Setting up a family business

[JohnL]

My father and I are planning to set up a business together. Anybody else done this? Any suggestions about pitfalls (eg, a bigger issue than for most businesses if we fall out), what do do to prevent them, etc etc?

[Aprisa]

I worked with my father for several years, early on it was always a slanging match and looking back that was down to me mainly.

Remember, you and your father will most likely be of the same character! so if you are in the least opinionated or abrasive then be careful.

We found in the end the best way was to have a very clear area of responsibility and to keep to your role unless asked or cover was needed. I think age helped and as I grew up a bit (25+) it got very easy.

Trouble is - then they die

Best of luck
Nick

[Eric Mc]

It can be a problem - although if you are both starting the business from scratch it may be easier than if you were coming into a business already set up by your father for a number of years. On top of the usual scources of friction between parties in a business there is the family "baggage" which is hard to ignore sometimes.

If setting up as a partnership, it would still be advisable to have a formal written partnership agreemeent set up. If running as a limited company, then the rights and respnsibilities of the parties (directors/shareholder) should be clearly set out in the Memorandum and Articles of Association.

Any capital sums contributed to the business should be clearly established from the beginning and a clear understanding as to whther these amounts are direct contributions or loans (or a combination of both) should be agreed from the very outset.

Anyway, best of luck.

[KormaChameleon]

On a more IR/legal point of view, if you intend to pay family members with dividends from the profits gained from the company, please speak to your accountant/legal advisor wrt S660.

[Eric Mc]

S660 only kicks in if one of the recipients of salary/dividends does not appear to have any material input into the business i.e. they are just a name against which monies are allocated.

If they work in the business or have contributed through capital, loans or some other involvement, then they should be entitled to whatever they receive from the company.

S660 is not a new concept - it is just an area that the Inland Revenue are taking a particular interest in at the moment. They go through these "phases" every so often.

[simpo two]

What will happen if you disagree on a major point? What then will happen if the person who gets their way is subsequently proved wrong and you have lost business or money as a result?

Sorry, just planning for the worst!

[JohnL]

Thanks guys. What's S660?

I think a major point is to have roles and repsonsibilities set out as clearly as possible at the outset - we're part of the way down towards getting this (me - MD, him - Chairman, and distinctly part time at that), but much as I dislike paying consultancy fees or worse, lawyers I think we will get some professional advice - at least in part to deal with the "family baggage" aspects - in particular the brother and sister at the other end of the country who won't be involved.

[Eric Mc]

Section 660 relates to payments to family members or other "connected" persons out of a company or partnership which may have been made with the main purpose of reducing the tax liability of the company or the tax liabilities of the other partners in the business. This can come to the fore if it's obvious that the family member getting the money does not appear to have any real day to day involvement in the business. It's what the Inland Revenue call a "settlement" and they don't like it.

Have you decided what type of business vehicle you are going to use i.e a partnership or a limited company?

[agent006]

Don't. It really is a bad idea. You've got far too much to lose if you have a bog falling out. You can fire a partner, but you can't really fire your dad.

[bif]

I or perhaps I should say WE, run a family business, wife and both sons.
Can be a little firey at times but then we forgive and forget, it IS DIFFICULT from time to time, but at least with family, the money and client IS looked after and BLOOD IS THICKER THAN WATER
Barry

[simpo two]

MD and Chairman? Is that all really necessary? Simple is often best.

[Gucci]

I spent 14 fantastic years in business with my grandfather. He started the Company back in the 70's. I was always his favorite grandchild and he made it quite obvious that I was to be groomed to eventually take over the business. Our relationship did suffer over the years but we grew more respectful of each others attributes. It is inevitable that your business relationship will become stronger and more prominent than your father/son relationship over the years. He sadly passed away recently and although he played very little part in the business in his final years, it has still left a BIG void. RIP Grandad.

For me personally, I would do it all again tomorrow as they have been fantastic years. I have learnt so much from my grandfather and am only just stating to realise how much.

[130tdi]

bif said:

I or perhaps I should say WE, run a family business, wife and both sons. Can be a little firey at times but then we forgive and forget, it IS DIFFICULT from time to time, but at least with family, the money and client IS looked after and BLOOD IS THICKER THAN WATER Barry

Similar position here - I'm one of the sons.

Do think about it very carefully. Our business was set up by M & D 16 years ago and my brother and I joined 10 and 7 yrs ago respectively.

Every company (family) is obviously different but, basically in my case the old man will not let go of 'his baby'.

As has been said above, but make sure everyone involved has defined roles that they are responsible for. Make sure you communicate - and I don't mean over a pint, it has to be done formally in a work environment.

If you do a search on the Sunday Times website, they did a feature with some good advice on family businesses about 6 weeks or so ago. I've put one of the articles I downloaded here

Best of luck.

Simon