If you run a family business, or are considering starting one, there are four potentially lethal legal mistakes you should avoid, including:

Mixing family and business finances. Many family businesses start with loans or seed money from various members, and as the business grows, those initial investments need to be protected. This is the stage when you want to consider setting up your family enterprise as a limited liability company (LLC) or a corporation. Most small businesses use an LLC or S-Corporation structure, which provide liability protection for personal assets and allows for company profits to flow through to owners.

No employment agreements. Family members who work together are usually hesitant to confront one another if someone isn’t pulling their weight. Having employment agreements ensures that expectations for job performance are spelled out and what the grounds are for discipline or termination.

No licenses. Even if you operate out of your home, you will likely need to obtain a local, state, or federal license to operate your family business. While licenses are generally inexpensive, the fines for not having them can be costly. You can find out what the requirements are in your area by contacting your city hall or county office.

No succession plan. Family business feuds are common and can easily occur when there is no succession plan in place. In addition, if a business has not been incorporated or formed as an LLC, the business dies when its owner does. If you started a family business to keep it in the family, you need to follow through with a formal succession plan.

If you’re a small or mid-size family business owner, call us today or CLICK HERE to schedule a consultation with our business attorney. Our office is conveniently located in Modesto, California and services clients throughout the Central Valley and Bay Area, including Stockton, Merced, Santa Clara, San Jose, Oakland, Pleasanton, Tracy, and Manteca.