Legal advice on how to avoid corporate conflicts in family-owned companies

Legal advice on how to avoid corporate conflicts in family-owned companies

Family businesses represent an important part of the business fabric, as they combine the passion of the family with the objectives of a business. However, this combination can also be a source of conflict if relationships between family members and business decisions are not properly managed. 

Corporate conflicts not only affect the operation of the company, but can also jeopardize family relationships. Therefore, it is essential to implement legal measures and preventive strategies to minimize risks and ensure the continuity of the company.

From our experience, we have a series of legal advice to avoid corporate conflicts in family businesses:

Establish a shareholder’s agreement

A shareholders’ agreement is one of the most effective legal instruments to prevent conflicts. This document, which is signed between the shareholders of a company, regulates fundamental aspects such as:

• The making of key decisions.
• The transfer of shares or participations.
• Dispute resolution.
• The rules of entry and exit of shareholders.

In the case of family businesses, a shareholders’ agreement may include specific clauses to protect family interests, such as the obligation to keep shares within the family or the establishment of arbitration mechanisms to resolve internal disputes.

Defining roles and responsibilities

One of the main sources of conflict in family businesses is the lack of clarity in roles and responsibilities. It is essential that each family member has a clear description of his or her functions within the company.

This can be formalized through employment contracts that stipulate their obligations, rights and compensation, thus avoiding misunderstandings or accusations of favoritism.

In addition, it is advisable to separate business decisions from family matters. Establishing a management body with professional criteria, rather than decisions based solely on family hierarchy, is key to maintaining professionalism in the business.

Business succession planning

The lack of a succession plan is one of the main causes of conflicts in family businesses. It is important to anticipate and plan the generational transition to avoid disputes when the time comes.

The succession plan should address issues such as:

• Who will be the successor or successors in the management of the business.
• How the shares will be distributed.
• What role other family members will play in the new structure.

In addition, this plan must be supported by a solid legal framework, such as wills, gifts or transfer agreements, to ensure that the founder’s wishes are carried out.

Implement conflict resolution mechanisms

Despite all preventive measures, conflicts may arise. It is therefore advisable to include clauses in the articles of association or shareholder agreement that establish clear mechanisms for resolving disputes, such as:

• Mediation: an impartial third party helps the parties to reach an agreement.
• Arbitration: the parties agree to submit to the decision of an arbitrator, whose decision is binding.
• Prior buy-sell agreements in case of serious disagreement.

These mechanisms not only save time and court costs, but also protect the family’s privacy.

Separate personal and business assets

In family businesses, it is common for personal and business assets to be intertwined, which can generate conflicts in situations of crisis or dissolution of the company. To avoid this, it is essential to separate both assets from a legal and tax point of view.

For example:

• Create an appropriate corporate structure, such as a limited liability company, that protects personal assets from business debts.
• Maintain separate bank accounts for family and business expenses.

Seek professional advice

The complexity of family and business relationships requires the support of experts in corporate law, mediation and taxation. Having specialized commercial lawyers makes a difference when drafting a shareholder agreement, designing a family protocol or resolving disputes.

Professionals can also help identify legal risks and propose customized solutions for each family business. In addition, their intervention as an impartial third party can help avoid unnecessary tensions.

In short, corporate conflicts in family businesses are not inevitable, but they are preventable. The key is to anticipate potential problems by implementing legal tools and strategies that promote transparency, communication and professionalism.

A proactive approach, combined with expert advice, can guarantee the stability of the business and preserve family harmony, thus ensuring the continuity and success of the company in the long term.