Family Business Disputes
Family business disputes may arise either externally with third parties or internally between persons with an interest in the business. Internal family business disputes occur for many reasons including the nature of the business, the type of business structure, the conduct of persons involved in the family business, circumstances in the personal lives and relationships of peoples involved in the family business and events that may have taken place many years earlier.
Family business disputes can develop from sibling rivalry, generational conflicts between founders and children in the business, and between those family members active in the business and those with passive roles and an interest in the business may manifest in family business disputes. Family disputes may arise from matters that happen in the business or in the family or both. Valuable long-term relationships may be at risk in business disputes but are always at risk in family business disputes.
Different business structures used in a family business result legally in different types of family business disputes.
For example, if the family business involves a partnership, then a dispute between family members who are partners has consequences for personal relationships between family members. However, as with any partnership dispute the future conduct of the partnership business is likely to be affected by the dispute.
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As with any partnership dispute, a family business dispute involving a partnership raises an issue as to what happens to the family business when family members in partnership can no longer work together. The parties are forced to answer several questions, which include the following:
8 MUST ANSWER QUESTIONS FOR FAMILY BUSINESS DISPUTE RESOLUTION
- Does a family member or do family members wish to continue to run the business while others exit the business?
- Does a family member, or do family members, wish to exit the business and be compensated for their interest in the business?
- Do the parties wish for the business to continue as two separate businesses or divide the assets of the business in some way?
- If the level of conflict is severe, and to allow the business to operate and not be damaged, does a third party need to be appointed to the business?
- Should the business be sold to a third party?
- Do Court proceedings need to be commenced by a partner in the family business?
- Should the parties appoint an independent mediator and attempt to resolve the dispute?
- Most importantly, can the partnership dispute be resolved allowing the partnership to continue?
Many family businesses are also run using a corporate structure with or without trusts.
Unfortunately, disputes in a family business that is run through a corporate structure may result in company deadlock in the affairs of a company that runs the family business. The problem becomes acute when there is no mechanism to resolve the company deadlock through the company constitution or a shareholder’s agreement.
It may be necessary to seek the intervention of the Court to break the deadlock. One of the remedies available to the Court in breaking a company deadlock is to order the winding up of the company. Family members involved in a family business dispute that has led to a company deadlock should seek advice on how to overcome the company deadlock, as the winding up of the company for which the family business is operated may have serious adverse consequences for the business.
Further, when family members involved in the family business hold shares in a company that runs the business, aggrieved family members who hold shares may commence a legal action claiming shareholder oppression. Such a legal action also has the potential to result in the winding up of the company that runs the family business.
Other legal dispute that may affect a family business may arise not from the family business itself but from events in the lives of family members and have an impact on the family business.
Disputes involving family businesses may result from breakdown of personal relationships between family members. When this involves parties to a marriage or de facto relationship it becomes a family law property matter. We have experience acting for parties in family law matters involving family businesses which form part of the property of a married or de facto couple.
The death of a family member who has an interest in a family business may lead to an estate dispute that involves the entire estate of the deceased family member including the deceased family member’s interest in the business.
We have experience in acting in will disputes and family provision applications pursuant to the Succession Act.
Most importantly, can the partnership dispute be resolved allowing the partnership to continue?