As family businesses grow, many reach a point where outside investment becomes a practical way to fund expansion, improve operations, or support succession planning. But bringing in outside capital often raises concerns. How do you maintain control? What happens to the family’s long-term vision? And how do you align a new investor’s goals with those of the family?
These are important questions to ask early. With the right legal framework in place, your family business can accept outside investment while still protecting its values, control structure, and long-term objectives. Let’s explore what that looks like in practice.
Maintaining Family Control While Accepting Outside Investment
Outside investors may want a seat at the table, but that doesn’t mean they need to run the show. With thoughtful structuring, your family can retain decision-making power while giving investors the financial interest they seek.
Common legal tools include:
- Dual-class share structures, which separate voting power from financial ownership.
- Voting agreements, which define how votes must be cast on key matters.
- Limited partnership interests, where investors receive returns without taking on management roles.
Each of these tools helps you maintain control over the business’s direction. The key is to address control issues upfront, before money changes hands. That way, everyone enters the relationship with clarity and fewer surprises down the road.
Structuring Governance to Protect Family Interests
Accepting outside capital often means giving others a voice in how the business is run. That’s why it’s important to create a governance structure that protects family involvement while still being fair to investors.
You may want to consider:
- Family councils or advisory boards, which provide input on major decisions and help guide the business’s direction.
- Reserved matters clauses, which require unanimous consent (or supermajority approval) for actions like selling the business or changing ownership.
- Defined board composition, which outlines how many family members and outside investors may serve on the board.
Clear corporate bylaws and shareholder agreements are essential. These documents lay out how decisions are made, how disputes are handled, and how to handle leadership changes. When done well, they reduce the risk of future disagreements and protect both sides.
Drafting Investor Rights Agreements
Outside investors will expect certain legal protections. A well-drafted investor rights agreement lays the groundwork for a productive relationship.
These agreements typically include:
- Information rights, giving investors access to financial reports and operational updates.
- Right of first refusal, allowing investors the chance to buy shares before they’re sold to third parties.
- Anti-dilution clauses, protecting investors from a loss of value in future funding rounds.
- Exit provisions, such as tag-along or drag-along rights that define how and when investors can cash out.
Investor rights agreements should reflect the size of the investment, the level of risk, and the business’s goals. These aren’t one-size-fits-all contracts. We help tailor them to fit your specific structure, helping prevent misunderstandings and building long-term trust.
Balancing Growth Objectives with Family Culture
Family businesses often carry strong traditions, values, and personal ties that help define their culture. Bringing in outside capital can put that culture under pressure, especially if investors push for rapid growth or strategic changes.
You don’t have to choose between growth and your values. You can take steps to preserve the family’s voice while still working toward shared success:
- Document your core values in mission statements and operating agreements.
- Involve family members in strategic planning alongside investors.
- Create clear boundaries around branding, customer service, and hiring practices that reflect the family’s identity.
Aligning growth goals with the business’s legacy helps everyone feel invested in the outcome. It also helps you attract the right kind of investors—those who respect your business’s foundation and are willing to work within it.
Contact an Experienced Pittsburgh Family Business Law Attorney
Outside investment can offer valuable growth opportunities for your family business, but it also brings new relationships, expectations, and risks. The best way to manage that is with careful legal planning from the start.
At Jones, Gregg, Creehan & Gerace, we work with Pennsylvania family businesses to build legal structures that support long-term success. If your business is considering outside investors, we’re here to help you protect what matters while pursuing what’s possible. Contact us today to schedule a consultation and take the next step with confidence.