Employment Agreement |
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This agreement establishes processes and procedures to ensure an orderly and effective entry of an individual into the family business. It answers the following questions: Who is eligible to join the family enterprise? How does one make his or her wishes known? What are the requirements? Who oversees the application process? How will employee be held accountable? What happens if there are problems?
This agreement can be helpful in guiding the next generation's career choices. It promotes the idea that family employees must have the preparation, commitment, and good attitude for working in the business. It helps avoid getting stuck with an ill-equipped employee as a result of an ill-defined entry process. It also helps ensure that family members who move up the management chain into senior positions are well prepared. |
Compensation Agreement |
Compensation is always a major issue in a family business, because it becomes a litmus test of fairness. The following rough guidelines can help define boundaries:
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Buy-Sell Shareholder Agreement |
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This agreement is important because it is the blueprint for the transfer of ownership. Without such an agreement in place, transfers can become mired in differences of opinion.
Some of the most important questions to be addressed by the buy-sell agreement are: Who can be an owner? What are the trigger events for ownership transfers? How should an ownership position be valued? What are the terms of a purchase? |
The Fair and Friendly Family Business
Take the time to pre-negotiate these three agreements and your business should remain conflict-free
By Sam H. Lane, PhD
A family business should be organized along a set of principles everyone agrees on, rather than being dominated by personalities. As a longtime family business consultant I have found one of the best ways to keep a family from getting bogged down in emotional issues is to write down agreements that help the family create appropriate boundaries, define roles, promote understanding and trust, and develop skills.
These agreements help pre-negotiate areas of potential conflict and communicate expectations. They are developed by the family members themselves, which ensures a sense of ownership and commitment to making them work. I have found the following three agreements to be applicable in many family-business situations. I include rough guidelines for each, so you can craft your own to fit your needs.
Sam Lane, Ph.D., is a partner at the Aspen Family Business Group in Fort Worth, Tex.