Volume 4 Issue 2
© by Newland & Associates
The paper upon which many family business agreements are written
is extremely thin. In fact, it is so thin, that when a dispute arises, these
agreements, often oral -- Poof -- disappear! While that may be a
jocular perspective on family business disputes, in reality, they are nothing to
At first thought, it probably seems unnecessary for family members to have
partnership or organizational documents. Many business owners might wonder, "Why
would a close family need counseling or professional assistance from outsiders
for their family business?"
Experience shows that the reasons are as many and varied as
there are families. One common problem is that family disagreements are often
emotionally charged and involve contentions that would not exist between
In July, 1998, this newsletter (Donít Assume Your Children Will Get
Along) discussed the fact that owners of a family business may begin to
disagree after the demise of the unifying older generation. Now, I am addressing
the fact that family relationships can also deteriorate while the family
member-owners are all living.
Repeatedly, I have seen family relationships change. You may have heard of a
couple divorcing after 20 or 30 years of marriage. Why? Often the key factor is time.
People change over time. What seemed clear, practical, and sensible 10 or
20 years ago, when a business (or marriage) started, may be perceived quite
What are the benefits of a family agreement addressing issues such as
business continuity and who will control the business? While a written agreement
will not insure success, it does make sense to memorialize in writing business
understandings between family members.
The exercise of preparing the agreement, using checklists and considering
likely contingencies, such as death, incapacity, and divorce, forces family
members to confront situations they may not otherwise address until such an
unsettling event occurs.
Doesnít it make sense to address these contingencies before they occur,
when everyone involved is thinking clearly and not suffering the stress of a
For example, after a family member dies, bereavement often makes it difficult
to deal with important business issues; or, feuding spouses or ex-spouses may
have a disrupting influence on a business.
In stressful times, it is not uncommon for family members to form cliques
competing for influence, control, or money. Or, as children and grandchildren
mature, they may adopt views that are disagreeable to other family members.
Obviously, much depends on the older generation. Many parents who started and
control family businesses have difficulty envisioning any problems. In such
situations, the possibility of considering contingencies such as buy-outs,
covenants not to compete, etc., cannot be adequately addressed.
To some, formalizing such relationships might appear to be a method used by
attorneys to generate legal fees. Not true. It is not unusual for attorneys to
become involved because there was nothing in writing in the first place and a
family disagreement over a business matter ended up in court!
While it can be difficult to formalize and document family business decisions
and plot directions for the future, having had many clients embattled in family
disagreements, I am firmly convinced of the need to plan ahead and document
agreements, even among members of the closest family businesses.
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