Shelley Davies, Legal Practitioner Director answers:
How can we prevent family disputes from disrupting the business?
In short, we can’t! However, there are ways to minimise the impact that a family dispute has on the business.
Good Governance is key
Not just governance in the traditional business sense, but governance that extends from the business system into the family and ownership systems.
“But my family gets along really well – we won’t ever have a dispute!” To this we say that tension and disputes can always arise and some level of conflict must be anticipated.
The existence of well drafted, tailored, legal documents is critical for resolving a dispute swiftly to avoid or minimise disruption to the business. Such documents fall out of governance arrangements which would ideally include the following:
- Business e.g., Board of Directors, Business Plan and Employment Contracts.
- Ownership e.g., Shareholders’ Agreements, Articles, Wills, Trust Deeds and Binding Financial Agreements.
- Family e.g., Family Assembly, Family Council and Family Charter.
There are many reasons to adopt a detailed and governance system, however, in the context of family disputes a governance system represents a wise investment for two key reasons:
- the mere existence of a governance structure can result in improved communication within the family which can prevent a dispute occurring; and
- formal and legally binding outputs from governance processes should assist considerably in resolving disputes that arise between family members or at the very least lessening the impact.
Müge Ozcan, Legal Practitioner Director/Founder answers:
What legal steps should we take when transitioning leadership to the next generation?
Succession is not a moment in time. It is plan that requires clear and careful consideration underpinned by legal foundations.
Transitioning leadership in a family business is both a business strategy and a legacy decision. Succession planning takes time, so start early. It is an inevitable, crucial, emotional and complex process, but with the right steps in place and people involved, achievable.
Here are some key considerations:
- Communication with the family is the key. First and foremost, succession is not just a legal exercise—it’s a conversation between the family. A facilitated family meeting with legal and other advisors can help surface concerns, align visions, and build buy-in across generations.
- Identify goals and roles- formally. Considering the statistics that only 33% of family-controlled business survive to the second generation, 13% survive to the third generation and 3% to the fourth or later generation, identifying the goals of the business and roles of each family member in the business is vital. Make it official, make it formal. Document goals and role descriptions to set boundaries, expectations and rewards.
- Understand your structure and the value of your business. Can the entity support succession? Explore options around how your entity can transition from one generation to the next. A restructure may be needed to accommodate the incoming next generation. More importantly, any transfer requires a valuation of the business. An examination by an independent party can provide clarity to help leaders make an informed decision when a transition occurs.
- Consider tax and estate planning early. Transferring wealth or control can trigger tax implications, especially with trusts, property, or company shares. Early legal advice ensures you're not caught out and helps preserve wealth across generations.
- Formalise the succession plan. Whether it’s through a will, a family trust structure, or corporate succession strategy, you need a written plan. This isn’t just about peace of mind—it’s about protecting the business and minimising the impact of disputes.
By Western Australia based Family Business Accredited Advisors
Shelley Davies
Legal Practitioner Director
Vitalis Legal
Müge Ozcan
Legal Practitioner Director/Founder
Vitalis Legal
