A number of large, successful public companies worldwide started out as family businesses.
In Thailand, 80% of all companies in Thailand in the category of small to medium-sized enterprises are family businesses. Likewise, 67% of companies listed on the Stock Exchange of Thailand are family businesses, which make up 50% of the total market value.
In addition to creating job opportunities, family business stakeholders can provide support to the economy over several or many generations. Therefore, ensuring that a family business can be passed on successfully to future generations is an important task for the owners of any such business.
From one generation to the next, it is crucial to create a well-structured organization and succession plan that all members of the family can agree on in a family charter or as a corporate obligation.
In addition to steady growth, another key objective of a family business is to preserve the family's wealth, by ensuring that there are smooth transitions of ownership and management across generations and avoiding disputes. Effective tax and legal planning can help family-owned businesses thrive by providing a solid foundation for growth, stability, and long-term success.
This series of articles will walk you through several tax, legal, and accounting processes which are important to a family business, from seed stage to resource maturity stage.
Why do family business owners need to be aware of tax and legal planning?
It may be difficult for owners of family businesses to avoid facing tax and legal risks while focusing mainly on business growth.
Owners should consider internal controls and risk mitigation to help the business avoid tax and legal issues and financial penalties.
In addition, tax planning can help your family business improve tax efficiency and encourage owners to establish strong business plans for the future without anxiety about potential exposures.
A well-structured group company can provide flexibility when raising funds or disposing of shares to a new investor. In contrast, we have seen many cases where tax burdens have obstructed new business opportunities. A clear example of this is during a due diligence process, if the seller's business has significant tax burdens and the tax exposure is high enough to be a deal breaker when negotiating with a potential buyer.
Succession planning should also include consideration of inheritance tax and gift tax liabilities.
Similarly, from a legal standpoint, many family businesses fail to transition to the next generation due to inadequate structuring at their inception. This often results in internal family disputes, significant financial or tax burdens, or, in the worst-case scenario, the loss of legal control to external investors outside the family.
Heineken is a good example of a business which has been owned by the same family for over three generations. Control of the business has been passed down smoothly from one generation to another by using layers of holding companies to control operations.
Another success story of a family business is BMW, where leadership of the company over the generations has been transferred smoothly within the family due to a well-balanced combination of family involvement, strategic vision, and commitment to values, which has made BMW one of the most successful and admired family businesses in the world.
For Asia, a good example is Lee Kum Kee, a Hong Kong-based food company that produces a variety of Asian sauces. Lee Kum Kee's family built one of the most systematic family enterprises worldwide, establishing a family council, a family committee, a family investment centre, a family foundation, a family office, and a family charter. The Lee Kum Kee family believes that, for a business to be sustainable, the family must first be sustainable. With this belief in mind, the Lee Kum Kee business has been in operation since 1888.
As these examples of successful family businesses show, most of them prepare ahead and manage their businesses through tax and legal planning, such as establishing a group company structure with a holding company, obtaining approval from each member of the family through a family charter, and meeting company obligations. In our experience, the sooner a family business addresses these types of issues, the better.
What's next?
Every family enterprise is distinctive and complex. Like fingerprints, no two-family structures are precisely the same. This would require a tailored-made study by professionals.
Upcoming articles in this series will focus on key tax and legal considerations to strengthen your family business, such as why holding companies are often set up, how group shareholding can be restructured for greater tax efficiency, how business combinations can be used to scale up business growth, and how to get accounting systems and resources ready for expansion or going public.
How we can help
At Forvis Mazars, we understand the complexities and different requirements of family businesses. Our dedicated experienced professionals will work side-by-side with you, providing services to help you meet your family's goals.
Forvis Mazars has offices in over 100 countries to help you scale up your business, both domestically and abroad. We can provide the most efficient solutions for your business with tax, accounting outsourcing, legal, audit, and financial advisory services, regardless of the industry or country.
Contact us: If you have any questions or inquiries, please contact the following people.
- Parin Supsavaipol, Tax Director at [email protected]
- Chatchawat Kriengsuntikul, Legal Partner and Head of Legal Practice at [email protected]
