The unique dynamics of family-owned businesses become particularly apparent in the case of a family member deciding to leave the business. Whether this step is to be taken by business owners themselves or other stakeholders, the decision triggers a process which requires meticulous planning and open dialogue. The goal is to achieve a balancing act between preserving personal freedom and financial security of family members and ensuring that the future of the business remains intact.
Navigating a shareholder exit process can be a challenging task. Our report aims to shed light onto the process and address key aspects impacted by an exit.
Developing good governance is essential to ensure the longevity of family-owned. Formally agreed contractual documents that bind shareholders such as the Family Protocols, the Shareholders’ Agreement (SHA), the Memorandum of Association (MOA) provide a valuable guide for an exit process and can guard the family unity.
A non-binding, nonnotarised document that contains guidance for the family on exits
A binding, non-notarised document that contains various shareholder matters, including some contained in the family protocols, particularly on exits
A binding, notarised document that contains limited shareholder matters, as permitted by the notary public, including certain matters contained in the shareholders’ agreement and the family protocols
Every shareholder exit calls for a valuation of the business in order to be able to assess the current company worth as well as the projected future value so a fair price for the departing family member’s shareholding can be identified.
For the valuation a series of business performance factors is considered – in the case of family businesses there are additional considerations which impact the valuation outcome. This is especially relevant in the case of a sale to a third party.
Important tax implications and potential opportunities should also be considered in relation to a shareholder’s exit. This is particularly the case where the business and/or the individuals involved have a presence in taxing jurisdictions or, indeed, when the buyers themselves are based in taxing jurisdictions.
With appropriate planning, business exits can be structured such that any tax costs for sellers are mitigated as far as possible. A transaction is also an opportune time for sellers and buyers to implement longer term planning and arrange their affairs efficiently for tax and legal purposes.