Legal Considerations for Your Family-Owned Business

According to, as much as 70% of family-owned businesses will not survive a transition to the next generation (SOURCE IN MINUTE ONE OF VIDEO). Considering that small and mid-sized businesses are the backbone of the American economy, that number is quite staggering. If you are planning on getting into business, you already have a lot on your plate. Thinking about the future may not be on your mind but it should be.

Father and son in a family business

Not every business owner has to be a lawyer, but you are expected to have a basic understanding of laws and how they may affect your business.

Advertising Law

The FTC has the duty of regulating how companies advertise themselves, among other tasks, and have developed rules related to what companies can see. The “Truth in Advertising” rule, for instance, helps govern what labels can say. “Made in the USA” is a good example. For a product to qualify for this standard it must be “all or virtually all” created in the United States. This is designed to stop knock-off products that imply an American-made status, like a map of America, even though they may be made in another country.

Any business that decides to use telemarketing or email to reach out to customers must also be aware of spam laws, and remain in compliance with anti-spam measures. That means being proactive in managing your list of contacts and removing sources marked as unsubscribed or “do not call.”

Safety Regulations

Thanks to the occupational Safety and Health Act, known as OSHA, employers are required to provide a workspace that is free from potential hazards. This act virtually guarantees that employers must remove anything that could potentially cause death or lasting effects, but there are specifics for each industry that you must keep apprised of. The requirements for an office building, for instance, will be very different from the safety regulation outlines to operate a factory floor.

Also bear in mind that while each state has separate regulations, there may be programs you can take advantage of to keep workers educated. Extended training is almost always available from OSHA.

Employment Laws

Before you hire an employee, you need to have some things in order. The first is your EIN, which can be obtained from the IRS. This employer identification number is like a social security number for your business. You will need this number to create withholdings for tax purposes. You will also need this number to report earnings, including staffing costs, to the federal and state governments that require that information for taxes.

You must also verify that an employee is legally eligible to work in the state, and that his or her citizenship status is in good standing. Employers can do this themselves by having new hires fill out the form I-9. The I-9 form must be kept on record for three years after hiring, and one year after termination.

Tax and Succession Considerations

One of the biggest challenges family-owned businesses face is passing the business on. It’s not enough to simply appoint a successor and move on to your next order of business. A family-operated business needs a plan that outlines who will succeed the current owner, and how to hand the business assets over without incurring a large tax burden. Before you ever get to that point, you’ll need to put your family members through some education to prepare them for the rigors involved with running the business. They can work their way up as you see fit, but it’s crucial that they are groomed for the role of management.

Final Thoughts

Small businesses that survive that first five-year hurdle are likely to keep going if they remain managed well and adaptable to market conditions. Why not plan ahead, so you can minimize risk and hand future success off to others in your family to continue building what you began.


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