Family-owned businesses are part of the fabric of the U.S. economy. There are numerous benefits to operating a family business, such as having trustworthy people around. However, family businesses aren’t without drawbacks.
Family-owned enterprises face a series of unique litigation risks. Here are some important factors to consider.
When family members fall out
Family members don’t always get along. For example, sibling rivalries can create tensions. Or, spouses may take domestic arguments into the workplace. Disputes in family businesses can arise when a family member thinks they have been treated unfairly compared to another. This could be because of lower pay or being in a “less important” role.
To minimize these risks, it’s important that clear guidelines are set through legal contracts. Contracts can define responsibilities, pay scales and much more.
Accusations of nepotism
There is nothing wrong with incorporating family members into a business, but this should be done carefully. One issue that can arise is accusations of nepotism. If an employee feels like they have been excluded because they aren’t a family member, or because of protected characteristics, litigation such as discrimination claims could be an issue.
Who takes over?
A company owner cannot go on forever. At some point, the next leadership candidate will need to be identified. While this can certainly be a family member, the succession plan should be carefully drafted. Without a succession plan, different family members can stake their ownership claim to the company. Such disputes can take months and even years to settle in court.
Navigating the litigation risks of a family business can be tricky. That’s why it’s important to have legal guidance behind you.