Share This Info:  

Buying A Business With Partners Or Family Members: Pros And Cons

See All Discussions   •   See All Contributors   •   All New Discussions & Comments

Comments & Replies: 3     Views: 5204     Posted By: Joe Ranieri  Joe Ranieri, Business Broker: LA, Orange County Areas

Buying a business with a partner/partners, family members can make one think twice about ever doing it twice! However in this BizBen Discussion Post I chat with others about identifying roles, defining goals, attorney visits, and other relating issues.

Topics: Buying A Business, Deal Structures     Tags: buying a business, deal structures, legal issues



I have sold many businesses to buyers who were family or friends, and I have sold just as many when the reason for selling was "dispute between partners." Owning a business is extremely time consuming, and so it helps to have someone there when you are not who you can trust. Internal theft is a major problem in many business operations, and so just having a "manager" on site is not enough to deter theft. There are some things anyone who is interesting in becoming business partners should consider.

1. Identify Roles

I suggest anyone who wants to become partners to analyze and decide which roles each person will do. If you are buying a restaurant decide what person will be responsible for bookkeeping, working in the kitchen, handling staff issues, etc. Many times, people will by a business and become frustrated, because one person feels they are there all the time while the other person comes in infrequently.

2. Define Your Goals

Identify what your ultimate endgame is. Are you buying a business that you will eventually sell in 2-3 years or are you planning to expand in the future? It's important to ask yourself what your plans are and what you will do if one of the partners decides they want to leave. I have seen people become successful by buying a business and working it together and then eventually opening up another location that one of the partners runs.

3. Visit An Attorney

Possibly visit an attorney and have them draft up a business partnership agreement. Is one person bringing in more of the money, while another will be sweat equity? It's important to decide if itís going to be a 50/50 or 60/40 split or another percentage of the business' net profit.

4. Separation of Private and Personal Lives

If you are a husband and wife buying a business make sure that you make it a point to separate your business with your marriage. On a personal level, I have seen many people who lose their personal relationships because they become consumed with the business and ultimately through conflict both their business and relationship suffer.


To expand on Joe's point 3, in California, if you act as a partnership when you buy and operate a business, you create a legal partnership automatically. If you don't have a written partnership agreement (or form the business as an LLC or Corporation) then you are going to be stuck with California's parntership laws if you ever have a dispute or one of the partners is incapable of running the business. I don't know about you, but most entrepreneurs and business owners I know would rather not have the State of California making crucial business decisions for them.

Even if there's not a dispute you can still run into issues. For example, what happens if one of the business owners becomes incapacitated or declares personal bankruptcy? If you have a partnership agreement (or, even better a corporation or LLC) those issues can be worked out ahead of time, the way you and your partner(s) decide, not the way the State of California decides.

If there's a dispute things can get even more difficult if you don't have a written partnership agreement or corporate entity. If you plan ahead you can work out reasonable provisions which allow one partner to buy the other out if you can't resolve a dispute or if there are other unresolvable issues. If you don't plan ahead you can be stuck taking your dispute through a costly and lengthy court procedure where a court-appointed receiver makes the decisions that you can't because your partner(s) refuse to cooperate.

Additionally, if you start or purchase a business as a partnership you may be exposing yourself to substantial liability that you wouldn't be exposed to as a shareholder of a Corporation or member of an LLC. Before you purchase a business with partners make sure that you're considering all of the legal implications and whether a partnership (as opposed to an LLC or Corporation) is truly the best fit for you.



Following up on Mark's comments, I can't think of any good reason not to form an LLC or sub-S corporation rather than purchasing a business as a partnership. In a partnership, each partner becomes the effective agent of every other partner and can create unlimited liability for the other partner(s); the risks are enormous.

The decision to form a limited liability company (LLC) or a "C" corporation or a "sub-S" corporation is almost exclusively a tax issue. When I practiced law in New Jersey, I would advise clients to discuss that decision with a CPA; then I would form the preferred entity for them. That's the easy part. The intricate and essential part is discussing, negotiating, and drafting the in-depth shareholders' agreement that covers all the possible "what ifs" that could arise and how they will be resolved if they occur. The concerns are myriad, including: death, disability, or mental incapacity of a partner; incompetence, dishonesty, malfeasance, insolvency, or bankruptcy of a partner; personal judgments against a partner; divorce of a partner; sale, gift, or other transfer of a partner's interest; inheritance of a partner's interest and other succession issues; sale of the entire business to a third party; employment of partners and/or their relatives; conflicts of interest; competition by a partner with the company; confidential and proprietary information; transactions between the company and one or more of the partners; day-to-day and long-term decision-making control and management authority; authority for capital purchases and real estate transactions; authority and control over finances; distribution or reinvestment of profits; taxation; directors and officers (D&O) insurance; protection of minority partners from the majority; mediation and/or arbitration of disputes; and many more.

Obviously, this requires the advice and counsel of a seasoned business attorney ... preferably before purchasing a business. Failure to plan thoroughly in advance can lead to losing everything, and not just what was invested in the business. I have seen it happen before, and I can guarantee it will happen again if partners fail to plan and provide the proper agreements to protect themselves and their families.


  Helpful Resources To Assist In Selling And Buying California Businesses
Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.

Jordan Green, JRG Communications - Marketing Services For Brokers, Agents

A marketing communications company assisting business brokers & agents. Services include: social media management, custom website creation & design, content creation services, optimizing & posting listings on business-for-sale websites, custom articles & blog post creation. Call 866-620-2752.

Hasan Abdullah, Esq. E-2, Immigration Legal Assistance

I have over 10 years experience with E-2's and immigration issues. E-2's approved for as little as $10,000. Let me assist you with E-2 visa strategies when buying and selling a small to mid-sized California business. Mention BizBen.com for a FREE consultation when phoning me direct at 510-500-1155.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Steve Erlinger: Laundry Broker, Consultant - Orange/Riverside Counties

I specialize in the laundry industry (Broker/Consultant at 949-500-5893) - Riverside, Orange Counties. I assist buyers navigate the many facets of finding, evaluating, and operating a laundry business. I also help current laundry owners find additional stores, sell, evaluate an existing laundromat.

George Lanza, Business Broker, At Plethora Business Sales

Plethora Businesses, a division of A Premier In Services, Inc., is a Business Intermediary Consulting Firm headquartered in Orange, California. Plethora specializes in the listing and sale of small and medium sized private businesses.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
How Your Habits As A Business Broker Can Have A Huge Impact On Your Income

Finding success as a business broker in the new and digital age will largely depend on your ability to adapt quickly to change. The truth is, times are rapidly changing and the "old school" habits that most business brokers have used in the past simply won't cut it anymore. Jordan Green explains.

Workshop: How to Find Profitable Businesses For Sale Not On The Market 11/10

Live Workshop For Business Buyers: Find Small Businesses Possible For Sale Not On The Market. This Workshop Is In Southern California. Date - Saturday 11/10 - 1:30 PM to 4:30 PM. Call 805-428-2063 to RSVP. Willard Michlin, CPA will be presenting this workshop.

What Steps Do I Take When Closing A Business That Doesn't Sell And I Close?

Every business broker knows that a listing taken is not a listing sold, in fact the ratio of listed vs. sold could be discouraging if you really thought about it. Joe Ranieri (Orange County Business Broker) discusses what you should do if you finally have to close the doors and call it quits.

Mentoring In How To Buy A Business - Tips From Expert Willard Michlin, CPA

Willard Michlin, CPA a due diligence specialist shares his views on the mentoring process & about how buyers can "profit" from such a relationship when searching and buying a business. Mr. Michlin, CPA (800-864-0420) performs due-diligence services and and consulting services for business buyers.

Who Really Represents The Business Buyer In A Deal? Does Dual Agency Work?

Who really represents the buyer? The selling broker or agent through dual agency? Many brokers and agents weigh in on this Discussion on BizBen. Bottom line is all business buyers need to know who really represents them and has their best interest at heart when seeking and negotiating on deals.

Buying A Business With Partners Or Family Members: Pros And Cons

Buying a business with a partner/partners, family members can make one think twice about ever doing it twice! However in this BizBen Discussion Post Joe Ranieri (Orange County Business Broker at 714-292-5448) chats about identifying roles, defining goals, attorney visits, and other relating issues.

Can A Business Seller Back Out Of Escrow If They Simply Change Their Mind?

Can a seller of a small business back out of an ongoing escrow? Probably, yes, it all depends how far along the escrow is, which will dictate how messy things will get for both owner & buyer. Joe Ranieri (Southern California Business Broker) gives his feedback with others on this BizBen Discussion.

Purchase A Business With Limited Or No Cash - Financing Tips For Buyers

Purchasing a business with no money down can be difficult, but not impossible. Financing a business purchase or down payment can often be accomplished with these strategies from Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor with BizBen) at 866-270-6278.

See All News, Tips And Events

Southern California Legal Services For Buyers And Sellers
Joe Ranieri Orange County Business Broker
Tim Cunha Business Brokerage
Willard Michlin Due Diligence Services
Facebook
Twitter
Linkedin
Google Plus You Tube
Vlogs and Podcasts


Auto Related
Business Services
Children Related
Communication Related
Computer, Internet Related
Construction Related
Entertainment Related
Financial Services
Health, Beauty Related
Home Improvement Related
Maintenance Related
Manufacturing Related
Media, Publishing Related
Pet Related
Photography/Video Related
Real Estate Services
Restaurant, Food Related
Retail Related
Service Related
Sports Related
Transportation Related
Travel Related
Wholesale Related

Auto Body Shops
Auto Repair Shops
Bakeries
Bars, Sports Bars
Cafe Restaurants
Car Washes
Cleaning Services
Clothing, Apparel Stores
Coffee Shops
Convenience Stores
Deli Restaurants
Discount, Dollar Stores
Dry Cleaners
eCommerce Websites
Fast Food Restaurants
Florists, Flower Shops
Full Service Restaurants
Gas Stations
Gift Shops
Gyms, Fitness Facilities
Home Health Agencies
Hotels/Motels
Ice Cream Shops
Juice, Smoothie Shops
Laundromats
Liquor Stores
Markets, Marts
Nightclubs
Pizza Restaurants
Postal, Shipping Stores
Preschools, Day Care
Print Shops
Salons, Beauty Shops
Sandwich Shops
Smog Test Only Shops
Smoke Shops
Spas, Med Spas
Sushi Restaurants
Tire Shops
Towing Services
Vending Routes
Wireless, Cellular Shops
Yogurt Shops

Alameda
Alpine
Amador
Butte
Calaveras
Colusa
Contra Costa
Del Norte
El Dorado
Fresno
Glenn
Humboldt
Imperial
Inyo
Kern
Kings
Lake
Lassen
Los Angeles
Madera
Marin
Mariposa
Mendocino
Merced
Modoc
Mono
Monterey
Napa
Nevada
Orange
Placer
Plumas
Riverside
Sacramento
San Benito
San Bernardino
San Diego
San Francisco
San Joaquin
San Luis Obis
San Mateo
Santa Barbara
Santa Clara
Santa Cruz
Shasta
Sierra
Siskiyou
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tulare
Tuolumne
Ventura
Yolo
Yuba

0 to $99,999
$100,000 to $249,999
$250,000 to $499,999
$500,000 to $999,999
$1 million to $2 million
over $2 million




BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2018, All Rights Reserved

               Vlogs and Podcasts  
Join Us On Social Media - Content Updated Daily
Sign Up Today - For Our FREE BizBen Weekly Email Newsletter
Includes The Best Info On Buying, Selling, Valuing, Financing California Businesses:
Articles, Blog Posts, Podcasts, Videos/Vlogs, Discussions, Q&A, Workshops, Webinars,
Resources. Watch For An Email Confirmation After Signing Up Above. Thank you.
Clost Login


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 
Search BizBen.com

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
Going Behind A Brokers Back: How Does A Broker Protect Themself?
Read More News
How Your Habits As A Business Broker Can Have A Huge Impact On Your Inco...
Read More News