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Entrepreneurship: The problems and pitfalls of handing on a successful business as a legacy.


RELATIVELY few modern entrepreneurs start a business with the intention of building a dynasty - the plan may be to float or sell.

However, for the owner who has run a successful company for a number of decades the idea of handing a thriving business on as a legacy can be very attractive - and this is where problems can start.

Business decisions are based on rational grounds; family decisions have to take account of emotional consequences, too. A stumbling block to keeping a business in a family is knowing when to pass control on to the next generation - 75pc of family businesses fail to survive this transition. Areas to be considered in passing on the family company include: # Choosing the right successor for key management; # The children may have the right skills but may be hesitant about joining the family business; # Fairness is a key issue for most families; for example, do you give equal shares to the children not working in the business?

The tax and legal aspects of family business succession can be complicated, but should never be allowed to dominate the decision making progress. The use of trusts to hold shares for younger family members is often appropriate and careful inheritance tax planning is important, not least to ensure that capital gains tax is minimised.

The employment contracts of key family and non-family board members are important to ensure due reward and motivation, and also to make certain the company is not treated as a personal bank account.

The biggest challenge for the owners of a family company is to recognise that they need to plan for their succession as proactively as they plan for the business.

A balance must be struck between the needs of the working and non-working shareholders; between the family and non-family employees; and between the generations. Ultimately, the successful plan for passing on the family business must meet the needs of the family and the business.

# Stephen Harrison is the regional chairman of PricewaterhouseCoopers
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Copyright 2002 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Business
Publication:Western Mail (Cardiff, Wales)
Date:Oct 2, 2002
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