Raleigh Estate Planning and Corporate Law Attorneys

Business Law

Do I Need Permission from Other Partners to Hire My Child in the Family Business?

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Family businesses face unique challenges when personal relationships intersect with professional decisions. One question that often arises for business owners is whether hiring a family member requires approval from other partners or stakeholders. The answer depends largely on how your business is structured, what your governing documents say, and the specific role you intend to create.

For many entrepreneurs in the Raleigh area, bringing children into the family business represents both a practical succession strategy and an emotional decision. However, this seemingly straightforward choice can create unexpected legal complications if not handled properly. Understanding your obligations under your partnership agreement or operating agreement is the first step toward making this decision smoothly.

What Does Your Partnership Agreement Say About Hiring Decisions?

The starting point for any question about partner authority is your partnership or operating agreement. These foundational documents typically outline how major business decisions should be made, including hiring authority and management responsibilities.

Most well-drafted partnership agreements address employment decisions in one of several ways. Some agreements give each partner broad authority to make day-to-day operational decisions, including hiring for certain positions. Others require unanimous or majority consent for all hiring decisions, particularly for management-level positions or roles that come with significant compensation packages.

If your agreement assigns specific management responsibilities to individual partners, you may have the authority to hire employees within your area of responsibility without seeking approval. For example, if you manage operations and your child would work in that department, you might have unilateral hiring authority. However, if the position involves management responsibilities, equity compensation, or above-market wages, additional approval may be required regardless of your general hiring authority.

When Does Hiring a Family Member Require Partner Consent?

Even if your agreement grants you general hiring authority, bringing a family member into the business often triggers additional considerations. Many partnership agreements include specific provisions about nepotism, related-party transactions, or conflicts of interest that could apply when hiring a child.

Courts and legal principles generally recognize that hiring family members can create potential conflicts of interest within partnerships. When you hire your child, you have a personal interest in their success that might not align perfectly with the business’s best interests. Other partners might reasonably question whether the compensation package is market-appropriate or whether the position is genuinely necessary for business operations.

These concerns become more pronounced when the position involves management authority, access to confidential information, or compensation that exceeds typical market rates for similar roles. In such cases, even if your agreement doesn’t explicitly require partner approval, seeking consensus can help avoid disputes and maintain positive working relationships with your co-owners.

What Are the Risks of Hiring Without Proper Approval?

Proceeding to hire a family member without required partner approval can expose you to several legal and business risks. If other partners believe you exceeded your authority or violated the partnership agreement, they might claim breach of fiduciary duty. Partners owe each other duties of loyalty and care, which include making decisions in the partnership’s best interest and following agreed-upon procedures.

A unilateral hiring decision that violates your agreement could lead to partnership disputes, demands for your child’s termination, or even litigation. In more serious cases, other partners might seek dissolution of the partnership or file claims for damages if they believe the unauthorized hiring harmed the business financially.

Beyond legal consequences, hiring a family member without proper consultation can damage trust among partners and create ongoing tension that affects business operations. Even if you technically have the authority to make the hire, the perception of favoritism or procedural unfairness can poison working relationships and make future collaboration difficult.

How Should You Approach This Decision?

The most prudent approach involves reviewing your governing documents carefully and, when in doubt, consulting with your partners before making a formal offer. This conversation gives you the opportunity to present the business case for hiring your child, address compensation expectations, and demonstrate that you’ve considered the partnership’s interests.

When discussing the proposed hire with partners, focus on the legitimate business needs the position would fill and your child’s qualifications for the role. Be prepared to discuss compensation in terms of market rates and be open to structuring the arrangement in a way that addresses potential concerns. Transparency about reporting relationships, performance expectations, and how conflicts would be handled can help build confidence among your co-owners.

If your partnership agreement is silent on hiring authority or family employment, this situation presents an opportunity to clarify these provisions for the future. Amending your agreement to address these questions prospectively can prevent similar disputes and provide clear guidance for all partners.

How Can Wilson Ratledge Help With Partnership Agreements and Family Business Matters?

At Wilson Ratledge, PLLC, our team is experienced in business law and partnership matters affecting North Carolina companies. We understand the unique dynamics of family businesses and the legal frameworks that govern partnership relationships. Whether you need to review your existing partnership agreement, navigate a specific hiring decision, or update your governing documents to address family employment policies, we can provide practical guidance tailored to your situation.

Partnership disputes often arise from ambiguous agreements or unaddressed potential conflicts. Taking the time to ensure your governing documents reflect your partnership’s intentions about family members, hiring authority, and decision-making processes can save considerable time, expense, and stress down the road.

If you’re considering bringing a family member into your business or have questions about your authority under your partnership agreement, contact Wilson Ratledge, PLLC at 919-787-7711 or visit our website at wrlaw.com. Our Raleigh office is focused on helping small business owners and entrepreneurs navigate the legal complexities of running and growing their companies.

A Look at Different Professionals That You May Need in Your Business Sale

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Selling a Business? The Right Team Makes All the Difference

Selling a business is more than just signing a contract—it’s a complex process that requires careful planning and the right team of professionals. From legal considerations to financial structuring, each step of the sale can have lasting implications for your future. 

Who should you trust to guide you through this journey? Having the right professionals for selling a business can mean the difference between a smooth, profitable transaction and one filled with costly mistakes.

The Key Professionals Involved in Selling a Business

To successfully sell a business, you’ll need a team with experience in legal, financial, and transactional matters. Each professional brings a unique perspective and expertise to ensure that the sale is structured correctly, compliant with the law, and financially sound.

Business Attorneys

One of the first professionals you should hire is a business attorney. An attorney will help you navigate legal complexities, draft contracts, and ensure compliance with state and federal regulations. 

At Wilson Ratledge PLLC, we provide legal guidance for business owners throughout the sale process, protecting your interests every step of the way. Our business attorneys can assist with:

  • Structuring the sale (asset sale vs. stock sale)
  • Drafting and reviewing purchase agreements
  • Managing due diligence requirements
  • Negotiating terms and liabilities

Accountants and Tax Advisors

Selling a business has significant tax implications. An experienced accountant or tax advisor helps you understand how the sale will impact your finances and strategizes ways to minimize tax liability. Tax professionals can:

  • Advise on capital gains taxes
  • Structure the deal for maximum financial benefit
  • Ensure financial records are in order for due diligence
  • Provide valuation assistance for a fair asking price

Business Brokers

If you’re unsure how to find buyers, a business broker can be an invaluable resource. Business brokers specialize in marketing businesses for sale, finding qualified buyers, and negotiating favorable deals. Their role includes:

  • Preparing the business for sale
  • Identifying potential buyers
  • Marketing the business discreetly
  • Assisting in negotiations

Investment Bankers

For larger transactions, an investment banker can help secure the best possible deal by leveraging their network of buyers and investors. They work on mergers and acquisitions, assisting with valuation, deal structuring, and negotiations.

Financial Advisors

A financial advisor plays a crucial role in helping business owners plan for life after the sale. How is the buyout structured? Which amounts are allocated to different pieces of the transaction, and how will you deal with the tax implications of it?

Whether it’s retirement planning, investment strategies, or wealth management, a financial advisor ensures that the proceeds from the sale align with your long-term goals.

When Should You Hire These Professionals?

The earlier you involve these professionals, the better. Ideally, you should consult with an attorney, accountant, and financial advisor at least a year before putting your business on the market. Business brokers and investment bankers can be brought in when you are actively looking for buyers. 

Early planning ensures that you can maximize the value of your business, avoid any potential last minute roadblocks, and get the best possible return for the business that you’ve put your heart into building.

Maximize Your Business Sale Value With Wilson Ratledge

Selling a business is a major financial and legal decision that requires the right team of professionals. At Wilson Ratledge PLLC, we guide business owners through the legal complexities of selling their businesses. 

Whether you need help structuring the deal, reviewing contracts, or protecting your interests, our team is here to assist you–reach out today to schedule your consultation!

Federal Court Issues Nationwide Injunction on Corporate Transparency Act: What Small Businesses Need to Know

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On December 3, 2024, it was announced that Judge Amos L. Mazzant, III of the U.S. District Court for the Eastern District of Texas issued an order purporting to impose a NATIONWIDE preliminary injunction on enforcement of the Corporate Transparency Act, which required most small businesses to report beneficial owner identifying information to the Financial Crimes Enforcement Network. View the order here.

The preliminary injunction has now been appealed.

What does that mean for your business?  Enforcement of the January 1, 2025 deadline is still on hold unless the preliminary injunction is reversed.

We will continue to monitor the developments of this case and provide updates as they unfold.

Find more details surrounding the Corporate Transparency Act here.

Key Steps Before Selling Your Business

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If you’re considering selling your business, there are several things you should consider before taking that life-changing step. Your business sale will be more fruitful with the right preparation. So, what steps should you take before closing the deal?

1. Evaluate the Timing

If you’re not under any particular compulsion to sell now, you will want to evaluate whether the timing is right. You can determine timing favorability by looking at market conditions, competition in your area or industry, consumer demand levels, and more. Ask yourself whether you’re in a buyer’s or seller’s market to better understand your positioning. 

2. Prepare Your Business for Sale or Acquisition

Like selling a house, before putting your business on the market, you must prepare it for sale. To do so, it helps to gather the following due diligence materials: 

  • Governing documents (bylaws, shareholder agreement, operating agreements, annual meeting minutes, etc.
  • Financial statements (previous three years and current year to date)
  • Tax returns
  • Employment contracts and benefits information
  • Leases (equipment and real property)
  • Loan agreement
  • Business licensing, permits, and certifications
  • Any other contracts and other relevant documents that will impact the transaction and/or your buyer after closing

Be prepared to disclose any legal matters, such as pending or threatened lawsuits, tax audits, etc. The potential buyer will look into your business’s financial records, tax filings, governance and legal matters, and more to understand purchase risks and profitability. After entering into confidentiality agreement (whether before or as part of the Letter of Intent (LOI), you should offer transparency early to prevent wasted time and effort, or soured relationships with your buyer.

Advance work with a transactional/mergers & acquisitions attorney will help you present your due diligence materials in an organized and effective manner, and will help you spot potential issues and address them before your buyer raises them.

3. Discuss Business Goals and Transition/Post-Closing Integration Plans Early On

In transaction negotiations, an early understanding of the “business case” for the deal will help all parties determine whether the investment of time and resources in moving forward with legal contracts (referred to as “definitive agreements”) is worthwhile. 

What will your involvement be after closing? Do you and the buyer agree on transition plans and integration strategy, including branding changes, maybe a new company name, and long-term business goals? Will you need to hire or fire any employees, or can you keep your current staff? Are you planning to enter any new markets or develop any new products or services?

You should discuss these types of questions with the potential buyer early in the process to streamline transaction and minimize surprises later on.

4. Seek Objective Valuation

Sellers often have strong opinions about what their business is worth.  And, to be fair, what a seller is willing to accept is a significant factor in determining the value of a business, but it is not the only one. It is important for any seller to understand the fair market value of the business for sale, which is an objective, professional estimation of what a fair price for the business would be.

Business valuation professionals consider factors like, among others, cash flow, profitability (you’ve heard of EBITDA-earnings before interest, taxes, depreciation and amortization-and SDE-seller’s discretionary earnings), total assets, current market conditions, and forecasted growth to estimate a business’s fair market value (FMV). Being armed with this knowledge will help you in meaningful negotiations of a purchase price with your buyer.

5. Involve Your Landlord, Lender, and Other Necessary Parties early

Whether selling or merging your business, you should discuss the anticipated transaction early on to get their participation and any necessary consents and agreements to allow the transaction to proceed under the terms of your agreements with them. Your attorney can provide valuable insight by reviewing the applicable documents first so that communications with these third parties can be targeted and efficient, tailored to the terms of your specific agreements. 

6. Study the Tax Implications

Business sales, and other mergers and acquisitions involve numerous tax implications that can impact you significantly. These are outside the scope of this post, but suffice it to say you should consult a competent CPA and get good tax advice before you sign a LOI. Seller’s and buyer’s have different tax motivations, and these are a significant factor in negotiating the purchase price and structure of your transaction. 

7. Be Thorough in the Letter of Intent

Include as many primary points of negotiation in your Letter of Intent as possible. This makes it critical to seek competent legal advice before entering into your LOI. Besides purchase price and structure, involving legal counsel at this stage will help you structure the transaction consistent with your expectations not only financially, but also from a tax perspective, legally, and expectations for post-closing issues related to earn-outs, indemnification, and others.  In addition, depending on the structure of the deal (with very few being strictly cash at closing, you will want to conduct due diligence on your buyer to achieve some comfort level with their financial history and capabilities, credit, existing debts, legal documents, management team, and more to ensure they can fulfill their obligations under the purchase agreements and that you will be able to work with them after closing, if that is part of the deal.

8. Keep the Merger or Sale Confidential

Many transactions these days are “simultaneous sign and close”.  This means, in the words of Yogi Berra, “it ain’t over ‘til it’s over.”  Announcing any preliminary news before finalizing the sale can cause any number of problems, which can not only endanger the transaction, but also haunt you going forward if the transaction does not close. By keeping the sale confidential, you can protect your team while ensuring the sales process continues progressing smoothly. Do not post on social media, announce the sale in your newsletter, or anything else.

Work With a Transactional/Mergers & Acquisitions (“M&A”) Law Attorney for Support from Start to Finish

Do you need help selling or merging your business? Wilson Ratledge, PLLC, can guide you through the process to protect your financial interests. Call Wilson Ratledge, PLLC, today at 919-787-7711 to speak with a business law attorney. 

Independent Contractor vs. Employee: Legal Distinctions and Implications

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Various work arrangements exist, and sometimes there are even subcategories within each. For example, companies in Raleigh may exclusively hire employees, including part-time and full-time or salaried ones. Other North Carolina businesses may only take on independent contractors (ICs) or have a hybrid arrangement consisting of employees and ICs. As a company owner or member of upper-level management, you must realize that there are notable distinctions between the independent contractor vs. employee classifications. Continue reading below, where we’ll discuss the legal distinctions and implications associated with each.

Understanding the Legal Distinctions Between Employees and Independent Contractors

Simply put, an “employee” (sometimes referred to as a “W-2 worker”)  is someone who works directly for and under the direction of a company or a business owner.  The Code of Federal Regulations (CFR) and more specifically, 26 CFR § 31.3121(d)-1(c), spells out how the Internal Revenue Service (IRS) views a relationship as an employment relationship when the employer “has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished.” 

In contrast, an “independent contractor” (sometimes referred to as a “1099 worker” or, incorrectly and problematically, as a “1099 employee”)  is described as being free to perform his or her tasks or functions at the individual’s own discretion with regard to means and methods. Given their arrangement with the employer, ICs must report and pay their own income and self-employment taxes as compared to employees, for whom employers are required to withhold deductions from paychecks for taxes income taxes and government programs like Medicaid, Social Security, and unemployment insurance.

Workers Are Commonly Misclassified as Independent Contractors vs. Employees

Employers often misclassify their workers as “independent contractors” instead of as “employees”  without the workers’ knowledge, by having the workers fill out the wrong tax paperwork and then not making any withholdings from their paychecks. Although unlawful, employers may do this for a number of reasons, including to avoid common employer obligations, including:

  • Having to make payroll deductions: Employers must withhold taxes used to pay for government programs like Social Security, Medicaid, and unemployment, whereas that’s required of them if they have independent contractors. 
  • Offering health insurance: Per the Internal Revenue Service, under the Affordable Care Act (ACA), employers with at least 50 full-time workers must provide health insurance to at least 95% of their staff. The smaller a company is, the more likely it is that it will solely hire independent contractors or have a hybrid arrangement to avoid providing insurance.
  • Complying with minimum wage and overtime pay obligations: The N.C. Department of Labor outlines how a Fair Labor Standard Act- and Wage and Hour Act-compliant role is one where workers must be paid no less than the federal minimum wage, which corresponds with the North Carolina minimum wage, and is currently at $7.25 per hour for up to 40 hours of work and pay and a half for overtime (so hours over 40 in one week); although there are exceptions to this rule for certain exempt employees. There’s little to no oversight for pay for independent contractors.
  • Having to offer additional employment benefits: Employers with just independent contractors don’t have to worry about offering paid annual or sick leave or workers’ compensation, the latter of which is insurance that the North Carolina Industrial Commission says all employers with three or more employees must have.
  • Making contributions to retirement plans: Employers get out of paying toward a worker’s 401(k) and other types of retirement accounts if they’re not bona fide employees.

Implications Associated With Errors in Classifying Workers

Hiring employees instead of independent contractors involves extra work and added costs as an employer. However, you shouldn’t let that push you into misclassifying your workers thinking that will relieve you of obligations to purchase workers’ comp coverage, pay overtime, or comply with other governmental requirements, as there may be fines levied and back taxes due for doing so. Specifically, since 2017, the  North Carolina Industrial Commission has maintained a fully-staffed “Employee Classification Section” whose main purpose is to investigate  and then pursue those employers  who have misclassified their workers as  “independent contractors” instead of as “employees.”  Moreover, in the case of a worker getting hurt on the job, your company may be sued for damages without the protection of an insurer to cover the costs if you have misclassified that worker as an independent contractor.  

In addition, the IRS tests a multitude of factors to determine whether a worker should be classified as an employee or IC.  The U.S. Department of Labor also has its own criteria, which it has recently updated, and we recently wrote about that here.

As a law firm that assists business startups with incorporation and aids existing Raleigh companies with operational matters, Wilson Ratledge supports its clients with a wide range of matters, including workers’ comp defense. We are ready to support you with your company’s needs to ensure you don’t land on the wrong side of the law and incur unnecessary costs. Contact our law firm to schedule a consultation with a business law attorney to discuss your company’s legal needs.

Corporate Transparency Act – CHALLENGED

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On March 1, 2024, a U.S. District Judge in Alabama issued a memorandum opinion and final judgment in National Small Business United v. Yellen, finding that the Corporate Transparency Act (CTA) is unconstitutional because it exceeds the Constitution’s limits on Congress’ power.

The court permanently enjoined the FinCEN (Treasury Department’s Financial Crimes Enforcement Network) from enforcing the CTA against plaintiffs in that case.

It remains to be seen how the decision of this ruling will impact other Reporting Companies and their Beneficial Owners and Company Applicants, though we anticipate an immediate appeal by the Treasury.

At this time, there is no direct change to CTA compliance requirements, and it remains prudent practice for clients to continue to abide by the reporting requirements set forth under the Act.  Our prior memorandum (which can be found here) gives further detail about the CTA’s requirements.

Wilson Ratledge will continue to monitor the developments and its implications on the future of the CTA.