I don’t want the business to cause problems in the family. How can we minimise the risk of disputes?

Like any other private company, a family business should have a shareholders’ agreement, setting out clear guidelines for how you want the business to be run. As well as making it easier to resolve disputes, the process of making the agreement means any potential issues can be brought into the open and discussed at an early stage, so that they don’t become a problem later.

Some family firms go even further, by introducing a ‘family charter’, which allows all members of the family (even those not directly involved in the business) to have a say.

What should be included in the shareholder agreement for a family business?

This will vary from business to business. However, obvious items to include would be:-

• Finance, share type and distribution and allocation of profits
• Rules for transferring shares (including what happens when a shareholder dies)
• Appointment and change of Directors
• Rules governing the employment of family members
• Rules for voting and decision-making
• Dispute resolution
• Confidentiality and competition clauses

What if it goes wrong? Can I protect my family against the business collapsing?

This is not something most people pause to consider, but it’s one of the most important points to keep in mind when you set your business up. Incorporating it as a limited company means that business and personal assets are kept separate. However, some creditors will seek personal guarantees – try to avoid these where possible.

Be cautious about asking family members to invest in your business: make sure they only invest amounts they can afford to lose and try to ensure that they are listed as preferential creditors.

There are two family members in the firm who don’t get on. What can I do?

This kind of problem is difficult enough in any firm, but especially tricky where family is involved. In a normal business, you might seek to negotiate an agreement between the individuals – or, failing that, separate them into different areas of the business, or ask one to resign. When it’s your own family, it can sometimes be helpful to bring in an independent mediator or arbitrator. Ideally, the shareholder agreement should anticipate just this kind of problem and provide guidelines for resolving it.

I’m thinking about retiring and passing the business on. What do I need to do?

It’s best to plan well in advance. Although the actual transfer can be completed relatively quickly, it’s important to spend time grooming your successor, reassuring clients and employees - and generally preparing the business to be passed over in a way that will allow it to continue operating effectively.

There are a number of things you will need to consider when planning your exit, including:

• Do you want to retain any investment in the business (and, if so, how will the ownership be structured)?
• Will you have any role in the running of the business?
• Do you want to continue earning an income from it?
• What is the most tax-efficient way to transfer shares or assets?

Is it okay to favour family members over other employees?

It’s generally not a good idea to treat employees in any way other than equally. Favouring family members is likely to cause resentment among your other employees, making them demotivated and less productive. It may also cause problems among the shareholders.

Can I pay a salary to another family member to reduce my tax bill?

Yes – but only if the family member genuinely works in the business, and if the salary is commercially justifiable for their role. In other words, you can’t just use this as an artificial way of reducing your tax liability.

We want to bring in outside investors, but still keep control. How should we go about this?

In general terms, retaining more than 50% of the shares, together with voting rights, will ensure you maintain effective control. You can still retain control with less than 50%, by offering non-voting shares to investors. However, if you want to attract outside investors, you have to accept that they will want at least some say in the running of the business – and the amount of control they want is likely to increase in relation to the size of their shareholding.

A revised shareholders’ agreement would usually include some provision for protection of outside investors. (It’s also important to note that some family businesses have agreements specifically restricting external investment)