Family businesses in India have been hugely successful and are the foundation of the Indian economy. However, while their shared values and purpose and inherently long-term horizon enables dynastic growth, the unique overlay of complex personal dynamics over a commercial focus may often result in conflicts. Unless resolved promptly and effectively, such disputes could fracture family harmony and destroy the business.

A family settlement or arrangement aims at resolving such disputes or preventing future ones by setting clear rules of engagement and realigning ownership and control of business and personal assets. As family disputes may evoke deep rooted and historical tensions, navigating successful settlements requires a nuanced approach which balances personal (emotional and interpersonal issues) and technical (legal and taxation issues) elements. Here, we discuss five key learnings and strategies from our experience of facilitating settlements for various Indian families:

Communication is key: The genesis of family conflicts is usually a deterioration of the relationship due to breakdown in healthy communication. One of the primary steps towards conflict resolution is establishing effective communication channels. Open dialogue should be encouraged so that latent issues and the asks and aspirations of the members, particularly younger or female members — who are often culturally not encouraged to speak freely — can be understood and addressed.

An effective strategy may be to establish ground rules for meetings such as timed conversations, interruption-free discourse, and enforced time-outs when discussions get heated. If the relationship is severely damaged, or conversations are emotionally charged, then discussions may be supervised by a neutral trusted advisor or mediator. Momentum should be retained in discussions, for which meetings may be pre-scheduled so that the chances of no-shows are limited.

Facilitative approach: The longer that disputes remain unresolved, family members may start transitioning from a facilitative to an increasingly adversarial stance. This is usually counterproductive as the key to resolution is to adopt a give-and-take approach, without compromising on core objectives. Each stakeholder should be encouraged to identify non-negotiable items so that other demands can be dropped or resolved to achieve a more equitable distribution.

Family members must weigh the downsides of a family dispute (emotional costs, lost opportunity costs, loss of goodwill and reputation, and loss of value of the family business) against the upsides of maintaining demands. If the former outweighs the latter, then prudence demands conceding certain negotiable items — however reasonable they may appear — in the interest of a smooth and speedy resolution.

Choosing advisors wisely: Family disputes have two distinguishing elements: (a) the complex emotional dynamics at play; and (b) although there is a potential dispute, the endeavour to facilitate a resolution in a non-adversarial manner. Therefore, when choosing legal advisors in particular, family members should seek trusted advisors who are experienced and skilled in dealing with family disputes. If the dispute is already before the courts or in arbitration, then consider engaging non-litigation advisors as well to advise on legal complexities discussed below, without any long-standing baggage from the ongoing litigation.

Moreover, other specialist advisors should also be consulted as relevant — valuers, mediators, family business experts, etc.

Navigating legal complexity: A settlement addressing only commercial aspects without considering legal and taxation considerations for implementation may encounter roadblocks. A robust settlement must factor in the applicable legal framework spanning corporate laws, securities laws (especially if listed companies are involved), competition laws, real estate laws (where immovable property is involved), regulatory laws (RBI, SEBI, IRDAI), foreign exchange laws (if some family members or businesses are overseas) and, in particular, taxation laws. Moreover, the family settlement should not bypass corporate governance practices in underlying companies.

Alongside these matters, contractual issues of brand and intellectual property usage, non-compete obligations and transitional services would also need to be addressed.

One size does not fit all: No two families or businesses are alike. While there is comfort in following others, a solution devised for one family may not achieve the objectives of another family. A successful settlement must be tailored to the nature of the family business, the family structure and dynamics, historical practices, future vision and legal considerations. As each family is unique, so too are the contours of each settlement.

Gaggar and Kadakia are partners at Cyril Amarchand Mangaldas and regularly advise families on family settlements and succession planning

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