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Sustaining successful family enterprises: challenges & strategies

Sustaining successful family enterprises: challenges & strategies

21 September, 2023
Global Succession Planning

Sharon Yam, Regional Head for APAC at Ocorian, recently attended the HNW Insurance Summit – Singapore 2023 where she provided insights to delegates on the considerations for wealthy families aiming to pass on their businesses to future generations. 
In this article, we delve into the challenges and strategies of transitioning family businesses to the next generations, from a legal and technical point of view. 

What are the key factors to consider when sustaining family enterprise for future generations? 

1. Succession planning

Succession planning in family businesses is a complex endeavour. It involves identifying and nurturing potential successors, creating a clear roadmap for leadership transition, and ensuring the business's ongoing success. Planning must start early and driven by the family's vision.

2. Open lines of communication

Communication is the linchpin of any business, but it's even more vital in a family enterprise. Poor communication can lead to misunderstandings and conflicts that affect business sustainability. Regular and open communication can foster collaboration and transparency, avoiding potential pitfalls.

3. Robust governance

Balancing family dynamics and business priorities is a significant challenge. To manage this, families should establish a comprehensive family constitution. This constitution serves as a guiding document that outlines the family business's purpose, values, and decision-making processes, facilitating succession planning and adaptability to changing family dynamics.

4. Managing growth

Successful growth management demands strategic planning, financial stability, and prudent resource allocation. Navigating challenges in financing, capital investments, and resource optimisation is crucial for scaling up and thriving in any market. It's about making informed financial decisions to seize new growth opportunities.

5. Structured or unstructured succession 

Unstructured succession involves transferring shares directly to future generations, often through gifts, estate inheritance, or rights issues. In contrast, structured succession utilises wealth management structures like trusts or foundations to manage and ensure the business's smooth transition to future generations. 
Structured succession is typically easier to implement, but unstructured succession may be more common in regions without recognition of trusts or foundations, relying on contract and company laws for family business succession.

6. Four key structures

Structured planning for family wealth management typically involves four key structures. The simplest structure includes a private trust company (PTC) acting as the trustee, administering a trust for family members while owning 100% of the family business shares. In more complex scenarios with dispersed family members, a multi-fund structure may be used, where sub-funds own 100% of the business, catering to different family needs like education, medical, and philanthropy. Families with beneficiaries in different countries may opt for a complex multi-trust structure. Lastly, a hybrid multi-trust solution is becoming more common, accommodating different family factions' preferences for holding assets in various ways.

7. AML considerations

Anti-Money Laundering considerations are vital and must be prioritised within family offices, PTCs, and trust structures. The Monetary Authority of Singapore's (MAS) has a strong focus on due diligence, ongoing monitoring, a risk-based approach, transaction monitoring, and training.
There is a real need for trust companies to adopt a rigorous risk-based approach to AML and counter-financing of terrorism (CFT) to ensure compliance with regulatory requirements. 

Nurturing family legacies

Sustaining a family business across generations requires a multi-faceted approach. From succession planning and effective communication to robust governance structures and strategic growth management, form the foundation for enduring family legacies. 

How can Ocorian help?

Ocorian's private client service is built on long-term personal relationships that are founded on a deep understanding of what matters to you both now and in the future. This understanding is replicated in our client base, where we deal with the second and third generations of many of our client families. 
Contact our family office team today to find out how we can help you plan and develop your succession planning strategies.