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Wednesday, January 26, 2011

LEGAL TIP: Before You Go Into Business with Family or Friends

Before You Go Into Business with Family or Friends

You want to start a business with your spouse...or your best friend from college...or your brother-in-law. You have heard horror stories about working with family and friends, but you are sure it will work out. But you wonder what you should to to make sure you can work together in a business without destroying that relationship. Here are some tips:
Talk About It
Sit down and talk about who is going to do what job in the business. Maybe you like doing marketing and your friend or spouse wants to do the accounting. Talk about what happens when one of you has to stay home with a sick child, or if your friend wants to take a vacation. Cover as many concerns as possible. Make a list of all types of contingencies.

Decide Who Owns What
Decide who owns what percentage of the business. You may decide to split the ownership 50/50, but there may be reasons for not doing this. Maybe one of you is going to be full-time and the other only part-time. A different ownership split can show those differences.

Put Together an Agreement
Create a written agreement, describing who does what, how much of the business each person owns, and listing what happens if someone wants to leave the business or if there are problems.

Determine Your Business Form
Learn about the various forms of business organization that might suit your circumstances. You might want to form a Partnership or an LLC. Or you may want to create a corporation.

Complete The Paperwork
In other words, take your agreement to your attorney for the final version of your agreement. The type of agreement is similar for all types of businesses (except for a sole proprietorship). Don't try to write up the agreement yourself.

Follow the Same Process for Family/Friend Investors
If a family member or friend wants to invest in your business, you will definitely need an agreement or something prepared by an attorney that protects both of you. Y may not be able to save the relationship if the business starts going downhill and the person loses money, but you may be able to at least remain on a talking basis.
Finally, Remember "Business is Business"
The business agreement you signed can help save your relationship if things go wrong in the business. Don't be afraid to change the agreement if something changes in the business relationship.

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