International family businesses: Legal pitfalls and solutions

Family businesses form the backbone of many economies worldwide. Their unique structures – where business and genealogical trees intertwine – often create legal challenges that are more complex than in non-family corporations. These challenges become especially intricate when the family operates internationally or its members live in different jurisdictions. Two key areas of concern are succession planning and dispute resolution.

Succession planning is one of the most critical phases for any family business. A poorly planned transition to the next generation can cause conflicts and threaten business continuity. Legal tools to facilitate a smooth transition include:

• Shareholders’ agreements, which define voting rights, dividend policies, and exit strategies;
• Wills and trusts, which prevent inheritance disputes by clearly outlining ownership transfers;
• Governance structures, such as advisory boards or family councils, to separate management from ownership.

The legal landscape varies depending on the jurisdiction. In civil law countries, forced heirship rules may limit how business shares can be transferred, while common law jurisdictions offer more flexibility. For cross-border families, navigating these differences is crucial to avoid unintended consequences.

Family businesses are also particularly vulnerable to internal disputes. Conflicts often arise from succession issues, unequal profit distribution, or strategic disagreements. Unlike in other corporations, these disputes are deeply personal and can threaten both business and family relationships. Legal mechanisms to manage disputes include:

• Mediation and arbitration, preferred in many jurisdictions for their confidentiality and flexibility;
• Buy-sell agreements, which provide structured exit strategies for family members who wish to leave the business;
• Deadlock resolution clauses, useful when family shareholders have equal voting rights and corporate paralysis must be avoided.

International considerations further complicate matters. When family members reside in different jurisdictions or the business operates globally, issues such as:

• Recognition of foreign wills;
• Taxation on cross-border inheritance;
• Enforcement of dispute resolution clauses;

require careful planning. Legal advisors must ensure governance documents are aligned across jurisdictions to avoid conflicts.

A proactive legal strategy is essential for safeguarding both the family and the business. Clear succession planning, well-drafted agreements, and effective dispute resolution mechanisms can mitigate risks and promote stability. Given the cross-border nature of many modern family enterprises, international coordination is increasingly crucial.