Avoiding conflict – advice for family businesses

Family businesses account for more than 70% of Scotland’s SMEs. They also employ half of all private sector workers so their contribution to the country’s economy shouldn’t be underestimated.
But while keeping it in the family might sound ideal, running a family-owned company can present its own unique set of challenges.
Conflict commonly arises around the issue of ownership and succession – so what’s the best way to avoid this?
Having decided you want to keep it in the family, think carefully about how you want this to work in practice. Making sure that the constitution of the company (the articles of association) accurately reflects exactly what you want from the start is key.
Key points to consider for family-owned companies:
  • Decide who will be the owners of the company (the shareholders)? Do you want only certain family members or perhaps all as owners?
  • Consider husbands, wives and partners (now and in the future) and especially the impact of divorce or relationship breakdown.family-557122_1280
  • Think about who is to have control and how decisions are to be reached. If needed, your company can have different classes of shares that carry different voting rights and so control how decisions are taken and by whom.
  • Determine what happens if someone wants to sell their shares in the company. Who do you want the shares to pass to? For how much? How will that valuation be made? If you want other family members of the family to have them, can they afford them? If not, should the company buy them? How will you make sure that the company can afford to? You may want to consider making some shares redeemable so investment can be made and then paid back at a suitable time in the future?
  • Place restrictions on how many shares can be sold in a year?
  • Research how you wish to handle dividends. What is fair? What are the tax implications? Do you need to keep some profit to reinvest or to buy shares a family member no longer wants?
  • If you want to make provisions for the next generation, consider how they might be represented and encouraged.
  • Think about what you want to do in the event of a dispute. You can include provisions in your articles to deal with this.
  • Consider a shareholders agreement.
  • Remember that many of Scotland’s household names started out as family businesses and have grown and flourished under family ownership and management.
For more advice relating to family businesses, contact Oswalds.

 

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