Some of the most successful businesses locally, nationally and globally are family businesses. But as much as the family dimension is a large part of their success, it can cause issues unless it is carefully managed.

One issue is the lack of formality. Shouldn’t the family bond transcend the need for legal documentation? Acting for numerous family businesses, I have found it often doesn’t.

A well-managed family business will have written employment contracts and policies to reduce the scope for disagreement. There will also be competition restrictions for an outgoing family member.

Similarly, shareholder agreements increase clarity; they deal with share valuation and succession issues as well as defining shareholder relationships and vision for the business to reduce the scope for misunderstandings.

Often formal corporate governance, including board meetings, is overlooked. This increases the risk of dispute.

Is the business a meritocracy or do family members have all the seats on the board? Employment law does not recognise family favouritism and non-family members who are not treated fairly could have significant claims. Such employees will also lack motivation and may be poached by competitors.

There also needs to be a forum for families to discuss business issues and develop an agreed approach. And when things go wrong, there should be agreed dispute resolution mechanisms to avoid expensive and damaging litigation.

Finally, don’t forget succession planning. The next generation do not always want to carry on the business and alternatives such as business sale must be considered.

We are running a seminar Looking after Family Business in collaboration with the Hertfordshire Chamber of Commerce on 5 April 2019 at Hanbury Manor to discuss these issues in more detail.

To book your place please visit: www.hertschamber.com/event/details/363

Contact Longmores on 01992 300333 if you need legal advice for your family business or visit www.longmores.law

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