The Common Causes of Legal Conflicts in Family Businesses

Family talking about their business

Starting a family business is a financially sound decision. Running it seems natural and keeps your family employed. Most families, however, ignore the legal side of running a family business.

These legal oversights typically result in endless legal battles, which in most cases disintegrate your business. It is hence prudent to consult family lawyers, such as, who have some background in commercial law to help you set up and run your business. Here are the common mistakes a good lawyer will help you avoid:

A Lack of a Succession Plan

Most families avoid talk of the course of action should a family member leave the business. When this finally happens voluntarily or through death, family members start fighting over who should take over the vacant position. Put your succession plan in writing when starting the business and regularly update it to avoid these battles.

Failure to Separate Business and Personal Finances

Failure to separate your business and personal accounts regardless of the size of your business could leave your family penniless. Enterprises require substantial financial investments, and mixing your family and business finances can bankrupt the family should the company fail. The best way to avoid this is to legally register your business as a corporation or LLC (Limited Liability Company).

A Lack of Employment Contracts

Most family-run businesses employ family members. They, therefore, see no need for an employment contract. This, however, is a fatal legal mistake should you want to fire someone who is not pulling their weight. Have an employment contract detailing everyone’s job specifications and grounds for termination. This will help you run a profitable business and keep your business out of trouble.

Most business owners assume that they need no license if they run their family business from home. Regardless of where you operate from, a business license is essential. The permit is inexpensive, and the fines that you pay for running your business without one are quite steep.