This article originally featured in May's edition of the Insider.
In family and owner managed businesses, it is essential to communicate with one another to plan for the future and tackle any possible tensions in an open and understanding manner. It is essential to tackle succession planning early rather than allowing such issues or concerns to fester undiscussed – becoming “the elephant in the room”.
To maintain a proper separation between work and family life, family businesses should avoid having business discussions in family time such as over Sunday lunch, and should instead have properly-scheduled business meetings so that lines of communication are kept open and nobody feels left out. This is particularly important where there are family and non-family members of the management team.
It is also important for family members to protect themselves from potential disagreements by establishing rules and guidelines that determine how to operate the business and how to make decisions about the future direction of the business:
- A Shareholders Agreement is a private contract between the shareholders which contains key rules on how the business will be run and how decisions will be made. It binds the shareholders to conduct themselves and the business in a way that will benefit all parties.
- Articles of Association are the rulebook of the company and set out rights and obligations that relate to the shares, such as dividend rights, share transfer rules and even rules and procedures regarding the sale of the business in its entirety.
- A Family Charter could also be considered. This is not legally binding but could still provide a useful tool for regulating the management of the business.
These documents should also be considered in conjunction with each shareholders will and estate planning arrangements so that the personal and business advice is personally dovetailed for each individual shareholder.
Whilst the main purpose of these documents is to provide a safety net to navigate family businesses through difficult transitions, the greatest benefit comes from the process itself of putting the documents in place. This helps people to understand their roles, rights and responsibilities and prevents the future scope for disagreements or misunderstandings.