Effective legal systems and controls are vital for family business success

“There is no such thing as fun for all the family.” Jerry Seinfeld

Systems and controls are valuable for the success of any business but, once a business moves from sole trader to a wider shareholder base, systems and controls become essential for proper governance and accountability. Nowhere is this more so than in a family business where the ground rules need to be crystal clear to avoid business issues escalating into family conflicts.Having well drafted legal governance documentation that sets out how a business is to be run and who has the authority to do what is a key foundation stone for family business harmony as everyone then knows the extent of their authority and how decisions can and should be made and implemented. Most importantly, they manage the personal expectations of the stakeholders in the family business, whether those stakeholders be shareholders, directors, employees or related family members.

The THREE most important legal governance documents for a multi-owned family business are:

  1. A shareholders’ agreement (or in the case of a traditional partnership or limited liability partnership, a partnership agreement) to formalise, in a non-public document, how the shareholders or partners will work together and run the company.
  2. The Articles of Association, which are the publicly accessible rules that deal with important issues such and the conduct of board meetings and shareholder meetings and the transfer or sale of shares.
  3. A family charter (with or without the formation of a family council) which is generally non-binding but carries the force of peer pressure and which expresses the culture of how the family will act in certain circumstances and how family members not directly involved in the business will be treated and involved.

To discuss the issues arising from this article, please call John Spofforth at O’Connors on 0151 906 1000.