Typically, however, since the business may be growing rapidly, such families do not look at the individuals or groups amongst the rapidly growing family, but view the family as a whole which owns the whole of the business empire. Of course, at times, particularly when the business is being run by the third or fourth generation, the business may be run under a common family name but each of the family groups may control and manage one group of companies.

There is another peculiarity of such familyowned businesses. Typically, the assets consisting of businesses, shares, properties, etc. are held not equally by family members but are held by some individuals. And the reason why these individuals hold such assets in their names is not because they have bought them from their own funds but often other considerations such as tax, corporate law, etc. dictate who should formally own such assets so that these considerations are dealt with in the best manner. However, as time passes, there may be differences in the family. Or, the head of the family may preempt such differences. The consequence is that the corporate empire needs to be carved out amongst the family members or groups. Note that, right from inception, usually, the intention is that the whole business empire belongs to the whole family and there is no individual identification of assets, even though for considerations explained earlier, the formal and legal ownership may be in certain names.

Then, either with the help of the family head or somesenior family trusted advisor, the empire is carved out. When there are serious differences, this may even be done by arbitration. This is often called a "family arrangement" though in reality the restructuring may take many other forms. Under the new arrangement, it may be decided that certain businesses or companies and properties may now be controlled and owned by certain persons. Once the parties agree to the arrangement, the next step is transfer of formal and legal ownership amongst the persons to put into effect this new arrangement. This is where properly handling matters but often this is not done.

Fear of the implications of tax, stamp duties, corporate laws, etc, often lead to sloppy handling of the restructuring resulting in serious problems later. This is despite the fact that at least the law relating to tax and stamp duties view such transactions with a sympathetic eye. Note that the business empire may consist of companies some of which may even be listed. Parties may perceive that itwould look odd that companies where there is a majority public ownership are handled as if they are individual privateproperty. The result is that such arrangements are often oral or adequate legal documentation is not done. But, if these arrangements are questioned later by parties who are not satisfied by the arrangement or who wish for a bigger share of the pie, it is found that the arrangement does not stand up in court. Difficulty also arises when outside shareholders question the arrangement and typically they contend that the company is a separate body and cannot become part of any family arrangement without due formalities and approvals. And, often, these outsiders are successful.

Parties often believe that if the head of a family dictates an arrangement and duly signs such a statement or if a trusted outsider gives a written arbitral award, that is the end of the matter. The reality is often otherwise.

Cases are regularly reported where one branch of the family successfully questions either thearrangement or even its existence. Of course, the facts of each case may vary and often parties may state there was a family arrangement though there was no such concluded arrangement. (For a recent example of a case where such an issue was raised, see ST Ganapathy Mudaliar vs S G Pandurangan (1999) 96 Comp Cas 919 (CLB)).

Courts and other authorities obviously would not be satisfied that an arrangement exists unless there is a written document executed in such a way that each party which has a duty under such arrangement has duly been made a party to such written arrangement and has agreed to be bound by it. Further, the arrangement should also be valid in law.

A typical area where lapses occur is when one or more of the businesses are run by a company. The parties may agree that, say, a company X shall now be controlled by Mr. A. However, often, nothing is done beyond this. The constitution of the Board may not be properly changed, for various compulsions. The shares may not be properly transferred.More importantly, the company may not be made party to the arrangement. Appropriate meetings of board and the general body to reflect and to take on record the new arrangement may not be held and appropriate resolutions may not be passed. The company may be run as per the spirit of the new arrangement but lapses in compliance with corporate laws may have taken place. When one of the parties who is supposed to have nothing to do with the company questions, rightly or maliciously, difficulties arise.

It is vital therefore that family arrangements, particularly when they involve corporates as entities in the group, are handled in such a way that the arrangement stand up as valid if questioned later. As business and family restructuring becomes more and more common, these issues become very vital and it becomes very crucial that these are handled rightly or else the parties have the rest of their lives to regret.

The author is a Mumbai-based chartered accountant