Legal issues impacting family businesses

John Reed, a longtime volunteer for the High Center and attorney at Corporate Partner at Barley Snyder, LLC, has a new blog at Fig Magazine. Here's John's post, reprinted with permission:

Welcome to my blog on legal issues impacting small businesses. I need a nifty name for the blog and as lawyers are not known for their artistic creativity, I’m up for suggestions.

If you want to read a little about my background, you can check that out at http://www.barley.com/.

My practice is a general business practice split into two areas – counseling family and closely held businesses and mergers and acquisitions. Regarding my counseling family and closely held businesses, I work with very small and very large family and closely held businesses and really act as a virtual in-house attorney for these businesses. Small and family held businesses are really the backbone of the U.S. economy both from an employment perspective and revenue generating perspective. Small and family owned businesses have some of the same problems, risks and challenges that large corporations have and also have some unique challenges arising from their size and ownership structure. One common theme I hear from my clients is that they often feel isolated as they don’t have a large staff to rely on or may not have a strong group of outside advisors to help guide them.

In this blog, my attempt will be to cover topics on which I have received questions from clients or issues with which I have seen small and family owned businesses struggle. Some of these subjects will include:

• Should I use some type of entity to run my business or am I safe operating it as a sole proprietorship? 
• What types of business entitites are available and what are the differences (limited liability company, S corporation, C corporation, general partnership.etc.)
• How to build relationships with a group of outside advisors 
• Should I have a board of directors or board of advisors? 
• Employee issues, such as, non-competes and non-solicitation issues, concepts to retain good employees, etc.

I’m also certainly open to answering questions from you, so please let me know if you have them.

Finally, I am a novice at this blogging concept, and, as I said, lawyers are not known for their creativity (or ability to write in plain English). So, please bear with me and let me know of any suggestions you have to make this a more effective (and fun) blog.

Disclaimer
This Blog Site is made available by the lawyer or law firm publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

A Family Constitution is a great governance tool...

by Mary Beth Matteo, Founding Director of the S. Dale High Center for Family Business

Many family business leaders stop thinking about governance because they associate it only with a Board of Directors. In reality, governance has many aspects to it:

• Family Councils (to facilitate open communication among family members)

• Boards of Directors and/or Advisors

• Family Constitutions and Mission Statements

• Leadership Development for the next generation

One of the most effective and important tools for the family is the Family Constitution, which is a legal or quasi-legal guide on how to put the family’s priorities, values and mission into action. In essence, it’s a blue print for everything the family intends to do. Here are some areas that are usually included:

Owner Commitments, Rights and Responsibilities: might include guidelines for Ownership, Inheritance and Succession, and Personal Development of family members. Even, marriage and divorce.

Finances and Investment: might include who owns assets, stock agreements (buy, sell and exit) who can purchase and sell shares, and how it will be done.

Family Employment and Compensation: generally includes rules of entry, how jobs will be offered to family, supervision/mentoring, and fair compensation.

Check out a sample family constitution, from the Carjaval Family, SMEToolkit.

Sum and Substance: Something is better than nothing in the world of governance! As with the Family Constitution, starting out small and adding sections as you go along is just fine.


Let us know your thoughts in the comments section of this post:

Does your family have a constitution? How has it helped your family?

So, a board of directors isn't for you? You have options . . .

by Mary Beth Matteo, Founding Director of the S. Dale High Center

What if a board of directors is not for you? Three things usually present obstacles to developing and implementing a board of outside directors: you believe your company is not big enough; it would be very difficult to “staff” a board with the required data; or, your company doesn’t have the funds to pay outside directors.
So, what are your options? The best way to answer this is to look, first, at when a board is most useful. Here are a few reasons to look to outside advisors:

• Your company is embarking on something new, e.g. entering a new market or developing a new product

• You are entering a period of rapid expansion and your company would benefit from the advice of a company that has been through it

• You have faced some major setbacks and would benefit from the insights of a company that has successfully weathered a storm

• Your company is doing strategic planning and could use advisors to force you to think outside the box

You have a couple of choices in lieu of a full board:

• A Board of Advisors, hand-picked to address a particular issue

• A mentor or business advisor, an expert in a particular field

• A consultant

• Peer Evaluation Teams, a carefully selected group of peers, such as one sponsored by your trade association

Sum and Substance: any of these options is a good first step, sometimes an all-important one. However, it’s important to remember that there are certain things only a Board of Directors can do. Only a Board of Directors can guide your company over time. Only a Board of Directors can “take you off the hook” by providing objective standards for your family! Only a Board of Directors can remove the ambiguity from family business decisions, and build trust! These are also important aspects of family governance.

The challenge of finding good leaders

by Joe Molony, senior advisor to the S. Dale High Center for Family Business and professor of business at Elizabethtown College

Why is it so hard to nail down the qualities needed to be a good leader?

Maybe it’s because under different circumstances different qualities are needed. Sure, there are some common elements like visionary, ethical, steadfast, decision maker, etc. But aren’t military leaders different from political leaders? And aren’t CEOs of public corporations different from the heads of family-owned businesses? And how about the demands of various industries--don’t they require different skill sets given the employment make-up and a whole host of other differences like service versus manufacturing enterprises?

Perhaps we should explore these differences of leadership requirements and include CEO’s of public corporations in these discussions to expand our understanding beyond the family business perspective. Or will we be content to just feel our way along and rely on an occasional inspirational quote from some leader of a different time and place which may or may not have any relevance to our situation?

In the case of family businesses, by establishing a board of advisors, executives of family-owned firms can have the best of both worlds--retaining the autonomy and intuitive approach to running their business that allowed them to be successful in the first place combined with the suggestions and perspectives from other business leaders serving in an advisory capacity.