September 17, 2015 Lisa Collins

The “In-Law Factor”

Boss at creative design studio discussses with colleagues at desktop computer. Japanese new business team collaborate on strategy. Asian businessman talking to office workers.

When it comes to managing a family enterprise and in particular, its transition to the next generation, it is important to pay attention to the “in-law factor”.

As their children marry or enter into longer term relationships, many business owners become concerned about the impact their daughters-in-law or sons-in-law will have. They worry about their in-law’s influence on their child. Moreover, they are fearful about the affect on the business if their child’s marriage or relationship should fail. The concern is understandable – we have all heard stories of how businesses have suffered or failed when there has been unresolved conflict or relationship breakdown within a family.

There are a number of steps that can be taken to help manage the in-law factor, and in fact, help turn it into a positive factor within the family. Some of these steps involve more technical legal matters, and others are about supporting and nurturing family relationships within the business environment. Here are the top five steps to help manage the in-law factor:

  • Communication – There is nothing like inadequate communication to foster an atmosphere of suspicion and distrust and to create conflict.   Appropriate communication between generations and among all family members, including the in-laws, is essential. This usually does not happen by accident and with business families it is important to have a formal structure, such as a Family Council, for appropriate communication about the business and the family’s involvement in it.
  • Roles and responsibilities – When family members have a clear understanding of their roles and responsibilities, this provides them with more security and reduces the uncertainly that can lead to tension and disputes. It also helps to manage expectations. Roles and responsibilities should be clear for not only those family members involved in the business, but also those that are not directly involved and play a “supporting role”.
  • Marriage Agreement – When it comes to protecting the ownership of a business, a marriage agreement can go a long way. However, this is best done before the family member is married (or enters into a common law relationship). (Trying to do it after they are in a relationship is not impossible, but it is definitely more difficult.) Set the expectations early with your children (and their partners), knowing that that is something that will be required.
  • Ownership structure – How a business is owned is critical to minimizing the business’s exposure to the breakdown of relationships. There are different avenues that can be used to help manage this, including the use of trusts.
  • Shareholder Agreement – It is critical that there be a Shareholder Agreement for a family enterprise. One of the important sections of the agreement will stipulate what happens to a shareholder’s shares should their marriage or common law relationship fail, including a methodology for valuing the shares at that time.

The business stories involving in-laws can have happy endings, but even the good news stories reveal that it was as a result of careful management and proactive steps taken to make it work.

By taking the five steps outlined above, you can help ensure your business does not get derailed by the “in-law factor” and in fact, it can lead to your in-law relationships having a positive impact on your business and the family.