Running the Family Business: Legal Mistakes and Solutions

Owners of family businesses often run into several legal problems when it comes to managing their businesses. While these solutions are often difficult to work through with your family members, the problems that can (and probably will) arise are much greater and could have a tremendous negative affect upon your family.

• First, do not mix your personal finances with the finances of your business. If you do this, you could risk exposing those who have invested or own a part of the business to the liabilities that the business could incur. To protect yours and the personal assets of others, you should establish a LLC. A LLC is perfect for family businesses because it provides the owners with personal financial protection without any of the formalities that come with a corporation.
• Second, make sure that you have employment agreements for all employees to prevent any unforeseen employment disputes.
• Third, make sure that you receive all of the appropriate licenses to operate your family business for your local municipality. 
• Finally, ensure that you have a plan for the disposition of your business following your death. If your business is not a LLC, the business would terminate at the end of your life without a succession plan. Therefore, to make sure that family business stays within the family, you should make sure that there is a succession plan to ensure that someone will be there to take over the business when you are no longer able to manage the business.

See Chas Rampenthal, 4 Worst Legal Mistakes a Family Business Can Make, Inc., Apr. 9, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.