Starting a business with your spouse, whether it’s a restaurant, real estate agency, consulting firm, tech startup or other type of company, can be a wonderful adventure to share together as a couple.
But there are challenges that go with running a business with your spouse. If you want to avoid some of the potential personal and financial risks of entrepreneurship, and make the most of the upside, it’s important to plan ahead and work as a team.
Here are a few key tips and strategies to keep in mind when starting a business with your spouse.
Decide on Your Choice of Business Structure
One of the first decisions you should make is choosing your business entity structure to incorporate your business and make your business “official” in the eyes of the law.
There are several options for a choice of business entity, depending on your goals and what type of business you want to run. One of the most popular entity types is the limited liability company (LLC), which can help potentially protect your personal assets in case of a lawsuit against the business. If you have big growth goals for your business and potentially want to go public with an Initial Public Offering, a C Corporation might be a better choice.
Whether you set up an LLC, S Corporation, C Corporation or Partnership, it’s important to create a registered business entity for your company. This will help you get a business bank account, build business credit and potentially protect your personal finances from some of the worst-case scenarios of being in business.
Will You Be Co-Owners?
As part of setting up your official business entity, you need to be ready to clarify the ownership responsibilities of the two of you as spouses. Is this a business that one spouse is mostly going to be in charge of and the other is serving in more of a support role? Or are you both equal business partners? Will one spouse be an employee of the company, or will both spouses be listed as co-owners of the company?
There are certain paperwork complexities and tax implications that depend on whether both spouses are listed as co-owners of the company. For example, if one spouse is listed as the owner and the other spouse is an employee, the employee spouse might have to pay taxes at a higher rate on their income from the company, compared to what they would owe if they could treat their income as qualifying pass-through business income (which, depending on your income and business type, might qualify for a 20% tax deduction).
There is no single “right answer” for every situation, but talk with your tax advisor before you start a business with your spouse. It might be advantageous for tax purposes to both be listed as owners of the company.
Separate Your Business and Personal Finances
Once you have your business entity established, it’s time to get your official Employer ID Number from the IRS and get set up with a business bank account, including a checking account, savings account and business credit card.
Keep your business finances totally separate from your personal finances. Don’t pay for business expenses with your personal money, or vice versa. This will help you stay in compliance with the law and maximize your business tax deductions.
Create a Shared Vision and Strategic Plan
Make sure both of you have a shared strategic vision for what you want your business to be. Create a business plan. Work together on a mission statement, business name, business tagline and logo. Everything that represents your business should represent both of you; you’re a team, and your business should reflect that.
Clarify Your Roles and Responsibilities
Make sure you both understand what your specific “jobs” are in running the business. Is one of you going to be the “face” of the company who’s out making sales and meeting customers, while the other works behind the scenes? Is one of you the Chief Technology Officer and the other is the Chief Operating Officer? Play to your strengths and be prepared to wear many hats.
Establish Work-Life Boundaries and Balance
Make sure you agree upon what business hours are, and when you can turn off your phones and laptops. Make time to go out for dinner and take vacations and talk about life, not just work. You’re not just business partners, you’re still a couple in love.
Running a business with your spouse should hopefully make your life feel bigger and better. Working hard together and investing in your shared future can help your love grow.
About Dustin Ray
Dustin Ray leads business development and growth initiatives at Incfile, a national incorporation service company specializing in business formation and small business services. Founded in 2004, Incfile makes it possible to start a business with a $0 formation + state fee and has assisted in the formation of more than 250,000 corporations and LLCs.