Family Business Contracts

Family businesses often face situations that would never occur in businesses that are not owned by members of the same family. When it comes to family business matters, things can get complicated. Employers typically enter into specific agreements, or contracts, with their employees. However, family-owned businesses often sidestep formal agreements with family members who work for or otherwise are affiliated with the family business. When roles and agreements are not formalized by way of a contract, problems can arise. Without a contract, no formal document exists to serve as a reference or guide to help resolve the issue.

“Convert the strong oral traditions of the family into written, binding agreements.”

David Bork
The Little Red Book of Family Business: Page 42

“But We are Family…”

Families are notorious for statements professing the loyalty they have for their members. Nothing is more frustrating than situations in which a family member, who works for a family-owned business, does not abide by the rules. A family business contract is essentially a written document describing a business agreement between the family members who work for the business. It is a binding agreement that lays down the ground rules for the business. It also describes the consequences to follow when the contract is broken.

Family Business Contracts are Designed to Help a Business Function Professionally

The overall goal of a family business contract is not to be cruel or unkind to family members that work for the business. Rather, the purpose of a family business contract is to promote a professional business atmosphere. Businesses with non-family members use contracts, so it’s only natural that a family-owned business should reap the benefits of this type of arrangement.

Family business contracts can be used to administer the following:

  • Terms of employment
  • Specific job descriptions and detailed job responsibilities
  • Salary details
  • Consequences for employment under performance
  • Communication expectations
  • Rules on disclosure of family business matters to non-family members and others not affiliated with the business

Contracts Provide a Basis for Agreement and Order

Family Business Contracts serve a crucial purpose. When utilized in conjunction with a Family Business Constitution, such contracts are useful tools for specifying a clear understanding among family members. When a contract is written and signed, each involved party is provided with written expectations. When expectations are written, they become more defined. Well-defined guidelines are simpler than verbal guidelines to follow and also to enforce.

Does Your Family Business Need Help?

Family Business Matters has extensive experience assisting family businesses in the development of Family Business Contracts. With many decades of experience, we understand the wide variety of challenges that families face as they work together to build, grow and sustain a thriving family business generation after generation. Through conferences, continuing education programs, family business retreats, speaking engagements and private family business consulting services, Family Business Matters has assisted more than 450 family-owned businesses around the world chart their way through family business issues of all shapes and sizes.

Contact Us

For more information on how Family Business Matters can help your family business survive and thrive, please contact us today at (970) 948-5077.