Chicago Business Litigation Lawyer Blog
You and your partner built the company as equals. Fifty-fifty feltfair at the start. It does not feel fair now. One of you wants to cash out and the other wants to keep building. Or you cannot agree on payroll, on a distribution, on whether to take the loan, and every vote splits two to two. Checks wait for a second signature that never comes. Employees ask who is in charge, and you no longer have a clean answer.
A 50/50 company that stops agreeing can freeze in place. The deadlock feels permanent because neither owner can outvote the other, and the operating agreement you signed years ago never planned for the day the trust ran out. Here is what the paralysis hides. Illinois does not leave feuding owners stuck. The Business Corporation Act, the Limited Liability Company Act, and the partnership statute each hand a judge real power to break the logjam, remove an owner who is abusing the company, and set a fair price on the way out. The owner who understands
those tools negotiates from strength. The owner who does not usually takes the first number the other side offers.
What is a business
divorce in Illinois?
A business divorce is the breakup of a closely held company between its owners. It is not a phrase in any statute. It is the practical name for what happens when shareholders, LLC members, or partners can no longer run a business together and one side has to buy the other out, wind the company down, or ask a court to separate them. Illinois gives closely held corporations a dedicated remedies statute, 805 ILCS 5/12.56, and provides parallel routes for LLCs and partnerships. The right path depends on your entity, your governing documents, and what
the other owner has been doing.
How do two 50/50 owners break a deadlock in a corporation?
The answer is a petition under 805 ILCS 5/12.56. That statute applies to corporations whose stock is not publicly traded, which describes almost every family and closely held business in Illinois. It lets a shareholder ask the Circuit Court for relief when the directors are deadlocked and the shareholders cannot break the tie, when the shareholders themselves are deadlocked across annual meetings, when those in control act in a way that is illegal, oppressive, or fraudulent, or when the company’s assets are being wasted.
The power that follows is broad. The court can order or undo a specific corporate action, cancel a provision in the bylaws, remove a director or officer, order an accounting, appoint a custodian to run the business, appoint a provisional director to break the tie, order dividends paid, or award damages. Dissolution sits at the bottom of that list for a reason. It is available, but only when no lesser remedy will resolve the dispute. Most business divorces end well before that, in a buyout.
Can a court remove my partner or put a neutral in charge?
Yes, in the right case. Section 12.56 lets the court appoint a custodian to manage the business and affairs of the company, and 805 ILCS 5/12.55 lets it seat a provisional director, an impartial third
vote whose only job is to break a two-to-two tie so the company can function while the dispute is resolved. These remedies matter most when one owner has seized control and shut the other out. Conduct that is oppressive or fraudulent, or the misapplication and waste of company assets, opens the door to relief even when there is no formal deadlock
at all.
Can a frozen-out owner force a fair-value buyout?
Often, yes. Section 12.56(b)(11) lets the court order the corporation or the other shareholders to buy all of the petitioning shareholder’s
stock at its fair value. The statute also gives the other side an election. Within ninety days after the petition is filed, the corporation or one or more shareholders can choose to buy out the
petitioner for fair value and end the fight, stating in writing what they will pay. That election, once made, is generally binding. The dispute then narrows to a single question that decides real money: what are the shares worth?
Does Illinois discount the buyout price for minority status or lack of
marketability?
This is where owners win or lose the largest number in the case, and the answer is fact-specific rather than automatic. Under 805 ILCS 5/12.56(e), fair value means “the proportionate interest of the shareholder in the corporation, without any discount for minority status or, absent extraordinary circumstances, lack of marketability.” As a default, a minority stake is not marked down simply for being a minority, and a court will not always reduce the price because the shares would be hard to sell. The statute leaves room, and the choice
belongs to the trial court. A lack-of-marketability discount remains available in “extraordinary circumstances,” and the application of any
discount is, as the Appellate Court explained in Jahn v. Kinderman, “a matter for the trial court’s discretion.”
The owners’ own conduct can move the number in either direction. Section 12.56(e)(i) directs a court to set fair value “taking into account any impact on the value of the shares resulting from the actions giving rise to a petition under this Section.” Where a shareholder has looted, wasted, or mismanaged the company, whether that shareholder
holds a minority stake or sits in control, a court can weigh that misconduct in fixing the price, and the owner who caused the harm may find the value adjusted against him. The point to carry into any buyout fight is that valuation under 12.56 is discretionary and driven by the record each side builds, not fixed by a formula.
How do you exit or dissolve an Illinois LLC?
For an LLC, the governing statute is the Limited Liability Company Act, and the operating agreement carries most of the weight. When the members cannot agree, 805 ILCS 180/35-1 lets a court dissolve the company where those in control have acted in a manner that is oppressive and directly harmful to the complaining member, or where it is no longer reasonably practicable to carry on the business. Illinois strengthened this route in 2017 by adding a buyout in place of dissolution, so a court can order the company or the other members to purchase the departing member’s interest rather than shut a healthy business down. Read your operating agreement first. It may already set a buyout formula, a valuation method, or a transfer restriction that controls the
outcome.
How do partners dissolve a general partnership and value the one who
leaves?
A general partnership follows the Uniform Partnership Act. Under 805 ILCS 206/801, a partner in an at-will partnership can trigger dissolution by giving notice of an express will to withdraw, and any partner can ask a court to dissolve the firm when it is no longer reasonably practicable to carry on. When one partner leaves but the business continues, 805 ILCS 206/701 sets the buyout price at the valueof the partner’s interest based on a sale of the entire business as a going concern, not a fire-sale or liquidation figure. A partnership breakup almost always includes an accounting, the formal reckoning of contributions, distributions, and what each partner is owed.
What actually counts as oppression?
Oppression is conduct by the controlling owner that defeats the reasonable expectations the owners held when they went into business together. Illinois has recognized the idea for decades. In Gidwitz v. Lanzit Corrugated Box Co., the Illinois Supreme Court held that a continuing course of oppressive conduct can justify dissolution even without proof of fraud or illegality. Section 12.56(d) tells courts to weigh the reasonable expectations the owners formed at the outset and as the relationship developed. In our experience litigating owner disputes in Cook and DuPage County, oppression usually takes the shape of a freeze-out. The majority stops paying distributions while it pays itself a generous salary, fires the minority owner from the job he reasonably
expected to keep, strips him of any role, and waits for him to sell cheap. Courts see the pattern. In Kovac v. Barron, an Illinois court found that a fifty percent owner’s concealed, excessive compensation to himself was oppressive under the statute and upheld a multimillion dollar judgment against him.
What should you do now?
Move deliberately, and move before the other side sets the terms. First, demand the books and records. Illinois gives owners inspection rights, and the documents tell the story of how the company has really been run. Second, do not sign anything that waives your rights, and do not accept or float a buyout number in writing before you have valued the business with a qualified professional, because a careless figure becomes the ceiling in every later negotiation. Third, if assets are being drained or a partner is looting the company, ask the court for emergency relief before the money is gone. Fourth, get counsel who tries these cases, because the credible threat of a 12.56 petition, a custodian, and a no-discount buyout is what moves the other owner to a fair deal.
A deadlock is not the end of your company. It is the start of a process that Illinois law is built to resolve, and the owner who knows the process holds the stronger hand.
Big-firm firepower, with the partners on your case
Peter S. Lubin and James V. DiTommaso are Chicago business litigation lawyers who try cases throughout Illinois. Peter is a University of Chicago Law School graduate who has taught trial practice there for decades and is an Illinois Super Lawyer. He has served as lead counsel in more than one hundred class actions and has handled more than one hundred shareholder, LLC, derivative, breach of fiduciary duty, and fraud matters on both the plaintiff and the defense side. Crain’s Chicago Business credited him with the largest class action settlement of its year, a forty million dollar recovery. The firm has been named DuPage County Law Firm of the Year, and its lawyers have represented companies including McDonald’s, Motorola, and Experian and have
litigated against adversaries including AT&T and General Motors. James DiTommaso is a Chicago-Kent College of Law graduate with a certificate in business law who served with the Illinois Appellate Court and argued a case before the Illinois Supreme Court. When you hire this firm, the lawyers whose names are on the door handle your case.
If your business partnership is breaking down, or a co-owner is freezing you out and offering to buy you cheap, the first moves shape everything that follows. Call DiTommaso Lubin, P.C. at 630-333-0333 for a free consultation, or contact us
online.