No two people see eye-to-eye 100% of the time, and families working together in business are no exception. While these business ventures can be successful and create a tremendous sense of accomplishment, family businesses can sometimes lead to ongoing disputes and lasting conflict. These disputes can interrupt business operations while straining family relations to the breaking point.
The Houston business law attorneys at Feldman & Feldman are civil attorneys working with you and your business partners to create detailed business contracts to support your family business. Our experience in commercial litigation coupled with the guidance we offer can help your family have a working plan when family business disputes arise, creating a smoother path to resolution. Below, we discuss common family business disputes you may encounter.
Disputes May Arise From Contrasting Visions, Goals, and Values
Failing to define your goals and set achievable steps to realize a family business’s vision may lead to family members working in opposing directions. When this occurs, it often feels like multiple parties are sitting in one boat rowing in the opposite directions. The result is usually that no one accomplishes anything.
To avoid or lessen disputes involving the goals, values, and vision of a family business, it is best to discuss what each member expects and ways to achieve these expectations at the inception of the business.
Setting priorities important to the family unit and steps to achieve the vision creates a road map to follow, guiding each person back on track when questions arise.
Family Members May Fight Over Undefined Roles
Running a business requires a leader to wear many hats, and their responsibilities may cross over into the roles of others in leadership positions. Failing to define the responsibility of each family member in a business can lead to confusion of who is accountable for specific tasks and future decisions that demand attention. Often, an individual’s role in the family differs from their business role, leading to power struggles or causing a family member to take a more passive role than others anticipate.
Having a sound partnership contract in place, created by our Houston contract lawyers, allows family members to understand their roles in the business, how to divide responsibilities, the financial commitment of each member, and ultimately, how to dissolve a business when a dispute leads to the dissolution of a family business.
Differing Work Ethics Can Lead to Conflict
Each family member’s commitment to a business can shift based on life experiences and commitments in other relationships. Individual work ethic can also vary due to generational differences between family members. Varying levels of commitment to a family business may lead one family member to feel they are working harder or pulling more weight than other partners in a business. When this occurs, resentment and anger may result in family business disputes.
Avoid Treating Employees and Family Members Differently
Treating family members differently in a business often flows in one of two directions. Family members in leadership roles may, knowingly or unknowingly, show leniency and favor to other family members performing the same jobs as other employees who are not part of the family. Preferential treatment can lead to non-family employees experiencing feelings of animosity, poor morale, and loss of productivity. Disharmony within the working ecosystem may create discord between family members working together.
Conversely, family members may feel entitled to micromanage relatives in a working environment or overstep boundaries. Disputes may erupt when family members do not experience the same room for growth and learning as other employees, who experience leniency in finding their workflow and learning from mistakes.
Setting up clear employee roles and business plans can help avoid either of these situations.
Greed Can Ruin a Successful Family Business
Unfortunately, Houston family businesses are not immune to greed that threatens businesses worldwide. Greed can lead family members to questionable actions that undermine the best interests of the business, particularly when monetary gain and social status are the reward. Greed can lead to family business disputes when one or more family members invested in a business feel they are not receiving their share.
A Houston business partnership dispute lawyer can provide sound legal guidance when a family member’s desire to benefit personally outweighs the good of the family business by engaging in these actions:
- Self-dealing: A family member takes actions to benefit their well-being at the cost of other family members or employees
- Conflict of interest: Choosing business transactions for personal benefit without disclosing the act
- Misappropriation of assets: Using business funds for personal use that do not belong to that particular family member
Families may designate a family member as a business fiduciary. When the fiduciary fails to act in the company’s best interests by participating in any of the mentioned acts, they may be legally liable for a . Ultimately, legal action may be required, which may involve disputes among families regarding the best steps to protect a family business.
Lack of Future Planning Can Threaten a Company’s Longevity
Family businesses are often built from generation to generation. The leadership roles will inevitably change as family members age, new family members join the team, and life events impact each person’s ability to contribute to business operations. Letting go of a leadership role may be difficult, particularly for family members whose identity is crafted through their sense of purpose in a business.
Even as elders in a family business recognize the need to establish leadership succession, determining which family member will step into a coveted position may lead to conflict. Not every family member possesses the skills to be an effective business leader.
In determining each individual’s role in a shifting environment, family members can perceive being passed over for such a position as a personal affront.
An established succession plan can pave the way for smoother transitions, particularly in times of unexpected crisis. For example, an elder’s unexpected death may lead to conflict and tension as varying members of the family vie for the leadership role. Sadly, years of hard work and commitment may be lost when families cannot put aside dispute differences to keep a business successfully moving forward. Depending on your business structure, specific legal steps may need to occur for dissolving and winding up a business.
Well-Crafted Contracts Can Salvage a Potential Loss
Speak with a Houston contract lawyer to learn how different types of agreements can benefit the management or sale of a business or facilitate buying a family member’s investment in a company when family disputes impact a Houston business’s ownership. The most confident way to approach family disputes is by having critical contracts in place at the inception of a business.
The individual personalities and varying business positions in a family business often require legal input for structure and resolution. Seeking legal advice does not imply that one idea or way of doing business is better. It can provide the legal parameters of agreement to strive toward building a successful business in a prescriptive manner that serves each family member in a business.
Preventing Houston Family Business Disputes
Building a family business can be one of the most rewarding accomplishments for an entire family. Having a sound business plan and the necessary business contracts in place is essential even in family-owned businesses to avoid business legal issues.
For over four decades, the Houston civil lawyers at Feldman & Feldman have offered client-centered guidance backed by an established record of success in complex civil litigation. Contact us to gain beneficial legal guidance for your Houston family business.