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Source: https://writers.stackexchange.com/a/1605
License name: CC BY-SA 3.0
License URL: https://creativecommons.org/licenses/by-sa/3.0/

Here's how I see it:

If someone you know believes that a character you wrote is based on him or her and is happy about it, you probably don't need to say anything. The only reasons I could think of that this might turn into a problem is if you plan to do something with the character that the person who thinks he or she is the inspiration for that character won't like or this person is overstating his or her role in making your story happen. It's usually fine for someone to think that he or she helped to inspire you, but if it's to the point where that person thinks he or she has as much ownership of the story as you do, you might want to nip that particular notion in the bud.

If someone you know believes that a character you created is based on him or her and is unhappy about it, just be as honest as you can about your process. Explain that you did base some (hopefully positive) traits on this one person, but the character is a combination of various people you know and your own imagination. Of course, for this to work, you have to be careful and make sure you're not taking too many traits from any one person. If you're using a few positive aspects of someone you know as inspiration for one character, make their flaws traits that the person you're drawing from clearly doesn't share. If you're basing a negative aspect of a character on somebody you know, make doubly sure that nothing else about the character remotely resembles that person.

Reasonable friends and family should understand once you explain to them that your characters aren't intended to be faithful portraits of people you know. People who get upset over a character you've written when you haven't given them any logical reason to and won't listen to your explanation probably aren't worth your time. Just wait until they cool off and try not to bring it up.

Original score: 6