When going into business with family members, it can be tempting to work from informal or verbal agreements. After all, you're family - what could go wrong? Don't fall into this trap. Any business relationship should be properly regulated by way of a written agreement. Arguably, this is even more important where family is involved because any dispute between parties is likely to have an additional emotional angle, which may complicate matters when compared to an arms length business dispute.

The line between personal and business can blur very quickly and can cause irreparable damage to parties' relationships. Consider, for example, a Board which consists of four siblings. Two of those siblings have a fall out in their personal life. This is brought into the Boardroom and those siblings refuse to vote in favour of anything which is supported by the other, leading to a situation where the company's ability to make decisions is paralysed. If there is no agreement in place, setting out what is to happen in the event that Board members cannot reach a decision, matters quickly becomes messy.

Some important aspects to consider when going into business with relatives are set out below:-

Company Structure

    It is important to consider how the business is going to be structured and which role is going to be undertaken by each family member. Don’t make the mistake of conflating the company and the individuals behind the company. For example, if you loan money to your daughter via your company and she fails to pay the money back, how are you going to justify that to the other stakeholders in the business? Is this going to affect your relationship with your daughter? Would you be willing to pursue her through the courts for the sums loaned to her by the company? Of course, the answer to this final question would likely be determined by the majority of those controlling the business – your personal views may not be taken into account (and indeed they should not be if they conflict with the interests of the business).

    Succession Planning

      Nobody likes to think about what happens after they die but, when going into business, this is important. You should give some thought to how the business setup might affect certain rights that third parties might have. Don't assume, for example, that every aspect of the business will automatically pass to your business partner on your death. If the business has property which is not owned by the business but is instead owned by a holding company in which you have shares, for example, that property may fall to be included as part of a legal rights claim that any children of the deceased party might have. 

      Shared Land Ownership

        Property owned by a business can cause complications where a dispute arises. If, for example, a piece of land is owned 50% by a partnership consisting of two parents and their children and 50% by one parent only, and the business relationship sours, what happens to the land?

        Ideally, your business agreement will contain provisions which deal with this. If this is not the case, and parties cannot reach a resolution between themselves, parties may be forced to raise court proceedings (an action for division and sale of the property). This can be costly and time consuming for all concerned.

        Exit from Business

          When setting up a business, a possible exit from the business is probably not the first thing on your mind. Whether a party's exit from a business is as a result of a dispute or is wholly amicable, consideration should be given to how this eventuality will be addressed. You should put robust agreements in place with clear terms regarding exit. The structure of these agreements will depend on the type of business. If, for example, the business is a partnership, consider what will happen if one of the partners leaves. Would a new partnership agreement be required or can the remaining partners continue as they were under the original agreement? Consider what notice periods are required by the parties, whether money will be owed to or by any of the parties and what value any such payments might have.


          In summary, you should be entering into a family business relationship just as carefully as you would with any other business relationship. The same considerations should be borne in mind in order to protect you, your finances and your family relationships.