4 ways to Legally Protect Your Family Business

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Many times family crises are unavoidable and unpredictable. You don’t have to be unprepared when these situations arise. Here are four options that can help protect your family business through a crisis.


  1. Confidentiality Agreements

Require each and every employee—family and non-family—to sign a non-disclosure agreement. Not only does this help family members maintain a level of secrecy and privacy about the business’ affairs, it also prevents slander outside the business. This option can also make it more difficult for in-laws and other parties from using your family information in a lawsuit.


  1. Covenants Not to Compete

A covenant not to compete and confidentiality agreement if drafted properly can help prevent an employee from taking the trade secrets or confidential information of the business, including but not limited to customer lists or other employees, to a competing company or a new company the departing employee may start up in competition to yours. The agreements have to contain valuable consideration; be reasonable in geographic scope and time limitation; cannot violate a valid public policy interest; or be too crippling to the offending employee’s ability to legitimately make a living. The confidentiality agreement must also be reasonable and cannot claim information in the public domain is protected.


  1. Choosing the Correct Life Insurance

It is wise to have a last-to-die insurance policy if the family business owner’s estate is subject to estate taxes. This helps cover any unexpected estate taxes the heirs may have to pay. (For more information on estate planning, please call our office and set up a time to discuss your options.) This insurance plus key man life insurance can also be vital to an organization to help the company partially absorb the financial loss of a key employee or owner due to his or her untimely death.


  1. Fraud Prevention

The best way to protect your family business from fraud is to require multiple signatures on checks. If you have procedures to follow and don’t allow only your controller to sign the biggest checks or have a second person review monthly bank statements you, should easily be able to prevent internal fraud. Make sure your banker understands your procedures so he or she can identify foul play.