So, You Want to Go Into Business With Friends and Family: Consider These Points

You are confident of your relationship with your brother-in-law, high school buddy or the maid-of-honor in your wedding party. Looking for a new business venture, of course you want people that you not only can trust but are personally compatible with. The joint-venture can lead to bright, new future. Toronto’s bustling areas like the Distillery District and Liberty Village are prime locations for new ventures, offering vibrant communities and networking opportunities for growing family businesses.

However, without careful planning, there can be a very dark side: families can be split and relationships can be lost. A fractious mother-daughter relationship can fracture a healthy business one. You can lose both the personal and business connections.

Of course, yours will be perfect.

Communicate Openly Beforehand

  • Clear itemizing of the talents, skills and interests must precede any handshake.
  • What role does each of you have in mind for him or himself?
  • What role does each of you have in mind for the other?
  • Does the role assign draw on the individual talents of each of the partners?
  • Does the CLEAR role division play to the interests and passions of each participant?
  • Have you discussed roles and responsibilities concerning time off for vacations, family responsibilities or educational upgrading?
  • Have you made clear check-lists on paper?
An ounce of forethought is better than a pound of grief.

Division of Property and Assets

  • You may not own equal shares in the business. Decide what the split is by articulating the proportions owned by each on paper.
  • You must factor in all assets; perhaps one owns the property location or the other associated material assets.
  • If one is going to be part-time and the other will be full-time, the ‘split’ resulting should be factored in.
  • There may be differences in labour contribution or expertise. All factors must be considered.

Sign a Formal Agreement

Consider as many factors as possible ahead of time such as the following:

  • Roles and duties of each
  • Proportion of ownership
  • Terms of dissolving the partnership
  • Contingency plans for conflict resolution
  • Terms of employment
Sign formally with witnesses.

Determine the Form and Definition of Your Joint Business

Formal documentation ahead of time is smart due diligence. You need these documents:

  • A partnership agreement delineating the form of your partnership
  • A formal inclusion of legal counsel in an operating agreement
  • The by-laws
  • The composition and role of the board of directors

These forms and agreements must be scrutinized by a lawyer with expertise in the area for the final legal version. Avoid an amateur agreement between the two of you. When drafting partnership agreements or operating agreements, consider consulting with a Toronto-based lawyer who is familiar with Ontario’s business laws to ensure all local regulations are met.

Engage a Similar Process for All Involved Such as Investors

Always engage an expert lawyer to prepare legal contracts for anyone having a share in your business, for mutual protection. If the business has problems, the responsibilities are clear and the consequences are shared according to the legal agreements signed and notarized. You may save the personal relations even if there are dire business consequences.

Use Outside Advisors

Outside advisors can bring fresh perspectives without the complications of personal relations. Financial and legal advisors from the outside can be invaluable. Avoid those with ‘hypersensitivities’. 

Toronto’s diverse economic environment offers unique opportunities and challenges for family businesses. Engaging with a community of entrepreneurs that reflect this diversity can provide broader perspectives and innovative solutions.

Business is Business

Family dynamics such as treatment of a ‘favorite’ child can hamper smooth operations. When separating the business world from the personal, your chances of smooth relationships increase.

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