Tweet

The Pitfalls of Being In Business With Family Members

Written by: Chris Simpson

Article Overview: Working with family members can be a very tricky task. This happens when you mix personal relationships with work relationships. There are all types of problems that arise with family business relationships: marriages, divorce, battles about the job, control over shares, and decision making issues. The business can actually be at risk for possible losses if the family members are no able to get along.

The Pitfalls of Being In Business With Family Members

Working with family members can be a very tricky task. This happens when you mix personal relationships with work relationships. There are all types of problems that arise with family business relationships: marriages, divorce, battles about the job, control over shares, and decision making issues. The business can actually be at risk for possible losses if the family members are no able to get along.

The following are various pitfalls that occur with any family business situation:

Poor Documentation

The most common mistake between family businesses is that they fail to make a formal document about the terms of their business arrangement. Many business owners assume that when they are dealing with family members that they can trust that a written agreement is not needed. Other people are afraid to bring up the issue of a written agreement due to the fact that it might insult the other person or imply that they do not trust them.

While these concerns do happen, it is important to document all agreements so that there is no chance of future problems arising that could hurt both the business and the family relationship. Without a formal agreement, the business could be at the risk of the Corporations Code, which will be an unfavorable decision for both parties.

You should document the agreement at the beginning of the business relationship because this is when both people are working to meet a fair bargaining arrangement. The agreement can be finalized at any time, but if you wait too many days, this could create problems.

Ignoring Responsibilities

Whether the family members are partners in the organization, directors of a corporation, or managing members, each of these titles has a trustee obligation. Meaning that the owners have to act in the best interest of the business and treat other owners fairly as far as business dealings are concerned. This duty applies, no matter the type of dispute, or the behavior of the other person.

When family members who are in business together become involved in a dispute, it is common for them to believe that they have the right to take advantage of the other person due to some fact or event that occurred. Ignoring the fairness granted to each owner does not look good on the person who is acting in this manner. They could be subjected to damage claims and the government will grant this.

Failure to Plan for the Future

Another pitfall that occurs with any family business situation is the failure to plan for the future. Many families dread talking about the future and making any concrete plans for the fear of stepping on anyone's toes. This could involve who the company should go to after a person dies or any future mergers. Either way, this is a serious matter and the business owners should put just as much time into the future of their business as they do their own personal estates.

All of the pitfalls listed above are common and they will happen. The only thing that you can do as a family and as a business owner is to seek the best solution for each issue. Not only will you be able to better manage your business, but you can prevent any unfortunate events from happening. Most importantly, it is important to understand that with family you will have problems, but the proper documentation will protect each person.

Related Articles
  Franchising for the Family
  5 HMO Traps To Watch Out For
  Communicating with Peers in the Franchise System
  Measuring Effectiveness of Your Team
  Why Transformation Efforts Fail

Article Tags: best interest, business arrangement, business dealings, business owners, business relationship, business relationships, corporations, family business situation, family businesses, family members, family relationship, formal document, job control, organization directors, personal relationships, pitfalls, poor documentation, tricky task, trustee, work relationships



Related Forum Posts
Exclusive: Interview with Results - Hi Forum Members, I'm helping start up a Business Coaching and Consulting company here in Toronto, Ontario, Canada (a Subsidiary of RSC Business in Los Angeles). As a Research and Development Intern I am required to practice my listening and interview skills by surveying Small and Medium Businesses on thier Business. This Survey is designed by RSC Business to also assist the Business being interviewed more insight into their own business. I am looking to interview about 30 businesses across North America over the span of 3 months. At the end of these interviews I will be publishing a report of the results and they will be made available for free to the Interviewees. The Report data will include responses from a minimum of 100 interviews. I would like to extend this opportunity to members of the Forum. If you would like to have this short 20-30 minute interview conducted on your Business and you reside in North America please send me an email or PM. Please contact me at andy[at]jvprosperity[dot]com to arrange our interview and to get free access to the results when they are published.
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
Re: Kevin. What happened to all others moderators? - Hi Carol, It's good to see you back. Family comes first. Take your time.
Re: I thought social sites were a waste of time. How wrong I was - Social Media has only really been understood this last year or two. Before that I didn’t really understand or like Facebook for example because of the problems separating Family and Friends from Business. Twitter seemed a total waste of my time and a lot of people seemed to spend all their time building up their followers to brag about how many they have got. Now I understand the basics a bit more I can appreciate the value particularly of Twitter in building up relationships with others in your niche with a view to doing business later. If people follow me and are active in the general Internet world or marketing in particularly then I follow back immediately otherwise I don’t see the point. You could argue I suppose that someone who breeds dogs and enjoys painting for example might suddenly become an Internet Marketer and I am missing out on not following them but I tend to stick within my niche. regards, Mal.
Re: Twitter Members, Post Your Twitter ID Here - Hi Members, I have gone back over the list to check and update and as far as I know I am following everyone. If I have missed anyone please let me know, regards, Mal.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Ten Things You Can Do To Be a Better Leader

The Death of the Sales Magazine

Executives and Elevators Perfecting That Pitch

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.