Family owned and run businesses are common. Often such businesses can go from strength to strength. After all, they can foster a strong sense of commitment and loyalty, a supportive work environment and offer a long-term perspective as individuals look to leave a legacy for their children.
Those children may feel a strong sense of duty to take on the business and see it go from strength to strength for the next generation. Family members are more likely to share a unified purpose, and often consumers warm to family businesses, viewing them as preferable alternatives to big, heartless corporations.
However, the often fragmentary growth and closeness between personal and business matters can lead to challenges. In this blog we look specifically at issues as they may relate to property assets:
Personal liability/personal guarantees: There is often a blurring of lines between personal and business assets in a family run business. We typically recommend against providing a personal guarantee to back up obligations in, for example, a lease of business premises. If you do provide a personal guarantee or take on any liability as an individual, your own personal assets would be at risk, including your home, and you could be made personally bankrupt. Always ensure that your business and personal assets are held separately, so that if your business fails your personal assets are protected.
Family conflict: Often business property will be in the joint names of family members, which may be perfectly fine for as long as harmony reigns. Should family conflicts arise however, dealing with that property suddenly becomes a lot more complicated and contentious. If possible, it is best to place business property in the name of an entity such as a limited liability partnership or a limited company. Such property will be more resilient to changes in personnel and will not require transferring each time a family member joins or leaves the business.
Moving premises: When it is time for the business to expand to new or larger property there may be resistance from those who see it as breaking with tradition or perhaps take a more cautious approach to the anticipated growth of the business. To garner or retain the confidence of external stakeholders or lenders, it is important to have clear perimeters for decision-making by the business.
Dividing assets: Family conflict can lead to difficulties over decisions to divide assets including property. These issues can be exacerbated when it comes to succession planning, particularly if there are multiple children who feel they are not being treated fairly. A willingness to bring in more outside expertise may ease these difficulties and ensure that the best interests of the business are prioritised via impartial decision making.
The above points highlight some of the potential pitfalls from a property perspective, but there are others which any family business should be aware of, such as accusations of nepotism, or a lack of robust skills and experience. To overcome these pitfalls, owners of family run businesses should separate the personal from the business as much as possible. Effective conflict resolution strategies are also important. Running the business in an impartial manner and recruiting from outside the family are steps which can be taken for the benefit of both the business and continued family harmony.
Get in Touch
If you are the owner of a family run business with commercial property, whether as an investor or an owner-occupier, we can help you to understand the issues and provide advice tailored to your situation to manage the impact. Please contact Beth Margetson, Phil Hunt or Megan Evans at mfg Solicitors.
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