Best in Law: It’s a family affair! How to avoid the pitfalls
By Lauren Strickroth
Many successful businesses are family-owned. There is an unmatched pride that comes from building a business that has the capability of being passed down through generations. Yet, a family business faces unique challenges. Work leaks over into life, personalities collide, and business is almost always personal.
Success requires family communication, a cohesive business strategy, a solid ownership structure, and strong corporate governance. A dispute in one area will spill over to the other.
Here are six tips to keep the family business going strong.
Don’t play “Family Feud.” Family businesses are often threatened by an inability to separate business from personal problems. Often a feud turns to animosity, and unresolved feelings about who “Dad liked best.” Conflict between family members trickles down to employees, and makes it impossible to achieve common goals. Regardless of the cause, find a way to end the bad feelings before they take over and turn into lawsuits.
Define roles and relationships. Family members should not be on the payroll if they are not working for and contributing to the success of the company. Establish clear roles, responsibilities, job titles and compensation. Family discussions on these issues should be regular and transparent to help set expectations. Have annual performance reviews of family members, just like any other employee.
Beware of 50/50 ownership. A 50/50 split of ownership is challenging when personal or business interests diverge and there is no ultimate decision maker. Ownership disputes have a negative impact on employees, operations and — consequently — profits. If there is a 50/50 split, consult with an attorney before any dispute arises to draft an agreement that calls for an efficient “tie breaker” method. In general, a detailed operating agreement that is well thought out can head off many conflicts.
Work as a team. Family businesses often have issues growing and […]