Structure and Separation

A series for those journeying through family business succession.

Thinking ahead about the structure of your corporate entities is vital to provide flexibility and adaptability in your future succession planning.

Typically, our minds focus on taxation planning and risk mitigation when we are forming our corporate structures as any thoughts of succession are simply too distant. But to conceive a master plan which guides the structuring of entities can be invaluable even if the eventual result is the sale to outside persons.

On what basis do you decide how to structure your various business activities and asset holdings?

Last week I spoke to the importance of establishing strong controls around the wealth that will be transferred under your succession process. The goal is not to extend your grip over this wealth but rather to ensure harmony and equity is sustained across future generations.

A key aspect of control is the way in which you structure your businesses and assets as they are progressively acquired and added into your business portfolio. The key feature you are seeking is flexibility and adaptability, so grouping assets into a single entity is not the outcome you should seek.

Structuring can become a complex web and includes ownership, management, trading activities, supply chains, assets held and interconnections. Interconnections incorporate distributions, inter-company loans, charges and guarantees, and loans to and from family members.

So why would you seek flexibility and adaptability in your corporate structure? Simply so you can readily and cleanly separate out parts or elements of your various businesses and assets and either sell them, list them, transfer them to selected family members or even just close them down, without impacting all the other operations in your portfolio.

The simplest example that I can provide is a family with three children and extensive business and asset holdings. Two children were heavily involved in the business, and the third was not. The parents wanted to step away from the business but could not choose a single successor, and the family conflict was real. Fortunately, clear boundaries could be developed in the various activities, and the cost of restructuring was not great:

A master plan would have allowed these options to be clearer and evident, reduced succession costs and likely stopped the family conflict before it even started.

Your master plan would seek to incorporate:

Such a master plan is simply good long-term planning which will enable the widest range of options as you begin to formulate your succession plans.

#familybusinesssuccession #familybusiness

An Invaluable Resource — ‘Transition — Orienteering The Lands of Succession’

A Topographical Guide For Orienteering Family Business Succession



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