together. But there should be an answer to what happens when they can’t because sooner or later even the best business partners will disagree about something important.
Illinois law gives LLC owners freedom to answer these questions themselves through an operating agreement. In fact, Illinois’ Limited Liability Company Act expressly allows members to enter into an operating agreement governing the company’s affairs, its business and the relationship among the members. When the agreement doesn’t address an issue, the provisions of the statute generally fill the gap. Forming the LLC itself, then, is only the first step.
An operating agreement can establish which decisions either owner can make and which require unanimous consent. Maybe either owner can sign an ordinary customer contract, but both must agree before borrowing $25,000, signing a long-term lease, admitting another member or selling the company. But voting rights are only the beginning.
Suppose each owner is expected to work full time in the business. Five years later, one is putting in 60 hours a week while the other has essentially retired to the golf course. They still own the company 50/50. Does the working owner get paid more? Can the other owner be required to sell? At what price? Future you will thank me for addressing these kinds of issues now via an operating agreement.
Death presents another hard issue. Most people who go into business with a friend or colleague choose that person as their partner. They did not necessarily choose that person’s spouse or children. If one owner dies, should the surviving owner be required or permitted to purchase the deceased owner’s interest? How is the price determined? Can life insurance fund the purchase?
Then there is the situation of a voluntary departure. After 10 successful years, one owner decides he’s done. Can he sell his half of the company to anyone he wants? Does the other owner have a right of first refusal? Can the company buy him out? How is the business valued, and how quickly does the purchase price have to be paid?
None of these questions has a universally correct answer, but having an answer now is usually better than beginning the discussion after something has gone wrong.
The worst-case scenario is genuine deadlock. Illinois law provides judicial remedies in certain LLC disputes. A court can order dissolution when, among other circumstances, it’s no longer reasonably practicable to carry on the business in conformity with the company’s governing documents. In some cases involving illegal, fraudulent or oppressive conduct, courts also have statutory authority to grant remedies short of dissolution, including a buyout of an owner’s interest. While that’s a nice fallback, it’s not much of a business plan. That’s why I describe operating agreements and buy-sell provisions as akin to a pre-nup – an agreement you negotiate hoping you will never need to use it.
Fifty-50 ownership isn’t inherently a mistake. For two people contributing equally to a business, it may be the right arrangement. The mistake is assuming that “we each own half” answers all the important questions.
The lesson here is that if you’re starting a business with somebody else, spend time talking about how you will operate when things aren’t going perfectly. Decide who makes which decisions. Talk about money, death, disability and retirement. Talk about what happens if somebody wants out. The legal work required to address these issues at the beginning is modest compared with the cost of resolving them after the relationship has broken down. So, while you still agree on almost everything, agree on what happens when you don’t.
This article appears in November SBJ 2026.