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Family Businesses

 Running a family business can often present its own unique issues.

Having family members working in the business can provide a number of positives, since they will often demonstrate a much greater commitment to any outside employees. However, this is not always the case.

We are able to help if you are struggling owing to a conflict between family members, encountering difficulties owing to matrimonial breakdown or have a lack of management expertise to help the businesses realise its potential.

We are also able to help with succession planning when the time comes for the business to be passed on – whilst it is common that succession is not given proper consideration until a family member actually retires, it is never too early to start the process of considering the future ownership of the businesses.

Here we've highlighted some of the questions we get from Family owner/managed Businesses

What are the most typical issues seen in a Family Business?

Family Businesses will face the same commercial issues that any other business will face, and in challenging times it can be hard enough to operate efficiently and profitably without the added problems of dealing with family relationships.

It is often difficult to separate personal and professional issues when working with family members. A sibling may feel a brother/sister is being treated more favourably, or isn’t pulling their weight properly. It may simply be that two family members simply don’t get along.

Problems can also arise with succession planning – the older generation being unable or unwilling to let go, or trying to force a younger generation to take control.

Can we favour employees who are family members over non-family members?

It can often be a positive to employ family members in the business – especially if those family members share the same sense of commitment and loyalty as senior family members.

Generally speaking however, you cannot favour family members over other employees. To favour one employee unfairly or without justification over another employee, could lead to a claim for discrimination – this would be the case in any business. Such favouritism could also result in a demotivated workforce, which will adversely affect the business and its performance.

Whilst there are no restrictions as such on employing family members, it does not make commercial sense to have poorly qualified or experienced family members in senior positions. Irrespective of the legal position, all employees should be treated fairly and the best interests of the business should be served at all times.

What happens to the business if I get divorced?

The shares held by a family member going through a divorce will be classed as an asset for the purposes of the divorce proceedings. Even if the spouse has had nothing to do with the business, they may be able to claim a share – for example, if the spouse has remained at home with children to enable the family member to build the business, the courts will recognise the contribution made by the ‘homemaker’.

The business will need to be valued and then compared against the remainder of the assets held in the ‘joint pot’ - if there other assets of equal value to the business then it may be that everything can be split to reach a resolution. If however the business is a substantial amount and forms the majority of the assets held, you may have to pay your spouse, or else be forced to sell to a third party.

We have done work for friends and family, but are struggling to get paid. What can we do?

This is a common issue experienced by a number of family businesses – ultimately though, a customer is a customer and as a commercial business you are entitled to get paid in accordance with your Terms and Conditions. Whilst you may be willing to make some extra concessions for family and friends, this cannot be to the detriment of the business. Irrespective of who you are dealing with, having clear and structured procedures from the initial estimate and ordering through to billing should help to alleviate the problems - everyone has to know what is required and by when (including when payments are due). If you do not have Terms and Conditions, or you do but don’t know how to make sure they apply to your business dealings, we can help.

How can we help?

Having a well drafted and comprehensive Shareholders Agreement will at least provide a framework in the event of disputes or issues being encountered. By covering matters such as the appointment of directors, the transfer of shares, employing family members and dispute resolution procedures, if a dispute does arise all sides know where the stand and what procedures are to be followed.

We pride ourselves on providing practical, commercial solutions.

For any further information or advice please give us a call or email rosswellman@vslaw.co.uk

For any enquiries regarding Family Businesses please contact our Commercial Law Solicitors department on 01772 555 176
Or enquire online here.