The founder built the company over forty years. Two children work in it. One lives overseas and has never worked there. The will leaves the shares equally to all three. Within a year, the working children feel they are carrying passengers. The non-working child feels shut out of decisions and dividends. Staff, banks and customers notice the tension.
Why company succession is different
- Shares pass under the will, but control is set by the constitution. Who are the directors? Can shareholders appoint and remove them? Are there pre-emptive rights on transfer? A new shareholder may have value but no say.
- The trust behind the company. Many family businesses are owned through a discretionary trust. Its assets do not pass under the will at all. Whoever controls the trustee, and the appointor role, controls the business.
- Equal is not always fair. Equal shares to working and non-working children often guarantee conflict. An equal value split, with the business going to those who run it and other assets to the others, is often better.
- Liquidity. If the business is most of the estate, there may be no cash to equalise between children without selling or borrowing.
Disputes we see
- Oppression claims by minority shareholders who are excluded from management or dividends.
- Disputes about whether the founder’s loan account in the company is an estate asset, and at what value.
- Arguments over who has authority to operate the company’s bank accounts between death and probate.
- Family provision claims by children who were given minority stakes or none.
Planning tools
- A shareholders’ agreement with buy-sell provisions, funded by insurance where possible.
- Clear succession of directors and of trust appointors, documented in the trust deed and the will together.
- An equalisation plan that values the business and allocates other assets or loans accordingly.
- A family constitution covering employment of family members, dividends and dispute resolution.
Frequently asked questions
What happens to a family company when the founder dies?
The founder’s shares pass under the will, but control of the company is set by its constitution, which governs who the directors are and how they are appointed. If the business is owned through a discretionary trust, it does not pass under the will at all: whoever controls the trustee and the appointor role controls the business.
Should a family business be left equally to all the children?
Not always. Equal shares to children who work in the business and children who do not often lead to conflict. An equal-value split, with the business going to those who run it and other assets to the others, is often better, supported by a valuation and an equalisation plan.
Who controls a family company between the founder’s death and probate?
It depends on the company’s constitution, its remaining directors and the bank mandates. If the founder was the only director, there may be no one with clear authority to operate the accounts until a new director is appointed, and arguments over authority are common. Planning the succession of directors in advance avoids that gap.
What planning tools help with family business succession?
Common tools include a shareholders’ agreement with buy-sell provisions, funded by insurance where possible; clear succession of directors and trust appointors, documented in the trust deed and the will together; an equalisation plan based on a valuation; and a family constitution covering employment of family members, dividends and dispute resolution.
Chua Tan Associates advises families, executors, trustees and their professional advisers on estate planning, estate administration and estate disputes, in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal advice. Victorian law unless stated otherwise.
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