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How to Solve a Dispute Over a Family-Owned Business

How to Solve a Dispute Over a Family-Owned Business

Family-owned businesses are often rife with interpersonal conflicts, and there’s no bigger conflict than deciding who gets to own the business after a death in the family. Here is some advice.

Whether your family is having a dispute over your business because the owner is retiring or they’ve died, the situation needs to be resolved for the company to function.

There are many ways you can resolve these disputes, such as putting a will in place to make sure there are no arguments over how it’ll be split. Alternatively, you can call in contentious probate solicitors if there is no succession planning in place upon the owner’s death.

In this post, we’re going to discuss the best ways to solve these family business disputes both preventatively and once they’ve already begun. Take a look.

Solving Disputes Over a Family-Owned Business

Solving these disputes once they’ve arisen should always be a last resort, as preventative measures are the best way to resolve a family business conflict. Here are some ways you can do that.

Formalize a Shareholder Agreement

A shareholder agreement is a written, legal, agreement between the shareholders or partners of a business that cover its funding, structure, management, and direction. It also outlines the responsibilities and obligations of the business owners.

If you haven’t got one of these agreements yet, or the one you have is outdated and no-one follows it, it’s never too late to create one. The benefit of having one of these agreements is to make sure that everyone in the family knows what their position in the business is.

If, for example, you have members of the family who run the front of house some days, work in sales on other days, and also do some bookkeeping, it’s difficult to know what their actual role is. With a shareholder agreement you can clearly delineate who is running the business, who is working in the business, and who is likely to be the successor when the current owner leaves the company.

On the flip side, not having one of these agreements can end up in a court battle which is an expensive, time-consuming exercise that damages the company and relationships between family members.

Engage in Succession Planning

Even with a shareholder’s agreement in place, it might not be completely obvious who will take over the family business once the current owner leaves. Even if it is, it’s always good to have it in writing.

This is where succession planning comes in. Succession is a major consideration for a family-owned business and one where legal advice can really help you reduce the risk of conflict. Legal professionals who work in succession planning have a sixth sense that indicates whether a family business has succession issues the moment they meet them.

Sometimes these businesses haven’t even considered who will take over the company once the current owner moves. This could be because they’re too caught up in running the business or they think the day of succession is too far away to think about. Other times the owner doesn’t plan on giving the business away and believes they will run it for the rest of their lives.

The key to a good succession plan is to dig up any legal documentation you have on the ownership of the business. This way, you know how things currently stand, and can consider the following:

  • Does the owner want to retain any investment in the business?
  • Does the owner want to release any capital from the business?
  • How will ownership of the business be shared between the owner, their spouse, their children, and any other owners?
  • How will any transfers of shares or assets be arranged tax-efficiently?
  • Who is going to manage the business, and will the owner have any future role in the management once they step down?
  • How is the owner going to train their chosen successor and plan the handover of control?

The last consideration is an important one that many business owners address by staying on as an advisor and slowly handing the business over to their replacement. If it’s a situation where the owner has died, having a succession plan in place will reduce familial conflict immeasurably.

Create a Will

In the event that the current owner dies, it’s definitely important to have a will. Without the appropriate will in place, the business, and more specifically the majority shares, could go to someone who doesn’t have the skills or interests in running it properly.

It’s important to create a will in line with your succession plan, leaving the majority shares to the person you marked as the successor. That way, there will be no disputes between the majority shareholders and the family member earmarked as the successor in your plan.

Engaging a solicitor for this work is also key as you could end up with a will that isn’t completely legally binding, or has legal loopholes, that could allow family members to contest it.

Call in the Inheritance Dispute Experts

If you end up with one of these bad wills, or you were caught off guard by an owner’s departure so you couldn’t put any preventative measures in place, you should seek the help of specialist probate solicitors.

Disputes over the inheritance of your family business can escalate quickly if you don’t handle them in the right way. So, it’s important to get professionals involved early so you know where you stand.

Most of the time, contentious probate disputes can be resolved smoothly and effectively without the need for court proceedings.

Think You’re Ready to Resolve a Dispute Over the  Family Business?

In this post, we’ve discussed how to solve disputes over family-owned businesses both preventatively and after the fact.

Unfortunately, without putting a shareholder agreement, succession planning, and a will in place before the departure of an owner, the only recourse is legal action. That’s why putting preventative measures in place early is the key to solving any disputes over the ownership of your family business.

Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained legal professional. Be sure to consult a solicitor/lawyer if you’re seeking advice regarding succession planning for your family business. We are not liable for risks or issues associated with using or acting upon the information on this site.

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by Rebecca Jones // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.