For a family business, transition is a once-in-a-lifetime decision. Perhaps no challenge has as much potential to exacerbate the special stresses—or, conversely, highlight the special advantages—of operating a family business.
And as if the business, emotional, legal, and technical issues weren’t thorny enough, consider this daunting fact: only about 30 per cent of family businesses survive into a second generation.
As reluctant as many families may be to tackle the issue, the health and longevity of a family business depend on careful transition planning—and on communicating the results of that planning to the right stakeholders at the right time. Doing so will increase the likelihood that your business will endure well beyond the leadership transition, delivering lasting value to your family.
At PwC’s Family Business Services, we have an experienced team, arrayed across our global network of firms, dedicated to helping family business owners develop and execute each step in their succession plan, so that the whole process runs as smoothly and efficiently as possible.
Transition planning is one area where your leverage tends to diminish with time. The decisions you make will affect the future of your business, customers, employees—and, most importantly, yourself and your family. Therefore it is often wise to solidify a business succession plan sooner, rather than later.
We invite you to contact us to explore how we can help you turn your moment of biggest challenge into one of your biggest opportunities to create a legacy of success.
The founder wanted to transfer the family business to his four children. He was concerned, however, about what would happen if one or all of his children developed financial problems or wanted to sell their share in the family business for cash. The founder also wanted to ensure that no non-family member could become a shareholder in the family business.
We helped our client create a step-by-step succession strategy. We also drafted individualised donation contracts — including tailor-made withdrawal rights, whereupon, given certain events, such as bankruptcy of one of his children, that child’s share would revert back to the founder. Additionally, we drafted new articles of association for the company, including special provisions preventing the transfer of shares to non-family members without the consent of the other shareholders.
The founder of the family business had no (sufficiently qualified) successors in his family. Nonetheless, he wanted the business to thrive for the long term — securing earnings for the benefit of the family and continuing to operate in his spirit even after his death. Therefore, he decided that a sale to an outside party would not be an option.
We presented several options to the founder. The one he selected was a transfer of the business to a family trust. Although the family forfeited ownership of the business upon its transfer to the trust, we designed special provisions for the trust’s by-laws ensuring that family members would continue to participate indefinitely in the profits of the business. We also incorporated in the by-laws certain management guidelines which safeguarded the spirit of the founder into the future.
The founder did not wish to transfer the business to family members because he saw no family member qualified to manage it. He decided his only option was to sell the business to a third party.
We helped the founder with several transaction-related activities — including preparing the necessary documents, editing the financial data and performing due diligence. Later, we helped him assess the various purchase offers, select the best offer, and optimise the tax structure of the family business prior to closing. We also drafted the purchase agreement and supported the founder in his negotiations with the purchaser.
The founder of a German family business was its sole shareholder and managing director. He died in an accident without any succession plan. The disposition of his estate would have triggered extremely high inheritance tax — and caused a succession in ownership and management that was not desired by all stakeholders. The family had to find a way to reduce or avoid the steep inheritance tax and to steer the succession in the right direction.
We presented several options to the family members, laying out the tax consequences of each one. In the end, the widow chose to waive her right to succession, clearing the way for her children to qualify as heirs.
This waiver entitled the widow to a matrimonial claim against the children — something that is not subject to German inheritance tax. The children, for their part, were able to reduce their inheritance tax burden to the extent of the matrimonial claim paid to their mother. Thus the collective inheritance tax to the family was significantly reduced — and yet all family members received a portion of the estate.
We developed the plan, implemented the entire structure, drafted all necessary documents, evaluated the decedent’s estate, and prepared the inheritance tax return.
"It is important to teach each new generation, early on, the difference between ownership and stewardship. Ownership is a right of possession. Stewardship is a fiduciary role. It is holding the institution in 'trust for' the next generation. We feel, as a family, that this institution has been passed on to us for our care and not for us to dissipate or do what we will with it for our personal gain."
"Being both the CEO and the owner makes you constantly questioned but at the same time never questioned at all."
"I think my staff appreciate the continuity in the business. They prefer working for a family business like ours. The openness of management to future plans and the 'all in it together' mentality binds staff to the company."
"One of our main competitive advantages at Componenta, a listed family business, is the speed of decision-making as we have managed to align the interests of the owners and the managers in the decision-making process."
"As a fifth generation member of a family in the yachtbuilding business, I believe that continuity is of invaluable importance. Our advanced custom yachts are luxury products but you really don't need glamour to compete successfully. I learned from my father how genuinely clients appreciate a down-to-earth approach and a long tradition of technical excellence."