30 Tips for Family Business Owners and Directors

Q: What is the single most important tip for family business owners?

Start succession planning early. The families that begin the process ten to fifteen years before the founder's expected retirement typically avoid the worst forms of family business dispute. Families that wait until the transition is imminent usually find themselves making major decisions under pressure and without enough time. This is the single most consequential discipline a family business can adopt.

Q: How do we know if we are at risk of a family business dispute?

The warning signs include conversations that have stopped happening, requests for information that did not used to be requested, family members consulting their own advisers, and decisions being taken outside the usual forums. These signs usually appear months or years before the dispute breaks. Families that pay attention to the warning signs have a much better chance of preventing the dispute.

Q: What governance do we need as a small family business?

Even small family businesses benefit from the same core governance as larger ones. This includes a current shareholders' agreement, up-to-date articles of association, regular board meetings, a clear remuneration policy, and a clear dividend policy. The elements may be simpler for a small family business than for a large one, but the principles are the same. Small family businesses are not less vulnerable to disputes than large ones.

Q: How should we handle in-laws in the family business?

The best approach is informed inclusion without primary responsibility. In-laws should be kept informed about the business so that they do not become a source of conflict. They should not be given primary roles in family business decisions, which often produces resentment. The question of in-laws should be addressed in the family constitution and the shareholders' agreement, including what happens to family member shares on divorce.

Q: What should we do if a dispute is already developing?

Take early specialist advice. Advice from a direct access barrister with family business experience can identify the issues and the realistic options. The family can make informed decisions about whether to mediate, whether to issue proceedings, and what to invest in resolution. Early advice does not commit the family to litigation. It provides the clear picture needed for sensible decision-making.

Family business owners and directors face a particular set of challenges that no other business operators do. Specifically, the overlap between family relationships, ownership and management produces tensions that ordinary commercial businesses do not have. As a result, the difference between a family business that thrives and one that ends in dispute is often the discipline with which the owners handle these tensions. Importantly, the families that do best usually follow a recognisable set of principles. Crucially, these principles are not legal rules. By contrast, they are practical habits that have been observed in well-run family businesses across many sectors and many countries.

This page sets out thirty practical tips for family business owners and directors. Specifically, the tips are organised around five themes: the founder and the next generation, governance and structure, money and remuneration, communication and conflict, and dispute prevention. Importantly, not every tip applies to every family business. By contrast, every family business benefits from considering each one.

Tips for the founder and the next generation

1. Start succession planning a decade before you need to

Specifically, the families that handle succession best start the process ten to fifteen years before the founder’s expected retirement. Importantly, this gives the next generation time to develop, the founder time to step back gradually, and the family time to address the tax planning while the options are wide. As a result, the cost of starting early is small. By contrast, the cost of starting too late is enormous. For more, see succession planning for the family business.

2. Document your succession plan and share it with the family

Crucially, the most damaging family business disputes arise when the family discovers the succession plan for the first time at the worst possible moment. Specifically, the founder’s death or sudden retirement should never be the moment when the family learns what the plan is. Importantly, the plan does not need to be locked in forever. By contrast, it needs to be specific enough to remove the ambiguity that produces disputes.

3. Separate leadership succession from ownership succession

By contrast, leadership succession is about who runs the business, and ownership succession is about who owns it. Specifically, the best leader of the family business may not be the family member who receives the largest ownership stake. As a result, the two dimensions should be addressed separately. Importantly, in many family businesses, the working children take leadership while ownership is distributed more evenly across all children.

4. Give the next generation outside experience before they join the business

Specifically, the next generation should spend three to five years working outside the family business before joining it. Importantly, this builds credibility, develops skills, and gives them a basis of comparison. As a result, the next generation joins the business as professionals rather than as family members defaulting into it. For more, see the next generation.

5. Founders need something to retire to, not just from

Crucially, the founder problem is often the absence of a next chapter. Specifically, founders who do not know what they will do after retirement typically resist retirement indefinitely. Importantly, identifying a meaningful post-retirement role, whether non-executive directorships at other businesses, philanthropy or consultancy, makes retirement possible. By contrast, asking the founder to retire to nothing usually fails. For more, see the founder problem.

6. Phase the founder’s retirement over several years

Importantly, the founder should step back from operational matters first, then from strategic decisions, and finally from chairmanship. Specifically, each stage should give the founder a new role rather than no role. As a result, the founder is not asked to choose between everything and nothing. Crucially, phased succession works best when the stages are documented and committed to in advance.

Tips on governance and structure

7. Put a current shareholders’ agreement in place

Specifically, every family business with more than one shareholder should have a current shareholders’ agreement. Importantly, the agreement should be reviewed every five years and at every generational transition. As a result, the great majority of family business disputes that arise without a shareholders’ agreement could have been prevented by one. For more, see shareholders’ agreements for family businesses.

8. Update your articles of association

By contrast, many family companies are still operating on standard model articles. Specifically, the model articles provide very little protection for minority shareholders. As a result, the articles should be reviewed and updated to reflect the family’s actual arrangements. Importantly, the articles and the shareholders’ agreement should be consistent with each other.

9. Consider a family constitution

Specifically, a family constitution sets out the family’s values, the rules for participating in the business, and the structures for family decision-making. Importantly, the discipline of putting one in place is often as valuable as the document itself. As a result, families approaching a generational transition or with significant complexity benefit particularly from a family constitution. For more, see family constitutions and family forums.

10. Establish a family forum

Crucially, the family forum is a regular meeting at which the family discusses the business and its relationship with it. Specifically, it should meet two to four times a year, with an agenda and minutes. Importantly, the forum is separate from the board of directors. As a result, family matters are discussed in the forum, business matters at the board, and ownership matters at shareholder meetings.

11. Appoint an independent non-executive director

Importantly, the right non-executive director can transform a family business. Specifically, they bring outside perspective, professional discipline and independent judgment to a board that would otherwise be made up entirely of family members. As a result, the appointment of a non-executive director is often the single most effective intervention a family business can make. For more, see the role of the non-executive director.

12. Run the business as if it were not a family business

By contrast, well-run family businesses observe the same governance disciplines that publicly-listed companies do. Specifically, regular board meetings, agendas, minutes and documented decisions. Importantly, the informality that the family relationship allows is usually a weakness rather than a strength. As a result, professional standards in governance are one of the most effective protections against disputes.

Tips on money and remuneration

13. Pay working family members at market rate

Specifically, working family members should be paid the salary that an outside hire would receive for the same role. Importantly, this means commissioning independent benchmarking. As a result, the question of whether working family members are paid fairly stops being a matter of family dispute and becomes a matter of objective measurement.

14. Have a clear and predictable dividend policy

Crucially, a clear dividend policy is one of the most effective protections against the have and have-not pattern. Specifically, the policy should set out the proportion of profits to be paid as dividends, the timetable, and the basis on which it may change. Importantly, the policy should be agreed with the non-working shareholders. For more, see the have and have-not pattern.

15. Be transparent about related-party transactions

By contrast, related-party transactions are one of the most common drivers of family business disputes. Specifically, where the company rents property from family members or buys services from companies they control, the terms must be at arm’s length and clearly disclosed. Importantly, the test is whether the transaction would withstand independent scrutiny.

16. Distribute information proactively, not reactively

Specifically, family members who own shares should receive management accounts, summaries of major decisions, and details of director remuneration as a matter of routine. As a result, the suspicion that the working family members are hiding something is addressed before it can develop. Importantly, transparency in advance is one of the cheapest and most effective preventive measures.

17. Audit the cumulative imbalance honestly

Crucially, working family members often do not realise what the imbalance looks like to the non-workers. Specifically, the cumulative difference between what working and non-working family members have received over twenty years is often striking even to those who have benefited from it. Importantly, the honest audit usually changes how the working family members see their own remuneration.

18. Consider whether a buyout would be the right outcome

By contrast, where the have and have-not pattern is entrenched, the right answer is often a structured buyout of the non-working family members at a fair price. Specifically, this resolves the underlying conflict in a way that no amount of governance reform can. Importantly, the buyout should be considered as a preventive measure, not just as a settlement of a dispute.

Tips on communication and conflict

19. Have the difficult conversations early

Specifically, the conversations that family businesses avoid are usually the ones that need to happen most. Importantly, the topics that the family has stopped discussing are typically the ones that will produce the next dispute. As a result, the discipline of having difficult conversations on a structured basis, in the family forum, is one of the most valuable habits a family business can develop.

20. Document agreements in writing

By contrast, family businesses often rely on informal understandings that work only as long as memory and goodwill last. Specifically, the working family member who has been told they will take over should have that confirmed in writing. As a result, the agreement is preserved even if relationships deteriorate. Importantly, writing things down is not a sign of distrust. It is a sign that the agreement matters.

21. Take outside advice early

Crucially, family businesses that take outside advice from specialist barristers, family business consultants and independent non-executive directors usually fare significantly better than those that try to handle everything internally. Specifically, the cost of early advice is a small fraction of the cost of the disputes it prevents. For more, see direct access barrister: legal advice, advocacy and representation.

22. Keep the in-laws informed but not in charge

Specifically, in-laws have a legitimate stake in the family business through their relationship with a family member. Importantly, keeping them informed about the business reduces the risk of them becoming a source of conflict. By contrast, putting them in charge of family business decisions often produces resentment. As a result, the right balance is informed inclusion without primary responsibility.

23. Treat the disengaged family member as still entitled

Crucially, family members who have stepped back from the business still own their shares. Specifically, their rights as shareholders do not diminish because of their disengagement. Importantly, working family members who treat the disengaged ones as having forfeited their entitlement typically produce the conditions for an unfair prejudice claim. For more, see the passive shareholder.

24. Recognise warning signs early

Importantly, family business disputes rarely come out of nowhere. Specifically, the warning signs are usually visible months or years before. As a result, the families that recognise them early have a much better chance of preventing the dispute. By contrast, the families that wait until the dispute is undeniable typically face the worst outcomes. For more, see early warning signs of a family business dispute.

Tips on dispute prevention and resolution

25. Use mediation before litigation

Specifically, mediation is faster, cheaper, more confidential and more flexible than litigation. Importantly, the cost of mediation is typically between £5,000 and £25,000 per party, against £150,000 to £750,000 for contested litigation. As a result, mediation is almost always the right starting point. For more, see why mediation is usually the right starting point.

26. Address the underlying issues, not just the legal claim

By contrast, family business disputes are rarely just about the legal claim on the table. Specifically, the legal claim is usually the surface presentation of years of accumulated grievance. As a result, settlements that resolve only the legal claim often fail to hold. Importantly, the best settlements address the underlying issues alongside the legal ones.

27. Get the settlement in writing on the day

Crucially, settlements that are agreed verbally and written up afterwards often fall apart. Specifically, the parties go home with second thoughts and the deal evaporates. Importantly, the settlement should be drafted, agreed and signed on the day of the mediation. As a result, the deal is binding before anyone has the chance to reconsider. For more, see settling a family business dispute.

28. Think hard before issuing proceedings

Specifically, issuing an unfair prejudice petition commits the family to a process that can last 18 to 36 months and cost £150,000 to £750,000 per side. Importantly, the impact on the business, the family relationships and the personal wellbeing of the parties typically exceeds the legal fees. As a result, the decision to litigate should be taken with full understanding of what it costs. For more, see the cost of family business litigation.

29. Do not let the wider family take sides

Importantly, family business disputes tend to spread across the wider family. Specifically, aunts, uncles, cousins and in-laws find themselves drawn into a dispute they had no original role in. As a result, what began as a dispute between siblings can become a multi-generational fracture. Crucially, the parties to the dispute should make explicit efforts to keep the wider family out of it.

30. Remember that the family relationship outlives the dispute

By contrast, the legal dispute will eventually end. Specifically, the family relationship will not. As a result, every decision in the dispute should be tested against the question of how it will look to the parties in ten years’ time. Importantly, the most lasting damage in family business disputes is usually to the family, not to the business. As a result, the parties who handle their disputes best are those who keep the long-term family relationship in mind throughout.

Putting the tips into practice

Importantly, the tips on this page are not a checklist to be ticked off in a single afternoon. Specifically, they describe disciplines and habits that take time to embed in a family business. As a result, the families that benefit most usually adopt the tips progressively over several years.

In practice, the most useful sequence is typically this. First, address governance. Specifically, put the shareholders’ agreement, the articles of association and the family forum in place. Second, address communication. Importantly, establish the habits of regular discussion, transparency and documented decisions. Third, address succession. Crucially, the long process of preparing the next generation and planning the founder’s retirement takes a decade or more. Fourth, address the financial structures. Specifically, the remuneration policy, the dividend policy and the related-party transactions. Finally, build the protection against disputes. Importantly, this includes the dispute resolution clauses, the mediation provisions and the relationship with specialist advisers.

Why these tips work

Crucially, the tips on this page work because they address the underlying causes of family business disputes rather than just the symptoms. Specifically, family business disputes typically arise from ambiguity, accumulated grievance, structural exclusion and unmanaged transitions. As a result, the tips that work are those that reduce ambiguity, surface grievance early, prevent structural exclusion and prepare for transitions in advance.

Importantly, none of these tips is novel. Specifically, they are the lessons learned by family businesses that have got it right over many years. By contrast, families that learn the lessons through their own disputes typically pay an enormous price for the learning. As a result, the families that take advantage of others’ experience are usually the most resilient. Crucially, the cost of adopting these tips is a fraction of the cost of the disputes they prevent.

The role of the family business adviser

Importantly, the role of the family business adviser is to help the family adopt these tips effectively. Specifically, the adviser brings outside perspective, professional discipline and experience of other family businesses. As a result, the family does not have to invent its approach from scratch. Crucially, the right adviser combines legal expertise, commercial judgment and an understanding of the family dynamics. Importantly, this combination of skills is unusual.

In practice, the most useful advisers in family business work are usually specialist barristers, family business consultants and experienced non-executive directors. Specifically, these are the people who have seen family business disputes from the inside and understand both the legal framework and the human dynamics. For more on the legal context, see the legal framework for family business disputes.

Frequently asked questions

What is the single most important tip for family business owners?

In short, start succession planning early. Specifically, the families that begin the process ten to fifteen years before the founder’s expected retirement typically avoid the worst forms of family business dispute. By contrast, the families that wait until the transition is imminent usually find themselves making major decisions under pressure and without enough time. As a result, this is the single most consequential discipline a family business can adopt.

How do we know if we are at risk of a family business dispute?

Importantly, the warning signs include conversations that have stopped happening, requests for information that did not used to be requested, family members consulting their own advisers, and decisions being taken outside the usual forums. Specifically, these signs usually appear months or years before the dispute breaks. As a result, families that pay attention to the warning signs have a much better chance of preventing the dispute. For more, see early warning signs of a family business dispute.

What governance do we need as a small family business?

Generally, even small family businesses benefit from the same core governance as larger ones. Specifically, a current shareholders’ agreement, up-to-date articles of association, regular board meetings, a clear remuneration policy, and a clear dividend policy. Importantly, the elements may be simpler for a small family business than for a large one, but the principles are the same. By contrast, small family businesses are not less vulnerable to disputes than large ones. As a result, they arguably need governance more, not less.

How should we handle in-laws in the family business?

Typically, the best approach is informed inclusion without primary responsibility. Specifically, in-laws should be kept informed about the business so that they do not become a source of conflict. By contrast, they should not be given primary roles in family business decisions, which often produces resentment. Crucially, the question of in-laws should be addressed in the family constitution and the shareholders’ agreement, including what happens to family member shares on divorce.

What should we do if a dispute is already developing?

Importantly, take early specialist advice. Specifically, advice from a direct access barrister with family business experience can identify the issues and the realistic options. As a result, the family can make informed decisions about whether to mediate, whether to issue proceedings, and what to invest in resolution. Crucially, early advice does not commit the family to litigation. By contrast, it provides the clear picture needed for sensible decision-making.

Get advice on your situation

The tips on this page describe the disciplines that distinguish well-run family businesses from those that end in dispute. Specifically, putting them into practice is a long-term investment in the family and the business. As a result, early specialist advice is one of the most valuable things you can do. 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 these tips and the underlying principles in detail, alongside my published works on shareholder disputes and commercial mediation. Organisations like Family Business United also publish useful guidance for family business owners.

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.

Family Business Disputes: 30 Tips for Owners and Directors