In a family-owned business two or more family members are involved and the majority of ownership or control lies within a family.
Because you are dealing with family members, family businesses tend to run differently than public companies or privately-held companies. Decisions in family businesses are often made on an informal basis and with less-than-meticulous record keeping. If, down the road, a dispute arises between family members, the lack of formality can become a stumbling block that must be dealt with by the courts.
In response to this, the courts have expressly recognized that family businesses are different than other types of companies, and thus should be treated differently.
The seminal case on this point is Safarik v. Ocean Fisheries Ltd., (1995) 12 B.C.L.R. (3d) 342 (C.A.). This case involved a dispute between shareholders of a company which consisted of a father and his four sons. One of the sons felt that he was being excluded from the decision-making process regarding the management of the company. As a result, friction arose between the purported “excluded” son and the other family members. A court application was made to resolve the dispute.
In the reasons for judgment, Justice Southin stated:
112 Family companies are very different from non-family companies. They are different because, usually when a young man joins his father in the business, he does so trusting his father to do right by him and the father intends to do right. Thus no contracts are drawn up. It is not unusual for differences to arise as they did here, not because either father or son is dishonourable but because each sees the world through different eyes.
113 If this were not a family company, but a company in which the respondent had simply bought his common shares and in buying them had decided not to be a director for whatever reason, there would be no case for an order under s. 295(3) [to liquidate the company].
114 But, in my opinion, it is not erroneous to take a more liberal approach to the words “just and equitable” in the case of a family company in which one of the family after many years of service is no longer permitted to participate in the business.
Resolving Disputes Between Shareholders who are also Family Members
Justice Southin recognized the differences between family companies and other non-family companies and that the Court should take a more flexible approach when resolving disputes between shareholders who are also family members. The result is that a court may be more willing to grant relief, such as liquidating a company or a buy-back of the family member’s shares, when dealing with a family business.
When you are facing a dispute within a family business, you should be aware of the differences in the application of the law that can affect the outcome and choose an experienced lawyer who can explain the best approach to you.