Globally Speaking | September 27, 2022

Success(ion) Beyond the Balance Sheet

As family business advisers we are in the enviable position of sharing the journey of our clients as their businesses expand and take them into new territories. We have recently been working with our Corporate and Commercial team in advising one of the fastest growing family businesses in the UK to achieve just that, with expansion of their business into key European and US markets.

The company in question is a first generation one: owned by the wealth creator, ably assisted by his children who are at the helm of the international expansion, assuming roles as directors of operations and growth respectively. It is their enthusiasm and tenacity which is driving the project but supported by the even temperament and experience of the wealth creator.

Our work for the family demonstrates the holistic approach we can take when assisting both domestic and international family businesses in their expansion and succession plans – from the provision of personal UK tax advice to the wealth creator as part of his decision to relocate outside the UK and reflecting his desire to succession plan for the future, and UK tax advice relevant to a corporate restructuring exercise outside the UK, on which we are working closely with advisers in the relevant jurisdiction.

Part of the wealth creator’s succession plan is to acknowledge the roles his children are playing in the business, first giving them seats at the table by appointing them as directors of the holding company and also by gifting them a percentage of the equity in the business through the issue of specific share classes in their names. Our Corporate team are assisting with reviewing the standard articles of association by drafting bespoke share classes for each of the parties, mindful of voting rights and the dividend flows. In due course we will work with the family to devise a shareholder’s agreement which will set out the blueprint for how the ownership of the company is to be managed in the future.

Not all family businesses operate in such a harmonious way across the generations. Within a generation some but not all of the siblings may be interested in taking a role within the business, and the challenge is to ensure that each family member is fairly compensated or rewarded for their efforts, while factoring in the natural expectation of non-involved family members for a share of their inheritance. In other instances the next generation as a whole may not be interested in carrying on the family business, particularly if they have forged their own careers outside the business and have no emotional attachment to continuing it into the future. It is better for the current business owner(s) to have these conversations now and prepare themselves for an external management solution or sale, rather than ignore the issue and leave the children to make a distressed sale in the future, likely at a lesser price.

Succession planning is not an event but a process and there is no right time to start but starting early enough can often flush out preconceived ideas of what the future holds and is more likely to mean that what is eventually agreed is effective.