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3 Legal Tips for Running a Family Business

By Christopher Coble, Esq. | Last updated on

Mixing family and business can be as emotionally and financially rewarding as they can be legally troublesome. No one wants the workplace to intrude on their homelife, so how can we keep our family business from coming in between family members?

Here are three legal tips for your family business:

1. Incorporation Protection.

The decision regarding which incorporation structure is right for your business can be tricky. The decision regarding whether to incorporate your business is a little easier. The biggest benefit to incorporating a family business is protecting the owners from legal liability for the business' activities and debts.

Therefore, if the family business goes bankrupt, owes money, or gets sued, individual family members are safe. Having this comfort of knowing your company's misfortunes won't end up on your or your family members' doorsteps can relieve a lot of stress and tension.

2. Pre-Nups for Post-Breakups.

Hope for the best, plan for the worst. No one wants to be pessimistic about their marriage, but making sure a family business doesn't get dragged into combative divorce proceedings is just plain smart.

A good prenuptial agreement can lay out who gets what in case of a divorce, and therefore protect your family business if worse comes to worst in your family life. While it may be hard to distinguish separate property from community property when it comes to a family business, a prenup is one of the ways to keep separate property separate.

3. Get It in Writing

If you're working with family, you may be tempted to do everything with a handshake and a hug. And the thought of formalizing agreements into written contracts can seem cold and informal. That is, until there's a disagreement over production, compensation, or expectations.

Having everything in writing, especially a succession plan, can actually put everyone's mind at ease, and hold everyone accountable.

Just because you're coworkers doesn't mean you can't continue to treat each other like family. But just because you're family doesn't mean you shouldn't run your business like one.

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