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Estates & Wills & Trusts

Appropriate match key to successful family business handover

When it comes to passing down a family business to the next generation, simply wanting to work together is not always enough to ensure a smooth transition — the successor also needs to have business-specific interests and knowledge, Toronto estates and trusts lawyer Suzana Popovic-Montag tells Succession Planning, a special supplement published by The Bottom Line and Lawyers Weekly. 

Handing over management of a business to a family member has its advantages and disadvantages, Popovic-Montag, managing partner of Hull & Hull LLP, explains in the article. One benefit is that relatives often have a connection that outsiders cannot replicate.

“Family relationships often foster effective communication and a shared background that allows the key members of a business to understand one another easily. These qualities may assist in relaying information to a member of the next generation that is intended to act as successor of a family business,” she says.

However, Popovic-Montag adds, “Family relationships may give rise to a higher emotional component to the work, along with the likelihood that those emotions will be communicated rather than kept private in the interest of professionalism."

One generation may also be reluctant to step aside for the next generation, she says.

“It may be difficult for a family member to see that a younger relation is ready to take over management of the business as the perspective of a parent, aunt or uncle, or grandparent, is likely to be different from that of an independent colleague.”

The pressure for kids to live up to parental expectations can implode a business and a family, making honesty and awareness when succession planning essential, she says. Having a good relationship between family members is not always enough.

Successors, she says, should be “willing and interested in becoming involved in the management of the business before given the opportunity to take over.”

Ultimately, says Popovic-Montag, the business and the successor need to be an appropriate match.

“Plans may need to be changed from time to time to address material changes in family situations and the status of a business, much like estate plans should be reviewed periodically,” she suggests.

Working closely with family members may also facilitate the transmission of family wealth, Popovic-Montag says, especially in situations where a family business is the primary asset to be passed down from one generation to the next.

“By involving younger family members in the same business, in which they are anticipated to take on an important role and a financial interest in the company or partnership, the incorporation of family dynamics into business succession plans can be extremely effective.”

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