Dealing with family business disputes

If you are the one at the helm of your family’s business, dealing with a dispute between your fellow directors and shareholders would probably be something you would rather avoid in the hope that all will resolve itself and simply in time, just go away.

Elizabeth Black TaylorsBy Elizabeth Black, Taylors.

Speaking out of experience, you could rest assured – you would definitely not be alone.

When rifts, for whatever reason, erupt in a business context, it can be extremely unpleasant for all involved. It is a highly sensitive situation to address, and even more so if it involves family members.

These potentially-damaging issues must though be dealt with head on and immediately; getting legal advice straight away is essential to protect your business and avoid becoming embroiled in expensive and time-consuming court proceedings.

There are many reasons why directors and shareholders find themselves in dispute, such as conflicts of interest, impasse over the future strategic direction of the business, performance issues and disagreement over declared dividends, to name just a few that we have seen. And whilst it’s inevitable that business relationships will break down at some stage, ensuring that your business is one step ahead of the situation and putting in place clear guidelines as to how to handle disputes if and when they arise, will help manage the situation.

Action Points

So here are our top tips to help your business avoid a dispute and what to do if you need to deal with one in your family’s boardroom:-
  1. Ensure that the business has well-drafted Articles of Association and a robust Shareholders’ Agreement which is up-to-date and accurately reflects the current shareholders’ position.
  2. Employment contracts and service agreements should spell out shareholders’ obligations whilst employed by the company and following their departure.
  3. If the business operates as a Partnership, then have a Partnership Agreement which addresses the key issues of how the individuals involved will work together, how profits will be shared and make sure you include detailed provisions relating to the expulsion and retirement of partners.
  4. If a dispute occurs, take advice immediately in order to avoid significant costs and the situation swallowing up valuable management time.