Disagreements on how to run the family business are common from time to time. Family conflict does not always mean the future of the business is in jeopardy.
However, conflict can be the beginning of the end of the family business when not dealt with appropriately. Here are some options for preparing for and responding to conflict:
1. Routinely Plan for the Future. As part of forming the business, your family likely met with an attorney to put plans into legal documents. Routinely review your entity’s legal governance documents. Years may have passed since they first became effective. Some questions to consider include:
• Do the current legal governance documents still adequately address areas regarding management, taxes, liability, ownership interests, profit and loss distributions, and business continuity, etc.?
• Is there an adequate succession plan?
• How have involved family members changed, if at all, in terms of their respective personal versus family-business goals and with regard to resources they are willing to invest in the business (e.g., finances, time, professional talents, or operational skills)?
• Which children are interested in joining the business in the future—in what role?
• What steps are being taken now to prepare the next generation to take over or assist with certain roles (e.g., training, mentorship, or employment)?
• What is the procedure if a family member wants to sell or assign all or part of their interest in the business?
• What happens to a family member’s ownership stake when that member passes away?
Regularly meet with all family members involved in the business to discuss these topics. Ensure all have an opportunity to be heard and express their opinions. When this is done, members have a previously agreed-upon roadmap to use when issues do arise. This may lessen business disruptions in the future.
2. Meaningfully Consider Opposing Positions. Even the most robust business plans do not prevent all conflicts. In the face of conflict, avoid reacting immediately. Take time to respectfully
consider your family member’s opposing position, which may very well come from a place of passion for the business rather than contempt.
If the opposing position is not acceptable to you, are there alternatives you can propose to reach the same or a similar goal? Addressing the conflict head-on together is better than ignoring it to the potential detriment of the business. While scenarios differ, conflict communicated in a healthy way can lead to positive brainstorming, change, and business growth.
3. Litigation. Some business conflicts cannot be resolved without invoking litigation. Depending on the issue and procedures set forth in the entity’s governance documents, options may include seeking court intervention on claims for judicial dissolution and liquidation of the business or claims for judicial dissociation of certain members with an ordered buy-out of their ownership stakes.
Among other scenarios, judicial dissolution is usually an available remedy when one or more member with a controlling stake in the business has acted illegally or fraudulently, or in an oppressive manner that was directly harmful to other members. Many events could be grounds for dissociation, such as when the person to be expelled has engaged in wrongful conduct that has or will adversely and materially affect business activities.
Pursuing litigation to resolve family business disputes may involve court hearings, settlement negotiations, and/or trial.
There may be more options in addition to those discussed here to use for tackling fighting in a family business. The correct option will vary from family to family and business to business.
AKC Law attorneys are well-equipped to help our clients through all stages of their family business, from formation and growth to handling internal disputes and/or assisting with or responding to business litigation. Contact Julie Ryan at [email protected].