BUSINESS SUCCESSION PLANNING

Why Do Family-Owned Business Need Succession Planning ?

The majority of ASEAN family-owned businesses were founded in the 1960s, following World War II, and lasting until the 1980s, during the region’s economic boom. Rising China family-owned businesses began slightly later after China’s economic reform in the 1990s, but today, most family-owned corporations have surpassed the world ranking.

Most of these family-owned businesses have grown into large corporations involved in a variety of businesses, with operations in various ASEAN countries as well as other regions. Most of these companies are owed by overseas Chinese.

Throughout the booming economy, the founders of these businesses have indeed acquired substantial wealth and have invested in a diverse range of assets in ASIA and around the world, which are subject to various laws of inheritance and taxation issues.

Another major task that faced by the family-owed business will be the succession issues on who should lead and how to have a smooth transition.

Most Chinese family-owned businesses have expanded globally in order to diversify and form alliances with international companies, which can also improve technology transfer within the region.

Chinese family-owned businesses are facing challenges as a result of high competition and regional instability, which necessitates more sophisticated succession planning and asset protection as a means of meeting these challenges.

What are the problems that might arise for a Failed Succession ?

According to MU Advisory Research –

“Why Family-owed Business Failed in Succession Planning”: our report show an estimated 40% of Chinese families have at least one succession problem tied up in court and about 60% facing family disputes over the business empire.

**The statistics based on our 1000 participants that attended on our trust seminar from 2015 to 2020

Based on The Family Business Institute research article by “Economic” show the below information :

Around 29%

of such businesses survived into the second generation.

Less than 12%

into the third generation

Only 3%

make thru fourth generation

Majority of 56%

failed within 1st generation

What are the succession factors faced by Family-owned Businesses in ASIA ?

FAMILY OWNED
Around 80% of the businesses were owned by family members that started their business when the economy boomed in the 80s.
SUCCESSOR
The founders of these companies normally are those from the small enterprises which ignored on grooming successors – now aged or passed on.
FAMILY DISPUTE
Large family with a large number of children from a few wives, which might contribute to infighting over who will take control of the family business.
BUSINESS MODEL
Most family businesses lack a proper & systematic business management model like the western corporation.
EXIT PLAN
Most business owners focus their time on building their business empires rather than discussing succession issues and exit plans.

What is Family Business Succession Planning ?

Succession planning is an important tool for ensuring the continuation of your business, advancing your goals, and protecting your future interests, and it requires a structured plan and preparation for the smooth transition of ownership, leadership, and management of the family business and family assets to future successive generations.

A structured succession plan can provide continuity and stability to family business management by eliminating challenges and disputes during the passing of the baton to next generation family members.

This structure plan is used in conjunction with family trusts and family foundations to ensure a smooth transition of leadership, effective decision making, and the protection of family wealth and relationships.

Without a succession plan, the business may face a high share dispute, jeopardising the family’s value and relationship.

Buyout the partner’s interest at a fair price so that the business can continue without interference from his/her family members. At the same time, the family members received a fair value of proceeds for estate settlement or living expenses.

What are the advantages for Business Succession Trust?

PROTECTION OF ASSETS
Normally, a family’s business and family wealth are interlinked. Succession planning should apply a more structured approach to cover both family businesses and personal assets in the residing country, and residential real estate and businesses, which may be located outside the residing country.
AVOID PROBATE
Business and personal assets held outside of the residing country should be held separately in a proper structure to avoid the foreign assets being subject to lengthy probate proceedings under the laws of the country where they are located, costly inheritance taxes, and taxation conflicts.
PROTECTIVE COMMITEE
A structured approach to the management of the family business and family assets could involve the setting up of a family office with dedicated protective committee and providing centralised support in managing a family’s wealth to enable it to endure successive generations. The combination of a family office under a family trust, or a family foundation can help avoid most of these problems.
BUSINESS CONTINUITY
An effective way to ensure business continuity includes not just succession planning but also having in place mechanisms to manage family politics, conflicts, and dispute resolution.
CREDITOR PROOF
Any failure of the business due to lawsuits or personal bankruptcy will have no direct impact on business assets.

Need further information ? Leave us your contact details and we shall keep in touch with you soon, thank you !