How to Deal with Disputes Involving Family Owned Businesses

Owning or working in a family-owned business may be the ideal employment and financial situation for some individuals. But common disputes involving family-owned businesses can lead to family discord as well as the potential for negatively affecting the business, possibly resulting in lost profits and tarnished reputations. There are several ways to deal with common disputes involving family-owned businesses.

Put it in writing

When family members go into business together, one of the most common mistakes is that little to nothing of the terms of the business arrangement are put in writing. In ‘7 Rules of Conduct for Avoiding Conflicts of Interest in a Family Businesses,’ family business expert Dan Schwerzler, is quoted as saying that an informal management style can ” inhibit the growth and profitability of the business—a kind of glass ceiling that keeps the family business from reaching its true potential.”

As with any other business, it is imperative to put all the terms of the business operations, management, job descriptions, salaries and benefits as well as all other aspects of the business in writing. All the family members involved must sign individual copies of each of the necessary forms to indicate that they understand and agree to the terms of the business arrangement.

Without a written agreement, none of the parties are protected from litigation should a dispute over any aspect of the family business or terms of the agreement become a matter of litigation. Family members of some famous companies have found themselves in the spotlight, as well as the courtroom, when family members begin to disagree and family relationships change.

Whether a party to a family-owned business is well known world-wide or known only to family and residents of their small, rural community, putting the terms of the business arrangement in writing protects all parties in any dispute, no matter how minor the dispute may seem. Without a formal written agreement, it may be very difficult to prove your case in court when all the evidence that you have to present is your own testimony as to the terms of the oral agreement that you claim was understood.

Do not interfere

When spouses get divorced or when spouses or parents die, the family business is often a matter of bitter argument and disagreement. When only one party to a marriage or one sibling is involved in the family business, it is crucial that the other parties sign a waiver that guaranties they will not interfere with the business. That way, if there is a divorce or a family member involved in the business dies, the other spouse cannot forcibly claim partial ownership, try to take over or work for the company. It is important to have the waiver signed at the beginning of the opening of the business so that all family members who are legitimate parties are protected from family members who are not involved in the operation of the business.

One of us should not be a family member

When a business is totally run by family members, there may be a more lax environment, resulting in work not being done properly or in a timely manner. An example is when adult children or other younger relatives are employed in the family-owned company. Having at least one non-family member in a management position allows for an objective partner with allegiance to none of the family members in the event that a family dispute occurs. Additionally, the non-family member will be able to see who is being lazy or not performing his or her job duties in the expected manner, which may negatively affect operations or profit. The need to have an outside business advisor “on an ongoing basis” is deemed “our best advice” in ‘How to Resolve Disputes In Family-Owned Businesses.’

Adult children who work in the family business

In the absence of the parent being at the business site when a decision needs to be made, adult children may assume it is perfectly fine to go ahead and make the decision for the parent who is out on an errand or sick. The decision may not coincide with the decision that the parent-owner was intending to make and can have negative consequences for the business as well as the relationship between parent and adult child. Make it clear who may and may not make decisions in the absence of the owner and who may or may not sign contracts or other documents related to the business. When there is clarity in these areas, it will prevent disputes from arising from someone who over-steps their bounds.

Just because an adult child, sibling, niece, nephew or cousin works for the family-owned business does not mean there should not be clearly-defined work responsibilities. The family member must be expected to work for his or her paycheck just like any other employee. Although all employees have moments of slacking, some adult children may think they are entitled to slack off when they want. Make it clear this is not to happen. On the other hand, do not become a drill seargeant to your adult child or embarrass them in front of customers or other employees.

Never put yourself through the stress of profound disappointment if your children have their own goals and vision for their own future that does not include working in the family business until they retire themselves. The Family Business Experts explains that “It may be your blood, sweat and tears, but that doesn’t mean they feel the same way about it; it might not be a business or profession that  personally compels their interest.” So if the adult children decide to leave the family business to pursue their own business goals, do not take it personally and do not let it affect the family business. If you do, profits may suffer.

Let’s talk about it

Just because the business is a family-owned business does not preclude the need for regular employee meetings. Regular meetings should be held to go over the direction of the company, discuss any issues relative to the business, the direction and goals of the company, as well as any new products, procedures or other news.

All employees, including family members, should receive regular performance evaluations. This keeps the nature of the business relationship professional and further substantiates that family members are fully expected to perform their job duties in the same manner as any employee who is not related to the family.

Put it in writing

When work responsibilities are clearly defined in writing and signed by the owners as well as other family members working for the business, there is clear understanding of the responsibilities and expectations from each person. This will help prevent any problems of relatives expecting to just show up and get paid simply because of being a family member. If one or more family members decides to leave the business, whether voluntarily or as a result of unwillful termination, the business and its stakeholders will be protected.

Therewill be clear understanding among all the parties regarding exactly what the nature of the business is and who is responsible for what. It will be clear who is designated to make decisions, who is and is not involved or a party to the family business and the expected performance of each family member at work. Overall, putting everything in writing and making sure all signatures are obtained at the beginning is the most crucial aspect that will enable owners of a family-owned business to be protected if and when disputes arise.