Avoiding disputes in family owned businesses

When relationships between business owners break down the impact on the business can be far reaching. In a family business, commercial problems can become complicated by unresolved resentments and issues that lie under the surface and once families fall, those problems can be difficult and expensive to resolve.

Anecdotal evidence suggests that only 1 in 6 farming family businesses have a written partnership or shareholders’ agreement in place. It is no coincidence that we have seen an explosion of cases before the courts involving farming families who have failed to document how the business is to be run in terms of management, retirement and succession.

One of the simplest ways of avoiding conflict in family owned businesses is to reach an agreement at the earliest possible stage about how the family will deal with matters which may arise in the course of the family business’s life. This can be done in the form of a “family charter” or constitution which the family members can write together and which sets out the family’s goals for the future but also what it wants to happen if an unexpected event arises, such as if someone becomes ill, or how the family wishes the business to be run. A family charter may not be legally binding but it is certainly emotionally binding and can be used to reconcile situations when family members disagree.

Every business should have a partnership agreement or, if the business is run through a limited company, a shareholder’s agreement in place; these agreements are legally binding. Families never expect to fall out and often feel that formal documents are a waste of money. In reality, it can be the best money that business ever spends: disputes invariably arise because people have different ideas about what was agreed but when the agreement is set out in black and white it is hard to dispute.

It is never too late to put the necessary structures in place and these relatively simple steps can prevent conflict in the future.

For further information please contact Johanne Spittle on 01904 716000 or email johanne.spittle@warekay.co.uk.