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Securing the dynasty

For consumer businesses with a winning formula, an aggressive roll-out strategy can prove hugely successful. David Prosser looks at how - and where - to go about it.

Positive succession planning – preparing the next generation to manage the business – is obviously crucial for a family business.

However, families must also consider how to protect their business against unforeseen, but perhaps not entirely unexpected, threats. How would ownership and control be affected by a sudden death, divorce, personal bankruptcy or a family dispute?

The most fundamental decision for a family business is who should be permitted to hold shares. Some families take active steps to ensure that ownership is retained by a very small number of the next generation, through designating one or more chosen successors and ensuring that all shares are transferred to them. Other members of the family who are precluded from share ownership are compensated, possibly with a cash payment in lieu of receiving an interest in the business. This approach is very effective in addressing problems of control, but it is not suitable for all families.

Where ownership is permitted to be spread more widely, it is sensible to decide exactly who should be allowed to own shares. One key decision is whether shares may be transferred to spouses, or whether only members of the bloodline may hold them. Restricting shares to bloodline members of the family may appear somewhat inflexible, but without this restriction shares can easily leave family control.

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