The potential for blurred lines and conflicts in a couple-owned business makes it crucial that the business relationship be treated professionally from the start. Before you embark on a new business venture, you and your spouse should have a solid understanding of what each of you brings to the venture, how to divide responsibilities, and what type of business entity you will form. Having proper written agreements in place helps to ensure that mechanisms exist to deal fairly and legally with any problems that may arise. If your spouse is not participating in the business, then you should question whether to include them as part of the ownership.
Business Entities for Married Couples
Couples may choose a partnership, limited liability company (LLC), or corporation as a type of entity. One or both spouses can be managers of the business if they have an active role in its day-to-day functions.
Business Entity Tax Implications
The type of business entity you choose has important tax implications. Specific questions about ownership structure and taxation should be discussed with an attorney. Reach out to Summa Business Law if you have any questions.
Couple-Owned Business Contracts
It is best to have everything in writing, especially given high rates of divorce. Depending on the type of business you form, make sure you have an agreement—such as a partnership agreement or an LLC operating agreement. This agreement details the management structure, the process for dissolving or leaving the company, indemnification, ownership percentage, and the process for adding new members.
You might also consider a separate buy-sell agreement that details how to deal with the sale or buyout of a spouse’s ownership interest. This could come into play during a divorce, the untimely passing of a spouse, or if one of you simply wants to get out of the business.
If you are not co-owners, and one of you is an employee, you will need a contract that stipulates job duties, pay and benefits, how and when the employment relationship can be ended, the dispute resolution process, and other employment terms.
It may be initially uncomfortable to treat your spouse as a business partner complete with contractual obligations. But clear written rules for the business are a signal that you are both taking the business seriously. Your marriage is a contract, after all. Contracts are just a way to ensure that the parties are on the same page and equally committed.
To keep your business above board and professional, consider working with an attorney who can advise you on business entity structure, taxation issues, and contracts. A neutral and knowledgeable business attorney can provide a third-party perspective that sets up you and your spouse for long-term business success. Please call or contact Summa Business Law to set up an appointment.