Family Business

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.

Shareholder oppression

For example, if a corporation or its directors unfairly prejudice or disregarding a stakeholder’s reasonable expectations, the stakeholder can seek an oppression remedy. In BCE Inc v 1976 Debentureholders, 2008 SCC 69, the Supreme Court of Canada held that a stakeholder’s reasonable expectations “based on ties of family or friendship may be governed by different standards than relationships between arm’s length shareholders in a widely held corporation.”

Fiduciary Duty

A fiduciary duty is an obligation to act in the best interest of another person. Directors do not generally owe a fiduciary duty to individual shareholders of the company. However, as the Ontario Superior Court of Justice held in Harris v Leikin Group Inc, 2013 ONSC 1525, a fiduciary duty can arise if a director seeks to take advantage of a shareholding family member for the director’s personal gain or profit.

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.