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Protecting The Family Silver

Protecting The Family Silver

It says a lot about the values of business families that they focus so much on doing what is right for their business, employees and communities that they sometimes overlook protecting their own interests and the value they have worked hard to grow.

Often prudence leads to the family business owning property assets used by the company. This, of course, means that ultimately the property asset is “at risk” if, god forbid, there is a trading issue or the business encounters difficulties.

When the business is in rude health this may seem like a remote risk but most will encounter a sticky patch at some point - especially when we are often talking about businesses that are intending to live through many generations and, no doubt, have to diversify, develop and risk-take, to do that.

We have worked on a number of re-organisations lately which have the effect of removing property (often a key asset) from the company and allowing it to be leased back to the business by the family. As well as de-risking the asset, it provides a separate revenue stream in the future. Properly structured, this property extraction can often be done in a tax neutral (in fact, sometimes tax positive!) manner and without tremendous cost or hassle. Simply selling the asset to the family or a pension scheme is often not the best means of doing this.

Things are fast-moving nowadays with new businesses and products appearing (and sometimes disappearing) in a matter of months, with companies very often trading abroad. Our businesses need to tap into those opportunities while protecting what they have.

There is nothing new in using separate companies for new ventures but it is surprising how often, perhaps in the rush to chase the opportunity, the business will launch ahead and do it through the long-standing family company.

Where possible, by using a separate subsidiary (or company owned by the family) for the new venture, the inherent risks can be mitigated - putting that subsidiary/company and  your investment in it on the line, but at least protecting the “mother shop” against issues.

These type of steps are positive, and prudent. Being able to take opportunities and risk is part of the long term success of the business and itself part of protection of the “family silver”.

Taking time to put in place some simple risk mitigation strategies can help provide the base for that and allow you to sleep a little better whilst you tackle the next exciting opportunity.

And talking of "family silver", this week the finalists were announced in The Herald Family Business Awards. We are delighted to continue to sponsor the International Growth category, and I look forward to seeing fantastic examples of Scotland's family business sector showcased on the night. See here for more information.

Robert Burns
Partner

LChalmers