Guide
Operating agreements and joint ventures: why write it down
If two or more people (or two businesses) work together, an agreement on paper tells everyone who owns what, who decides, who pays, and how to part ways. This guide explains why that matters in plain English.
General information only, not legal or tax advice. I am not a lawyer, a CPA or an accountant. This page explains what public sources say. It does not tell you what your agreement should say. Agreements between owners should be reviewed by an Illinois attorney before anyone signs.
The short version
- An operating agreement is the written rulebook for an LLC. It is not filed with the state.
- If you do not write one, Illinois law fills in the rules for you. Those default rules may not be the ones you would have picked.
- If you work with someone else and do not form an LLC or sign a clear agreement, the law may treat you as partners anyway, and partners can be personally responsible for the business’s debts.
- Banks sometimes ask for the agreement when you open a business account. See opening a business bank account.
What an operating agreement is
Illinois’ LLC law says the members can use an operating agreement to govern the company’s affairs, how it does business, and the relationships among the members, the managers and the company. Within limits, it can change the law’s default rules. The limits include things like not being able to unreasonably restrict members’ access to company records, and not being able to remove the duty of good faith and fair dealing. If there is no agreement, the LLC Act itself decides.
The agreement can be signed before, at, or after the Articles of Organization are filed. A person who becomes a member is treated as agreeing to it.
Source: 805 ILCS 180/15-5, Illinois Compiled Statutes (opens in a new tab). Illinois Legal Aid also says every LLC should have an operating agreement, even with one member (see forming an Illinois LLC).
Why it matters most when there is more than one owner
With one owner, the agreement mostly shows the business is separate from you. With two or more owners, it becomes the answer to questions that are easy to ignore when everyone is friendly and painful when they are not. Topics owners commonly decide in writing:
- Ownership. Who owns what share, and what each person put in (cash, equipment, inventory, work).
- Decisions. Who can sign contracts, spend money or open accounts, and what needs everyone to agree.
- Money. How profit and loss are split, when money can be taken out, and what happens if more money is needed.
- Leaving. What happens if someone quits, dies, becomes unable to work, or wants to sell their share.
- Disagreements. How a stalemate or a dispute gets handled before anyone goes to court.
- Records. Who keeps the books and what each owner can see.
This list is general. Your list may be longer. An attorney can tell you what to include for your situation.
Partnership by accident
You do not need a contract, or even the word “partner,” to be in a partnership. Under Illinois’ Uniform Partnership Act, two or more people who carry on a for-profit business together as owners form a partnership, whether or not they meant to. Two details from the statute matter for resellers who team up:
- Sharing profits is a warning sign. A person who receives a share of a business’s profits is presumed to be a partner. The presumption does not apply to some payments, including repayment of a debt, wages or independent-contractor pay, and rent.
- Owning things together is not enough by itself. Co-owning property, even if the co-owners share income from that property, does not by itself create a partnership.
Why this matters: for a general partnership, Illinois law says all partners are liable jointly and severally for the partnership’s obligations. In plain English, a creditor may be able to collect the whole debt from any one of you. A partnership can limit that, and an LLC can limit it, but you have to set one up. See what an LLC does and does not do and LLPs and series LLCs.
Sources: 805 ILCS 206/202 (formation of a partnership) (opens in a new tab); 805 ILCS 206/306 (partner liability) (opens in a new tab).
An LLC with two or more members, and taxes
The IRS says an LLC with at least two members is, by default, taxed as a partnership. A partnership files an information return (Form 1065). It is not taxed itself. Its income, gains, losses, deductions and credits pass through to the partners, who report their shares on their own returns. How that works for you is a question for a CPA.
Sources: IRS: Limited Liability Company (opens in a new tab); IRS: About Form 1065 (opens in a new tab). Compare with S corp vs LLC in Illinois.
For what a K-1 is and when you would receive one, see Schedule K-1 explained.
Joint ventures that stay separate: a de-identified example
Not every team-up should be a partnership. Sometimes two small businesses want to share a cost, like a retail space, while keeping their money, customers and taxes completely separate. Then the agreement’s job is the opposite: to make clear they are not partners.
The owner of Flipfiled is working on a draft like this for his own situation. It is a first draft, it has not been reviewed by an attorney, and he is not a lawyer. Names and details are removed here. It is shown only to illustrate what such an agreement can cover, not as a template.
The setup: two single-member LLCs share one retail storefront as co-tenants under one lease. Each owns its own inventory. They split the rent and shared costs but not profits.
| Topic | What the draft tries to do |
|---|---|
| Space | Assigns exclusive areas and common areas, hours, keys and security, and a regular check-in to review how the split is working. |
| Not a partnership | States that the businesses are independent, share no profit or revenue, and cannot bind each other. No payment between them is calculated from sales or profit. |
| Separate money | No joint bank accounts, merchant accounts or pooled funds. Money that lands in the wrong account is returned within a set number of business days. |
| Shared costs | A written process: receipt, payment, reimbursement invoice, dispute notice, payment, resolution. Costs are billed at actual cost with no markup, and a shared spreadsheet is the record. |
| Rent and default | How rent is split and what happens if one side falls behind. |
| Taxes and permits | Each business keeps its own licenses, its own Illinois sales tax account, its own point-of-sale system and its own tax filings. |
| Public image | Signage, website and checkout notices show customers which business sold the item, so no one assumes the two are one company. |
| Insurance and indemnity | Each carries its own insurance. If someone claims the two are partners, the business whose operations caused the claim covers the other. |
| Leaving | A fixed term tied to the lease, an exit option, who takes over the space, and what happens to shared furnishings. |
| Disputes | Talk first, then mediation, then court, under Illinois law. |
A few lessons from it that apply to anyone:
- The agreement does not shield you from outsiders. A landlord or customer is not bound by an agreement they did not sign. Insurance and promises between the two businesses only divide the risk between them.
- What you do matters as much as what you sign. If the businesses present themselves as one company, a court may care more about that than the paper.
- Get the landlord involved. The landlord’s written consent, and a plan for what happens when one tenant leaves, belong in the conversation early.
- Ask a CPA about the money flows. Reimbursements, transferred furnishings and expenses paid personally can each have tax effects.
- Have an attorney review it. Always, before signing.
Operating agreement vs. other agreements
| Document | Who it is for |
|---|---|
| Operating agreement | The owners of one LLC, about running that LLC. |
| Partnership agreement | The partners in a partnership, including an LLP. |
| Joint venture or space-sharing agreement | Two separate businesses working together on a project or sharing a cost. |
| Articles of Organization | The state filing that creates the LLC. See forming an Illinois LLC. |
Questions to ask an attorney
- Do I need an operating agreement even if I am the only member?
- If we split profits, how do we avoid becoming partners by accident, or should we choose a structure on purpose?
- What should we do if one owner wants out?
- Does my bank, landlord or insurer need to see the agreement?
- How do we handle the money one owner puts in personally?
I am not a lawyer
Flipfiled provides clerical and administrative filing help. I do not draft or review contracts, and I cannot tell you what your agreement should say. Statutes change, so read the current text or ask an attorney. Illinois Legal Aid Online (illinoislegalaid.org (opens in a new tab)) has free legal information if cost is a concern. Checked Oct 30, 2026.
Official forms to download (free)
See Schedule K-1 explained for what this form is.
- Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc. (PDF) (opens in a new tab)
- Partner’s Instructions for Schedule K-1 (Form 1065) (PDF) (opens in a new tab)
This is a tax return form. Flipfiled does not prepare tax returns or give tax advice, so for help with it, talk to a CPA or enrolled agent. These links go to the government’s own site, so you always get the current version. I am not a lawyer or a CPA. This is not tax or legal advice. See all free forms.
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