Why family business succession is difficult
Two features of family businesses make succession harder than the equivalent exercise for a non-family company. The first is that not every child works in the business, and a plan that satisfies the active children rarely feels fair to the others. The second is that ownership, management and family relationships tend to be intertwined, so structural decisions carry emotional weight that purely commercial decisions do not.
Ownership, control and expectations
Effective planning begins with naming the assumptions held by each family member. Who is expected to run the business? Who owns it after the founder steps back? Is "equal" treatment measured by share of ownership, share of value, or share of control? These questions are better answered explicitly than left to be inferred from a will read after death.
Wills, trusts and business assets
A will deals with assets owned personally at death. Business interests are often held in a different way — through a private company in which the founder is a shareholder, or through a discretionary trust in which no individual has an ownership share. Our wills and estate planning practice prepares wills, testamentary trusts and powers of attorney that are drafted to fit the actual ownership structure, rather than the structure the founder may assume.
Equal and unequal treatment of family members
Equalisation between active and non-active children is often achieved by leaving the business to those active in it and balancing the other children with non-business assets, life insurance, or staged payments out of business profits. The right combination depends on the size of the business and the available non-business assets, and it is not always possible to achieve perfect equality.
Buy-sell and shareholder arrangements
A shareholders' agreement, often supported by an insurance funded buy-sell arrangement, is one of the most useful documents in family business succession. It can compel a deceased or incapacitated owner's interest to be bought out on agreed terms, set a method for valuation, and stop shares passing outside the existing ownership group. Done well, it replaces a contested negotiation at the worst possible time with a settled mechanism.
Incapacity and decision-making authority
Incapacity, not death, is often the more disruptive event. An enduring power of attorney for financial matters allows decisions to continue to be made for the owner personally; for corporate roles, the company constitution and the shareholders' agreement should set out who steps into the director role and how the appointor of any family trust passes on.
Reducing the risk of disputes
The most common sources of family business dispute — inconsistent documents, unclear control of a trust, unresolved expectations between siblings — are also the most preventable. Coordinated documents, explicit conversations and a clearly identified appointor of any family trust go a long way to reducing risk. See our overview of business succession planning for the firm's broader approach.
When disputes arise
Even with a careful plan, disputes happen. Where the dispute concerns the will or the deceased owner's estate, our contested wills and TFM claims team acts for claimants, executors and beneficiaries. Where the dispute is between continuing co-owners, our commercial and business law team acts on shareholder oppression and similar proceedings.
General information only
This article provides general information about Victorian law and is not legal advice. Estate disputes and contested wills turn on individual facts and strict statutory time limits. For advice tailored to your circumstances, please speak with our contested wills team or send an enquiry.