Succession for Family Business Owners

Article excerpt

FAMILY businesses contribute hugely to the UK economy. On a national level they provide more than 40% of private sector employment and on a local level play a vital role in enhancing their communities.

Despite that, it is said that in the UK only 24% of family businesses survive from the first to second generation and only 14% make it to the third.

Whilst many businesses are actually sold or wound up as part of the family's planned exit, many more suffer simply through lack of any planning for succession.

Fear of death, desire to control, inability to decide on an heir and family rivalries all contribute to inertia, but a failure to plan readily translates into failure to succeed.

The challenge is to structure ownership and control of the family business in such a way as to protect it from external threats (e.g. taxation, unplanned succession and divorce) whilst allowing the family to enjoy the rewards of success.

A key issue often relates to balancing the interests of those family members who work in the business with those of the wider family - in itself this can involve issues such as achieving fairness of financial reward, whether as remuneration for services provided or dividends on shares held; sharing of value on disposal; strategic management and voting control.

The capital tax regime for family businesses remains favourable especially in relation to inheritance tax.

Business property relief is still available for shares in a privately owned company carrying on a trading business.

This is a hugely valuable relief which exempts qualifying shares from inheritance tax.

It is vitally important to ensure that the business qualifies for relief and that full use is made of it in the event of the untimely death of a shareholder. …