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Why Do So Many Shareholder and Partnership Disputes Involve Families?

Date: 01/02/2015 | Category: Partnership Disputes | No comments

The short answer is because…

  1. There are many family owned and operated small businesses. If you are facing a shareholder or partnership dispute with your siblings, extended family or even your parents, just know that you are not alone;
  2. More often than not, family owned businesses are more successful than other businesses and so there is a lot at stake;
  3. Poor communication and poor succession planning can lead to misunderstandings over time.

Throughout my many years as a lawyer specializing in shareholder and partnership disputes, I would like to tell you that I am always surprised when a partnership and shareholder dispute arises among family members – but I am not, they occur often and in many instances can be much more intense than the typical partnership dispute. Over the years, I have given a lot of thought as to the motivations that trigger these disputes and the circumstances that take a family and a successful family business and turn everything upside down.

Unfortunately, with a lot of family owned businesses there is a lot at stake and there are many personalities battling for control, including:

  • The Founder Generation. Typically the founder generation is comprised of older family members, such as a parent or an uncle/aunt, and this founding generation may have originated the business or have taken the reigns from an even earlier generation and have been with the business since its early days. If the founder is a parent and the dispute involves siblings, chances are that the dispute was fostered over many years as the founder sought to maintain balance among the siblings or other shareholders. The only problem is that when the founder is ready to retire, he or she will no longer be there to balance out the family members. So, the founder is often faced with choosing sides as to who will control the business. What comes next is the dispute.
  • The Next Generation. The next generation may be siblings, cousins or a combination. To be certain, some of these individuals may have added significant value to the business and others may not have. After years of working together, when the time comes for a transition (i.e., the retirement or death of a founder), there is a high likelihood of a dispute breaking out among this next generation. These individuals – some of which may be hard working and some may have taken much for granted – begin to reevaluate the future management and operations of the family owned business.

The multi-generational nature of family owned businesses make them prone to partnership disputes. If you are faced with one, you need to carefully evaluate your legal options and a realistic course of action for protecting your interests. A misstep in the pre-litigation stage of your dispute (i.e., where one partner is attempting to lock-out the other or cut salaries, etc.) can have a lasting impact on your litigation strategy and the overall outcome of your legal representation.

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