Swindon Solicitors

Family business

Being able to start up a family business which is profitable and well-managed is a wonderful gift which can be passed to your children. But in order to reach this stage you will be presented with a number of obstacles relating to the ownership and management of the business.

What are the positives and negatives of running a family business ?

A family owned business which is run by the family will be advantageous in the sense that there are shared values, a sense of continuity and higher levels of commitment.

Disadvantages such as apparent discrimination against non-family members and unexpected divorce can occur. Events such as divorce can severely damage the effect of ownership.

What should I do to reduce the risks of dispute when running a family business ?

Always keep channels of communication open and identify or address any problems in advance.

When drafting shareholder agreements or amending clauses in articles of association gain the consent of other family members.

How do I overcome these challenges ?

In order to overcome these obstacles it is important to plan ahead and involve family members as early as possible when considering your business objectives. This will lessen the likelihood of disputes arising.

How do I avoid disputes about ownership ?

For many families who start a business the main ownership issue is how to retain control. This is a necessary approach in order to retain family control since alternative investment structure can affect who the actual owners are. The family ownership retention objective can have adverse effects on the development of the business by limiting potential growth.

It can also lead to reluctance in taking on boad outside shareholders when this can provide additional growth potential.

It may be possible to retain ownership while accepting investment proposals by ensuring you retain a certain percentage of shareholding. This may mean accepting investments are loan type structures in some cases.

What are the risks of starting up a family business ?

A family business can bring security to the family’s finances if the business is successful but they can be a risky venture. This is because most of the family’s asset are at stake and personal guarantees may probably have to be given for potential debts of the company.

A further challenge relates to transferring the family business to the next generation. This can be disruptive to the business and challenging since you will have to decide what proportions to split the business in by taking into consideration whether those that work for the business should get larger proportions.

You must also decide whether you will continue to have a say in the business affairs or whether you are prepared to cut your ties completely. Preparing who should take over in advance will enable you in the situation where none of your children want to run the business.

How will I prepare for retirement?

You may want to secure your retirement by withdrawing funds from the business. To avoid tax liabilities you should limit your costs as much as possible and you should plan how to distribute your business in advance.