How Do I Handle Business Deals With Family or My Other Companies?

By Bill Stilwell · Last reviewed October 17, 2026

The short answer

A related-party transaction is any deal between your business and an owner, an owner’s family, or another business the owners control. These deals are allowed, but they need written terms, a fair price you can explain, approval from the other owners, and clean records. Tax rules often treat them differently, so run them by your tax pro before you start.

What this means

Common related-party deals in small businesses:

Hiring family. Paying a spouse, child, or other relative to work in the business.
Renting from an owner. The business rents a building, truck, or equipment the owner owns personally.
Loans. An owner lends money to the business, or the business lends money to an owner.
Buying from a sister company. One owner’s other business supplies parts or services.
Selling to an insider. The business sells equipment or services to an owner or relative.

The Internal Revenue Service (IRS) has specific rules for family employees. For example, its family employees page explains that a child working for a parent’s sole proprietorship is treated differently for some payroll taxes than a child working for a corporation. The IRS also says a corporate loan to an officer should look like a loan between strangers, with a stated interest rate, a repayment schedule, and consequences for not paying.

Made-up example: The two owners of Ridgeline Auto Repair are brothers. One of them owns the shop building personally. The business signs a written lease with him at a rent that matches similar buildings nearby, and the other brother approves it in writing. Rent is paid by transfer every month and recorded as rent expense. When they later bring in an investor, the lease is ready to show.

Why it matters

Unfair prices can be questioned by the IRS, a co-owner, a buyer, or a lender.
Owner loans with no paperwork can be treated as something else, like a contribution, a draw, or income.
Family pay has special rules. Pay must match real work, and tax treatment depends on your structure.
Co-owners can feel cheated if one owner benefits without their approval.
Buyers and lenders look closely at insider deals during due diligence (see 27.4 Due-Diligence Folder).

Who this applies to

Any business that does business with its own owners, their families, or other companies they control. It matters most when there are multiple owners, outside investors, or a lender.

How to do it

List every related party: owners, their spouses and close family, and any company an owner controls.
List every deal the business has with them now.
Put each deal in writing: a lease, loan agreement, job description, or service agreement.
Set a fair price and save proof of how you picked it, like quotes or listings for similar rent, pay, or services.
Get written approval from the other owners, or note that you’re the only owner.
Pay by transfer or check from the business account and record each payment in the right account.
For family employees, keep timesheets, pay through payroll if they’re employees, and ask your tax pro how the rules apply (see 23.3 Employee or Contractor).
For loans, write the interest rate and repayment schedule, and actually make the payments.
Keep a related-party log with each deal, its terms, and its approval.
Review the log every year with your tax pro.

What proof to keep

Written agreements for each deal
Proof of fair price, like quotes or market comparisons
Owner approvals
Payment records
Timesheets and payroll records for family employees
The related-party log

Common mistakes

Handshake deals with family and no paperwork.
Paying a relative more than the work is worth to shift income.
Owner loans with no interest and no repayment, which can look like something other than a loan.
Using the business account to pay a family member’s bills.
Not telling co-owners about a deal that benefits one owner.

When to get help from a pro

A certified public accountant (CPA) can explain the tax side. An attorney can write leases and loan agreements and check your operating agreement. Questions to ask:

How should I set up and document a loan between me and my business?
What do I need to do to pay my spouse or children correctly?
Does my operating agreement require approval for deals with owners?

Bill’s note

[Bill: add a short note. For example, how SiteSmarty handles any deals with your other businesses or family, or a lesson from a client whose family deal caused problems later.]

How I did this for SiteSmarty

[Date I did this:]
[What I actually did, step by step: the related parties I listed and how I documented each deal]
[What it cost and how long it took:]
[What surprised me or what I’d do differently:]
[Screenshot or photo to add, with private info blurred: the related-party log]
[Result so far:]

Questions people ask

Can my business pay my spouse or kids? Yes, for real work at fair pay, with records. The tax rules depend on your business structure, so ask your tax pro.

Can I rent my own building to my business? Yes, with a written lease at a fair rent, paid and recorded every month.

Can I lend money to my business? Yes. Write down the amount, interest rate, and repayment schedule, and record it as a loan, not income.

What paperwork do I need? A written agreement, proof the price is fair, approval from other owners, and payment records.

Audit check

Question: Is every deal between the business and its owners, their families, or their other companies written down, fairly priced, approved, and recorded?
Pass looks like: A current related-party log. Written agreements. Proof of fair price. Owner approvals. Payments by transfer or check.
Fail looks like: Handshake deals. Owner loans with no terms. Family paid without records. Co-owners unaware.
Evidence to collect: The related-party log, agreements, fair-price proof, approvals, and a sample of payments.

Where this fits

Do this first: 10.6.6 Owner Draws

Do this next: 10.6.8 Separation of Duties

Sources

IRS, "Family employees" (checked October 17, 2026)
IRS, "Paying yourself" (checked October 17, 2026)
IRS, Publication 583, "Starting a Business and Keeping Records" (checked October 17, 2026)

This page explains general rules and Bill's own experience. It is not legal, tax, or insurance advice. Talk to a qualified professional about your situation.