Family businesses face the same challenges as every other business. However, they have the added complication of involving highly personal relationships. When conflicts arise, there is much at stake and commercial decisions can be influenced by the way people feel, unresolved family tensions, or things that may have happened in the past. As a result, it is not only the matter at hand that needs to be effectively managed but the people involved in the running of the business too.
Our professional experience has shown us that when emotions are running high, these need to be addressed before any real business or legal progress can be made. While we do not offer family law advice, providing solutions to our client’s complex family business matters means meaningfully collaborating across professional disciplines. In this article, we look at effectively managing family business disputes.
What conflicts can arise in a family business?
Family business disputes arise out of all kinds of circumstances, but often come down to a failure to effectively communicate, or because of differing views about what is right for the business. Here are some examples of the types of disputes that are common for family businesses:
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- Parties to the business have different views about who should run the business or how it should be run
- People are concerned about how changes to the family or business might affect their position. This can include things such as death, divorce, or changes to succession planning.
- Those within the business have competing priorities, needs or interests - particularly financial.
- When a disagreement becomes personal, particularly between the founder or owner of the business and other family members, competing siblings or in relation to non-family members involved in the business.
- If the younger generation wants to take over earlier, or the older generation wishes for an unwilling younger generation to take over sooner.
- Certain parties involved in the business are behaving inappropriately, and there are concerns about the impact on the business.
Handling family business disputes with mediation
One of the best ways to handle family business disputes is through mediation. Mediation can help to reduce tensions, clear the air, and allow parties to enter into constructive discussions about the matters at hand. Early intervention in disputes through mediation may also help to preserve relationships and get the business back on track.
What happens when mediation doesn’t work?
When reaching a satisfactory conclusion through mediation is impossible, there are several routes to resolving family business disputes. If there are contracts or agreements that regulate such disputes, you may instruct legal advisors to determine what should happen next. Where there are no such agreements, you may need to work out an exit or succession plan.
One party to the dispute could buy the other out - depending on who is in the best position both financially and practically to do so. For example, where one party is heavily involved in the day-to-day running of the business, it would be appropriate for them to buy out another party who is merely an inactive shareholder.
Where preserving relationships is a priority, the family may wish to sell the business altogether to bring such disputes to an end, or to bring in a third-party team to step in as part of a management buy-in. Bringing in third parties can help to resolve disputes and avoid costly litigation.
As a last resort, the parties can resort to court action to resolve the dispute. However, all other avenues should be exhausted before doing so as litigation can be expensive, highly emotional and damaging for the business.
Family Business Lawyers, Edinburgh
Peter Shand is an experienced family business lawyer and authoritative voice on delivering bespoke and integrated advice to business families.
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