Family businesses make up the majority of Long Island businesses, as well as ninety percent of businesses in North America. On Tuesday, February 23, Herald Inside LI hosted a free webinar to provide insight on how to mitigate challenges faced by family business owners.
This webinar was sponsored by Barnes & Barnes, P.C. and Marshall & Stevens and featured panelists from each of these companies; Leo K. Barnes Jr., partner at Barnes & Barnes, P.C. and John Agogliati, CFA, ASA, managing director at Marshall & Stevens.
The panelists discussed a range of legal and financial issues that often arise within a family business and how to overcome challenges without impacting family harmony. They also answered audience questions that were submitted live during the webinar.
“One of the major steps people should make when trying to set up a family business is to make sure there is corporate protection in place because failure to do so can cause family businesses to lack formalities and structure,” Barnes said. “People that are related to one another tend to take more of a relaxed-approach with one another and they tend to not protect themselves for the possibility of a conflict arising with their family business.”
According to Barnes, family business owners should be proactive by checking in with commercial litigator attorneys on an annual basis. Barnes also said that all family businesses should be governed by legal documents, every owner should be involved in all aspects of business transactions made and all owners should be aware of all developments involving the business.
“In the same way that you go to an annual doctors appointment, you should also come see a litigator attorney because this will help you to plan for the long term of your family business,” Barnes added. “We have witnessed terrible horror stories of families breaking up and what we call a family business divorce occurs because they no longer want to run the business together anymore.”
Barnes also mentioned that there are five triggers that he typically witnesses that can happen with family businesses and that family business owners should be prepared for. The triggers are death, divorce, disability, decision to retire, or a dispute arising.
“It is important that business owners talk about plans and implement them as soon as possible, so they don’t wake up one day and realize you’re not prepared for the five triggers or anything else happening,” Barnes said. “With the ongoing pandemic, there might be a need to do even more planning with an attorney to make sure financial and legal processes for family businesses are in place.”
Agreeing with Barnes, panelist John Agogliati, who has worked for Marshall & Stevens performing business evaluation and privately held business evaluation for over twenty years, said that people who own family businesses should be aware of the tax and economics of their business through structure.
“Getting independent counsel and advisors to work on a family business will help because having an extra set of unbiased eyes looking at your business can prevent major issues down the line,” he said. “It’s important that those who own a family business record the minutes of their business meetings because memories can get fuzzy. You might think you don’t need to do this, if everyone shows up to the meetings, but, it’s better to know exactly what happened in every meeting.”
When running a family business, Agogliati said that oftentimes, one owner of the business might decide they want to sell the business and the other owner might disagree.
“Sometimes family members go into starting their business as good friends, but this can change and there should be a consent of a board or majority consent policy in place for all decisions made involving a family business,” Agogliati said. “There should be a well crafted agreement on how to handle these issues—that everyone involved with running the business has access to for review at least once a year. Families also have to make an effort to keep the agreement active by making sure it is still being referred to and used.”
To watch the recording of this webinar and all other Herald Inside LI webinars, visit LIHerald.com/Recordings. To find information about future webinars, visit LIHerald.com/InsideLI.