Having a joint business with family can turn out badly; not every family can work together. Like you said, you might not be able to take legal proceedings when the business fails, and it's also better if it were with strangers.
Regarding lending money to a family member, you have to keep in mind that they may not return it anytime soon, so you won’t be disappointed. You should only give out money you know you won’t need anytime soon.
You're correct. Family should be kept at arm's length when doing businesses