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Estate planning and business succession: a case of family conflict

Succession planning is important for any organization. But it is particularly important for small businesses - especially it is a family-run small business. In a small business owned or operated by a family, changes in the family structure can directly affect the business itself.

That is why estate planning for small business owners should take proper account of potential business succession issues. This is true not only in Massachusetts, but across the country. Nationally, two-thirds of family-owned businesses fail to continue into the second generation because of family conflicts.

In a recent Minnesota case, in-fighting in a family business ensued after the death of an entrepreneur who founded a successful business making hydraulic brakes. The founder of the business transferred the company to two of his sons. A third son, who was a half-brother of the other two sons, did not receive shares in the business.

After their father died, the two brothers who received shares in the business got into a dispute. One brother was demoted, in what he perceived to be an attempt to force him out of the company. After unsuccessfully trying to sell his stock his two brothers, the brother who had been demoted sued.

In February, an appeals court held that the trial court properly made a multi-million dollar award to the brother who had been forced out. The total amount of the award was $21.8 million. This included compensation and punitive damages, as well as attorney fees.

The case is a reminder that the steps to plan for an effective - and harmonious - succession for a family-owned business require careful consideration.

Source: "Lawsuit over control of family-owned MICO ends with $21M award," Star Tribune, David Phelps, 3-31-13

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