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Separation of Home and Business: Thoughts on Starting a San Diego Business with Your Spouse
Statistics show two things – the majority of businesses in San Diego and in California are family owned and run, and the divorce rate in the US is about 45% (but higher in California). As for the first, according to the U.S. Bureau of the Census, about 90% of American businesses are family-owned or controlled, and family businesses generate over 50% of the US Gross National Product. See Forbes article here.
The dangers of being in business with a spouse (or other members of your family) only really applies to small businesses when running the business is dependent on you and your family members, or when valuation of the ownership interests is difficult to establish. Technically, Walmart is “family-owned” — or maybe “family-controlled” — but a divorce among the members of the Walton family is not going to significantly impact the running of the business. The opposite is usually true for a “mom & pop” grocery store. Here are some considerations with respect to starting a business with your spouse.
Running Your San Diego Business With Your Spouse: Owners Agreement Essential
First and foremost, you need a good San Diego corporate attorney to help. At MINIMUM, you should have a startup Owners Agreement in which you and your spouse decide up front how to handle a divorce or separation with respect to the business. It is easier now, before you start the business, to decide what happens to the business if something unexpected happens. You are both well-disposed to each other now, so now is the time to make fair and equitable decision in the event of adversity.
Importantly, the Owners Agreement is NOT just about a potential divorce. It is also about how to disentangle the BUSINESS relationship if circumstances change. Maybe, a year or two down the road, one spouse just does not like running a business — any business — and wants “out.” Or, maybe, new members of the family are added and one spouse needs “out” to raise the kids. Or, maybe you both are great as spouses, but not so good a business partners and so, one spouse wants “out.” A good Owners Agreement makes arrangements for how a partner can exit the business relationship without damaging the marriage.
Running Your San Diego Business With Your Spouse: Spouse’s Duties
Along the same lines, and maybe in the same Owners Agreement, the spouses should decide up front what the job duties of each spouse are with respect to running the business. Among the considerations are the respective skill sets, training, education, etc., of the spouses. In general, in any business, there is a division of labor. A business run by spouses is no different. Spouses should be assigned the parts of the business that they would be “good at”, enjoy doing, and would contribute overall to the growth and success of the business.
Running Your San Diego Business With Your Spouse: Management Decisions
Just as important, the spouses must decide — again, up front — how business decisions are to be made. Maybe “equal voting” is needed with “family decisions,” but sometimes “equal voting” is detrimental to running a business. Thus, who is making the decisions? Who is making the FINAL decisions? Do the spouses share a “common vision” of where the business is “going?” Does the other spouse have a veto? The most important issue here is withdrawals of money from the business: Who makes the decisions with respect to withdrawing money from the business? If too much money is taken from the business, the business can suffer and even become unable to continue operating.
Running Your San Diego Business With Your Spouse: Where Does the Marriage Stand Now?
Before embarking on a new business with your spouse, consider where the marriage stands now. Running a business can be stressful. If your marriage is already stressful — maybe even already deteriorating — starting a new business can make matters worse.
Call San Diego Corporate Law Today
For more information, call experienced business attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can draft your Owners Agreement, provide legal advice, and help set up your San Diego corporation, help with bylaws, or a custom-drafted operating agreement for your LLC, and/or assist with any other contracts you might need for your new business. Call Mr. Leonard at (858) 483-9200 or contact him via email.
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