Going into business with friends or family

There is a curious finding in the research on founding teams. Noam Wasserman, who studied thousands of start-ups for The Founder's Dilemmas, established that teams made up of people who know each other well, friends and family, are on average less stable than teams that come together on a professional basis.

That is counter-intuitive. Trust ought to be an advantage, and it is. But it brings a side effect: people who trust each other do not make agreements. They consider them unnecessary, and often even insulting to raise. Proposing a contract to someone you have been friends with for fifteen years feels like a declaration of distrust.

That is how the pattern arises on which so many partnerships founder. It is not a lack of trust that strands them, but an excess of it.

The four conversations

There are four questions every partnership eventually asks. Anyone answering them at the start answers them in a state of ignorance: nobody yet knows who will one day want to leave, who will fall ill, whose contribution will turn out to be the largest. In that state, people make reasonable, balanced agreements.

Anyone answering them only when they force themselves on you does so at a moment when everyone knows exactly what is in their own interest. Every agreement then becomes a negotiation with a winner and a loser, and usually with a lawyer.

The first question is about roles and decision-making authority: who is responsible for what, and who cuts the knot when you disagree? The second is about ownership and control: how are the shares divided, and why precisely that way? The third is about commitment and reward: what do we expect from each other in time, money and involvement, and what happens when that diverges? The fourth, the most avoided, is about the exit: what if someone wants out, falls ill or dies?

The nice thing about those four questions is that they sound entirely reasonable on paper. The problem is that in practice they only surface when they can no longer be answered reasonably.

Year zero: the conversation that feels premature

Two friends set up a business. They split the shares fifty-fifty, because that is fair, and they do it in ten seconds.

What happens in those ten seconds is that the governability of their company is fixed for years to come. With a fifty-fifty split, nobody can prevail when they fundamentally disagree about an investment, a hire or a change of course. As long as they agree, nobody notices. From the moment they no longer do, the business stands still, and that can last months.

Wasserman documented a second pattern alongside this: founders who settle the share split quickly and equally often regret it within a few years, because the actual contributions diverge sharply over time while the split is fixed. Splitting quickly and equally feels generous. It is frequently the source of later resentment.

That does not mean fifty-fifty is wrong. It means it ought to be a choice accompanied by an answer to the follow-up question: and what do we do if we disagree? That answer can take many forms, from a casting vote on certain domains to an agreed mediator or an advisory board. What it cannot be is silence.

Year three: the unequal commitment

A brother and sister run a retail business together, fifty per cent each, both full time. Then the sister has children and moves to part time. Everyone finds that understandable, and it is.

Only: nothing was ever agreed about what that means for remuneration and profit distribution. Over time the brother feels exploited. The sister feels judged on something she could not avoid. Neither opens the conversation, because every discussion about it becomes personal immediately, and because it is about far more than money.

This is the form in which the third conversation usually presents itself: not as a matter of principle but as a life event. Children, illness, a parent needing care, a second activity, simply less appetite. People's commitment changes, always, and usually for reasons nobody can be blamed for.

The agreement that would have neutralised this entire problem is moreover not complicated: link remuneration to actual commitment and keep it separate from shareholding. Whoever works full time is paid full time. Whoever works part time, part time. The share in the capital, and therefore in the profit and the value, stays as it was. Neither party loses out, and nobody has to argue afterwards that they work harder.

The reason that agreement rarely exists is that in year zero it deals with a problem that does not yet exist, and that it feels unpleasant to talk about commitment at a moment when everyone is enthusiastic.

Year seven: the door

And then someone wants out.

That can happen for a hundred reasons: a move, burnout, another opportunity, a divorce, a fundamental disagreement about direction, or simply exhaustion. It happens at some point in most partnerships, and the way it unfolds determines what is left of both the business and the relationship.

Without an agreement this becomes the most expensive conversation of all. What is the company worth? The one leaving has an interest in it being a lot, the one staying in it being a little, and both have arguments. Who buys out whom, and with what money? What happens if there is no money? Can the departing partner compete tomorrow? As long as nothing is set down, there is no procedure either, and it becomes a fight between people who by that point are usually already hurt.

With an agreement it is an execution. A predetermined valuation method, payment in instalments, a non-compete clause of reasonable duration and scope: it is all there, both parties considered it reasonable at the time, and nobody has to fight for it. Duos who had arranged this all describe the same thing afterwards: it hurt, but it did not turn into a war, and they still speak to each other.

That is ultimately the point. Good governance takes the emotion out of the moment when emotion is the worst adviser.

Where this is set down in Belgium

These four conversations have a legal translation, and in Belgium it is more flexible than many assume.

Since the Code of Companies and Associations, the private limited company is the common form for SMEs, with considerable room to arrange matters to measure: different classes of shares, adapted voting rights, specific distribution rights. That freedom is an advantage and at the same time a reason to seek guidance, because what is possible is not automatically wise, and the consequences of a structural choice reach years ahead.

Two documents carry the whole. The articles of association set out the basic rules of the company: management, decision-making, transfer of shares. Alongside them, and often more important for the relationship between partners, sits the shareholders' agreement: a contract between the shareholders in which you set down precisely the four conversations above, including what happens on departure, incapacity or death, and how disputes are settled.

In family businesses a family charter is often added: a document regulating who can work in the business, how family members are remunerated, how succession is decided. It does not carry the same legal force as the articles, but it prevents exactly the discussions on which family businesses run aground, and it makes discussable what otherwise stays unspoken. Anyone also bringing in inheritance aspects would do well to involve a specialist in family businesses and estate planning. Company law and taxation evolve, so have your advice aligned with the moment you decide.

What trust does and does not do

One objection remains that is worth taking seriously: none of these documents change the fact that people do not always behave reasonably. A shareholders' agreement does not prevent resentment, and anyone determined to part on bad terms will find a way.

That is true. Agreements do not solve conflicts; they structure how a conflict unfolds. But that is precisely their value. The difference between two partners who disagree with an agreed procedure and two partners who disagree without one is the difference between a difficult month and two years of lawyers, a paralysed business and clients who have left in the meantime.

And the reverse is equally true: working with friends or family is a genuine strength, not a risk you should avoid. Shared trust, a common history and loyalty no contract can compel keep businesses standing in circumstances where purely commercial partnerships fall apart. That strength is real.

It survives only when you protect it with precisely the agreements that trust inclines you to skip. The two friends who lost their friendship after two years of success could have saved it with the conversations they found too uncomfortable in year zero. Those conversations cost an afternoon and some discomfort. The alternative costs considerably more, and it is rarely only about money.