Family businesses can be challenging to run, as the dynamics of blood relations can lead to emotional decision making and even family bust ups.
There are various strategies that can be put in place to alleviate such issues, including being careful over which family members are made directors, how the shareholdings are split, and what should be in a shareholders’ agreement.
A Shareholders’ agreement regulates the relationship between the shareholders, the management of the company, ownership of the shares and the protection of the shareholders. It also governs the way in which the company is run, helping to iron out family-related issues.
To ensure the continuity of a family business, particularly where older family members want to pass on the firm to the younger generation, it is important to have in place a carefully considered succession plan. Not only does this alleviate unnecessary turmoil damaging the business, but helps to ensure any tax issues are mitigated.
Such tax issues to be addressed will include Inheritance Tax (IHT) and Capital Gains Tax (CGT), both of which pose a serious danger to family wealth. A trading business may qualify for 100% business property relief from IHT, and entrepreneurs’ relief may reduce any CGT charge from 28% to just 10%.
Some family businesses may need to bring in outside help where certain skills and experience are needed and are not available within the family. Such expertise may be rewarded with incentives such as the Enterprise Management Incentive scheme. Where outside investment is needed, the Enterprise Investment Scheme will encourage potential investors.
Securing the future of a family business requires careful planning, and having in place the right legal and commercial tools to ensure its smooth running as it passes down the generations.
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