What are some red flags to watch for when family or friends want to go into business together?
Well, we’ve all heard of stories, sometimes, unfortunately, horror stories when family members or friends go into business together and some of the red flags that you may have in the closely held company context with either family members or friends are one, that it’s very difficult for the management or the majority owner to be objective in reviewing and working with other family members or friends, because of that relationship and sometimes in the workplace, it’s very healthy to be able to speak objectively at an arms’ length with those that you work with. Sometimes that familial or that friendship relationship get in the way of that and can cause problems either with harmony or other more severe problems when it comes to financial repercussions within the company itself.
Another issue with respect to working with family members as well with friends is when it comes to compensation and discipline. When it comes to compensation, there can usually be a lot of jealousy that’s spread, you know, with other family members, no different than siblings would be when they’re fighting over a toy when they’re younger, so that sort of will reach a different level when they’re adults working in a closely held company together and sometimes that jealousy can be harbored when family members or friends are working together. What you want to do is again, have a clear written agreement that defines the rights and it becomes even more important or pronounced in the setting in which you have family members of friends working together because it will help clearly define the rights and put less of a notice on the party who is needing to take action, maybe sometimes adverse to the family member or friend.
Please Note: Rabin Kammerer Johnson provides these FAQ’s for informational purposes only, and you should not interpret this information as legal advice. If you want advice as to how the law might apply to the specific facts and circumstances of your case, please contact one of our attorneys.