Roy Botterill outlines the subtle art of ring-fencing finances while welcoming the in-laws into the family business sphere.
With December one of the most popular months for engagements and weddings, ensuring that you take the necessary steps to protect your business when welcoming new members into the family is vital. With this in mind, family business succession planning and family nuptials should be considered holistically by owners, as one has the ability to impact the other considerably.
Although many family businesses are built on close relationships, losing control of the business to in-laws can be a frightening prospect for owners. However, with prior planning and open communication, family businesses can use ‘outsider’ input to their advantage, while protecting the fortunes of the business in the process.
It is a strength to approach succession decisions with absolute objectivity and this includes any decisions to bring in extended family members, in-laws or outside management. If that person is your son-in-law for example, conversations and provisions need to take place immediately, before any communication about roles and responsibilities occur. In-depth analysis of what the business truly needs should come before anyone is tipped to take on the role and owners shouldn’t feel forced into making a decision that doesn’t have the business’ best interests at heart.
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On the other hand, your son-in-law could be exactly what the business needs and separating your personal feelings from professional judgment is the key to making smart business decisions. It takes a confident business owner to identify when external expertise is needed and looking outside of direct family members can provide the answer.
Clearly succession planning can be complex for many businesses, even more so when extended family and in-laws are involved or wanting to claim a stake in the company. Keeping control among direct family members is a natural concern for owners who are reviewing their succession options or welcoming new members into the family. Most family members are cautious about bringing the subject up for fear of upsetting the family unit; however doing nothing can leave family businesses exposed to significant risks.
As well as losing decision-making control, one of the main concerns for business owners is losing financial control. To overcome this, strategies to bring new family or non-family members into the ownership of the business can be created to add a layer of protection and ensure they still have the controlling stake. For example, share options can be put in place to ring-fence finances or separate out the value of the business into capital ‘before’ and ‘after’ the new addition joins the business. As a result, the new member will take their share from the new wealth that they create, rather than what already exists.
With December one of the most popular months for engagements and weddings, ensuring that you take the necessary steps to protect your business when welcoming new members into the family is vital. With this in mind, family business succession planning and family nuptials should be considered holistically by owners, as one has the ability to impact the other considerably.
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Although many family businesses are built on close relationships, losing control of the business to in-laws can be a frightening prospect for owners. However, with prior planning and open communication, family businesses can use ‘outsider’ input to their advantage, while protecting the fortunes of the business in the process.
It is a strength to approach succession decisions with absolute objectivity and this includes any decisions to bring in extended family members, in-laws or outside management. If that person is your son-in-law for example, conversations and provisions need to take place immediately, before any communication about roles and responsibilities occur. In-depth analysis of what the business truly needs should come before anyone is tipped to take on the role and owners shouldn’t feel forced into making a decision that doesn’t have the business’ best interests at heart.
On the other hand, your son-in-law could be exactly what the business needs and separating your personal feelings from professional judgment is the key to making smart business decisions. It takes a confident business owner to identify when external expertise is needed and looking outside of direct family members can provide the answer.
Clearly succession planning can be complex for many businesses, even more so when extended family and in-laws are involved or wanting to claim a stake in the company. Keeping control among direct family members is a natural concern for owners who are reviewing their succession options or welcoming new members into the family. Most family members are cautious about bringing the subject up for fear of upsetting the family unit; however doing nothing can leave family businesses exposed to significant risks.
As well as losing decision-making control, one of the main concerns for business owners is losing financial control. To overcome this, strategies to bring new family or non-family members into the ownership of the business can be created to add a layer of protection and ensure they still have the controlling stake. For example, share options can be put in place to ring-fence finances or separate out the value of the business into capital ‘before’ and ‘after’ the new addition joins the business. As a result, the new member will take their share from the new wealth that they create, rather than what already exists.
Separating business from family is essential when instigating conversations with in-laws or anyone looking to join the family business. However, sometimes just sitting round the table together to discuss the business can be challenging, so it may be a good idea to seek outside help to get things started. External advisers can act as a critical friend to challenge and prompt conversations about the business and its growth strategy in a neutral environment, and this can help diffusing any possible ‘family’ tension.
Crucially, ensuring that you take the appropriate provisions to safeguard the family business when considering marriage, will provide some protection should the relationship break down in future. Making sure possible exit scenarios are addressed will help to minimise the impact on the family business.
Finally, as pre- and post-nuptial agreements are beginning to be recognised in UK courts, it is wise to consider such concepts where large sums of family wealth are concerned. Although pre-nups will still have to be subjected to the scrutiny of the courts, it provides a good starting point for protecting and distributing wealth.
Failing to carefully consider succession plans and the addition of ‘new’ family members could have devastating repercussions for not only your children’s wealth and wellbeing, but that of the entire family who have contributed towards the business. It simply isn’t worth the risk.
Roy Botterill is a family business lawyer from Shakespeare Martineau.
