Business families turn to 'fluidity' clauses to handle disputes

Mumbai: Business families are increasingly seeking to include 'fluidity' clauses in their Deeds of Family Settlement (DFS), allowing agreements governing succession, ownership, and management to be revisited when family circumstances or business realities change.

Legal advisers and family business consultants said families that once viewed these settlements as definitive documents now recognise that arrangements designed for one generation may not work for the next.

A growing number of disputes over decades-old family agreements prompted some families to revisit and explore provisions allowing limited amendments at defined intervals or on specified family or business milestones.


The shift reflects a broader change in how families approach succession planning. Instead of treating a DFS as a static document, advisers increasingly help families build mechanisms to review specific provisions without reopening the entire settlement.

Anand Desai, managing partner, DSK Legal, said he is witnessing a surge in queries to insert a 'fluidity' or milestone-based revision clause in existing agreements.

"Situations change. It could be a death in the family, family members moving their business and home out of India, or the next generation not wanting to manage a business and limiting their activities to running a family office," said Desai.

Since the reference frame itself shifts in certain cases, there is a valid business case to revisit earlier settlement clauses.

"So, the assumption that an existing business will be continued by the next generation no longer holds. These significant variables require the ability to change a DFS," Desai said. "However, a DFS requires consent of all parties involved. Changes also require such consent unless authority is given to one or more parties to make binding changes."

A Mumbai-based family owning a trading house and a real estate business had divided the assets among two siblings and a cousin through a deed of family settlement in the early 2000s. Now, the second generation is seeking a minor change to the DFS because the family that received the trading business also wants to use the family name in real estate.

In another instance, a three-generation business family is seeking such a clause for the third generation, all of whom are based overseas, who currently intend to remain passive shareholders in the professionally managed Indian businesses.

The clause would provide flexibility if one or more eventually return to India and seek an active management role. Family settlements unfold over several years rather than being completed in a single transaction.

Ketan Dalal, managing director of Katalyst Advisors, said family settlements are often not a 'one-go' event; for example, the settlement may involve some assets being divided right away and others distributed over time.

"Therefore, it's important to have provisions that keep a settlement adaptive over time, rather than a static solution to a dynamic problem," said Dalal. "A variety of things can change, such as asset values, weddings, divorces, divestments, acquisitions, and regulatory changes, and family settlements need to factor in at least some of these issues to reduce the chances of disputes arising out of a settlement," he added.

But lawyers and advisers caution that flexibility itself must be carefully structured, or it could end up creating the very uncertainty a family settlement was meant to eliminate.