How to Incorporate your Family Small Business
By: Deborah Sweeney, CEO of MyCorporation.com
Running a family business is very different from running a normal company. You can rely on your family to help support you, and the company, through hard times, but there are also unique problems to contend with. It’s much harder to deal with succession, decision-making, and filling leadership roles when family is involved. Though 90% of all enterprises in North America are family-owned, 47% of family businesses surveyed have no succession plans in place. By incorporating your business, and taking the following steps to do so, you’re ensuring that succession plays out a bit easier within the family tree.
1) Figure out who owns what.
Division of ownership is extremely important in a family business. Analysts estimate that 40.3% of current family business owners are going to retire by 2017. Most family businesses are a bit on the loose side when it comes to ownership — everyone pitches in and that’s that. But when you incorporate, you have to decide how many shares each member of the family will receive. Each shareholder will be an owner and have a say in how the business will be run. If some family members are more involved with the business than others, you’ll probably want to give them a bigger share of your company. And, when you’re getting ready to retire, you will still need to figure out who will receive your shares and get majority ownership of the business.
2) Write your bylaws.
Bylaws are extremely useful for solving the kinds of disputes that often plague family businesses. Bylaws are essentially the rules for running the corporation. They cover basic governance rules like how the board of directors is structured, how new directors are chosen, and how shareholders communicate with those running the company day-to-day. As a family business, you’ll also have to include provisions for calling special meetings to resolve any issues that may arise. Your bylaws should also include rules regulating the selling of shares. There may come a time when someone in the business wants to leave, so you’ll have to decide what to do with their shares, and ensure they aren’t able to sell them to an outside party without unanimous consent.
3) File your paperwork!
In order to incorporate your business, you’ll need to file your Articles of Incorporation with the state. These articles are usually straightforward and require you to supply basic information like the names and addresses of the corporation itself, its registered agent, and the interim board of directors. These articles will also need to disclose how many shares the company will be authorized to issue. After they are filed, and a fee is paid, the state will look them over. If everything is filled out correctly, the corporation will be formed. You then have to call an initial meeting of the interim board of directors to adopt your bylaws and hold the first shareholder meeting, wherein the actual board of directors will be voted on.
The corporate structure is a great fit for a family business as it offers both limited liability to the owners and allows for some liquidity if someone integral to the company decides to leave. But resolving arguments and disputes is a lot trickier, so it’s important you have procedures in place to keep the business running while problems are worked out. And don’t forget to think about whom you want to run the corporation when you retire, especially if you hope to keep it all in the family.
About the Author:
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @mycorporation.
