Formal agreements help avoid family business friction

Formal agreements help avoid family business friction

Posted by: Business Law - Bill Northcote , May 19, 2016

For those building a successful business, it can be hard to also maintain good family relationships — the key is to draw a distinct line between the two, Toronto business lawyer Bill Northcote tells Succession Planning, a special supplement published by The Bottom Line and Lawyers Weekly.

“Every family dynamic is different and every family business is different, so there are many possible causes of friction. The trick is to try to divorce the family dynamic from the business dynamic, and some families are better at this than others,” explains Northcote, chair of Shibley Righton LLP’s business law practice group.

Having formal agreements among family members, says Northcote, is beneficial in that the process of developing them helps everyone address issues and avoid potential misunderstandings, such as what the parents have promised their children.

Family firms that survive past the first generation also need to be aware of the differences between generations, Northcote says in the article.

“The dynamic changes when the patriarch or matriarch dies,” he explains.

“In the second generation, spouses and in-laws have a greater impact. And if the founder has remarried, there will be further complications between the second spouse and the stepchildren.”

Ultimately, if Canadian family firms paid more attention to succession planning, they would improve their changes of long-term survival, Northcote says.

He explains that European family businesses seem to last longer than North American firms. Although the reasons are hard to pin down, Northcote says he suspects tradition plays a role.