12 April 2022

02 May 2013

Business Succession 5 A Family Wealth Management Story

Preventing family disputes and disputing the myth that “80% of family business do not survive the third generation” – you can prevent the onset of family disputes by limiting the chances of power struggles among family members.

Inadequate provision or delay in implementing a succession plan could be detrimental to the family business and family harmony. The reason why most family businesses fail to survive beyond the third generation is due to the complex interactions and conflicting interests among family members on issues such as how the business should be run and the power struggles among the top management. In general, most business owners plan to distribute their shares in the family business to their children. The following problems arise as the number of shareholders grow.

Private Foundation
Another effective means of sustaining wealth for the truly wealthy is to limit the ownership of all the beneficiaries. A structure that can achieve the above objective and allows the business owner to retain more control over assets is to set up a private foundation based on civil law. A private foundation is a separate legal entity set up by an individual, a family or a group of individuals, for the purpose of philanthropy or private wealth management. For simplicity, a private foundation is basically a hybrid of a trust and a corporation, usually established by a founder to hold assets with the objective of managing these assets for the benefit of the beneficiaries on a contractual basis.
Some families use foundations to create a legacy. A foundation established in a loved one’s name is a way to honour that individual even after he or she has passed on. Establishing a foundation in a family name can also encourage family members other than the founders to participate and provide a common cause to foster bonding among family members across multiple genera- tions.
Normally, the supervision of a private foundation is done by the jurisdiction government where the foundation has its domicile. Labuan International Business and Financial Centre (IBFC) is one of the few common law jurisdictions in Asia Pacific that caters for both trusts and foundations with a choice of conventional or Islamic (Syariah) model.
The administration of a private foundation established by a founder consists of a council, an officer and a secretary. The council is responsible for supervising the foundation’s management and ensure the objective and purpose of setting up the foundation is fulfilled in accor- dance with the charter, articles and
the law. The officer administrates the foundation and the secretary is responsible for filing, reporting and lodging of documents with the governing authority.
Assets placed in the foundation are owned by the foundation and are to be applied to prescribed purposes. This feature distinctly separates the ownership and management control of a family business. One of the successful examples of a foundation owned family business is IKEA.
Reasons for Setting Up a Private Foundation
• Founder may have rights reserved to him over the management of the foundation
• Protection from hostile takeover of family business by a third party
• A succession planning tool to enable subsequent generations to participate in and enjoy a family’s wealth
• Structured way of holding assets with specific purposes
• Perpetuity
Strategy for the wealthy family The wealthy individuals understand that maintaining and preserving their fortune for generations is equally important to actually creating and earning it. The family can use various asset structuring vehicles for wealth preservation, however, to truly achieve the objective of growing family wealth in a harmonious environment within the family, cultivating strong family values with proper family governance to ensure the family strategy is being well executed and in a sustainable manner is essential.
In the next issue, we will explore what other things need to be in place in order for a family wealth preservation structure to be fully functional.








http://moneycompass.com.my/en/series-on-business-succession-5-a-family-wealth-management-story/


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