WILLEMSTAD – Transferring a family business to the next generation involves much more than dividing shares among children. Taxes, real estate, liquidity, management control and the different ambitions of heirs can all determine whether a business survives the transition successfully.
The importance of preparing well in advance was highlighted during a special Deloitte event on “Succession Planning,” with presentations by Liesbeth Mol, Martijn van Rensch and Deloitte Dutch Caribbean Senior Partner Julian Lopez Ramirez.
Julian Lopez Ramirez
Deloitte
Many entrepreneurs postpone discussions about succession, particularly when a transfer still appears years away. However, waiting until the transition is imminent can create financial and family problems that are much more difficult to resolve.
One potential complication occurs when children have different expectations. A parent may consider it fair to give two children 50 percent of the company each, but equal ownership does not necessarily mean they share the same objectives.
One child may work in the company, want to manage it and prefer to reinvest profits. Another may have no operational involvement and instead prefer regular dividend payments. With each controlling 50 percent of the shares, disagreements could lead to a deadlock over important business decisions.
Succession planning should therefore determine beforehand who will work in the company, who will manage it, who will remain solely a shareholder, how major decisions will be made and what happens when shareholders cannot agree.
Liquidity is another important consideration. A family or company can own valuable shares, buildings and land while having relatively little cash available. A transfer can trigger taxes and other financial obligations that must be paid even when the family's wealth is largely tied up in assets.
Real estate requires particular attention. Buildings and land may belong personally to the entrepreneur or form part of the company's assets. Keeping valuable property inside an operating company can expose it to risks if the business experiences financial difficulties. Separating the real estate may sometimes be an option, but such a restructuring can itself have tax consequences, particularly when the property has increased in value.
According to Lopez Ramirez, succession planning can also involve legal structures such as an SPF, trust or STAK. Depending on the circumstances, these structures can help separate ownership, financial interests and control. This could be useful when some children want an economic interest in the family business without becoming involved in its management.
There is, however, no single structure suitable for every family. The different options have different legal purposes and tax consequences and must therefore be evaluated according to the family's circumstances and objectives.
Deloitte stressed that effective succession planning starts by identifying what the family owns and what it wants to accomplish. Families should discuss the future roles of heirs, decision-making arrangements and possible tax liabilities well before the actual transfer takes place.
Although conversations about succession can be difficult, postponing them can ultimately increase the risk of family disputes, financial pressure and uncertainty about the future of the company. For family businesses built over decades or generations, early planning can therefore become an important part of protecting both the company and the family's wealth.