Six Unique Risks of Running Your Family-Owned Business

Last Updated:
March 22, 2019
Ole Jensen
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Family-owned companies comprise a large percentage of businesses in Canada. With increased employee loyalty and deep-rooted pride in their products and services, family companies are the backbone of our economy.

While any business' relationships can be complex, adding a family dynamic to the mix creates a labyrinth of unique issues and risks to navigate. Many family business owners believe they are at low risk for claims; however, the opposite is true.

Director and officer claims, employment-related lawsuits, fiduciary liability, and more, affect family businesses just as much as other companies. In fact, they may even have more of an impact, since many family companies typically lack the business plans and established policies to mitigate those risks.

To leverage your family dynamic and create success for your company, use this list as a starting point to identify and understand the unique risks of family-owned businesses so you can create a risk management plan to address the issues and avoid costly lawsuits.

Informal Business Plans and Company Policies

Investing the time in creating a detailed business plan, clearly-written company policies that are consistently enforced, and defining roles for everyone (especially family members) involved with the business is important. Device a plan that balances family goals and business goals and meets the needs of both.

Employment-Related Issues

One of the biggest exposures for any company continues to be employment practices liability claims. Be cognizant of how you treat and compensate both family and non-family employees, and make sure it is consistent and fair to avoid claims. Furthermore, selecting the most qualified individuals to fill roles at your company - whether they are family members or not - will benefit your business in the long run.

Family Conflict Becomes Business Conflict

Keeping family conflict totally out of business matters may be difficult to achieve, but it's important to continue working toward establishing health boundaries between your family life and the business. Communication is crucial; manage family conflict by identifying the issues that cause conflict and stress, discussing these issues with the family and developing a policy to address them.

Lack of Communication

Communication should be a two-way conversation and it's critical to include both family and non-family employees. It's also important to speak to all employees in a professional manner. Avoid speaking informally, such as teasing and joking, while conducting business.

Director and Officer Concerns

Be aware of director and officer liabilities, including Conflicts of interest and Freeze-out mergers.

No Succession Plan or Exit Strategy

Succession planning can take years; don't wait until a crisis hits to start planning. To ensure the ownership or management transition is as seamless as possible, use a comprehensive succession plan with four phases: initiation, selection, education, and transition.