Posted by JuJuan Buford @JSBUFORD
Disclaimer: This content has been made available for informational and educational purposes only and is not meant to be a substitute for legal, accounting, or other professional advice. If you have specific questions about any legal matter, you should consult with an attorney or other professional services provider.
You’ve started a business with a dynastic vision serving as your inspiration. You scheduled the family gathering, corralled all the interested parties, inventoried everyone’s commitments, and stepped boldly into the incredible future that awaits you. Very soon the capital starts pouring in, and smiling faces and good feelings abound. You’ve won.
However, just as there was a beginning to the honeymoon, there will be an end. The open house was a hit, and the winds of support and enthusiasm are very much still at your back. However, there’s been some attrition. A key employee has recently become engaged, and is planning to move to another state. Another found a better job, allowing for more time with the children. A couple family members have begun to behave nonchalantly, arriving late and leaving early.
You’ve exhausted your warm market collectively, and entrepreneurship is skilled trade. Unfortunately, you’re discovering that much of your staff doesn’t have the skills to pay the bills. This new phase of your business requires that you upgrade your current roster of employees, and invest in marketing your business more effectively. Additionally, after a couple months of managing your accounts payables and receivables, you’ve realized you need to tighten up your operating expenditures. In other words, you turn off the spigot on unnecessary spending and immediately put a halt to family members using cash deposits, and the business account like their personal piggy bank.
In business - especially in the beginning - you often have to do things you’re not being compensated for, so later on down the line you can be compensated for things you longer have to do. Your people are still investing time and energy, but some are feeling entitled to receive more income because of the increased profitability, ignoring the fact that reinvestments need to be made.
Does any of this sound familiar? If so, you know what is about to happen next.
Very soon people’s feelings begin to creep into discussions and impact expectations; accountability begins to fade; and smoldering animosities begin to surface. Finally, one of the siblings, aunts, or cousins decide they’ve had enough and want their initial investment back. Another, decides to start up a competing venture, and siphon your business resources to launch it without telling you. And depending on how much time you can dedicate to bandaging egos and wounds, accusations of theft and betrayal begin to inundate relationships, and the rest becomes bad history.
Unfortunately, some version of this narrative transpires everyday in business, and often with devastating consequences. The owner or owners believe these people are my friends, my family, and lacking the business acumen and professionals who have the life experience to help owners prepare and anticipate these challenges their misguided beliefs often become their own undoing. Call it willful ignorance, pomposity, or a combination thereof. The bottom line is these types of conflicts can be more easily managed and avoided by taking a couple simple steps.
Implement An Operating Agreement / Partnership Agreement
Plainly speaking an operating agreement is an arrangement between members or shareholders of a business entity regarding how they conduct business affairs. It spells out the rights of members or shareholders, obligations, and procedures regarding how the business is to be managed. It provides clarity, and helps parties stay in their lane, and play nice.
As a business owner/s your value proposition can be phenomenal and you can be surrounded by all the talent in the world, but if individuals aren’t clear about what is expected of each other, things can go south very quickly. People don’t rehearse accidents resulting in disabilities, untimely deaths, divorces, or simply losing personal interest in a business. And regardless of how fine of character you believe someone to be, we all have been surprised at one time in our lives by wolves hiding in sheep's clothing. Operating agreements resolve these issues and more.
- Voting rights,
- Issues related to parties leaving and possibly becoming competition,
- How a buyout may need to be handled,
- How & When profits are distributed,
- Expectations regarding how monies invested will be handled,
- Buyout provisions,
- Clarification regarding roles and responsibilities,
- What happens in the event of disability or death,
- How the business will manage its tax obligations and debts,
- And how personal infusions of cash will be handled.
As an aside, having an operating agreement also helps to demarcate the lines between personal affairs and business affairs, offering greater protection from legal challenges arising from tax issues as well.
Non-Compete, Non-Solicitation, Non-Circumvents
These documents place restrictions upon employees, contract workers, shareholders, and even passive investors from directly or indirectly competing against your business. Depending on how these documents are drawn up, they can address issues relating to an employee or contractor joining another competitor while employed by you, after the end of a working relationship, or a period following termination. They can also be effective at preventing parties from investing in or lending monetary assistance to a competitor.
They are especially effective at preventing or limiting activities such as disclosing confidential information, information regarding clients, sharing information for the purposes of disparagement, or usurping activities involving suppliers or providers of technical assistance.
Address Intellectual Property Concerns Upfront - Trademarks & Copyrights Specifically
Trademark protections can be used for business names, logos and symbols, and some creative artifacts, assuming they are being used to distinguish, or identify goods and services being offered by a specific person or entity. In other words you trademark content that is being used to brand or draw a distinction between you and your competition.
You can register for trademarks on the state level or employ ghetto copyright tactics however taking these steps only offer limited protection, and if your intellectual property rights are abridged, there is a strong likelihood that you will not be able to pursue punitive damages. And complications can occur resulting in your rights being denied altogether.
In other words, don’t do it. Your intellectual property rights are evergreen. They have long term value, because they are assets. Invest in your assets casually, and your business will become a casualty. Go through the proper channels, and don’t cut corners when it comes to your IP rights. While filing a trademark registration yourself may be the least expensive method, you may encounter name conflicts or other registration issues that require legal or other trademark professional input.
Employ copyrights to protect written works, artistic expression, songs, paintings, and drawings, designs, symbols or logos even if the work is purely for decorative purposes. If you desire for your business to grow away from you, meaning become an income producing asset that generates revenue independently of your sweat equity, copyrighting your content is essential. While some protection exists without registration, such as a copyright, you need to register for protection of other intellectual properties and generally to defend your property rights in court, including copyrights.
To help assess whether you want to file trademark or copyright registrations yourself review the following sites for additional information::
United States Patent and Trademark Office > https://www.uspto.gov/trademark
United States Copyrights Office > https://www.copyright.gov/
As with anything, it is best to be proactive. Take the time to determine ownership rights of all intellectual property before launching and be sure to determine how intellectual property will be handled in the event that a business is dissolved.
While there are no foolproof methods to prevent conflicts from occurring when conducting business with family, especially if there isn’t an established culture (hierarchy) of business ownership and collaboration among relatives. These aforementioned considerations can both dissuade bad behavior and provide incentives for desired outcomes. And in the event that things do go south, there is an established blueprint and road map to resolve conflicts, rather than decisions being made in the heat of the moment or while passions are high.
Lastly, understand the moment you believe you know it all, your obituary is being written. No different than an athlete believing they no longer have to review film or prepare any more. Seek professional guidance and expertise regarding these matters. And remember nobody wins when the family feuds.
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JuJuan Buford is a Detroit native, entrepreneur, Founder & CEO of JSB Business Solutions Group, business development professional, and writer dedicated to helping families, entrepreneurs, and business owners establish thriving enterprises, achieve financial independence, and build lives of satisfaction.
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