Family Business Operating Agreement

If properly applied, they can help families manage property and avoid inheritance, inheritance tax, and taxes on lifetime gifts to family members. A mature family business or a business with diffuse ownership interests should consider a co-ownership arrangement. Typically, towing rights allow a majority of owners to compel minority owners to participate in the sale of the business under the terms negotiated by the majority, thus preventing minority shares from obstructing an otherwise attractive sale transaction. Towing rights can benefit a family business by providing an exit route allowed by a majority of family members who no longer wish to maintain the family business, while protecting minority shareholders by ensuring that they participate in the sale under the same conditions as the majority. In the absence of a strong company agreement, conflicts and other circumstances can cause considerable damage to a family business, including loss of control of the business. A thoughtful company agreement will go a long way in mitigating such damage and serving as a firm hand if family dynamics change over time. As always, advance planning is essential. The LLC company agreement allows LLC and its assets to be controlled, so both can be passed on to surviving family members. In this case, a family business should consider whether it should freely allow transfers between family members and businesses owned by family members (e.g.

B family foundations or LLCs 100%). Those provisions should be in accordance with the succession plan of the founding members. As a conflict prevention mechanism, a family may consider granting members who wish to leave the family business the right to resell their shares to the business or members. To avoid a liquidity crisis, family businesses could also consider a fair trial to raise additional capital from members. Part of the appeal of a family business is the family part, unlike the business part…