Owner Managed Businesses

A business may start out as a one or two man or woman owned and managed business. However, as it grows, other people may become involved. Additional family members may be employed. Children may enter or leave the business; and other shareholders may come on board as business partners, investors or suppliers.

Building an OMB or family business and passing it on to your children can be enormously rewarding. But family businesses present ownership and management challenges that are particular to this sector. Matrimonial issues, relationship fall-outs, death, health and financial problems – all can create extremely difficult situations.

Family business ownership

Retaining family ownership and control is a prime objective for many family businesses, particularly as they grow, but this can also limit their growth potential. A family-owned business should be open to bringing in outside shareholders if additional investment is needed. The key is to ensure that any investment is structured in such a way that it ensures family control is retained.

Passing on the family business to the next generation can also be a very challenging and difficult process. An owner is likely to want to treat each of their children fairly, however, not all of them may be, or even want to be, involved with the family business. This may involve having to split ownership between children who are active in the business and those who are not; or it may require setting up a family trust or similar arrangements to look after the needs of the children who are not directly involved, so they can still receive some degree of financial benefit from the business.

A family business often faces disruption and challenges as control passes to the next generation. Will an owner be able to stand back from the business? Will they undermine whoever follows them as the new business leader? What will happen if none of the children want to run the business? What happens if they all do? And what happens if the children don’t all get on or see to eye-to-eye over the future direction of the business? Careful succession planning and clear structuring of responsibilities and accountabilities is essential.

It is also important for an owner who is passing on his or her business to the next generation to ensure they have protected their own future and are able to enjoy a secure retirement after all their hard work in building up the business.

Tax efficiency is frequently a major concern, particularly in terms of the need to plan for inheritance tax liabilities. This makes careful, forward financial planning an essential requirement for all involved.

The family-run business

Many family businesses are not just family-owned, but also family-run. Using family members as employees and directors has many advantages, including high levels of commitment, continuity, shared values and higher commitment levels, along with an ability and desire to take a longer-term perspective.

However family-run businesses can become narrow-minded, over-cautious or complacent. Non-family employees may feel that family members receive special treatment or benefit too much compared to the contribution they make to the business. A company can often bring in great talent from outside, only to see it quickly leave because of the adverse impact of an owner or a family’s influence.

Careful planning, management and control will help a business owner to identify these sorts of problems in advance and put solutions in place to deal with them. These might include the development of appropriate shareholder agreements; clauses in the company’s articles of association; as well as the use of family trusts to control shares or finances.

Very often the questions facing an owner-manager are broad and complex – though the concerns involved often boil down to a common set of issues such as business continuity, relationship breakdowns, financial management and succession planning. For example:

What if I’m knocked down by a bus? You are a sole trader or the sole director/shareholder of a company, what would happen if you were out of action? It’s a scenario that most business owners are aware of but haven’t really thought about. Yet what happens if your employees can’t pay the wages or the creditors and you’re in hospital in intensive care? Did you know you can enter into a Business Power of Attorney which would kick in to enable a trusted individual nominated by you to operate your business in circumstances when you aren’t able to?

What if my marriage breaks down? While everything else is in flux the last thing you want to have to worry about is whether your ex-partner can take your business from you or require you to transfer part of your shareholding to him/her. Did you know you can enter into either a pre-nuptial agreement prior to your wedding or a post-nuptial agreement after your wedding to ensure that your business assets are protected in the event of divorce?

What if I fall out with my fellow director and shareholder? You could enter into a shareholders agreement now while you’re getting along. This is an agreement to regulate the relationship between you both and set out what you would want to happen should you fall out or should one of you want to walk away from the business. You can also use a put and call option agreement, in conjunction with life insurance policies placed in trust, to ensure that if either of you died the survivor could recover the shares while the family of the deceased receive payment.

The company is making good money now, what should I do to plan ahead to my retirement? You might consider setting up an investment company now with the aim of using the income from it to support you in your retirement. You may also want your children to be able to benefit from dividend income in a few years’ time. You could set it up as a family investment company where you and your family have different classes of shares. You retain all the voting shares and have a right to dividend. Your children can have shares with rights to capital and dividends, but no voting rights; allowing you to retain control but allowing others in the family to benefit. You may also want to explore the idea of putting some shares into a discretionary trust for the benefit of the family.

As an OMB ourselves we understand the broad range of issues that business owners face. We recognise the particular needs of the owner managed business sector for pragmatic advice that respects the separate but often linked needs of individual business owners and those of their businesses.

We advise business owners – as well as the various investors and professionals that support them – on an extremely broad range of requirements that include:

• Start-ups (funding, shareholders and partnership agreements, service level agreements, supporting new owners).
• Buying and selling a business.
• Attracting and retaining staff (all aspects of HR, share schemes and bonus arrangements).
• Managing contracts and supply chains (terms and conditions of sale, short and long-term supply contracts, procurement advice, agency and distribution arrangements, joint ventures, export sales and overseas operations).
• Equity investment and funding (from venture capital houses, banks, grant agencies) including preparing a business for investment.
• Regulatory compliance and reporting: health and safety, environmental, GDPR and data protection, financial reporting, and all aspects of company directors’ obligations.
• All aspects of tax, including efficient group structures and personal business ownership models along with inheritance tax.
• Disputes and litigation: commercial disputes, cyber-crime, defamation and reputation management.
• Employment law: your legal obligations regarding holidays, maternity or paternity leave, pensions, disciplinary actions or dismissals.
• Property: covering all the various property issues for your business, including taking out your first lease, exiting a leased property, sub-letting, property investment and SIPPS.
• Intellectual property: managing and protecting your intellectual property (IP) including patents, trademarks, brands and more.
• Debt recovery: we can provide specialist guidance and support to help you recover any monies owed or pursue outstanding claims against debtors.
• Business continuity including putting a Lasting Power of Attorney in place, in the event that you find you cannot manage the business following an accident or illness.
• Banking and finance
• Wealth management, investment and pensions
• Wills and estate planning
• Exit and succession planning including: sale to co-owners; passing on the business to the next generation; family charters and family investment company structures; management buy-outs (if the family is not interested); and trade sales or sale to other third parties such as venture capitalists.

Family and owner-managed businesses are often complex entities. Trusted and trusting relationships matter; so does a deep and integrated understanding of what is involved. This sort of knowledge and trust is established and built over time. We understand the vital importance of building relationships and knowledge and the need, therefore, to invest time and energy in them.

With new clients we like to have a free initial consultation – without any obligation on your part – to discuss your situation, understand what is involved and work out how best to advise and support you. This enables us to give you an idea of what may be involved; and, if possible an indication of what may be involved from a cost and time point of view depending on your requirements. With every client our aim is to provide an appropriate, commercial and supportive service as cost-effectively as possible, taking into account all the risks, variables and relationship dynamics involved.

We believe it is important to be as open and upfront as possible about the likely charges and costs involved in all aspects of our advisory work. In most cases we charge at an hourly rate. We will, however, always aim to give you a good idea of what we think may be involved based on our extensive experience and knowledge of your particular circumstances.