In an LLC, a family council created in the operating agreement is designed to assist decision making on important issues for the family and the business. This can include unique issues for running the family business. If you watch Brothers & Sisters (I don’t, but my wife is addicted to the show) you know what I mean. Each member may have different ideas of what the business should value and the direction the company should take in the future.
Family councils can also serve other functions as well. A common problem for many second generation businesses is sibling rivalries. Some family members may be interested in preserving the family history of the company. An example of a great family business is the Bacardi & Company Ltd., the spirits company. The business was formed in the late 19th Century in Cuba. The Bacardi’s built a great rum empire with strong roots in its home country. When Castro came to power, the company was forced to flee. The Barcardi’s continue to use the company to carry on the family history and Cuban tradition, and, ultimately, an instrument to help build a stronger family.
Many experts agree that open communication and transparency between members of any business is vital for continued success. Gossip between family members can be toxic. Even though I am not a huge advocate of meetings, the simple formation of a family council allows for an avenue for all the family members to air their grievances. (Festivus anyone?)
A Limited Liability Company offers an excellent way for establishing a family council with proper rules. Here are some provisions that a family business could include in its LLC Operating Agreement:
(1) Schedule meetings at a specific time. You can also list the members that must be present;
(2) Create the position of Secretary, who takes the minutes at all meetings.
(3) Create rules which establish:
- Whether only active family members only or inactive members attend the meetings. Should key employees that are not members of the family attend?
- A meeting place.
- The agenda for the meeting.
- Who leads the meeting.
By establishing a family council in your LLC Operating Agreement, you can keep the focus on the long term goals of your business while keeping the petty disagreements at bay.
If you have any questions regarding using your LLC Operating Agreement to establish a family council, contact me a the Law Office of Frederic R. Abramson at 212-233-0666
