Insight 45 - Magazine - Page 14
LEGAL MATTERS
Protecting your family business with
bespoke company arrangements
By Michael Budd
HOW CAN WE PROTECT A FAMILY
BUSINESS?
There is a misconception that family
businesses don’t need to prepare or
update their legal documents because
family ties can overcome any business
disagreements. In reality, family
businesses are not legally distinct from
other businesses.
Company documents can’t prevent every
dispute, but they can significantly reduce
the impact of any potential business issue.
They offer two advantages: the process of
agreeing terms in advance helps identify
and address potential issues early; and,
if a dispute arises, there’s already a clear,
agreed process in place to resolve it
and protect the business. For a limited
company, bespoke articles of association
and shareholders’ agreements can be
tailored in line with the family’s objectives
to promote business continuity and family
harmony.
WHAT ARE THE ARTICLES OF
ASSOCIATION?
A limited company must have articles
of association, setting out its internal
governance rules. A common issue is that
many companies rely either on outdated
or default “model” articles of association.
Depending on the dynamics of your family
business today, these documents may not
sufficiently cover your family’s objectives.
The default articles of association include
specified rules on how the directors
manage the company, share rights,
rights to income and capital and share
ownership (and what is or isn’t a permitted
transfer to another). Family businesses
should consider whether these standard
rules are appropriate.
WHAT BESPOKE ARRANGEMENTS CAN
BE INCLUDED IN THE ARTICLES OF
ASSOCIATION?
In line with your objectives, the following
bespoke arrangements may add value to
your family business:
• Create different share classes to reflect
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different roles. For example, by giving
voting rights to family members involved
in management, while providing income
rights to family members who aren’t
involved in day-to-day operations.
• Control over ownership by restricting
who can receive or inherit shares. This
helps prevent transfers to non-family
members or ex-partners without prior
approval.
• Include succession planning provisions to
reduce uncertainty when a shareholder
dies, retires or exits.
• Define how major decisions are made –
such as requiring unanimous consent or
granting a casting vote to senior family
members.
• Include dispute resolution mechanisms
to manage disagreements internally or
through private mediation, reducing the
risk of court action.
HOW CAN A SHAREHOLDERS’
AGREEMENT HELP MY FAMILY
BUSINESS?
A shareholders’ agreement can be
prepared between the family shareholders
and potentially the company. It
complements the bespoke provisions in
the articles of association and regulates
decision-making, share transfers, exits and
clearly outlines each family shareholder’s
rights and obligations.
For example, shareholders may agree not
to amend the articles, issue shares, or
appoint directors without board approval.
bIZ4BIZ INSIGHT MAGAZINE | JUNE 2025
Alternatively, if the family shareholders
want more direct control, it can limit the
board’s powers by requiring shareholder
consent for key business decisions – like
issuing shares, obtaining investments, or
selling key assets.
Though not mandatory, it is highly
recommended for enhanced protection
of the business. Unlike the articles, it is a
private document and can cover sensitive
family matters like succession or voting
rights.
Michael Budd
Partner and Head of
Company Commercial
www.longmores.law
enquiries@longmores.law
01992 300333
