The Challenges of a Family-Owned Business

By: Claudia J. McDowell, Esq.

For most of my adult life, I have worked with family-owned businesses, both personally and professionally not knowing then that one day I would have my own family law firm with my daughter as my partner. When Lisa and I began to talk about working together, I was a little skeptical that it would work. We have different personalities and styles. However, the more we talked, the more I realized how great this could be.

After over a year and a half of partnership, things are going great and we have moved past the growing pains and clashes in style. We have learned how to compromise. We also have a really good partnership agreement – after all, we are lawyers.

If you are part of a family owned business or are contemplating becoming involved in one, I urge you to come to an agreement about how the business will be run before you join the business. A business relationship is like a marriage – there will be a honeymoon phase and then the reality of the daily grind will emerge. Those little quirks of your brother, sister, cousin, parent or child may start to annoy you. While I strongly suggest you enter into an agreement with the other shareholders or partners of any business before you start, it is even more imperative in the family business. Why? Unlike a strictly business partnership, which can be dissolved and part ways, you do not get to divorce your family.

No business is worth losing your family relationships over. Take time to sit down and brainstorm about how you will both run the business – how the income will be divided, whether you will employ other family members and under what terms and conditions, how you will resolve disagreements and settle disputes in the future before you join a family business. If you are a limited liability company, then the operating agreement should address these issues at a minimum. If you have a corporation, consider a shareholders' agreement, a buy-sell agreement or a management agreement. And, even if you have already started the business, it is still best to hammer these issues out in paper before a conflict or dispute arises.

Just remember, these are people you want to continue seeing at family gatherings such as Thanksgiving and Christmas. A bit of planning can ensure that those relationships are not irrevocably broken by a business matter.

Claudia J. McDowellis a partner at McDowell Odom LLP and has been protecting businesses and individuals for over 20 years. For an appointment, please contact (661) 449-9630 or visit www.mcdowellodom.com.