The past few weeks we have been talking about starting a business. Just like starting a business with a spouse which we discussed two weeks ago, people start to think about going into business with friends and family. You’ve known your brother since you were kids – you have fought with him, beside him, and for him. What better partner in crime for a business than the same kid that teased you about going to school in hot pink or got your first boyfriend? In some cases, family owned businesses can be great. In others they can cause a family split like no other.
When you first start thinking about going into business with a family member, like going into business with a spouse or partner, you need to seriously evaluate your family member’s strengths and weaknesses. Is the family member a good fit for the business you are starting? Are you bringing the family member into the business because of what he can contribute? Or are you bringing the family member into the business for other reasons such as the family member doesn’t have a job and you want to help him? Even though you and the family member were raised with similar values, do you still have those similar values? For instance, do you have the same financial values? Do you both have the ability to be self-employed (and therefore probably little to no income) while the business is in the startup stage? Finally, and maybe most importantly, because it is a family member, are you going to be able to handle disputes without causing a strain in your relationship with the family member?
When working with family members, a dispute in the business can go very, very, very wrong. While a dispute with non-related partners can also go wrong, when there is a dispute in a family owned business it can mean not only the downfall of the business, but a break in the family bonds. Recently, the story of the Pasquini family in Denver has made the news. The Pasquini case has pitted brother against sister in a dispute over the family business, specifically the rights to the name of the business. As this Denver Post article highlights, the case has now evolved into a multimillion dollar dispute that will probably leave the family with bitter feelings forever. Prior to going into business with a family member, you have to consider all the possibilities to make sure that the potential costs are really worth it.
With these caveats in mind, proceeding with a family business is similar to proceeding with any business with partners. The family members need to seek legal help from a business attorney to determine what type of business entity they should open, what documents are necessary to open the business, and to help with legal issues as they come up. The family members may also need to seek the help of an estate planning attorney to ensure that should something happen to one of them, the estate plans are clearly recorded to lessen any feuding between descendants later on.
Finally, just like with all businesses, the family business should add several other members to its advisory team. In addition to the business lawyer, a CPA, insurance agent, and banker are essential members to make the business successful. These key players will help protect the family business’ finances and assets to ensure that the business can be successful for many generations to come.
If you have any questions about starting a family owned business, please call me, your Denver business attorney, Elizabeth Lewis at 720-258-6647 today!