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Legal Insights

Starting a Business With Friends or Family? Here’s How to Set It Up for Success

Starting a business with friends or family can be an incredibly rewarding experience. The trust and shared values you bring to the partnership create a unique foundation for success. But mixing personal relationships with business also comes with challenges that can jeopardize both your venture, and your relationships, if not handled carefully. 

If you’re considering launching a business with friends or family, setting clear expectations and structures early on is essential. Here are key steps to help you build a strong, sustainable business while protecting your most important assets – your personal relationships.

1. Have Open and Honest Conversations

Before signing any agreements or investing money (especially with friends and family), talk openly about your goals, values, and expectations for forming a business. Discuss how much time, money, and effort each person is willing to contribute. Clarify what success looks like for everyone.And address how conflicts will be managed. These conversations can feel uncomfortable, but are vital for avoiding misunderstandings down the road.  It’s better to “keep accounts short” than risk losing it all in the end.

2. Define Roles and Responsibilities Clearly

Just like any other business, you need to clearly outline each person’s role and responsibilities. Who will handle operations, marketing, finances, or customer relations? How much will each person be paid? Clear boundaries reduce confusion, prevent overlap, and ensure accountability. Put these roles in writing so everyone is on the same page.

3. Create Formal Agreements

Especially if you’re working with family or close friends, formal legal agreements are essential. Operating agreements, partnership contracts, or shareholder agreements should spell out ownership shares, decision-making authority, profit distribution, dispute resolution methods, and exit strategies. Having these documents protects both the business and your relationships.

4. Set Boundaries Between Business and Personal Life

It’s easy when starting a business with friends or family for stress to spill into personal dynamics. Agree on times and places where business talk is off-limits.. Then respect these boundaries to maintain trust and a healthy balance.

5. Plan for Succession and Exit

Life changes, and people’s priorities shift. Since only about 30% of family-owned businesses are successfully passed down to the next generation, it’s essential to establish clear agreements in advance for handling ownership transitions, whether due to retirement, a partner’s departure, or unforeseen circumstances.

A well-planned exit strategy ensures the business can continue without upheaval, and minimizes emotional strain.

6. Seek Outside Advice

Bringing in trusted advisors, legal counsel, accountants, or business coaches can provide objective perspectives and help you navigate tricky decisions. Professionals can assist with drafting agreements and succession plans tailored to your unique situation.

At MSB Law, we recognize the special dynamics involved in starting a business with friends and family. Our legal team helps entrepreneurs establish the structures and agreements needed to protect their ventures and relationships. If you’re ready to start your business with confidence and clarity, contact MSB Law today for personalized guidance.

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