Equal shares in a family business can be a disaster

| Jul 21, 2020 | Business Disputes |

Parents often take pride in holding their children in equal regard, so those who hand down a business will likely award equal shares. On the surface, this would seem fair. But look a little deeper, and that decision of equal ownership may be a lethal blow to the family and family-owned company’s wellbeing.

Parents make assumptions

Common mistaken assumptions include:

  • Parents assume that the siblings will care for each other since they are blood.
  • Parents assume that the family dynamic will not change after they die – actually, the loss of a stabilizing parent often means family (and a business’s) unity falls apart.

It is always personal

Family history is typically long and tangled, filled with real or imagined grievances. These can even be carried on by subsequent generations where cousins resent cousins. Common signs of trouble include:

  • Some siblings never got along despite having the same bloodline and, therefore, have a hard time working as collaborative business partners.
  • Some siblings grow apart due to stresses over the running of the business.
  • One partner’s mistake or a general downturn can heighten the anxiety of running the company.

Intellectually, family members may even understand what is happening. Still, they cannot set the emotions aside as they usually would if the business partners were only equal business partners.

What can be done?

If siblings cannot find a resolution independently, they can turn to an established process with a neutral mediator or arbitrator. The next step is potentially turning to the courts to determine an outcome.

Litigation may not be appealing and could further alienate family members, but would that be any worse than each side feeling they gave up unfair concessions to avoid court? Sometimes, there is something said for resolving a family matter once and for all.