Monday, August 10, 2015

3 Key Agreements Every Family Business Needs in Writing

Family business law is not family law. The latter deals with divorce, child custody, alimony and related issues. Family business law deals with starting, growing and transferring your business. The tricky part is, there isn’t a body of law called “family business law” (although I hope to change that). It’s an intersection of many practice areas, including business law, trusts and estates, property law, securities, non-profit law (ex: for family foundations) and yes, even family law. When looking at legal agreements, you have to borrow from these practice areas and apply them to your family business.

Family business agreement.  

In an ideal world, a hand-shake would be sufficient for you and adult family members to launch your family business. That’s difficult to do these days, especially when family members have to protect and care for their children, spouses and estate. A family business agreement gives you legal protection and can serve as a guiding document. If you make decisions contrary to what you agreed upon, you can refer to it. You can use a number of agreements, such as a general partnership agreement or limited partnership agreement and more.
In Broccoli v. Broccoli, brothers of a family business fought over a $64,000 loan (among other things) that one brother issued to another family corporation. There weren’t any agreements to govern how, when and why the brothers could issue loans. Rhode Island Supreme Court Justice Lederberg wrote this about the case, “The facts of this case reveal a bitter and long-running battle among three brothers, Biagio, Benedetto and Anthony Broccoli, that in the end destroyed their fraternal bonds and Delaine Auto Body, the family business started by their father in 1955.” That’s a strong statement and perhaps a warning that families working together do need business agreements.
On a side note, I clerked for Justice Lederberg. She is now in a better place, and may she rest in peace.
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