business set-up

No one goes into business expecting to fail. But most small businesses fail. It is wise to decide in advance who will be responsible and how the obligations will be handled if the business fails. Even if the business is successful, many issues arise that should be handled in advance (e.g. divorce, new partners, sale of business, sale of partnership interest, retirement, and how to handle disagreements such as working hours, new employees, and the direction of the firm). Expect to spend $1,000 to $3,000 for the basic agreements.

When your brother in law says "we should just trust each other," what you should be hearing in your mind is "Danger -- major disaster ahead." No matter how good the intentions when people (especially family members!) go into business together, there is a 99% probability that in about 6 months, one of them is going to say something about the agreement and the other will say, "That wasn't what I understood." At some point at least one of them goes to consult a lawyer, and the lawyer will say, "Too bad you didn't consult with me at the beginning." And this is true whether the business is a success or a failure.

I've seen it a thousand times. People without a good written agreement are virtually guaranteed to start arguing about the following:

1. How much time each person is devoting to the business

2. Marketing strategies, such as how much to spend on advertising, and where to advertise

3. What happens when the seed money runs out (and I guarantee you, it will run out before the business produces enough income to sustain itself).

4. Hiring issues -- especially when one partner wants to hire his wife, daughter, etc and the other partner thinks the wife/daughter/etc is an idiot but doesn't dare say so.

5. Money problems, money problems, money problems.

When your brother in law says you should just trust each other, say to him, "I trust you. But starting a business involves more than trust. It needs a plan so that everyone understands what's going on." Then go see a lawyer who specializes in small business (and preferably, one who knows the kind of business you're going into). I guarantee you, after you and your brother in law consult a lawyer together, he will say to you, "Gosh, I didn't realize how many issues there were!"

You'll be glad you did it.

I certainly agree with the other two answers. The old saying "An ounce of prevention is worth a pound of cure" is very applicable to this case. I would say that 90% of the litigation cases I see are because the parties did not put things adequately in writing. If you are planning on spending $100k on this business, there is no reason not to spend $3-$4k in getting everything properly set up and documented. It is easy to determine what is fair and who gets what/ owes what before you start.

Look for "Small Business Lawyers" or "Business Formation Attorney" or something along those lines to find someone in your area that can help you out.

Good luck.