Succession planning as essential tools for family businesses

As a result of one of the evolutions in the business sphere, succession planning in the last decades has been a fundamental tool for family companies that show concern in proving their market performance.

In reflecting on the economic field today, it is difficult to imagine a founder of a successful family organization who has not thought of succession planning for his or hers company.

What are family businesses?

According to Sebrae’s[1] definition, family businesses have a centralized structure and important community and commercial relationships.

Tudo sobre a LGPD - Lei de proteção aos Dados do Brasil
Tudo sobre a LGPD - Lei de proteção aos Dados do Brasil

Although there is no consensus on the concept of family businesses, researchers analyze that there are at least one relative (father, mother, grandmother, child, nephew, etc.) among the partners or collaborators of the company.

Today, family enterprises account for 90% of the companies present in Brazil, according to a survey conducted by the Brazilian Geography and Statistics Index (IBGE), with Sebrae.

What about succession planning?

Succession planning is a legal instrument that works to ensure that the succession of the founder and other family members occurs after the decease or voluntary distancing of the company.

Succession planning must occur, above all, in order to be done in an orderly and assertive manner, away from conflicts of interest among the family members.

It is essential to ensure that the transfer of assets is more competent and faster, with lower legal and tax operating costs for all involved.

Origin of succession planning in family businesses:

In Brazil, for a long time, family businesses were organized and managed in a very similar way.

The legal framework was fundamentally built according to the limited liability corporation (LLC)[2]. Members often used to be siblings, or even spouses.

The management policy was fixed, conceived exclusively by the founders and handed over to the successors when it was judged they were properly prepared. The organization’s equity was hardly segmented from the financial capital of the owners.

The paradigm shift:

In the last decades, however, many of these institutions, once consolidated, have begun to dissolve.

Elements such as: lack of clear guidelines, disagreements between the familiar components of the organization, increasingly globalized economy, significant increase in competitiveness, coupled with the growing demand for specialization in management were key points that synthesize what happened.

In this context of modernity, the need arose for succession planning, which was further grounded in the updating of the Civil Code and the relaxation of the concept of “family”.

What are the benefits of succession planning in family businesses?

If well targeted, there are countless benefits from succession planning in family companies. Among the range of advantages:

Shielding against economic destabilization in the organization: By planning the succession process, the company prevents that the death of a family member, for example, bringing economic instability and loss of wealth that could be avoided.

Tax Savings: Taxes and expenses usually carry up to 10% of inheritances. If well implemented, succession planning is able to drastically reduce these taxes.

Greater organizational comprehension: By means of the succession plan, it is made clear all the guidelines of the succession of the company, such as: who should be the successor? When will the succession occur? What will be done if the succession process does not succeed?

With this, the conflict of interests that can cause even the dissolution of the organization, diminishes significantly.

Implementation of succession planning in family companies:

It is imperative that the succession plan in a family organization be built in harmony with the peculiarities of each family and business.

During the process, the founder must be included, as well as the endorsement or physical participation of all involved.

It is necessary, during the integration of succession planning, an open dialogue, in order to deal with the conflicts that already exist and those that may arise.

Succession planning, therefore, is a tool for organizing and structuring the succession process in advance.

The misconception of family businesses:

Many family ventures make the mistake of thinking that succession planning calls for the construction of complex societal structures and expensive patronage schematizations, which is not true.

This explains the certain of resistance on the part of family institutions. It is estimated that succession plans are present in 42% of these Brazilian companies.

Strive for urgency

In the Brazil, surveys indicate that of every 100 family businesses, 30 can continue in the market until the first succession. In the second, the number decreases to five.

The Maciel Group has services and specialized team:

The Maciel Group has an extensive interdisciplinary range of professionals in the accounting and legal area who always seek professional and academic updating.

The team, together with the parties involved in the family business, can make a detailed study of the applicability of the succession plan for your business.

After the decision-making, several strategies are elaborated according to the peculiarities of the company to execute the economic successon planning and in accordance with the law.

After the company approves the plan, everything is taken to registration and formalization. Subsequently, manuals, scripts, and document templates for succession planning are distributed.

At last, all tax and corporate statements are reviewed and audited in order to correct any inaccuracies and appropriateness of practices for the company.

Roger Maciel de Oliveira

 

[1] Brazilian Micro and Small Business Support Service, Sebrae.

[2] In Brazil, it is called “Sociedade Limitada”.

inheritance planning, Succession planning as essential tools for family businesses, Russell Bedford do Brasil

CEO Maciel Group

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