In honor of Mother’s Day, I thought a discussion of family businesses was in order. After all, how many of you (not including me) own a business with a family member? These businesses can be very rewarding as you work with a member of your family to accumulate success and wealth.
Nevertheless, even when owning a business with a family member, it is still important to have the proper documentation in place upon incorporation of the business. After all, talking to a family member at a barbeque about how the Phillies are going to do this season is much different than deciding whether to buy a new $1,000,000 piece of equipment or a used one. It is sometimes even more difficult breaking bad news to a family member or telling them that the partnership is not working. Many times, discussions like these can tear families apart, leading to bitterness and resentment that you never wanted to see happen between the two of you.
Therefore, even when creating a business with a family member, documents such as a shareholders’ agreement, bylaws, and buy sell agreements are a must. As stated before, it is best to plan for the bad times during the good times. By creating these documents, a plan is in place when the bad times occur which will not only minimize the damage to one’s business but also to the relationships between family members.
As an example, let’s say that you have started a business with your mother and it is organized as an LLC. Prior to beginning any work for this business, you should create an organization agreement. In this agreement, you should define your roles in the business and what authority each of you has. The agreement should also include whether you can work for other companies simultaneously and to what monetary limit you can purchase without gaining consent from your business partner - or in this case, mother. Also important would be to determine how disputes are settled and whether it is through avenues such as mediation and arbitration. Lastly, do you have any siblings or perhaps a father with whom you do not get along? If so, it is important to define how your interests in the company would be handled should something happen to you or your mother. This way, should the worst occur, you have a plan in place that will keep the business running smoothly.
You only have one family. And when you decide to go into business together, it can be a great source of pride for all those involved. Nevertheless, it is important to keep in mind that your business is still a business and must be treated as such, even if the other partners are your family members. This means that all the precautions you would take with any other business partner should be taken when beginning a business with a family member. After all, a handshake and a “trust me” at the family reunion may not hold true when times are tough.
If you would like to discuss the appropriate documents for a family run business in Montgomery, Philadelphia, or Delaware Counties, please contact us.
