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Succession in UK Family Businesses

1 June 2016

If you are a family business owner, now is the time to tackle those difficult questions on succession for the long term benefit of the business and family relationships.

Major issues which impact family businesses tend to be the same, regardless of the location, sector or size of the business.

These largely relate to succession, management and control, as well as disagreements relating to the direction or continuation of the business.

Typically, when a family business is set up, family members trust each other implicitly and focus on growing the business instead of the usual corporate structures.

This can work well until a dispute arises, at which point things can get extremely acrimonious unless measures have been taken to pre-empt conflict.

Differences of opinion

Despite an aversion to giving non-family members senior leadership or strategy setting roles, and a strong desire to keep business ownership within the family, 55% of respondents in our research* claimed that succession is a barrier to future success.

The main issues impacting succession include intergenerational conflict, younger family members not wanting to join the business, and sibling rivalry. 

Family members can often disagree about the purpose or direction of the family business – particularly over whether investment, growth and innovation should replace the current business model.

The frustrations range from older generations wanting to involve their disinterested offspring, to second or third generations who feel they are stifled by resistance to change.

Perhaps surprisingly, 62 percent of family business owners would be prepared to sell the family business owing to “difficulties handing on the business to children or relatives”, when finding alternative options for succession would retain that wealth within the family – and possibly even boost its value.

Helping to prevent conflict

As a family business owner, it is easier to iron out issues surrounding succession and establish policies when everyone is in agreement.

Owners should consider setting up or reviewing their family charter or constitutions and promote a discussion to agree the business’ overall vision.

Getting family members behind shared objectives is key, as is keeping younger family members engaged by allowing them a voice in the future of the business. 

Important issues to consider include what terms there should be for terminating contracts, shareholder agreements, and how disagreements will be dealt with.  It is also helpful to consider areas specific to family businesses – such as when future generations should become involved, or to what extent family members who are not employees or board members can influence decisions.

As well as ensuring the ambitions and career progression of the younger generation are carefully considered, existing owners must plan their exit strategy (whether through retirement, death or incapacity) in a meaningful way.

This will ensure their contribution and achievements are recognised and appreciated by the future leadership to inspire future growth, and allow the business to continue running at a potentially difficult time for all involved.

Understanding all the available options is critical.

For further information on how Charles Russell Speechlys can help with setting up or reviewing family charters or constitutions, or advice on the succession of a family business, please get in touch with your usual Private Client contact.

*2014 Family Business Survey in association with Family Business Place

This article was written by Richard Honey.

For more information please contact Richard on richard.honey@crsblaw.com or 01483 252616