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Elements of a Business Contract for Family Businesses


When several family members, like a married couple or siblings, set out to start a business together, they hope it will be successful and last a long time. Many family businesses do end up being successful but they don’t always last as long as they should. Only 40% of family businesses last two generations, while just 13% last three generations.

The reason behind this isn’t what you expect. The business is successful, so what’s the problem? It’s a poorly defined business contract.

Many people underestimate the importance of a strong contract. After all, it’s family. While blood is thicker than water, family drama is known to ruin relationships and shutter businesses for good. That’s why you need a business contract that includes all the details. Here are some things it should include.


This is a main area of contention, as everyone wants to be paid more. Hardly anyone is happy with their compensation. However, there should be a formula in place based on skills, experience and responsibility. Nobody should be paid more because of their gender or because they are the favorite niece/nephew. 

Roles/Reporting Structure

Families often fight over this because they think they don’t have to answer to anybody. Everyone needs to know their place in the family business. Are they an owner or employee? What are their duties? Make sure everyone involved in the family business knows their role. If they are a manager, who is under their supervision? Who do they report to? This should all be outlined in the contract.


Training is an element that many companies overlook. However, this is important, as no person should automatically know what they need to do. This often involves some sort of education, whether it’s online or in-house. The training could be in the form of a couple classes or an entire degree program.

Dealing With Disagreements

Families are going to fight. At some point, someone is going to have a disagreement about how the business is being run, so how will these issues be addressed? It may be wise to have a neutral third party, like a mediator, help with any disagreements. In any case, there needs to be a process in place so that issues can be resolved amicably. Otherwise, they can escalate to legal drama and even physical fights.


Does the family business have a retirement plan in place? If so, what are the requirements? How long does someone have to work? What type of ownership opportunities are there? Stock shares are something that needs to be discussed, since many don’t want them to leave the family. What happens when someone divorces?

Learn More About Business Contracts

Businesses often fail when the right contract isn’t in place. This is especially true for family businesses. A contract should be clear and detailed.

Orlando business contract lawyer B.F. Godfrey from Godfrey Legal has decades of experience with a variety of business contracts. He can make sure all the details are in place. Schedule a consultation. to learn more. Call (407) 890-0023 or fill out the online form.



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