Starting a new business with a close friend or family member can be a wonderful experience. You likely already have a positive rapport and similar visions regarding your enterprise, otherwise you wouldn’t even consider moving forward. Keeping that positivity going through the ups-and-downs of running a business, though, can be challenging. It can lead to problems not only professionally but also personally.
How can you avoid those issues?
The most important thing you can do is treat each other like business partners.
That may sound a bit cold, but, within the context of your business, your business should come first. This concept is particularly important if you also have employees depending upon the success of your endeavor. As much as you undoubtedly want your business to succeed, when others rely on you to make it work, you have additional responsibilities to keep your business decisions professional.
Legally Binding Contracts
From the beginning, lay out specifics of your business arrangement in comprehensive, properly executed legal documents. These agreements can help you avoid a mountain of trouble later.
Spell out ownership interests by percentage, buyout rules and exit strategies, i.e., how someone may leave the business and what procedure to follow.
Conflicts and disagreements are inevitable in business, so include provisions that detail how to resolve them. Close friends and family members may have the advantage of knowing each other well; however, they also know each other’s weak spots and how to exploit them, too. Everyone is best protected when conflict resolution procedures are upfront and clear.
In business formation documents, assign clearly defined roles and responsibilities based on each person’s skills and strengths. A team works best when every member knows what they’re supposed to be doing. Having these items spelled out can avoid future battles over who is doing what.
Determine early on, as well, when to hire outside help to handle tasks that fall outside of both or all of your capabilities.
Are you ready to start a business with friends or family? Send us a message or call us at (314) 454-9100 to get started.
Scott’s practice is dedicated to assisting entrepreneurs, investors, emerging and established businesses with the unique and often challenging issues they meet throughout the formation and growth process: from entity formation, to the management of founder relationships and economics, to the protection of intellectual property, to the financing of growth and navigating securities law compliance. He assists clients as they continue to grow and develop, whether this involves merger and acquisition activities, international licensing and distribution arrangements or counseling of directors and officers.
Scott is chair of the firm’s Securities practice. His practice is focused on advising a wide range of clients on SEC matters, securities transactions and corporate governance. He represents issuers, investment banks / financial intermediaries and investors in financing transactions, including public offerings and private placements of equity and debt securities.