January is almost here and we have vowed to start going to
the gym, stop eating ice cream and finally organizing our sock
drawer. Now is also a perfect time to set some realistic business
resolutions for the upcoming year. Most family businesses set sales
or profitability goals but sometimes overlook the more mundane items that come
back to bite them. We propose five simple, specific and achievable
goals for 2019 that will benefit any family business:
Plan Your Exit (Or Your Escape)
Many of our family business clients
have never considered what will happen to the business if key family members
were unable to continue being involved due to retirement, death or
disability. Even more of our family business clients have never
considered what would happen to the business if family members begin
feuding. It should come as no surprising that some of the nastiest
shareholder disputes we witness arise between family members.
Failure to plan for these contingencies can have significant consequences. It
can result in sizable and avoidable taxes when transferring ownership of a
business to the next generation. It can deprive a disabled family
member or their heirs from being able to capture any value of a business they
helped develop. It can also destroy the value of a business when
fighting ensues between family members who cannot stand to work together and
have no fiscally viable exit. Proactively establishing a succession plan
with an attorney can help mitigate these risks down the line.
Keep An Eye On The Money
If you are a passive owner (i.e., not
engaged in the operations) of a family business, you have a statutory right to
look at the book and records of the company. You should do that once
in a while. Books and records (or the lack of them) can provide a
wealth of information about how the business is being run and whether you are
getting the income that is owed to you. It also helps to keep
operating family members honest.
Clean Up That Corporate Binder
Our family business clients tend to
take two approaches to corporate record keeping: 1) the overstuffed corporate
binder where some, but not all, of the three hole punched paper holes have torn
through such that five pages hinge out when you hold it up or 2) the “what are
you talking about” corporate binder that never existed in the first place.
If you are a corporation, you need to make at least one entry into your
corporate record book each year. Major business events should also trigger
minute entries in your books, for example, the sale or purchase of significant
assets. If you are an LLC, the annual administrative record keeping
requirements are more relaxed but major business events should be reflected in
the corporate minutes.
Fresh Faces, Fresh Ideas, Reduced
Liability
Consider inviting non-family members
to get involved in your family business’s board of directors or advisory
board. As a matter of good corporate governance, non-family members
tend to bring less baggage and can offer a fresh perspective. The existence of “disinterested” board members (i.e., ones
who have no personal interest in the particular matter before the board) allows
a family business to proceed with less risk of shareholder litigation from
family member owners disenchanted with a particular action of the board.
Sharpen Your “Bread and Butter”
Contracts
Almost every business uses and reuses
“bread and butter” form agreements to buy things, sell things, license things,
employ people or mitigate risk. When was the last time a C-level
person or the company’s general counsel reviewed them? Have any of
the form agreements been tested with litigation and, if so, are there any
modifications that could have prevented the litigation in the first instance?
Learn from the past and make adjustments to your agreements to prevent history
from repeating itself.
Following
these five resolutions for 2019 should help reduce any guilt around eating ice
cream on your couch while staring at your unused gym membership.
