The Next Generation: Succession, Entitlement and the Right to Inherit

The next generation in a family business is one of the most powerful drivers of family business disputes. Specifically, the next generation has its own pressures, expectations and grievances. Often, these are very different from the founder’s. As a result, the gap between what the founder thinks they are offering the next generation and what the next generation thinks they are entitled to is the source of an enormous amount of conflict. Importantly, the next generation is not a single thing. It is a collection of individuals, each with their own role, position and feeling about the business they have grown up around.

This page explains how the next generation drives family business disputes. Specifically, it covers the patterns that emerge, the question of entitlement, the practical challenges facing the next generation, and how the family can navigate the transition without the dispute becoming destructive.

Who the next generation is

In short, the next generation is the cohort of family members who stand to inherit, take over or otherwise benefit from the family business that the previous generation has built. Specifically, this can include children, nieces, nephews, grandchildren and sometimes more distant relatives. Importantly, the next generation is rarely a uniform group. Typically, it contains members who work in the business and members who do not. As a result, the interests and perspectives within the next generation are themselves often in tension.

For example, in a family with three children, one may run the business, one may have built a career elsewhere, and one may have stepped away entirely. Crucially, the three siblings will have very different views about how the business should be run, who should make the decisions, and what counts as fair. As a result, the disputes that arise in the next generation are often between siblings, not just between generations. For the wider analytical framework, see the three circles model.

The expectation of entitlement

Importantly, one of the central dynamics in the next generation is the expectation of entitlement. Specifically, members of the next generation often grow up believing the family business will pass to them. Sometimes, the expectation is explicit. By contrast, it can also be implicit, communicated through years of small signals. Either way, by the time the next generation reaches adulthood, the expectation is usually well established.

Crucially, the expectation of entitlement is neither right nor wrong on its own. However, it becomes problematic when it is not matched by the founder’s plans. For example, the next generation may expect equal shares. Meanwhile, the founder may intend to leave a majority to the working children and minorities to the others. Likewise, the next generation may expect to take over the business. By contrast, the founder may intend to sell. As a result, the gap between expectation and reality becomes a source of grievance long before any formal decision has been taken.

For more on the dispute patterns this produces, see the common causes of family business disputes.

The next generation’s pressures

By contrast, the next generation faces pressures that the founder rarely faced at the same age. Specifically, the next generation has often grown up in greater material comfort. As a result, they may be more risk-averse than the founder was. Likewise, they have usually had more formal education. They have travelled more widely. They have seen alternative careers. Crucially, this combination makes them harder to retain in a family business that does not actively persuade them to stay.

In addition, the next generation often faces pressure from spouses and partners. For example, an in-law may have opinions about the family business that conflict with the next generation member’s own. Often, the in-law has watched the next generation defer the founder’s retirement for years. As a result, the in-law may be the first to articulate what the next generation member feels but cannot yet say.

Importantly, the financial pressures on the next generation are often different too. Specifically, the next generation may have mortgages, school fees and household costs that the founder did not face at the equivalent age. As a result, dividends and remuneration matter to the next generation in immediate practical terms. Crucially, this practical reliance on the business sharpens the next generation’s interest in how the business is being run.

The working next generation

Importantly, the members of the next generation who work in the business face their own distinct set of issues. Specifically, they have usually given up other career options to join the family business. As a result, they have a particular kind of investment in the business that no one else in the family has. Crucially, this investment is often invisible from the outside. From the founder’s perspective, the working child is doing what they were always going to do. From the working child’s perspective, they have made a major life decision that no one is fully acknowledging.

For example, the working next generation member may have turned down a graduate scheme, a job offer abroad, or a place at a postgraduate course in order to join the family business. Often, they did so on the basis of an expectation about the future, even if that expectation was never made explicit. As a result, the working next generation member is uniquely vulnerable to the founder problem. Specifically, if the founder will not step aside, the working child has effectively given up an alternative career for a role that does not materialise. For more on this, see the founder problem.

The non-working next generation

By contrast, members of the next generation who do not work in the business face a different set of issues. Specifically, they may own shares but have no role in management. As a result, they depend on dividends, transparency and the integrity of the working family members. Often, the non-working next generation member has consciously chosen another career. By contrast, sometimes they were never offered a role, or were quietly discouraged.

Importantly, the non-working next generation member is in many ways more legally exposed than the working ones. Specifically, they have no day-to-day visibility into the business. They rely on what they are told. They cannot easily verify the figures. As a result, when their suspicions begin to grow about how the working family members are running things, the issue can escalate quickly. Crucially, the typical dispute is between working and non-working siblings in the next generation. Specifically, this is the textbook fact pattern in unfair prejudice cases. For more on this, see the have and have-not pattern.

The next generation and succession ambiguity

Crucially, one of the most damaging dynamics in the next generation is succession ambiguity. Specifically, the next generation does not know with any certainty who will take over what, and on what timetable. As a result, each member begins to form their own assumption about the future. Importantly, these assumptions usually diverge. By the time they are tested, the gaps between them are often unbridgeable.

For example, two siblings working in the business may both assume they will become managing director. Likewise, a third sibling working outside the business may assume their shares will be bought out at full value when the time comes. Meanwhile, the founder may have a completely different plan, or no plan at all. Crucially, the longer the ambiguity persists, the more entrenched each assumption becomes. As a result, the eventual reveal of the founder’s actual plan becomes a moment of crisis rather than a moment of clarity. For practical guidance on resolving this, see succession planning for the family business.

The next generation and the question of competence

Importantly, succession in the next generation raises the awkward question of competence. Specifically, the family member who expects to take over may not be the best candidate. By contrast, the best candidate may be a non-family employee or a non-family executive. Likewise, within the family, the most competent child may not be the eldest or the most senior in the business. As a result, the question of who should take over often surfaces as a personal one rather than a commercial one.

Crucially, families that handle this well usually do two things. First, they ask honest questions about competence early. Second, they create a development plan for the next generation that builds the capabilities the business actually needs. Importantly, this kind of planning is far easier to do in advance than in the middle of a dispute. For more on this, see the role of the non-executive director and preventing family business disputes.

The next generation and the value of shares

Another central issue for the next generation is the value of the shares. Specifically, members of the next generation who do not want to remain in the family business may want to sell their shares. By contrast, the working family members may not want to buy them out at full market value. As a result, valuation becomes the focus of the dispute. Often, the disagreement is not about whether the exit happens but about the price.

Importantly, the legal framework around share valuation in family businesses is complex. Specifically, the question of whether a minority discount applies depends on whether the company is a quasi-partnership and on the conduct of the parties. For more on this, see family business valuation in a dispute. Likewise, where the dispute reaches court, the costs of fighting about value can quickly exceed the value being fought about. For the broader cost picture, see the cost of family business litigation.

The next generation and the in-laws

Importantly, the next generation is often shaped by their spouses and partners. Specifically, in-laws bring their own perspective on the family business. They have not grown up with the family’s assumptions. They may have less patience with the founder problem. They may see what the family member they are married to has been unable to see. As a result, in-laws often become catalysts for change.

Crucially, families sometimes blame in-laws for raising issues that the family had been content to leave alone. By contrast, the appropriate response is usually to recognise that the issues the in-law is raising had been there all along. For example, the in-law’s frustration with the founder’s repeated postponement of retirement is often the same frustration the next generation member has been feeling for years. As a result, treating the in-law’s intervention as the cause of the dispute usually misses the point.

The next generation and the disengaged sibling

By contrast, the next generation often contains a sibling who has disengaged from the business entirely. Specifically, they may have moved away, built a different career, or simply stepped back from family decisions. As a result, they have less visibility into what is happening. However, they may still own shares. Crucially, the disengaged sibling can re-engage at any time, often triggered by a life event such as a divorce, a health scare, or a death in the family.

Importantly, the re-engagement of a previously disengaged sibling is one of the most common triggers for a family business dispute. Specifically, the working family members may experience the re-engagement as an intrusion. By contrast, the disengaged sibling is simply exercising rights they have always had. For more on this, see the passive shareholder and the disengaged family member.

What the next generation should do

Importantly, members of the next generation can take steps that significantly reduce the risk of a family business dispute. Specifically, the following are most useful.

• First, raise difficult questions early. Crucially, the questions do not get easier with time. By contrast, the cost of asking them rises every year they are delayed.
• Second, document what is agreed. For example, if the founder says you will take over by a particular date, write it down and confirm it in writing. Importantly, written confirmation is not a sign of distrust. It is a sign that the agreement matters.
• Third, build your own capability. Specifically, get experience outside the family business if you can. Take qualifications that the business does not require but that the role will benefit from. Crucially, this strengthens both your contribution and your credibility.
• Fourth, develop relationships with the family’s advisers in your own right. Importantly, the next generation often inherits advisers who have been the founder’s advisers for decades. As a result, the advisers may be unconsciously aligned with the founder. By contrast, building your own adviser relationships gives you independent counsel when you need it.
• Finally, take legal advice early if there are problems. Specifically, taking advice from a direct access barrister does not commit you to litigation. By contrast, it gives you a clear picture of where you stand.

What the founder generation should do

By contrast, the founder generation can also take steps to reduce the risk that the next generation will become a source of disputes. Specifically, the following are most useful.

• First, be explicit about your plans. Specifically, the next generation deserves to know what you are intending. Crucially, the plan can change, but the absence of any plan reliably produces conflict.
• Second, treat the next generation as adults. Importantly, they are not children. They will have their own views about the business. Often, those views deserve to be taken seriously.
• Third, distinguish between fairness and equality. Specifically, equal treatment may not be fair when the next generation members have contributed differently. By contrast, unequal treatment without explanation reliably generates grievance.
• Fourth, design a structure that accommodates difference. For example, working family members may earn a salary, while non-working family members receive dividends. Crucially, the structure should be explicit and documented. For more on this, see shareholders’ agreements for family businesses.
• Finally, retire on a clear timetable. Specifically, the founder problem damages the next generation most when the timetable keeps slipping. For more on this, see the founder problem.

Frequently asked questions

Why does the next generation cause so many family business disputes?

In short, the next generation is the point at which the family business has to confront questions it could previously avoid. Specifically, succession, ownership, control, dividends and competence all come into focus when the next generation arrives. As a result, every issue the founder had been able to leave informal now requires a decision. Importantly, the next generation does not cause family business disputes so much as bring out the issues that were already there.

Should the next generation feel entitled to the family business?

It depends. Specifically, there is nothing inherently wrong with the next generation expecting to play a role in the family business. By contrast, problems arise when the expectation is taken as a right rather than as something to be earned through contribution. Importantly, the next generation members who handle this best usually distinguish between the right to be considered and the right to take over. For more on the fairness question, see the three circles model.

What should the next generation do if the founder will not retire?

Typically, the most effective approach is a combination of three things. First, document the discussion you have had so the position is clear. Second, raise the issue with the wider family, including a non-executive chair if there is one. Third, take legal advice early if the situation does not change. Importantly, the goal is not to force the founder out. By contrast, it is to make clear that the next generation cannot stay in limbo indefinitely. For more on this, see the founder problem.

What happens if siblings in the next generation cannot agree?

In practice, sibling disagreements in the next generation are one of the most common forms of family business dispute. Specifically, the disagreement is often between working and non-working siblings, or between siblings with different views about strategy. Importantly, the right forum for resolving these disagreements depends on the issue. Some are board-level. Some are shareholder-level. Some are family-level. For more on this, see family constitutions and family forums.

Can the next generation be left out of the family business?

Yes, in principle. Specifically, there is no general legal right for the next generation to inherit a family business. By contrast, the founder is generally free to leave the business to whoever they wish. However, where the next generation has been brought into the business on the basis of legitimate expectations, those expectations may have legal weight. For example, expectations created over years of involvement and contribution may give rise to claims in proprietary estoppel or unfair prejudice. As a result, the answer depends heavily on the specific facts. For more on the legal context, see the legal framework for family business disputes.

Further reading on this site

• Family Business Disputes (main page)
• What Makes Family Business Disputes Different
• The Three Circles Model
• The Common Causes of Family Business Disputes
• Early Warning Signs of a Family Business Dispute
• The Founder Problem
• The Passive Shareholder
• The Have and Have-Not Pattern
• Succession Planning
• Shareholders’ Agreements
• Family Constitutions
• Family Business Valuation

Get advice on your situation

If you are part of the next generation in a family business and you can see problems developing, early specialist advice is one of the most valuable investments you can make. Specifically, I act as a direct access barrister, commercial mediator and mediation advocate in family business disputes throughout England and Wales.

Call 020 4538 0246, use the contact form, or book a call directly. In addition, my book Winning in Family Business Disputes (forthcoming) covers the next generation dynamics in detail, alongside my published works on shareholder disputes and commercial mediation. Organisations like Family Business United also publish useful guidance for the next generation in family businesses.

Important disclaimer: This page is provided for general information purposes only and does not constitute legal advice. The content may not be legally accurate for your situation or at all. You must not rely on anything on this page in respect of your legal rights. Before taking or refraining from taking any legal action, you should seek advice from a qualified lawyer. I disclaim any and all liability for any loss, damage or expense howsoever caused by reliance on the contents of this page. If you would like advice on your specific situation, contact me here.