Kerry Southworth, solicitor in the corporate and commercial team at Harrison Drury, examines the parallels between the Royal Family’s recent woes and the need to protect family businesses.
The recent controversy over the Duke and Duchess of Sussex’s decision to step away from royal duties has many lessons for family businesses and how they should go about protecting their interests.
Whilst we cannot say the Royal Family is a business like any other, it faces many of the same issues, including protecting intellectual property (various trade marks applied across the world), property ownership (royal residences and vast acres of land across the UK), and having a large number of employees.
Harry and Meghan’s decision to ‘quit the firm’ and the lack of an established protocol for such an event, highlights the importance of having carefully drawn up agreements to protect family-run businesses.
These may include agreements for the admittance of new members to the firm, the restructure of the corporate group, and considerations for what happens when certain partners wish to leave the business.
Protecting family business against family fall outs
A business runs well when all partners are committed and invested in its success. However, when business partners fall out, there is a danger that a dispute can have a long-standing effect on the business. This is especially so when the partners are family members and family disputes spread to the boardroom and affect the business.
It is often difficult to separate family life from business relationships, and many families may be reluctant to formalise business relationships with family members, especially as this formalisation can lead to difficult conversations within the family.
However, a lack of formalisation can have a damaging effect on a business when business relationships are tested within a family.
What can be done to avoid disputes affecting a family business?
An agreement between the partners, such as a shareholders’ agreement, partnership agreement or joint venture agreement, cannot resolve all of the issues business partners may have. However, agreements can provide the mechanisms and processes to reach a resolution.
The content of such an agreement will very much depend on the size and circumstances of the business, as well as its corporate structure. In the case of setting up a family business as a company, the following should be considered:
Ownership of shares:
- Who will own the initial shares in the company?
- Will the company be able to issue further shares, and will there be any restrictions on this power?
- Will there be any restrictions on the shareholders’ ability to transfer their shares in of the company?
- Who is eligible to be a director?
- How often should meetings of the directors occur?
- What should be the conduct of director meetings?
- Who will have casting vote in director meetings?
- How will these be calculated?
- Will the partners receive different levels of remuneration?
- What property belongs to the business and what belongs to individual partners?
- How will the partners resolve any issues not covered in the agreement?
- Will there be any matters that require consent by a certain threshold of partners?
An exit strategy:
- What will happen on the death of a partner?
- What will be process be if a partner wants to leave the business?
Importantly, such agreements should also consider how to protect the family business when a partner does leave, for example preventing the family member using intellectual property and trade marks, or approaching customers, clients and employees.
If you require any further advice regarding family business disputes and preparing family business agreements, or to seek specialist legal advice from Harrison Drury’s corporate team please contact Kerry Southworth on 01772 258321.