News & Media

Fundamental tenets and laws of succession planning

Mar 11, 2019
  • Published by : The Economic Times
  • Author(s) : Darshan Upadhyay , Bhavin Gada
  • Be it India’s biggest conglomerate or small family businesses, everyone is grappling with succession planning to ensure that the wealth is safeguarded. The entire Raymond group dispute between father-son duo is an akin example of the importance of succession planning, especially in a family driven business. A recent statement made by the Raymond Group promoter and chairman Gautam Hari Singhania highlights the gravity with which the succession planning needs to be looked at:

    “Tomorrow morning if I die, god forbid, there are identified people who will take charge of everything. Raymond can run independently and competitively. My children are very young. I have a responsibility to my wife and children, to my employees and shareholders, my banks, institutions and customers”

    Yes Bank is also deciding the fate of who will be at the helm of affairs after the erstwhile promoter and managing director Rana Kapoor had to step down after the RBI’s directions.

    However, what goes on in the minds of the promoters to effectively decide the succession planning is driven by various factors, few being, applicable laws, preservation of wealth, limited liability, synergies of thoughts, flexible structures, ring fencing of assets, timing to initiate succession planning, cross-border presence, amenability of structures to tax and other duties. On one hand, the laws governing the succession are critical for any succession planning, but the choice of successors (who may not necessarily be only from the family) is an important factor for the same. Unlike individuals, in case of corporate houses, succession planning is rooted deeper to choose the right structure who can lead the group companies, and the composition for the board of directors for the group companies and the rights that the promoters (including their successors) should have.

    India is known for its large businesses run by family. As per a recent study conducted by a company which specialises in family business consultancy, India has 108 publicly listed family owned businesses, the 3 rd highest in the world, however, 97% of Indian family businesses do not have family constitutions or succession planning document. This lays the important of having a robust succession planning in place.

    Succession planning can be of two types viz. (a) family succession planning; or (b) business succession planning. Succession planning is largely driven by the intention of the person making succession planning. Often, family succession planning involves devolution of property in the legal heirs as per succession laws. However, the scope of business succession planning has enhanced, and professionals are also being looked at as successor to the business.

    In this article, we discuss the fundamentals of succession laws and the way ahead for succession planning.

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