By Fredrick P. Niemann, Esq., a NJ LLC Law Attorney
Many individuals look up to family-owned LLC businesses, as they have been a staple in the American economy. While there have been numerous success stories, it is important to note that not all family-owned LLC’s, also known as Limited Liability Companies, run smoothly. In fact, there are a number of problems that can arise within a family-run enterprise that the general public does not usually think of.
Family-run LLC’s present an ideal situation for majority members to oppress minority members. The closed-nature of the business allows majority members, typically the older family members, to rule over the company to the detriment of younger family members that hold a minority share in the business. Majority members may refuse to declare dividends, drain corporate earnings, pay extreme salaries to their favorite sons or daughters, and even refuse employment to competent family members based purely on their own personal biases. Majority members in family-run businesses also have the opportunity to “squeeze-out” or “freeze-out” minority members, two actions involving the use of preclusive, coercive tactics to force other members out of the business.
Another problem that may arise in family-owned corporations is the intertwining of family issues and the business. Family members, often unintentionally, take their emotions from their homes into the office. Disagreements on the home-front may hurt the business. Feelings of pride, jealousy, and distrust toward other family members may influence business decisions. Old family feuds may arise, negatively influencing operation of the corporation.
Family businesses also unfortunately may be faced with a dominant head that refuses to cede power and will not listen to the advice of others. Often as they age, elder family members that are also the majority members may feel as though nobody can run the business as they do. They may also fear reaching a point where they are not needed anymore. Whatever the reason, these members may insist on running the business in an inefficient manner, failing to listen to younger, more knowledgeable minority members.
Contact me personally to discuss your NJ LLC law matter. I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns. You can reach me toll free at (855) 376-5291 or email me at fniemann@hnlawfirm.com/.