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Across North America and many economies, family-owned businesses form a significant portion of the private sector, acting as a major source of employment and wealth. Ensuring the continuity and long-term survival of these firms is a priority for the economy. To achieve that, there are a few key issues that deserve focused attention and thoughtful planning.
Succession planning and generational handover
The first and perhaps most important issue is planning for succession and the handover between generations, a central challenge for family firms. A sound plan must consider the interplay of three elements that shape the family business, all of which are in constant evolution and interconnected: the family values focused on caring for members, the business drive for profitability, and the ownership structure that underpins investment returns.
Early planning should be guided by a set of agreements among family members, known as the family charter, which lays out the rules and governs the professional and financial relationships between the family and the company.
Within these agreements, the ownership and leadership succession plan should be established, setting criteria for selecting a successor. Each company and family is unique; there are no one-size-fits-all solutions. Through extensive dialogue and consensus, families craft a tailored plan that can adapt and evolve with changing circumstances.
The importance of tax planning
In the succession process, wealth-transfer planning becomes crucial because taxes on inheritances and gifts can be substantial. There are often reliefs and incentives for family-owned businesses in many jurisdictions, though the specifics vary by state, province, and federal rules. The focus remains on maximizing legitimate relief while ensuring compliance.
What endures is the need to apply favorable treatment where available, and to ensure eligibility requirements are met. The application of such relief requires careful planning and regular review to stay aligned with evolving regulations and family needs.
Therefore, it is wise to pursue a robust tax planning approach that secures compliance and optimizes the tax position of the business and its shareholders. There are structurally efficient strategies that support both the operation of the company and the protection of family assets, while also delivering organizational advantages.
The good governance of the enterprise
Another vital component for sustaining family firms is strong corporate governance and ongoing professionalization. Good governance helps translate family values into strategic management and ensures proper separation of family and business responsibilities, informing key decisions.
Governance bodies range from those closely tied to the family, such as the Family Assembly and the Family Council, to corporate structures like the General Meeting or the Board of Directors. The sophistication of governance depends on the company’s size and the number of generations involved; as firms grow and generations coexist, professionalization becomes increasingly important.
How to handle conflicts in the family business
Conflicts are another sensitive area in family firms, often arising when there is a weak separation between family matters and business operations, amplified by emotional dynamics. To prevent and address these conflicts, it is essential to have strong governance structures where issues can be discussed and resolved, with formal conflict-resolution mechanisms included in the family charter. When disputes become entrenched, it is possible to bring in a neutral third party to mediate or arbitrate under established dispute-resolution processes.