Family businesses face unique challenges that must be sensitively balanced with the needs of the company and that of individual family members. If you’re considering setting up a family business or run an existing family company and need guidance, then keep reading. Graysons’ family business consultants answer some of the most common questions regarding a family business.
Should I seek legal advice for setting up a business?
Yes, you should always seek legal advice when setting up a business. While setting up a business can be an exciting time, it can also be complex. Getting early advice from an experienced and professional solicitor can help prevent future legal problems, save your money, and protect your business in the future. They will also be able to advise on any legal implications, whether any lender’s terms are fair – and help you re-negotiate them if they are not – as well as offer any advice on any potential tax implications. Other areas a family business solicitor will be able to offer guidance on are employee liability, the terms of a business premises lease, and company structure. There are many things to consider before setting up a family business, so it is critical that you seek advice from an experienced family business consultant.
How will a family business be impacted by divorce?
A divorce can be a stressful and emotional time. Central to many divorce proceedings is the desire to protect a family business and private wealth. The division of assets can be quite complex when there is a family business, and how the family business is impacted by divorce will be case-specific. For example, if the company was incorporated prior to the marriage, there may be an argument to ringfence it. However, if it was set up during the marriage, then both spouses may be entitled to a share of the assets. Additionally, if a spouse’s financial needs cannot be supported without a share of the assets from the family business, then it will be challenging to ringfence the company entirely. During a divorce, several factors will be taken into consideration, including who owns the business, who is responsible for its day-to-day operations, whether the business owns any liquid assets, whether it is possible to extract capital sums from the company, whether it is possible to borrow against the business, and what income the business generates for both parties.
Possible scenarios in a divorce include:
- One spouse remains in control of the business, while the other spouse is compensated by way of a one-off lump-sum payment or through regular maintenance payments
- Both spouses are made shareholders
- The family business or shares are sold
- Shares are transferred from one spouse to another
An experienced family business consultant will be able to advise on how your family business will be impacted by divorce and advise on a strategy to best protect it.
What succession planning should I have in place for a family business?
Succession planning is the process of developing a plan that clearly outlines what will happen when the owner or owners of the family business decide to step down from a leadership role or can no longer run the family business due to ill health, incapacity, or death. In most cases, business leadership is handed over to a family member, or sometimes, a non-family member. Succession planning is one of the biggest challenges that family businesses face. Successful succession planning can take several years to prepare, including training your successor or successors, as well as ensuring the most tax-efficient exit. It’s therefore essential that you work with a family business advisor who can help you plan effectively for the next generation to take over or manage the family business effectively.
Some things you will need to consider as part of your family business succession plan include:
- Who you want to hand the family business over to
- How ownership of the business will be shared amongst multiple family members, or even non-family members
- Whether you wish to maintain any shares in the family business
- Whether you want to realise any capital from the family business
- Who will manage the day-to-day operations and whether you wish to maintain any future role in the management of the family business
- Training of your chosen successor or successors, including understanding the strengths your successor will need in order to drive the family business forward in the future.
Passing on a family business to the next generation or to non-family members is critical to ensuring its ongoing success, but without effective succession planning in place, this vital step is unlikely to succeed. Learn more about Graysons’ family business consulting services today.
How can I share ownership of my family business amongst several children?
This is one of the most common succession plans; passing on a family business to several children. In this scenario, ordinarily, each child is given equal shares in the family business. Having appropriate shareholder agreements in place will help minimise conflict and clarify how the family business should be run. An experienced advisor will be able to advise on how best to split ownership and prepare a robust shareholder agreement that outlines how the business should be run, therefore minimising future conflict.
What is a family business agreement, and should I have one in place?
A family business agreement is a non-legally binding, bespoke document that offers a clear outline of how the business should be run, including outlining the structure of the business, the processes for decision-making, succession plans, as well as what should happen in the event of marriage or divorce. A business agreement can offer stability to a family business, addressing common issues that family businesses typically encounter. Each family business agreement is unique, tailored to the individual needs of each family business. Graysons’ team of Sheffield and Chesterfield solicitors, can help draw up a business agreement.