Family business succession planning
70% of family business successions fail at the second generation. The reasons are mostly preventable.
Family business succession planning addresses both the legal mechanics (transfer of ownership and control) and the family dynamics (which children come into the business, how non-business children are compensated, how dispute is handled). Most family business succession failures are family failures, not legal ones.
Who comes into the business
Not every child wants to or should take over. Direct conversation about interest, capability, and commitment is essential – and uncomfortable. Sam often facilitates these conversations between parents and adult children.
Non-business children
If one child gets the business and others don’t, fairness needs to be addressed. Equal inheritance might mean the business pays out non-business children over time, or the will compensates with non-business assets. Failing to address this drives the most common family succession disputes.
Control vs ownership
Often parents want to transfer ownership but retain control during a transition period. This is usually achieved through different share classes – voting shares retained, economic shares transferred. The structure needs careful drafting.
Tax efficiency
Small business CGT concessions can dramatically reduce tax on intergenerational transfer. Different transfer mechanisms (sale, gift, succession through estate) have very different tax outcomes. Plan with both lawyer and accountant from the start.
Dispute resolution
Family business disputes are the most expensive and damaging. The plan should include explicit dispute mechanisms: family councils, professional mediation, arbitration as a last resort before litigation. Court should be the last option.
Summary
70% of family business successions fail at the second generation. The reasons are mostly preventable.
Talk to Sam about your situation
If this article raised questions for your own circumstances, Sam Michele offers free 20-minute initial consultations. Learn more about our business succession planning, or book a consultation.
Related reading
- Business succession planning in Australia
- Business buy-sell agreements for partners
- Business succession planning
Disclaimer: This article is general information only and does not constitute legal advice. Estate planning is deeply personal - every family's circumstances are different. For advice specific to your situation, please contact Rosewood Succession Solicitors.