Prevention of Ownership disputes in Family Businesses

Issues relating to family business ownership may not loom large in the first generation or the founder stage. However, when the succession process kicks in or the next gen has to step in to take over the reins of the business, friction could arise between the father and son, among the brothers or other family members who hold positions in family business or derive income from it. The business would suffer and may even die.

Besides these, a whole host of family matters like an owner bringing in his son or daughter with the idea that they may eventually take over the business, difference in salary package paid to family members, continuously ceding power to senior family member could cause conflict / friction among family members.

Weakening personal relationships among family members could also result in conflicts making it almost impossible to work together. The undercurrent of negativity could lead to emotional outbursts endangering the business.

Measures to prevent conflicts

i)   Seek legal advice

If the family members sense that there is likelihood of a dispute developing it is better to get a legal opinion on the matter and get a clearly written legal document that can be signed by all members. This should be done at the beginning or at an appropriate stage in order to avoid a serious fall out later.

ii)  Prepare Family charter and / or Shareholders agreement

Although not legally binding, having a family charter drawn up will act as a road map that regulates members roles and responsibilities, lays down long term plans of the organization in terms of management, ownership and succession. Alternatively a shareholders' agreement could be drawn up that could govern their relationship and business arrangements, detail their rights, responsibilities, obligations and liabilities, and protect their interests — with regard to their particular circumstances.

iii) Draw up a Succession plan

As succession can be a major source of conflict it is advisable to seek external advice when planning the succession process.

Measures to resolve conflicts

i)    Appointment of a mediator

When serious issues arise, family members may seek the help of a mediator to resolve the dispute to find an amicable solution. Invariably, involving a third party mediator could facilitate swift and amicable resolution. 

ii)   Resolution at Board meetings

Disputes regarding management or determining the future roadmap of the business can be responsibly resolved by board members in a meeting.

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