Estate Planning for Business

Why Business Succession Is More Complex Than Personal

Transferring a family business by inheritance involves challenges not typical for ordinary inheritance: (1) the business must not simply be transferred, but its continuity ensured; (2) there may be several heirs with different interests; (3) business partners may not want to see new heirs as partners; (4) during the succession period, the business is vulnerable.

Planning Tools

Will — the basic tool. But it does not solve the problem of continuity for the business during the period when the inheritance is being processed (6 months in Russia).

Shareholders’ Agreement — can stipulate: the right of other partners to buy out the heir’s share, prohibition on entry of the heir into the company without the consent of the others, procedure for valuing the share for buy-out.

Trust / Private Foundation — business assets are transferred into a trust, the trustee manages them according to instructions from the founder, including after his death. Smooth transfer without interruption of management.

Life Insurance — key partners buy-out: if one partner dies, the insurance payout enables the remaining partners to buy the heir’s share. The business remains in the hands of current managers, the family receives the money.

Law on Mandatory Share

Most jurisdictions protect certain heirs from “disinheritance”: mandatory share (Russia: ½ of the statutory share for disabled dependents), réserve héréditaire (France), Pflichtteil (Germany). In the UAE — Sharia norms on inheritance for Muslims.

Practical Assignment

The founder of a family business (60 years old, three adult children, two of whom work in the company, one does not) wants to transfer the business only to the “working” children, paying the third fair compensation. Develop a succession planning scheme: which documents are needed, how to structure it to minimize conflict.