The unique risks of family-owned businesses

While any business relationship can be complex, adding a family dynamic to the mix creates unique issues and risks to navigate. Director and officer claims, employment-related legal actions and errors and omissions can affect family businesses more than other businesses. Pound Gates Insurance Brokers can develop a bespoke insurance programme to protect you for such risks and assist with business planning and establishing policies to mitigate them.

Use this list as a starting point to identify and understand the unique risks of family-owned businesses, and help leverage your family dynamic.

Avoid informal business plans and company policies

Family life isn’t usually dictated by formal structure and written policies. Unfortunately, this trend can carry over to family-owned businesses, which can be dangerous when the majority of the family’s assets are tied up in the business.

Invest the time to create a detailed business plan and clearly-written policies that are consistently enforced. Define roles for everyone (especially family members) involved with the business. Devise a plan that balances family and business goals, and meets the needs of both.

Employment-related issues

Family members fill roles as owners, employees, advisors and shareholders. These business interactions can get complicated when family roles blend, or clash, with business roles. Hiring non-family employees or attracting outside board members brings a fresh perspective and impartiality.

To avoid employment practices liability claims, be cognisant of how you treat and compensate both family and non-family employees and ensure it’s consistent and fair. Selecting the most qualified person for a role, whether they’re family or not, will benefit your business in the long term.

Family conflict becomes business conflict

It can be difficult to separate family and business conflict. Some conflicts, such as sibling rivalry, are deeply ingrained. On the other hand, the effect of a single, family-wide crisis – such as divorce, sudden illness or financial troubles – can create turbulence in the company as well. Keeping family conflict at home may be difficult to achieve, but it’s important to continue working towards establishing healthy boundaries between your family life and business. Identify issues that lead to conflict and stress and develop a policy to deal with them.


Include everyone in your communications. Issues can arise when important information is shared with family members and not with non-family employees and shareholders.

Director and Officer concerns

Family companies are at risk to director and officer liability claims, especially regarding how the business is being managed. Directors and officers of a family-owned company have the same duties as any other company. In many cases, family shareholders have invested a considerable amount of their personal assets in the company. Whether shareholders are family or non-family members, they hold all directors and officers of the company liable for effectively managing their investment. Duties should not be neglected, even if all your shareholders are part of the family.

Have a succession plan or exit strategy

In the event of death or major illness, who will lead your company? A succession plan is critical if you want your company to have future success. Don’t wait until a crisis hits to start planning.

Pound Gates Insurance Brokers can provide tailored insurance solutions to help to protect your family business now and prepare it for future success. Find out more by calling our team on 01473 346046.