Winter 2015

Family Matters By Angie Avard Turner

How to remain close as family and business partners.

Family matters. Family matters matter. Here is why. Family members working with one another is not a new phenomenon in America. Some of the most profitable and well-known family companies are household names — such as Mars, the makers of M&M’s; Ford Motor Company; Walmart, the largest retailer in the world; and Chick-fil-A, a restaurant chain that focuses their offerings on chicken sandwiches. While profitability and notoriety cannot be denied in these companies, a question to ponder is how businesses attain this level while being run predominantly as family businesses. More common than even these large companies are the vast number of small businesses owned and operated by families in business together. These small businesses, whether they are retail or wholesale, make up the fabric of our society, therefore it is important for them to run as efficiently and as easily as possible. Here are several guidelines to set your family up for professional success while maintaining what’s most important: the family relationship.

Setting Boundaries

Sandy Stein, owner of Alexx Inc. and inventor of Finders Key Purse, has been in business nearly 10 years. Her company sells her patented invention to gift stores all over the country. As a seasoned businesswoman, she is no stranger to hiring family. She noted that when she hired her son, Alex, to work for her company, there was quite a bit to get used to for both parties. During her son’s first round of employment, she said he felt “entitled and didn’t want direction.” After the second hiring of her son, Sandy learned that setting boundaries helped her son become a better employee. She said her son is better prepared for whatever job he applies for next. She emphasized that he does not expect to be treated differently than the others who work for Finders Key Purse.

Open Communication

Having the lines of communication open is important when running a business, but it may be even more significant when working with family members. If you are just beginning your business with your family member, it is critical to start things off on the right foot. Being open about all aspects of the business will ensure that there are no surprises down the road. It is easy to assume that because you are family members that you both know what the other would do in a given situation. Don’t allow familiarity with your business partner to leave any business stone unturned.

Having Family Time

Heather and Kelly Abbott know all too well how setting boundaries and open communication factor into running a successful business. This husband-and-wife duo own Lizzy J’s/South Life, a dynamic lifestyle brand that focuses on selling jewelry and small leather goods mostly made from or incorporating recycled shotgun shells. Because they work closely with each other all day every day, Heather said: “as a husband-and-wife team we have learned to have business hours. We talk and communicate with each other as professionals during the day and after business hours we try to communicate as husband and wife. We are, however, human, and there are never enough hours in the day. So there are times we find ourselves talking and planning outside of ‘business hours.’”

Put it in Writing

If it is important enough for you to discuss, then it is important enough for you to write down. All of the nuts and bolts of how you will run your business should be memorialized in a document called an operating agreement. This may be known by other names depending on what type of business entity you choose to organize. Whether it’s a partnership, an LLC or an S-Corp, having a written agreement between you and your family member is paramount. In this agreement, details such as percentage of ownership, responsibilities of each partner, one partner buying out the other and conflict resolutions should all be addressed. It is often awkward to discuss this with family members, however, absorbing the momentary awkwardness to alleviate years of headache will be worth it in the long run.

Get a Second Opinion

Now that you have the terms of your working relationship written down, it never hurts to get a second opinion. Not the opinion of just anyone –– an objective, outside professional. Having an attorney review the agreement serves many purposes. First, it allows a professional third party to review what you as family members have discussed. Second, the attorney’s feedback provides information and legal advice you may not have considered. Third, allowing an attorney to review your agreements also will deter any manipulation by one family member or the other.

Mediation/Arbitration

Of course, when you start a new business no one ever wants to think about it not working out. However, to be successful, you must consider the possibility. In doing so, you are protecting both you and your business partner. This is essential when that partner is a family member. Hopefully, the agreement you drafted will preempt any disputes that may arise. Sometimes, family members just do not see eye to eye. It may be because they did not get the terms in writing or because expectations were not discussed. It could even be because priorities changed once the business began. Whatever the reason, you should have a plan to handle disputes swiftly, fairly and amicably in so far as it is up to you. Not only will this take care of the business relationship, but more importantly, it will hopefully preserve the family relationship as well.

Mediation and arbitration are common alternative dispute resolutions that individuals and businesses use to avoid litigation and resolve a dispute. Mediation is a resolution overseen, typically, by a neutral third party. Each party discusses their version of the facts with the neutral mediator, and the mediator assists in facilitating a resolution. The finding or resolution that is reached by the mediator is non-binding unless the parties decide to put their mediated results into a contract that is executed. Then the results are binding.

Arbitration is another form of alternative dispute resolution. It is binding on both parties, which means it takes the place of formal judicial proceedings. How does the process of arbitration work? Each party chooses one arbitrator, then the two arbitrators that are chosen agree on a third arbitrator. The three hear each side of the parties’ dispute much like a judge would. The panel then issues a written opinion that details the terms of the decision or resolution. This written opinion is binding on both parties just as a judgment would be in court.

During my practice, I have seen more times than I would like to admit, up close and personal, family members who thought they knew what they were getting into when they decided to go into business together, only to find out that the partnership was very different in theory than it was in reality. Of course, no one would ever suggest that it is not vital to protect your business endeavors and your financial interests. At what cost, though? What matters is that you have the proper perspective about going into business with someone that will be around whether the business is a booming success or it fades into the sunset. Whether it is personal or professional, family matters. So take care of each other at the outset. In the end, they are all you’ve got! GS

DISCLAIMER: The materials available in this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this article does not create an attorney-client relationship between Angie Avard Turner Law and the user.

Angie Avard Turner

Angie Avard Turner is an attorney who exclusively represents clients in the gift industry including retailers, wholesalers, artists and bloggers. She is licensed to practice law in the state of Georgia, but she is able to handle copyright and trademark issues nationally. For more information regarding her practice, visit www.angieavardturnerlaw.com.