The following story is based on an actual series of events with some names and circumstances fictionalised and any similarity to the name, character or history of any person is entirely coincidental and unintentional. With it, hope that we can understand more about why family business fail.
It was unexpected for Jade. Her late husband, Chee’s family business empire had just fallen in the hands of others!
How wrong Jade was with her assumption that when it came to the crunch, her late husband’s two partners would be sympathetic towards her. Instead they teamed up to make sure that not only she had no say in the business but also for her two estranged step-sons from her late husband’s first marriage.
The two partners combined their equity holdings to ring-fence control and totally keep out the family of late founder Chee (Jade’s late husband) as they were worried and felt strongly that the ensuing family conflicts between Jade and her late husband’s family from his first marriage would be disruptive to the business.
The partners had the advantage of the split equity holding of the Chee family members to stage a takeover of control of the business. Jade had never thought the partners would betray her as they were very supportive of founder Chee, and also empathised with her when they saw how terrible the step-sons treated her after their father passed on.
The partners consoled Jade many times and offered to help in anything. She had the feeling that they would not be inclined to bring the step-sons into the business. She also reckoned that they would not be averse to appointing her as Director of the company so as to maintain the Chee family interest. However, all those so-called partners were fake. Eventually the partners took control of Chee’s family business empire and kicked her out.
How Easily A Family Business Fail
How could Jade’s late husband not foresee this? It became clear to Jade now that her late husband was good in running the business but he had failed miserably in ensuring continuity of the family business empire that he so capably built.
While Jade’s late husband knew of Jade’s capabilities as a successor, he had not planned for it. He had not been communicative and shared with her anything to do with the business. He had been going about in the prime of his life as if he was immortal. And that probably was the reason why he didn’t even have a will!
Only after the cruel blow of being killed in an accident following a drinking session with business associates that Jade found out that her late husband was actually not in control of things, especially his business empire. He was so ill prepared.
Without a will, her late husband’s assets would, according to the intestacy law, be distributed to his parents, spouse and children. Effectively without surviving parents, his estate which included his majority shareholding in the family company is split between Jade and his two sons from the first marriage. That means not only his business but the house that Jade is staying is now co-owned by her step-sons too!
But being on unfriendly terms, the fragmented shareholding of the Chee family members delegated them to be minority shareholders. By not combining their shareholding, they could not match, out-vote and block the combined controlling power of the two partners. What a tragedy!
The Importance Of Succession Planning
Proper succession planning would have ensured smooth continuity of management, control and ownership of a family business. If not, the chances for the family business fail will increase.
It is prudent that succession planning starts as early as possible to avert a situation like the unwanted outcome of the Chee family business. Consult experts in estate planning to make sure a succession plan is achievable and will not have unforeseen pitfalls, even of tax and financial nature.
A viable solution would be a Business Trust which creates a structure for family succession. Through instructions in the trust deed from the owner, the Business Trust can be designed to benefit the family members to ensure the continuity and preservation of the business within the family, even for those who are not on good terms with each other.
Contentious issues such as successor -be it a family member or a business partner – and the delegation of powers could be pre-determined and stipulated in the Business Trust for the appointed Trustee, which is recommended to be a licensed trust company that operates in perpetuity, to carry out the instructions.
Other relevant matters that could be addressed could include triggering event, for example, death, illness, incapacity or disappearance; or legal considerations that include exit arrangements or buy-sell arrangement of shares by other existing partners/shareholders from family shareholders; and also succession structure and process.
With such proper estate planning that also encompasses protection of beneficiaries from unwarranted or future claims from creditors or ex-spouses, or takeover attempts by unfriendly parties, or even possibility of squandering of inheritance by beneficiaries, nothing is left to chance and the interest and future of one’s family business would be safeguarded.
Such comprehensive estate planning solutions can be achieved by consulting an experienced estate planner working with an established company such as Rockwills Trustee Berhad.
About Rockwills International Group
Rockwills International Group, now in its 27th year, pioneered professional will writing in 1995 and has since evolved into the leading estate planning specialist in the country. It is today the largest provider of solutions and support services in the areas of trusts, succession, management and distribution of wealth. It has shareholders’ funds exceeding RM50 million. It has done over 280,000 wills and 15,000 trusts and hold more than RM25 billion in assets under trust.