Relative values appear to be serving Scotland well. According to the Scottish Family Business Association 73% of all businesses here are family-owned and employ half of all workers in the private sector. Flagship firms such as Johnstons of Elgin (1797) Baxters (1868) and DC Thomson (1905) prove that these enterprises can successfully survive and adapt through centuries.

Sometimes, however, steely-eyed resolve and strategic acumen become clouded when businesses and family life merge (or sometimes collide). Forbes magazine points to some of the common hazards: whoever is seen as head of the household often wants everyone else to do as they say, even when they might be acting as a brake on progress.

When is it time for he or she to step down; is there room for everyone in the next generation of the company; and when is there a case for bringing in professional management?

These are among the issues that Mark Stewart, Partner and Head of the Personal and Family Department at Brodies LLP has been dealing with for the past 25 years and he doesn’t underplay the challenges.


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Succession planning, he says, is often a difficult process for any business owner, with questions regarding their family, their business, assets, retirement plans and ultimately their death to be considered.

“Many people struggle to contemplate some of the deeply personal and sensitive matters involved, let alone plan for them with professional advisers,” he says. He summarises the issues regarding successful succession planning in four key points: ‘who, what, when and how’.

The ‘who’ can be among the most difficult of questions to address. Sometimes, he says, succession planning fails because of a lack of communication around expectations and aspirations. Are the heirs apparent actually as keen – or competent – as they need to be to take the business on?

“These are often very valuable enterprises and for many companies all the family wealth is inside that particular asset so there’s the question of trying to square things up with all the children involved,” says Stewart.

There can be debates about equality and fairness and, he points out, in Scotland there is the issue of legal rights to consider. “You can’t just leave all of your assets to whoever you want to leave them to – there are certain people who have fixed entitlements and you cannot take these away from surviving children.” The social policy is quite clear, he adds: “The law aims to protect certain relatives from disinheritance”.

Regarding ‘what’ they will inherit, he says that it’s always important to be clear about the assets involved in a succession planning exercise. “For many business owners it’s all quite neat as there is one company in which the heirs will all have a shareholding and the goodwill and assets are inside that company.”

However, there may be additional factors such as joint ventures, partnerships and assets, which are held outside the business but made available to it. “In planning who you want to leave your business to you have to be absolutely clear about exactly what the business comprises. It’s important to look across the whole asset spectrum. With good succession planning you need a personal balance sheet that shows how to spread these assets.”

‘When’ to start planning, he says, is …now. To ensure an orderly handover during their lifetime and avoid a precipitous change in leadership caused by death, sickness or accident it’s useful, says Stewart, when you are in your forties or fifties and still active in the business to consider the appropriate time to take a step back and pass on control and ownership. The tax system, he adds, generally encourages people to move assets on to the next generation during their lifetime.

And if the worst-case scenario does transpire, it’s important to have a well drafted will that looks after business continuity issues in terms of who is going to come in the next day, take up the reins and keep the business and all its employees running.

The ‘how’ is largely a question of the legal mechanics. “This might be through the use of share transfers, partnership agreements, dispositions transferring land and buildings, and possibly assignations transferring other rights,” says Stewart.

Where succession planning is taking place in whole or in part at the time of death, having a well-drafted will that dovetails with any partnership agreements or shareholders’ agreements is also important.

“Many businesses are held in multiple ownership – whether family members or a mix of people who have got together to form the business. There may be two or three key people and, in that case, you should have already built a shareholder agreement and provision to deal with death into the articles of the company,” he says.

“If there are for example, three principal shareholders, the remaining two shareholders may have an option to buy out the estate of the deceased shareholder. Again, that’s all about the mechanics of having a well-drafted shareholders’ agreement in place to cover that eventuality and often you’ll back that up with reciprocal life assurance arrangements to provide the surviving shareholders with the funds to acquire the deceased’s shares.”

Stewart also points out the role of trusts in succession planning, though the system at the moment is “incredibly complicated”. Trusts are used by families to operate businesses across a wide range of industry sectors and to hold passive investments and can, he says, be used in perfectly legitimate ways to protect assets.

The government announced in November 2018 that a consultation will be published next year to make the taxation of trusts simpler, fairer and more transparent and he anticipates some changes to the regimen after the consultation period ends in January 2019.

Succession planning can be one of the lawyer-client relationships that lasts longest, and Stewart describes working in this area as a privilege. “Effectively I am asking people to sit down and articulate their views about their family members and their ability to take over responsibility.

“While as a lawyer it’s not my job to get involved in personal matters, it is my role to secure their objectives.

“I ask them to talk about their wealth and address their mortality, which for people who live and breathe their business on a daily basis, can be incredibly difficult. And in some situations, my role also involves sitting with clients over the years and reviewing how changes in circumstances affect the plans they have in place.

“Being involved in these long-term relationships is very rewarding, particularly when you know that you have helped an individual or a family to achieve peace of mind that their assets or business will pass to the right people, at the right time and in the right way.”

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