Should you go into business with your family?

For some people, the idea of going into business with a family member and potentially creating a venture that can be passed down to children and grandchildren is something they dream of. For others, personal and professional matters are things they want to keep strictly separate.

Going into business with someone from your family is a highly complex affair. On the one hand, even if a family business is something you’ve always wanted, it might end up not working out and even potentially impacting your personal relationship. On the other, even if it’s something you’ve never considered, starting a family business can make for a great partnership, due to the trust, understanding and respect that you share.

If you’re considering going into business with family, here are some things to bear in mind that can help to ensure the venture is successful and doesn’t negatively impact your personal life.

Who owns what?
When family members who are in business together fall out over company matters, the root causes are typically money and ownership. For that reason, when going into business with a relative, a vital first step will be deciding upon the ownership structure and getting it formally written up in a legal document.

Consider the capacity and skills that you each have. Who will be taking on what role? If one person is taking on far greater responsibilities than the other, then this will need to be reflected in the ownership structure. How much time will you each be able to dedicate? If someone is working on the business full-time while the other is part-time this will also dictate the stake each has in the company.

Not only will drawing up such a document help to mitigate in the unfortunate eventuality that there is a dispute, it will also provide a useful degree of clarity at this early stage of the venture.

What is the structure?
Another key component of establishing clarity during the early days of a family business will be deciding on and understanding its structure. In the UK, owners have a variety of options for structuring their business.

If you’re going into business with one family member and will be running things fairly evenly, then a partnership may be advisable. But there are other options, such as a limited liability company (LLC) or even a corporation.

An important aspect of a company structure is the legal requirements and obligations for directors that different structures have. Therefore, engaging legal and financial advice at this stage is highly advisable, not only to help you decide on the best structure, but also to draw up the agreement.

Overall, getting a third party to mediate on legal matters is always the best way to proceed, especially if you’re running a family business.

Communicate and keep it about business
Communicating in the right way over business matters can be among the hardest things for relatives who work together. If misunderstandings or disagreements arise, then they can quickly become personal and bitter if the communication is not right.

Make sure that both of your needs, desires and frustrations are communicated in a prompt, considerate way to ensure that things don’t fester and escalate into damaging disagreements. Getting your ownership and legal structure sorted out early will help to reduce the chances of disagreements, but proper lines of communication are arguably just as important.

Finally, when working with a relative, one of the best ways to ensure that the venture is successful is to strive as hard as possible to keep your personal relationship out of the equation. So, try not to discuss personal matters at work and, vice-versa, try not to talk business at home. This won’t always be possible, but bearing in mind that business and personal issues should be kept as separate as possible will be crucial in helping your family business to succeed.