Building and running a family business can be both challenging and rewarding at the same time. However family businesses present ownership, management and succession challenges particularly when passing it on to your children or when unforeseen events happen such as a family dispute, divorce or illness in the family.
At some point you may want to pass the business onto your children. From a personal perspective, you may want to treat your children fairly and consider children who work in the family business and those who do not. At the same time, you need to protect your own interests and plan for your retirement. This can be achieved with some careful thought and advice and there may well be opportunities to minimise your tax liability and save your love ones a painful tax headache after you have gone.
When looking at who will take over running the business you need to consider whether your children are interested and have the necessary skills. If they do take over running the business they may rely heavily on you when the going gets tough – either financially or emotionally. On the flip side there is often a temptation for a parent to stay involved long after handing over the reins. This can lead to problems with planning ahead and making the necessary changes for the business to grow and prosper in changing markets.
When times get tough it can lead to disagreements and fall outs. Business disputes can often become personal and have a negative impact on the business. Suppliers and customers need to see the family business is run professionally and not susceptible to family feuds.
In the case of a relationship breakdown, a family business can form part of the assets to be shared on divorce. The worst case scenario is that the business you’ve worked hard to build needs to be valued and sold off so the profit can be split in the divorce settlement.
Careful planning can allow you to identify and address potential problems in advance. These issues can be addressed within a shareholder agreements, clauses in the company’s articles of association and the use of family trusts. Putting these things in place early can avoid family stress and create a platform for the business to thrive
A shareholders agreement can prevent the business from falling off a cliff if an issue arises. The agreement can provide a backstop position for shareholders on certain key points including how to deal with the management and succession of key roles, what to do if a shareholder becomes ill or unable to work, retirement and pension arrangements and dealing with disputes.
In all of this, communication is the key to making sure the family business is successful, but getting the necessary legal agreements in place can provide invaluable comfort and peace of mind that the family business won’t suffer if problems do arise.
