Many new and small businesses are made up of family members. Many people find great satisfaction in working with the people they are closest to. However, working with family doesn’t mean you are excused from complying with the laws and regulations affecting your business. If you operate a family-owned business, or are considering starting a business with family members, there are four potentially lethal legal mistakes you should take care to avoid, including:
No employment agreements
Family members who work together are usually hesitant to confront one another if someone isn’t pulling their weight. Having an employment agreement for everyone ensures that expectations for job performance are spelled out and what the grounds are for termination. In addition to having employment agreements, it is also a good idea to have regular meetings performance assessments to review whether and how expectations are being met.
Mixing family and business finances
It is tempting for family business owners to use business accounts to cover what should be personal expenses. Purchases that would not be acceptable in other companies are not acceptable in family companies. Not only can it create tax issues, it can also open up the personal assets of the owner to business liabilities.
Even if you operate out of your home, you will likely need to obtain a local or state license to operate your family business. While licenses are generally inexpensive, the fines for not having them can be costly. You can find out what the requirements are in your area by contacting your city hall or county office.
No succession plan
With no succession plan in place, business bank accounts and operations could freeze in the event of an owner’s death. Often, someone will have to qualify as Executor of the owner’s estate in order to get access to business assets. A succession plan can also prevent family conflict by communicating specific roles and tasks in the event of an owner’s retirement or death.
Disclaimer: This article is for informational purposes only and not intended as legal advice or to create an attorney-client relationship. Every situation is unique and consultation with an attorney is required before any specific advice can be given.