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  • Overview

    Family businesses are the backbone of the UK economy. Two thirds of UK businesses are currently family owned, which generate over a quarter of the UK’s GDP. It is therefore somewhat surprising that only around 30% of family businesses survive the transition to the second generation, with only 12% making it to the third.

    So where does it all go wrong? Recent studies have found that one of the major issues is poor succession planning, as 43% of family firms do not have a succession plan in place. In order for a business to succeed, it is vital that those involved understand the direction the business is going, and their individual roles within the business. 

    However, taking the reins of a business as a younger generation family member can be tough. There are often family politics at play, as well as conflicts of opinion with the older generations, which can often hinder the younger generation’s control, and consequent ability to grow the business, or perhaps take it in a new direction. 

    Although difficult, there are ways to navigate the transition which can make surviving the family business easier. The first port of call is to ensure that you have the right people for the right jobs; it is worth ensuring that suitable employment contracts are in place, clearly setting out the roles and responsibilities of each employee. If family members are not up to a particular job, consider external hiring, such as non-executive board members for impartial advice and experience. An increasingly common approach is to hire non-family members on fixed term contracts, providing a natural exit date and ensuring control remains within the family.

    Secondly, you should ensure that the business, if it is a company, has a comprehensive shareholders’ agreement in place to govern the relationship between the shareholders and provide a clear framework for how the business should be run, as well as how disputes will be resolved. It also deals with crucial aspects such as the transfer of shares, which is fundamental to retaining control for the next generation. 

    Lastly, it is important that family differences are left at the door so that once at work, everyone’s focus is directed at the successful running of the business. 

    Follow the link to read the rest of our: 20 Legal things series.
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Faye Cook

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