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Should your family be involved in business formation?

On Behalf of | Sep 23, 2021 | Business Formation

Running a family business in Massachusetts has a lot of appeal. You can fill key roles with people you know and trust, and you’ll be able to build up wealth and skills in the family. However, here are a lot of problems that can arise when you start a family business if you do not plan it carefully.

Key concerns when starting a family business

Much of the risk of a family business lies in a lack of clear communication. When different family members have different assumptions about their roles, ownership stake, exit plan and so on, things can get messy. Before appointing family members to a role, make sure you write down the role’s compensation, responsibilities and any ownership amount that it is entitled to. That way, it is clear who reports to whom, what happens if someone leaves the business and other concerns. Leaving these questions to the future without clarifying them is a recipe for awkward conflicts.

The importance of documentation

Don’t just have a conversation about these topics. It’s important to get in writing the details of family business formation. Creating a contract for hiring, articles of incorporation and other legal documents can provide you with the structure and the precedent to have the business stay successful and keep operations smooth.

It is already difficult in the business world when founders of a small business do not agree on how to run it or what to do if one of them leaves. With family members, it becomes even more complex to resolve these issues if you do not have the rules and the documentation laid down well in advance before they become a problem. It’s important to establish your business relationships with sound documentation.