Starting a family business can be one of the most rewarding ventures you’ll ever take on. There’s something special about building something meaningful with the people you care about most, especially when that business is rooted in shared values, a strong work ethic, and a common vision for the future. As an attorney who has helped many families get their businesses off the ground—and as someone who values family and community—I can tell you that a little legal preparation at the start goes a long way.

While family ties can strengthen your business, they can also complicate things if expectations aren’t clear and legal protections aren’t in place. So, before you jump in with both feet, here are some legal basics to consider to help your family business thrive and avoid conflict down the road.

Choose the Right Business Structure

One of the first decisions you’ll need to make is choosing the legal structure of your business. This will affect everything from taxes and liability to how profits are shared and how decisions are made.

Here are the most common options:

• Sole Proprietorship: Simple and inexpensive to set up, but not ideal for a family-run business because it doesn’t separate personal and business assets.
  
• Partnership: Allows two or more people to own and operate the business together. It’s relatively easy to form but can expose you personally to business debts and liabilities unless it’s a limited liability partnership (LLP).
  
• Limited Liability Company (LLC): A popular choice for family businesses because it protects your personal assets from business liabilities and offers flexible management and tax options.
  
• Corporation (C Corp or S Corp): More complex and formal, but may be appropriate for larger family businesses or those seeking outside investors.
  

Talk to an attorney or accountant about which structure best suits your goals, size, and risk tolerance.

Draft a Clear Operating Agreement or Partnership Agreement

Even if your family members trust each other completely, it’s essential to put everything in writing. A well-drafted operating agreement (for an LLC) or partnership agreement can clarify roles, responsibilities, ownership percentages, and how profits and losses are distributed.

Some key things to include:

• Who owns what percentage of the business?
  
• Who makes decisions and how are they made?
  
• What happens if someone wants to leave the business or passes away?
  
• How will disputes be resolved?
  
• What are the expectations for time, work, and financial contributions?
  

These agreements don’t just protect your business—they protect your relationships by preventing misunderstandings.

Register Your Business and Handle Permits

Once you’ve chosen your structure and drafted your agreements, you’ll need to register your business with the state and obtain the necessary licenses and permits.

Each state has different requirements, but generally, you’ll need to:

• Register your business name.
  
• File formation documents (e.g., Articles of Organization for an LLC).
  
• Apply for an Employer Identification Number (EIN) from the IRS.
  
• Obtain any necessary business licenses or zoning permits for your industry.
  

Failing to register properly can lead to fines or even force you to shut down. Make sure to check with your local government and any relevant regulatory agencies.

Consider Employment Laws—Even for Family Members

Many family businesses assume they don’t need to follow typical employment rules when hiring relatives. While there is some flexibility, it’s important to understand your obligations under employment laws—especially if you have non-family employees as well.

Key areas to think about:

• Payroll taxes: Even if your kids or spouse are working for you, you may still need to withhold taxes.
  
• Minimum wage and overtime: These laws usually apply regardless of the worker’s relationship to the business owner.
  
• Workers’ compensation: Your state may require you to carry insurance, even for family employees.
  

You want to protect your business and your workers. Follow labor laws carefully and document all employment agreements in writing.

Protect Your Business With Insurance

Every business carries some risk. One of the best ways to manage that risk is with business insurance.

Types to consider include:

• General liability insurance (covers accidents and injuries)
  
• Property insurance (protects buildings, equipment, and inventory)
  
• Professional liability insurance (for service providers)
  
• Business interruption insurance (covers lost income if you have to stop operating temporarily)
  

Insurance gives you peace of mind and helps ensure that an accident or lawsuit doesn’t put you out of business.

Plan for the Future—Succession and Estate Planning

One of the unique challenges of a family business is planning for future generations. What happens when the founders want to retire or pass the business to their children?

Succession planning is crucial. Decide:

• Who will take over and how will that transition happen?
  
• Will ownership be transferred through sale, gift, or inheritance?
  
• How will conflicts between heirs or partners be resolved?
  

Integrate your succession plan with your estate plan to avoid legal and tax issues later. Having a plan in place helps ensure the business survives and continues serving your family for years to come.

Final Thoughts: Get Advice Early, Not When It’s Too Late

Starting a family business is a big step, and I’ve seen many succeed and flourish—especially when they take the time to lay a solid legal foundation. Getting professional guidance early can save you headaches, protect your assets, and help you focus on what really matters: building something meaningful together.

If you’re considering launching a family business, don’t go it alone. Talk to an attorney, accountant, and other trusted advisors who understand both the legal and personal aspects of this journey. With the right preparation, your family business can be both a legacy and a livelihood.