Starting A Small Family Business - Understanding The Risks And Rewards
There are few things in the world as rewarding as starting your own small family business and watching it grow and succeed
. Being in business with your loved ones may seem like the best of both worlds, but there are some potential pitfalls as well. Long-standing family dynamics can be difficult to overcome in a business setting, and there are several real-world issues to consider as well. For these kinds of businesses especially, it is important to sit down with a family lawyer and map out everyone's interests and roles in the business, and also plan for unforeseen contingencies.There are many types of business arrangements - each with their own rules, standards and legal and tax implications. Understanding the difference between sole proprietorships, LLC, corporations and business partnerships is complex and requires extensive education. An attorney who has experience with these business models can help you sift through the details and help you and your family decide which best suits your needs.
Once you decide on the best business model for you, it's time to put your business arrangement into writing. It is critical that each of the co-owners have a solid understanding of their rights as well as obligations to the business. This agreement should address many issues, including internal policy management and control of the business, how shares are held and transferred, how the shares will be distributed in case of death or divorce, and provisions for buying and selling interest in the business.
At this point, you should also be making decisions like who will assume the roles of CEO, vice president, chief operating officer, chief financial officer, etc. These positions are not locked in stone, but some level of organization is important to ensure success and define responsibilities. There should also be a clear plan in case it is decided that the business can no longer continue, or if a partner wants or needs to leave for any reason. Buyout provisions should be discussed before this becomes an actual event.
Many family businesses make the mistake of not putting these types of agreements in writing because they feel they should be able to trust their family members, or they are afraid to step on anyone's toes. You should keep in mind, however, that unforeseen events can and will occur, and it is in everyone's best interest to have a mutually agreed-upon plan to deal with all possible situations. If you can't get along during this planning stage, it's a pretty good bet that a family business is going to be tough.
A lawyer who is well-versed in family law can help make sure that you include all the minutiae in your early discussions and planning, before you commit any dollars to the venture.
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