Starting your own business is a risky venture. It takes determination, good planning and follow-through as well as a good financial backing at the start. It can be fraught with difficulty in the first few years, and it takes a lot of hours of work especially at the beginning. Working with a family member can be very rewarding, but it can also become a nightmare if not handled properly. No matter what happens to the business, you will still be related afterwards. It is important to be extra careful when working together. Instead of putting undue stress on your relationship with your partner and family member, you can set up your family business with proper legal steps.
Treat Your Family Member Like a Business Partner
The best way to protect yourself, your business and your partner is to make sure that all parties sit down and agree to written legal documents when forming a business. Work as if the family member is a non-related partner and get everything in writing including investment, income and inheritance. Because you are family members, it is easy to say that you do not need legal protection, but it is hard to predict how people will behave in the future. A binding legal agreement gives both parties equal protection, and will make it easier to divide any responsibilities throughout your partnership.
You are bound to have disagreements over the course of your partnership, and while most of those will be worked out in discussions, it is possible that some won’t. A legal agreement can help keep those disagreements to the business and away from family matters. It is also possible that your family will have a falling out which can affect the business, and the agreement will help constrain those issues. If you don’t, you will imbue your family business with a lack of professionalism, which is bad for business.
Passing a Business On
Family businesses can fall apart when it comes to inheritance. Many businesses do not plan for what happens when the primary owners are no longer able to work. Heirs may not be interested in the business or they may fight over who gets the various responsibilities or income. By formalizing inheritance upfront when creating a business, you can avoid these issues when you decide to retire.
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