Issues of hereditary succession
and generational transition in family businesses
Legal advice and financial assistance in relation to inheritance and generational issues
“Handover” is one of the most delicate moments in the life of a family business, not only for the undeniable technical-legal aspects that come into play, but very often because of the relevant psychological, family and generational profiles.
As all the main indicators of the national economy now highlight, within the next five years generational transition will have to be tackled by one family company out of five which will have to start in due time the analysis of the changes that will be necessary. Proof that this is a difficult and delicate step for the company and for the owner family is unfortunately given by the fact that only 30% of the companies survive their founder and only 13% reach the third generation. If we keep in mind that in Italy 65% of companies with a turnover of 20 million euro or more is represented by family businesses, we come to the conclusion that underestimating or even failing to take into account this crucial moment in corporate life can lead to painful consequences which cannot be corrected.
Therefore, taking note of the need to prepare all the necessary measures for a satisfactory transfer of the company reins is the fundamental prerequisite to avoiding the most common mistakes: confusing the roles of ownership with respect to the company and its governance, not involving third parties in key roles, not investing in the entrepreneurial training of the following generations and considering as an unchangeable heritage the values inherited from the founder that sometimes, especially today, must often be reviewed in the light of new and emerging cultural and socio-economic contexts. The most important aspect, however, that some entrepreneurs experience in an incorrect way is to consider company succession a sort of obligation towards the past and not an important opportunity for the future.
But what are the first steps to take at this point?
In the first place, an aseptic analysis of the company must certainly be made to highlight its strengths and fragility.
The second fundamental step is to select potential candidates for company succession: also in this case we must make a critical assessment of the potential, skills and attitudes of each one.
However, it may happen that none of the family members, due to inexperience or otherwise, is deemed able to lead the company, at least not immediately or not alone; in these cases, which are anything but sporadic, an adequate period of support provided by qualified resources acquired from the market should be considered, if they are not already present within the family business: this way the future successor can acquire the desired leadership by degrees.
It can also happen that all possible candidates for succession cannot take over because they are inadequate or because they do not want to continue with the company business. In these cases (which are also far from rare, because not everyone is born to be an entrepreneur) it will be necessary to identify the successors outside the company and make a proper division between ownership and management: this is to avoid a loss of values and to ensure that companies remain healthy and able to increase their presence on the market; all while safeguarding the legitimate expectations, even economic, of shareholders.
Entrepreneurs who perfectly understand these first two steps are aware that the generational transition of their company is not something that takes place automatically, but a process that must be analysed and planned in detail. The first steps are only the opening of a door leading to the need to make choices and decisions that will take into account the previous analysis carried out. This could mean the adoption of a family agreement, the establishment of a trust, the provision of ad hoc corporate clauses, the establishment of holding companies and other forms for the protection and management of the company as well as of the family. The process could also be quite long and complex, but addressing correctly the initial phase will avoid making inadequate choices for the company and the family.
WANT TO DEEPEN THE TOPIC?
GUIDA AL PASSAGGIO GENERAZIONALE
BLASIO LEGAL ADVISORS GROUP (ROME - MALTA - LUGANO)
Plan the generational transition in the company by learning from mistakes (others)
If you have already pronounced one of these phrases:
- "The company is me"
- "My business will end with me"
- "Planning my succession is a choice that I can not do or that I can postpone"
- "The balance in my family has nothing to do with my work"
- "My succession choices will have to be democratic"
- "I do not need anyone to tell me what to do with my business"
So this guide is for you!
Inside you will find many practical tips on the passage of the company reins and all the priorities to remember in the planning of the generational transition.