What you Need to Know Going into Family Partnerships

What you Need to Know Going into Family Partnerships

I recently had an interesting meeting with a potential client. This gentleman was preparing to set up two businesses with partners that were family members. Family partnerships and family businesses are tricky. I often mention that if you are planning to go into business with family, there are a number of questions that you have to address in advance. Family partnerships that go bad can be very dangerous – not from a financial standpoint, but the family emotion that members may not be able to overcome.

The absolute worst business divorce case I encountered in my career was between a father and son. The bitterness between them was so bad that the son refused to allow his children to see their grandparents. That kind of animosity is always possible no matter how much you love your family. If you are contemplating a business scenario with family, please, please, please spend more time in the pre-business stage of dealing with a partnership agreement and ensuring that there is more detail of how disputes will be resolved, how financial issues will be addressed, how disparate ownership share for disparate activity by one partner or the other.

For example, the potential client that we were dealing with, the brother has a full-time job that he will maintain for a while after the partnership has been formed. This means that the other brother will be operating the business full-time and might want a larger share of the business or may want a specific salary in addition to the distribution of profits. These are questions that must be handled delicately and discussed prior to anybody creating the business.

With family it is easy to think that everyone understands, that you can operate with less structure because everyone loves one another. But do not get caught in that mental trap.  If you operate with less structure, the possibility of hurt feelings will be much higher. If you have hurt feelings over business matters, it is very easy for that to spill into personal and family matters. It can make Thanksgiving, anniversaries, birthdays, and other family events extraordinarily tense when everyone is present or worse, when people don’t show up due to hurt business feelings. I don’t like to see that happen.

So, if you’re going to go into business with family members, I believe that it is far more important to have solid conversations so that the family members and soon-to-be partners are all on the exact same page when it comes to structuring the business and the operations. This kind of conversation should be had with the help of an attorney or someone who is not going to be in the business and not in the family.

I once had a couple of partners not related to each other who ran into communication problems. I jokingly said that they should go to couples counseling and eventually I came back to that in a non-joking matter so that they could improve their communication skills.

When you’re dealing with family partners, having a family counseling session with a licensed counselor is not a terrible idea. The idea is not to say that the relationship between the family members is broken, but rather to make sure that family members understand where each person is emotionally and to improve their communication skills between themselves so that when the inevitable dispute comes up (and it will), there is some sort of mechanism for managing the dispute and resolving it with as few hurt feelings as possible.