Legal: Birkett Long
Could a marriage breakdown impact your business?
Relationship breakdowns are always stressful. But when the owners of a family business are involved, divorces tend to get even more complex. If the husband and wife work in the business, the court will probably assume they own it equally.
However, a company has its own legal identity and, in the context of a divorce, there will be no assumptions about ownership – the company share allocation determines that point. A partnership or shareholders’ agreement, a proper company valuation, and a written allocation of company assets, help protect you and your business.
What about planning for succession?
Business owners often struggle with succession planning. Timing will be critical, as will the management structure, which will need to work for the next generation and avoid family disputes.
A demerger will not be right for all businesses – and may not be possible for some – but in the correct circumstances, it could be ideal, giving your children an opportunity to develop their strategies and ideas.
A shareholders’ agreement forms a contract between company shareholders; it states how it is to be operated and sets out shareholders’ rights and obligations.
Shared ownership between family members can bring great value. A predetermined framework offers assurance, helps resolve situations amicably whilst upholding family relationships, and minimises adverse impact on the business and/or the finances of individual shareholders.
Is your business overly dependent on you?
An accident or illness could happen to anyone, which could be hugely detrimental.
A Property and Financial Affairs Lasting Power of Attorney, means your attorneys can make business decisions and access business finances.
The thorny issue of employment
Employment issues arise in all businesses, but the strong emotions and principled positions that come with family-owned businesses, tend to make disputes tough to resolve.
Each employee should have an employment contract, as it can avoid many potential areas of dispute. The obligations and restrictions it contains, make it worth its weight in gold. Policies and procedures are important too, as they set a level of expectation for family and non-family members alike, provide a framework for many issues and outline what should happen in exceptional circumstances.
Protect your business in four steps:
- Ensure your business structure is current but includes long-term plans with a partnership or shareholders’ agreement.
- Ensure provisions are clear and understood by all.
- Ensure that your will distributes your business assets, in a way that does not contradict any of the above.
- Communicate with your family and make decisions while you are able. Make sure they understand your wishes and, as far as you can, try to get them on board.
It makes sense to spend time thinking about how to protect your business, plan for the future, and safeguard those you respect and love, even if you’re not there looking out for them.