Chicago Business Owners: Don’t Rely on Your Operating Agreement Alone
By Hampton & Hampton LLP – Business Succession and Estate Planning Attorneys Serving Chicago
Many Illinois business owners assume their LLC operating agreement will protect the company from probate. But that’s a common misconception. An operating agreement is an important governance document, but on its own, it does not transfer legal ownership. Without additional planning, your business interest can still be drawn into the probate process.
At Hampton & Hampton LLP, we regularly work with entrepreneurs across Chicago who are surprised to learn that probate law, not the operating agreement, controls what happens to an LLC interest unless it’s properly planned for in advance.
What Happens to an LLC Interest at Death in Illinois
Under Illinois law, a membership interest in an LLC is treated as personal property. If it is held in your name individually, it becomes part of your probate estate—even if the operating agreement names a successor. That means the probate court oversees the transfer, which can slow decision-making and limit access to company resources.
Our attorneys provide probate and estate planning services that protect both personal and business assets.
Why the Operating Agreement Isn’t Enough
It’s a common misconception that naming a successor in your operating agreement ensures a smooth transfer. In reality, an operating agreement sets out management rules and ownership expectations, but it does not override state law on how property transfers. Without estate planning, the person listed in the agreement has no immediate authority to act, leaving your company vulnerable to delay and uncertainty.
This is an issue we frequently address in our business succession planning work with Illinois business owners.
How to Keep Your Business Out of Probate
To keep your company operating without court involvement, your operating agreement and estate plan must work together. Some strategies include:
Revocable Living Trust
A trust can hold your LLC interest and direct who inherits, avoiding court oversight. The operating agreement must allow trust ownership.
Buy-Sell Agreement
For companies with multiple members, a buy-sell agreement provides a clear process for buying out a deceased owner’s interest. This keeps control within the business while providing value to the estate.
Coordinated Documents
Your operating agreement, trust, and will should be aligned so there are no conflicts or gaps in authority.
Learn more about how our trust planning services can be structured to protect your Illinois business.
The Risk of Relying on an Operating Agreement Alone
When an LLC interest goes through probate, the court process can cause:
- Payroll or vendor payment delays
- Disruption for employees and partners
- Family or ownership disputes
- Loss of company value or a forced sale
Another common misconception is that a well-drafted operating agreement can override this process. It cannot. In Illinois, even a carefully written operating agreement cannot bypass probate without additional planning through trusts or buy-sell agreements.
Protecting Both Your Legacy and Your Business
At Hampton & Hampton LLP, we help Illinois business owners create succession strategies that:
- Keep ownership out of probate
- Align operating agreements with long-term goals
- Provide clarity with trusts and buy-sell agreements
- Protect employees, co-owners, and family members from uncertainty
Serving Chicago and surrounding communities Don’t wait—contact us today to protect your Illinois business.
Frequently Asked Questions
Does an operating agreement keep an LLC out of probate in Illinois?
No. That’s a common misconception. An operating agreement guides management but does not transfer ownership. To keep your business out of probate, the best practice is to place the LLC interest in a revocable living trust or use a buy-sell agreement.
What is the best way for Illinois business owners to avoid probate on an LLC?
The best approach is to hold your LLC interest in a trust and make sure the operating agreement allows trust ownership. In multi-member LLCs, a buy-sell agreement keeps ownership within the business while providing liquidity for the estate.
What happens if my LLC interest goes through probate in Illinois?
Probate puts the court in control. That can stall payroll, limit access to business accounts, and trigger disputes among heirs or co-owners. These disruptions often reduce business value and, in some cases, necessitate a sale at an inopportune time.
Why should my operating agreement and estate plan be coordinated?
A common misconception is that these documents stand alone. They don’t. If they conflict, authority is unclear, and disputes can arise. Coordinating them ensures a smooth transition of management and ownership, protecting both the business and your family.