Good family business?
THE strengths of family-owned businesses can work against them when things start to go wrong. Lancashire Business View
Law Society research reveals that more than a third of small businesses do not have any kind of partnership agreement, and Bolton solicitors KBL warn that harmonious corporate relations can deteriorate without one.
Employment solicitor, John Hassells, says: “Family-owned businesses are fantastic and during difficult times are able to pull together. But, as they grow and employ staff, it’s important to have the protection of employment contracts, policies and procedures in place. Many businesses only realise this after a costly Employment Tribunal claim.
Planning for change and being realistic in managing people’s expectations is vital, says corporate partner Phil Stephenson. “For example, in a growing family business, one of the original partners may want their spouse or children to join the business” he explains.
“A spouse or child may have skills the business needs, but they could upset the dynamic between the original partners. Steps need to be taken to ensure the original balance of power is not altered unintentionally.”
Also, for many SMEs, owning shares is principally a means of ensuring a say in the company, and neither guarantee regular dividend income or have immediately realisable capital value.
So, careful consideration should be given before shares are given to family members not directly involved who don’t earn a salary from the company. Their shares may be worthless until the company is sold, which can bring unwelcome pressure to sell on family members who rely on the business for their livelihoods.”
Ensuring the business is set up properly at the outset can offer some protection if divorce or separation looms. KBL divorce and family expert Nick Lewis says “without a proper structure it can be very expensive even before you get to the divorce stage. Valuing a business is always a potentially thorny matter.
Mr Lewis advises anyone in a family business planning on marriage to consider putting in place a pre-nuptial, partnership or shareholders’ agreements.
- For free information on setting up business partnerships and the agreements which should be included please contact Phil Stephenson.