Small Business Legal Playbook|Play #8: “Family Business”

Welcome back to another week of the Small Business Legal Playbook! Play 8 is titled “Family Business.” In some sports, the franchises are owned by families. There’s no better example than in the NFL, where many teams are owned and controlled by single families. Sure, it’s on a different scale from a start-up, but even family owned NFL organizations suffer from the same pitfalls that a small family owned business experiences. In fact, family owned businesses, both large and small deal with unique problems, problems that other businesses may never face.

There are both pros and cons to being a family business, from a legal and business perspective.

We’ve spoken in previous weeks about the issues small businesses face when they employ their workers, either as employees or as independent contractors. Employment Agreements, overtime policies, trade secrets, they all matter just as much in a family business compared to one run by strangers. While the successes of the business might feel more personal when you’re associated with a small business, so can its failures. It can be a double-edged sword.

So how should you run your family-owned small business? Well, let’s look at the offensive strategies first, what you should do proactively, and if you’re not doing it now, consider adopting this advice going forward.

First, you must accept that running a family-owned small business should be no different than running a business where your business partners, workers, and vendors, are not members of your family. Anyone working for your business should be an official employee, or if they’re classified as an independent contractor, make sure they’re properly classified as an independent contractor. Either way, they should sign a written contract if they’re working for you. Make sure your employees, regardless of their relationship with you, take their mandated breaks and lunch breaks. Make sure that they’re paid, on time, and in accordance with local law.

Even if they’re your relative, you should treat them no better or worse than a regular employee. Don’t expect favors from your relative because even familial relationships can turn sour. When that happens, you can see both your personal relationship and your business pay the price. A former employee’s lawsuit against your business is just as legitimate a threat as any other, even if they’re related to you.

On the other hand, you also don’t want to treat a relative that’s working for you significantly better than your other employees. Doing that, can lead to employee strife, and if your relative is in a management position, their decisions could negatively affect your small business because if another employee accuses them of harassment or wrongful termination. If you’re consistently taking the word of your relative over his/her co-workers, it can create additional problems because you will be showing favoritism. Some things can’t be avoided, because it is inevitable if you are running a family-owned business with non-family employees you’ll run into an issue or two. But it’s important to limit that kind of exposure if possible.

So, what are your defensive strategies when running a family-owned small business? If a problem is already identified, work to resolve it. If a family member has recently become a former employee, make sure that you have complied with all California labor laws. Make sure that they’re given itemized wage statements, fairly compensated for overtime, etc. It’s better to pay them what they’re entitled to, before they bring suit against you. Just make sure that family or not, they sign a settlement agreement in exchange.

That’s all for this week. I hope you enjoyed this week’s Play, and stay tuned for next week’s play from the Small Business Legal Playbook! Remember to subscribe and get each play sent to you directly! Until then, may your businesses continue to thrive and your football teams be victorious. Keep playing to win!

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Small Business Legal Playbook|Play #8:
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In fact, family owned businesses, both large and small deal with unique problems, problems that other businesses may never face.
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