Family businesses don’t grow on trust. They grow on rules.

Many entrepreneurs say that family members trust each other anyway, so they don’t need complicated agreements or rules. Yet this very notion is among the most No.frequentšie dôwater, forNo.o sa úspešné familyé enough companiesáeggú into conflicts involving the generationNo.her inýname, distributionľovaní property or notNo.akaných žLifeých situáorách. About that, for No.about sú clearly definedé rulesá oneým of the mostôbutžitejwiderlong-term assumptionséits functioning within the familyéhis business, Tom discussedáš Demo with Erika Matwij, founderľkou Inštitúhere, familyéhis business, on the Highgate Talks podcast, Episode #46.

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Family businesses are built on trust, shared values, and long-standing relationships. Yet it is precisely these strengths that can turn into their greatest weakness at critical moments.

As Erika Matwij points out, in most cases, problems do not arise because family members are unwilling to cooperate. They often arise because they have never openly discussed expectations, responsibilities, or rules of operation.

In practice, however, it’s not just a matter of generational transition. Conflicts can arise when the founder falls ill, in the event of a divorce or death, due to disagreements among siblings, or when deciding on the company’s future direction. It is precisely in such situations that it becomes clear whether the family has established a system and rules that function even without emotions getting in the way.

At Highgate Group, too, when establishing ownership structures, succession plans, or safeguards for family assets, we find that a family constitution alone is sometimes insufficient. The fundamental principles and values upon which a family business is to operate must also be enshrined in binding legal documents, whether in the form of a partnership agreement, articles of incorporation, or a shareholders’ agreement.

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Many family-owned businesses rely on a single person. The founder knows the customers and business partners, makes financial decisions, and is often the only one in control of all key processes.

A model like this can work for many years. The problem arises when the founder unexpectedly leaves the company or is no longer able to actively manage the business.

It’s not just a matter of succession. In practice, basic information—such as access to online banking, system passwords, contact information for business partners, and an overview of company assets—is often missing.

One of the practical recommendations mentioned in the podcast is to create a so-called “red binder.” This is a collection of the most important information and contacts that a family needs in the event of an unexpected incident. It can be crucial for the family’s well-being and the continuity of the company’s operations.

The topic of the “red folder” is just one of the practical tips discussed in the podcast. Tomáš Demo and Erika Matwij also explored why clearly defined rules are the foundation of a successful family business, how family constitutions work, what mistakes founders make when handing the business over to the next generation, and why open communication can be one of the most effective ways to protect family assets. You can watch the entire 46th episode of the podcast here:

Trust does not replace the rules

One of the most common things experts hear when working with family businesses is: “We trust each other. We don’t need rules.”

However, according to Erika Matwij, trust is precisely the reason why rules should be established even before the first conflict arises.

A family constitution, family councils, or rules governing the next generation’s entry into the company are not a sign of mistrust. On the contrary, they are a tool that helps maintain good relationships even when difficult decisions must be made.

It is also important to distinguish a family constitution from legal documents. A family constitution establishes a shared vision, values, and rules for how the family functions. These agreements are subsequently incorporated into partnership agreements, shareholder agreements, or other legal documents, which ensure their legal enforceability.

It is precisely the combination of family consensus and a sound legal framework that forms the foundation for the successful intergenerational transfer of a business.

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Another common issue is the commingling of personal and business assets.

Family businesses were naturally established with the goal of providing a better life for the entire family. Over time, however, a situation often arises in which the company’s assets include property that is not primarily related to the business—such as residential real estate for family members, investment properties, or other assets used for private purposes by individual family members.

This arrangement poses not only accounting and tax risks, but also conflicts among siblings or other family members. Questions such as who uses the company car, who lives in company-owned real estate, or who has benefited most from the business can become a source of long-term disputes during inheritance or the division of assets. These issues can be equally problematic in the event of a sale of the family business, when all these assets must be transferred out of the company, which presents additional legal and tax challenges.

That is one reason why we recommend establishing ownership and asset structures well in advance. A clear separation of personal and business assets helps protect not only the business but also family relationships.

After all, running a family business isn’t just about building a successful company. It’s just as important to prepare it for decades of continued operation.

You can listen to the entire conversation on the Highgate Talks #46 podcast, in which Tomáš Demo and Erika Matwij discuss why rules are the foundation of a successful family business, how family constitutions and shareholder agreements work, what mistakes founders make when handing the business over to the next generation, and why open communication may be the best way to protect family assets.

We are the Highgate Group, modern advisors for your legal, tax, and financialaccountingaccountingaccountingall under one roof.under one roof.

If you are interested in this topic, please do not hesitate to contact us:

• Tomas Demo, e-mail: tomas.demo@highgate.sk

You can find more information on protecting the assets of (family-owned) businesses on our website in this section: Asset and Business Protection

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You can ask your specific questions during a consultation with our partner, Tomáš Demo, who specializes in asset protection. You can schedule a consultation here: