Starting a business is always an adventure – and it can be even better when you’re in it with family members. Family partnerships tend to have a built-in level of trust, shared communication styles, a clear understanding of what each party brings to the equation and a system of like values.
However, working with family isn’t without its own challenges – and you can end up damaging both your personal relationships and your business unless you have a clear partnership agreement.
Protecting both the business and your familial relationships
One of the biggest risks of going into business with family is the potential for business disputes to spill over into personal relationships. A well-crafted partnership agreement can:
- Ensure fairness and transparency
- Limit each partner’s personal financial liability
- Ensure compliance with any laws and regulations
- Avoid misunderstandings about each party’s roles, responsibilities and rights
- Help match skills to roles and minimize disputes over authority
- Detail each party’s expected financial contributions
- Establish the profit distributions and avoid money battles
- Establish a method for dispute resolution
- Create a sound exit strategy and plan for the future with succession planning
Partnership agreements aren’t just for unrelated people who are building an enterprise together. They’re equally essential when you go into business with family, since a formal agreement helps set expectations, clarify roles and avoid financial misunderstandings. Even when it’s “just family,” it’s important to approach your business with the same legal processes, professionalism and foresight you’d give any other venture.