What common legal documents should a family business have in place?

A list of common legal documents a family business should have in place are the following:

1. Organizational documents, for example, a shareholder agreement for a corporation, a partnership agreement for a partnership, or an operating agreement for an LLC, that contain provisions addressing (a) management and decision-making, and (b) buy-sell provisions addressing transfers within and outside of the family. 
   
2. Employment policies that set forth expectations for family members working in the business and provide adequate incentives for non-family member employees. 
3. A succession plan by the owner setting forth the vision for future ownership and leadership of the business.  Early succession planning is necessary to provide adequate time to develop the next generation and plan financially for the current generation’s retirement.
4. An estate plan.  Often a family business is the bulk of an owner’s estate.  An estate plan should be sync with the succession plan and organizational documents, in all events, matching the owner’s wishes with respect to transfer of the business.
5. A checklist for corporate governance and formalities.  Even though the family is intertwined with the business, a family business should operate as any other business—following necessary formalities and best practices to reduce liability to the company and its owners, ensure proper operations, and avoid regulatory risk.
   

Achieving harmony and multi-generational success of a family business requires careful planning.  In order to achieve smooth succession of the business, the “next generation” has to be prepared to assume decision-making and ownership in order for the prior generation to retire.  The process requires a wholistic approach, taking into account the business issues and the family issues.  In taking a wholistic and proactive approach, succession issues can be identified early and, hopefully, addressed before blossoming into a conflict.  If you have questions regarding your family-owned business, please contact Brian Cressman or another MacDonald Illig attorney.  

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