Decide: Business Family or Family Business

Family Business Succession Planning

History shows that the vast majority of family businesses have failed and succeeding generations have failed to enjoy the benefits, purely because of internal conflicts and rather than external events or pressures .As well as fostering rifts and tensions, families who do not have a clear mission, or clear set of values for the family members and businesses to abide by, face the risk of destroying what they have spent lifetimes creating.

Family Business Succession is about putting together well-defined processes, rules and systems that the family should follow in order to preserve the family business and helps strike a balance between the business and the well-being of the family.

TOP 10 CHALLENGES

Patriarch holds the reigns.
Succession planning not in place.
No clear distinction between personal & business assets.
Insecurity towards asset ownership.
Complex asset classes & need for asset protection.
Multiple stakeholders.
Business continuity & control structure not in place.
Concerns relating to incapacitation/terminal illness & financing healthcare/long-term care.
Divided opinions regarding commitment to philanthropic goals.
Inheritance mismanagement protection structure not in place.

ASPECTS & PROCESS

Because family life and business life operates under incompatible cultural systems – in broad terms the first warm and protective versus the second hostile and competitive – difficult issues come up all the time at the family companies. Operational questions like family entitlements, employment, next generation, their roles and responsibilities, remuneration and share ownership often cause emotionally agonising predicaments for those who have to resolve them.

Family constitution defines the “rules of the road” for the family with respect to its relationship to the business.
It’s a collection of key family policies.
Description of the composition and role of the family council.
How the family council makes decisions and resolves conflicts.
Description of governance structures that go to make up the family business (family office, family trusts, etc).

Once the aspects are taken into consideration, the process of ensuring the family business is bequeathed in safe hands involves the following journey.

Step 1	Step 2	Step 3	Step 4	Step 5	Step 6
Identification	Initiation	Formulation	Approval	Implementation	Review

More than 85% of businesses are family-owned businesses. The journey beings with the dream of a visionary entrepreneur who builds a business on the foundation of values and principles that develops into an established enterprise which is governed by set systems and processes.

The visionary sows the entrepreneurial seed and it blossoms into a tree bearing fruits that the whole family enjoys. But despite the inherent strength of a family business, it is always exposed to certain vulnerabilities such as discord between family members, generational transitions, leadership appointments and the like. Such potential threats may eventually cause the blossomed tree to wither away.

For the next generation to be able to enjoy the fruits that you have sown, you must identify factors that establish and propagate the co-existence of several family members, which in turn, will ensure your legacy is carried forward.

Research into Asian family businesses indicates that the majority of the Asian businesses fail because of internal factors rather than external. These internal factors include failure to plan for succession and family conflicts. The surprising fact is that these conflicts are predictable and can be planned for.

We at Terentia believe that the endurance of the family owned business depends on Tangible and Intangible factors Click here to know how

We are here to understand your family’s distinct arrangement so that a future plan can be designed to help avoid possible conflicts and eventual threats to the business. For instance, the sudden demise of a business leader can leave the strongest of empires vulnerable if one doesn’t know who is to take over. This is exactly where we come into the picture.

We work with families to identify effective solutions that would help them in long term. Our role is more of a facilitator who will help you develop a well-crafted family business succession plan (FBSP).

Last three decades has seen a significant rise in wealth. This rise in wealth made way to various asset classes with the asset classes. Families explored some non- traditional options. The complex and multiple asset classes required efficient structuring and management of vehicles and policies for the family.

Since every family has its own unique set of requirements, selection of the right fit that suits the family’s requirement becomes important. Once the family office is established, it is likely to serve multiple generations, across which there may be a range of different needs that may require tailor-made wealth and management strategies. A well – run family office successfully integrates these strategies to ensure that support family goals.

Setting up a family office as every legacy needs to be preserved

At Terentia, we want the family office to support the strategy and legacy of your family. A family managed business often faces challenges between professional management, responsible ownership and health family dynamics. A family office can relieve the family members off certain load by engaging the professional services and management.

Successful family office requires strategic planning, designing and execution. With over one and half decade of experience, we can help you in structuring and crafting a step by step process – from conception, planning to implantation. Our experienced team can help you design a strategy to manage the complexities of family owned businesses.

Though a family agreement has not been defined statutorily under Indian laws, Halsbury’s Laws of England defines it as ‘an agreement among members of the same family, intended to be generally and reasonably for the benefit of the family, either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour’.

What it effectively means is that the members of a family arrive at an amicable understanding, written or verbal, regarding movable or immovable property to avoid any existing or future disputes. When it comes to distribution of property, a family agreement need not be a single legal document, but can be a series of documents delineating the property rights of each member.

As for taxation regarding the inheritance, since an agreement is not considered a gift or transfer under the income tax laws, it does not entail any capital gains tax.

The role as a trustee is to administer and distribute the assets in the trust defined by the wishes, as expressed in the trust document by the author of the Trust.

It is the fiduciary duty, legal authority, and responsibility to manage assets held in trust and handle day-to-day financial matters on behalf of the author of the Trust.
A broad range of duties from making difficult decisions and judgments related to distributions and legal interpretations, to recordkeeping, reporting, accounting, initiating transactions, managing trust assets, filing taxes on behalf of the trust, and more.

Why to appoint a Corporate Trustee?
1. Domain Knowledge.
2. Expertise.
3. Continuity.
4. Secrecy and Security.
5. Impartial.
6. Fiduciary.
7. Efficient Management.
8. Governance.
9. Wide Range of Services under one roof.
10. Timely Reporting.

There are three primary elements to the trustee’s role:

Administration

The trust administration role is central to carrying out your wishes regarding the use of assets in the trust.

We carry out your directions and follow your guidelines in handling the specific circumstances of each request for funds from trust beneficiaries.
This involves legal interpretation of the language in the document, appropriate input from family members, and conformance with appropriate and applicable trust law.
Experienced and unbiased trust administration and record keeping are vital components to implementing your plan.
Day-to-day relationship management is also handled by your trusted financial advisor.

Asset Management

At Terentia we believe it is our ultimate responsible for the preservation and investment of assets in the trust for all classes of beneficiaries, ensuring that invested assets are productive and managed appropriately given the trust’s objectives.

We consider it as our legal responsibility to reassess the objectives of the trust and current market conditions to be sure that the investments match those objectives.
If mandated, then we will hire professional managers to handle the day-to-day specialized activities such as investment management.
Day-to-day investment management is delegated to your trusted financial advisor.
We also oversee the preparation of appropriate tax returns and all the trust accounting in compliance with law.

Custody

We maintain the highest level of financial secretary and security guard. We identify and take title to the trust’s assets, keep accurate records, report to the current beneficiaries, execute and settle all transactions, protect and insure the property and defend the trust against claimants.