Family Businesses: The Generation Game

Family businesses represent around 75% of all UK companies and are amongst some of the world’s most successful. However, research has shown that 80% don’t make it to the second generation and only 13% make it to the third. It’s not hard to see why. Despite their strengths, family businesses also have many weaknesses. Typical issues include:

• Professionalising the business – Should you be looking to bring in external expertise or non-executive directors? The business needs new ideas but will you really listen?
• Incentivising non-family employees – How do you ensure your new Finance Director is as keen as you are for the business to prosper? Will you involve them fully or will the real decisions be made by the family over Sunday lunch?
• Dealing with conflict – What happens when the family member you are grooming to take over wants to do things their way even though you know it’s the wrong way? And what if they demand a proper salary just like anyone else?
• Succession planning – How do you decide which of your children should run the company once you retire? Are they even up to it or should you bring in a professional manager?
• Share structures – How do you create and maintain an appropriate share structure?
• Estate planning – Who should own the shares after you have gone? Can you separate voting control from equity ownership? Can you preserve financial security for your spouse and treat your heirs fairly when they don’t all work in the business?
• Tax efficiency – Is it better for inheritance tax purposes to keep your shares until you die or give them away now? And if you’re thinking of selling up, what should you do to minimise the capital gains tax?

If you want your family business to make it to the second generation and beyond, you need to think very carefully about these issues. In future issues of First Person we will be exploring each of these key family business issues in detail. If you would like further information on succession and estate planning, or any other family business issue, please contact:

Larry Nathan
Tel +44 (0)20 7440 7031
larry.nathan@mishcon.com