How to Prepare for Disputes for Family-Owned Businesses

The landscape of American entrepreneurship is experiencing a seismic shift. According to Forbes, the monthly average of 440,000 new business applications over the past three years is 46% higher than the average of 2017 through 2020 combined. 

This growth in entrepreneurship has been particularly high among women, Latinos, and Black Americans. The backbone of this entrepreneurial renaissance? Small, often family-owned businesses make strides across every industry. 

However, this growth brings its own set of challenges, particularly when it comes to the potential for disputes within family-owned businesses. The transition from familial relationships to business partnerships isn’t always smooth, and conflicts can arise, threatening both the family harmony and the business’s success.  

Understanding when to be concerned and how to navigate these disputes is crucial for the longevity and health of both family relationships and the business itself. 

The Personal is Professional: When Business Disputes Become Family Matters

Small business owners, especially those running family businesses, often find that business disputes can quickly escalate into full-blown family conflicts.  

The case of the Demoulas family, which controls the Market Basket supermarket chain, serves as a stark reminder. Decades of family hostilities culminated in a dispute that threatened the business’s survival and endangered around 25,000 jobs. It took the intervention of state governors to resolve, a scenario no business would want to replicate. 

Preventing Family Business Disputes: Proactive Measures

Legal Framework Consideration

First and foremost, understanding the legal framework applicable to any business dispute, including those within family-owned businesses, is essential. Resolving disputes should aim to minimize damage to business and family relationships. Mediation is highly recommended because of its flexibility, cost-effectiveness, and potential for win-win resolutions. 

Planning Ahead

Succession and estate planning should be at the forefront of any family-owned business’s long-term strategy. Engaging with the next generation early, to plan collaboratively, can smooth the transition and mitigate potential conflicts over the business’s direction. 

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Recognizing and Addressing Conflict

Ignoring conflicts is a recipe for disaster. Openly addressing and working through disagreements can prevent them from undermining the business. Recognizing potential flashpoints and having strategies in place to deal with them is key. 

Establishing Clear Roles and Communication

Treating a family-owned business with the same level of professionalism as any other company is critical. This means creating and adhering to corporate structures and formalities, such as clear job descriptions, accountability measures, and governance documents. 

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Involving Outside Advisors and Perspectives

Bringing in external advisors, such as business consultants, attorneys, and financial advisors, can provide a neutral perspective that mitigates the risk of emotional decision-making. These professionals can offer invaluable advice on navigating both business and family dynamics. 

The rise in family-owned businesses is a positive indicator of a vibrant, diversifying economy. However, the unique challenges these businesses face, particularly regarding internal disputes, require careful, proactive management. By considering the legal framework, planning for the future, addressing conflicts head-on, establishing clear roles, and involving outside advisors, family-owned businesses can thrive while maintaining family harmony. 

For those in need of legal assistance, firms specializing in small business law, such as Richards Rodriguez & Skeith, can offer guidance and support through any disputes that arise, ensuring the business—and the family—remains strong.