If you allow nepotism to interfere with regular business operations, your family business could be at risk. To avoid nepotism and facilitate employee relations, some families hire non-family employees to fill critical roles in their business. Relationships between family members and non-family members can still be warm and mutually beneficial. In some ways, the difference in organizational form between a corporation and an LLC does not matter because the fundamental problem – an over-reliance on trust and an inability to document basic agreements between co-owners – is identical. Regardless of the formalities, family members can consider themselves partners in a joint venture. In corporations and LLCs, controlling family members can abuse their power when informal consensus evaporates. The majority has the formal right to control business decisions, and there is no standard exit right for a minority owner who is excluded from the return on his investment. To the extent that the law has already developed an approach to protect minority shareholders in companies, it therefore seems counterproductive to insist on new, perhaps less effective, instruments to solve a common problem. In the event of a contested divorce, the applicability of a marriage contract may determine the fate of the family business. Going back to the McCourts` dispute over the Dodgers, Jaime`s 50% claim was under standard rules for divorce in California. The Dodgers were acquired during the wedding and there was no doubt that Jamie had contributed significantly to the effort.
Shortly after the Dodgers acquisition, however, the couple had signed a marriage contract. To limit the risk to creditors, the agreement put his various homes and personal property in Jamie`s name and transactions in Frank`s name. Jamie said she had never read the agreement and didn`t understand it would affect her rights in the event of a divorce. In the end, Jamie convinced the judge to drop the deal — otherwise the divorce settlement would have been very different, and Frank McCourt would likely still be the owner of the Dodgers. Family and business overlap also allows conflicts to spread from one domain to another. In one case, a person who worked for the family business married outside of religious beliefs and was then prevented from going bankrupt by her father and brother. In another case, a woman refused a buyback offered by her parents, not because the price was too low, but because her brother would be the beneficiary. Family problems become business problems and vice versa. Depending on how they are managed, family relationships can serve the interests of the company or fatally undermine it. In a «family business», only one family controls business decisions and at least two family members are involved in the business. A more comprehensive definition would require further development, but in most cases, the marital status of a business will be perfectly clear to owners, employees and, of course, legal counsel.
Basically, family businesses are extensions of family relationships – the business system and the family system are closely linked. On the other hand, some family-owned businesses in the service sector may have to work with tighter deadlines and higher expectations. For example, your family may run a hair salon where appointments are made with certain stylists at preset times. To avoid financial difficulties, structure your family business to satisfy customers` top concerns. While you can always offer additional services, make sure your customers` primary needs are in mind. For example, your family coffee shop may experiment with selling books, but remember that your coffee shop gets customers through. Make sure all family members hired clearly understand your termination policy and the expectations associated with their position. Sometimes family conflicts, such as divorce, are simply too difficult to reconcile. In addition to the myriad of challenges associated with combining family intimacy and the workplace, family relationships can also have simple legal implications for family businesses. While this statement may not seem revolutionary to some, business law and family law fall into distinct categories for many.
At the Faculty of Law, we teach courses in business law and courses in family law. Law courses for family businesses are almost non-existent. Case law adheres to the same artificial distinction – there are academics who write about family law issues and academics who write about business law issues. However, family business lawyers are aware that legal principles relevant to the parties` family relationships may influence the outcome of their commercial disputes. In this context, divorce and inheritance laws are particularly important. Make sure your plan is formal enough for everyone in the family to understand the impact of a missed shift or other mistakes. A good checklist should be developed with the assistance of legal counsel and should include items such as holding board and shareholder meetings and keeping proper minutes. With an up-to-date corporate governance checklist, you can ensure that your business, your business is run legally and ethically.
Regardless of the structure of your family business, it`s important to be transparent in all aspects of your business, including financial management, team meetings, and a clear management structure. «It`s not the strongest family businesses that survive, nor the smartest, but those that respond best to the changes required by difficult social dynamics.» The best family businesses are also built to withstand financial hardship when it arises. Maintain a healthy savings account, with funding you can use to boost a business when it slows down. The same savings account can help you pay off debts incurred as part of employee training, equipment purchases, and other expenses of your family business outside of regular operations. Consider several ex-children and stepchildren from different sources, and you`ll have even more complicated family problems stemming from more complicated family structures.