When family arguments affect working relationships, the business may suffer.
- Have bespoke documents designed for your family business.
- Have those documents drafted and in place early in the business cycle.
- Make the best use of your independent, trusted advisers.
We have all heard stories of family rifts being started by a joke in bad taste or something as innocuous as a game of Monopoly, such as when one person accuses another of stealing from the bank “as they’ve always done”. This spark ignites the kindling, the flames are fanned, and before long, a blazing row has broken out.
The result can be a fractured family, with members no longer on speaking terms and resentment continuing to grow the more the rift goes unresolved. Now imagine if the family members involved are also part of the family business. It can be difficult, if not impossible, to keep the family business separate from the personal lives of the family members. Suppose directors, shareholders or partners are not communicating correctly. In that case, the business will suffer, as decisions may not be made when they should be, arguments may break out in the office, and morale within the workplace may suffer severely. As hard as you may try to escape from it, a family fallout is almost inevitable at some point in the business cycle.
So what can you do to protect the family business?
Ensure that you have bespoke vital documents such as shareholders’ agreements and partnership agreements. These can put in place structures, policies and procedures for you which can help to avoid and at the very least minimise the effect of a falling out, find a way to resolve a dispute and, as a last resort, remove disruptive individuals from the family business entirely but in a way that has been previously agreed.
This could have been avoided had structures and documents been put in place. There were none. For example, suppose Leonard had thought about the company’s growth before his son, Richard, entered the business and made provision for other family members to join the industry. In that case, he could have prepared a shareholders agreement providing a structure for the shareholders, controlling their interests and providing for certainty and succession on exit. This would have included provisions for valuation and the resolution of disputes. The resolution of conflicts could have been dealt with in several different ways but, most suitably here, by mediation or using an independent, trusted third party as a first step. This may have avoided the emotional and financial pain that all parties eventually suffered. Further, a well-drafted shareholders agreement would have provided for all pre-agreed exit policies.