One of the main challenges of in-laws owning shares in a company is managing the complex family dynamics that can arise. In-laws may have different priorities or agendas than other family members, and this can lead to conflicts and disagreements about how the business should be run. Early on, it is critical and important to establish clear lines of communication and decision-making processes to ensure that everyone’s needs and perspectives are heard and considered. Another challenge is ensuring that in-laws have the necessary leadership and technical skills to contribute to the business effectively. It is also important to evaluate their strengths and weaknesses and to provide any necessary training or support to help the in-law succeed in his or her role. On the other hand, having in-laws own shares in the company can also present opportunities for the business. For one, in-laws may bring valuable skills, experience, and perspectives to the table that can help to drive innovation and growth. I can share with certainty that for as long as in-laws understand the rules of engagement and the accountability that goes with their mandate, expectations can be managed.
When the in-law becomes an outlaw
George started a small manufacturing company in the 90’s. When his eldest daughter got married, George excitedly asked his son-in-law, John to work for him. In exchange for Johns’ full-time commitment, he would receive a slightly lower compensation but with an upside equivalent to a certain percentage in the form of share ownership. George’s other children were still in school when John was invited to join the family business. Apart from the equity that John received, George never bothered to formalize any entry or exit rules. This is where the problem started.
Over time, the relationship between the two owners became strained. George would always complain to the family that John was lazy and unreliable, causing tension and conflict between them. Eventually, George passed away, leaving some shares to his wife and the bulk of the ownership to the children including his daughter (John’s wife). With George out of the way, John became the de facto leader of the company. With his wife’s prodding, the other siblings eventually decided to sell their shares to John. As the siblings’ ownership became diluted, John eventually became the majority shareholder.
However, his management style was ineffective, and he lacked the knowledge and skills necessary to make the business succeed. His lack of interest and motivation further worsened the situation, and the business began to suffer. Customers and suppliers left, orders decreased, and profits plummeted. Naturally, the family members became concerned about the future of the business and the legacy that George had built. They tried to work with John to turn things around, but their efforts were unsuccessful. Eventually, the family decided to tap our services and we immediately prepared several corporate documents leading to the signing of several comprehensive shareholder and family ownership agreements.
With business continuously taking a heavy beating because of John’s erratic leadership, the family decided to take legal action to remove John as the majority shareholder and propose a new leader that could steer the company back to success.
Important learnings
Can our marital laws prevent an in-law from owning shares in the family business? Can the family members and the corporation buy back the shares of the hostile in-law? Can John be sanctioned by his fellow shareholders and or directors for questionable acts like conflict of interest?
Yes to all the questions raised, but the family members/owners must go through a series of ownership awareness, board level governance education and formulate powerful agreements to deter any blood or non-blood shareholder from initiating decisions that go against the best interest of the corporation. When in-laws are tasked to participate and even own shares in a family business, it’s essential to have a clear shareholders agreement in place. The latter should outline the rights and responsibilities of each shareholder, including their voting rights, dividends, and other financial benefits. It should also establish clear processes for decision-making and dispute resolution to avoid conflicts and disagreements.