Family businesses are not just about succession. They are mainly about relationships, rules and asset protection

Family businesses have one major specificity compared to “regular” businesses: emotions, past experiences, family roles and unspoken expectations enter the business. That is why it is not enough to deal only with the handing over of the company to the next generation. If the family estate is to survive without conflict, issues of ownership, decision-making, communication and crisis scenarios must also be addressed early on.

A family business has a different dynamic than a regular business

A family business can externally act like any other company. Inside, however, it operates differently. In addition to performance, growth, rules and economics, tradition, the authority of the founder, old grudges, loyalty, sibling relationships, second marriages or children from previous relationships enter into it.

It is this mix that makes family business a special discipline. Decisions here are not just made pragmatically. They are often influenced by who feels listened to, who feels bypassed and who has natural authority in the family. In practice, therefore, it is not enough to have a good business model. A family business also needs well-set communication rules, a transparent process and decision-making rules as well as a well-set asset structure that protects both corporate and private assets from business risks.

In our experience at the Highgate Group, many family businesses postpone not only the issue of succession but also the protection and division of family assets until solutions and agreement are harder to find.

Succession is not a one-off act, but a long-term process

One of the biggest mistakes of family businesses is the idea that succession is solved with one decision, one signature or even a will. While this often works in practice, it brings with it a number of risks and problems that can be avoided.

If the next generation is to take over the company, it must enter it gradually. It needs to gain competence, experience, authority and trust of others. The founder, in turn, needs to know when to be a mentor, when to be a supervisor and when to step back from operations. This process takes years, not months.

Equally important is the uncomfortable but fundamental question: do the children even want to take over the company? Families often automatically assume the answer is yes. But then comes the sobering realization. Not every offspring wants to run the business. And not everyone who wants to run it is qualified to do so.

This is why it makes sense to address succession before it becomes an issue that is dealt with under the pressure of unexpected life situations, such as the death or divorce of the owners. Thus, for some family businesses, transitioning ownership and management to the next generation is an appropriate solution, while for others it may be more appropriate to prepare the business for sale. Both options are legitimate. The only bad thing is if the family only starts talking about these alternatives under pressure.

Without rules, conflict is only postponed

In family businesses, conversations about who owns what, who decides what, and what happens if a crisis situation arises are often deferred. A divorce, a death, a dispute between siblings, the departure of one of the active members from the firm, or the disinterest of the next generation – these are all situations where, in most cases, it’s not a question of if, but when they will occur.

However, when the company and the family do not have pre-set rules, conflicts are resolved and agreements are sought only when relationships are already strained and decisions are made under pressure. That’s when communication deteriorates, stress enters the process, and legal or tax solutions are often made in an emergency rescue mode rather than a well-thought-out strategy.

However, apart from the ubiquitous topic, the issue of ownership structure is equally important for the preservation and continuity of family businesses and should be resolved before the topic of succession or sale of the business is on the table. What issues are involved in the ownership structure:

• what is family (private) property and what is company property,
• how the different parts of the asset are held, whether the ownership set up in this way is tax efficient and at the same time protected from business risks,
• who has what property rights and decision-making powers in relation to specific components of the property ,
• and how the property will be dealt with in the event of unexpected events (death, divorce).

The family constitution, the holding company and the individual project companies owned by it, shareholder agreements or rules or endowment funds for asset management are not academic topics and documents. On the contrary, they are practical tools that can prevent unexpected life or business situations in the family business from leading to unnecessary conflicts and degradation or fragmentation of family assets.

Going abroad is not the only solution

Today, many Slovak family businesses are wondering whether it makes sense to continue building assets and doing business in Slovakia. We also see this sentiment. The reasons vary from legislative uncertainty to concerns about the protection of private assets arising from the various risks of doing business in Slovakia (tax controls, the shvarcsystem).

However, it is also true here that reality is not black and white. Moving abroad may not automatically be the best solution and certainly not a cure-all. Sometimes it makes more sense to create a “back door”, diversify some of your assets or better structure the ownership of family assets. Often in our practice it is not only preferable but also possible for family businesses to stay in Slovakia and set up effective protection of their business assets to withstand these risks and the specifics of Slovak business.

This is why family businesses should not think only in terms of “stay or go”. It is much more important to know what we want to protect, who we want to hand it over to and under what rules it should work.

Family businesses need fewer assumptions, more open conversations and pre-set transparent rules addressing a wide range of expected and unexpected life and business situations. Less improvisation and more rules. Less procrastination and more preparation.

At Highgate Group, we have been addressing this topic systematically and for a long time through the Estate Vault service – through the protection of (family) business assets, setting up tax-efficient and legally secure asset ownership structures, succession or sale of the family business. Because if family assets are to survive for generations to come, they must first and foremost be able to be properly organised and protected.

We are the Highgate Group, modern advisers for your law, tax and accounting under one roof.
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If you’re interested in how to set up relationships, succession and protection of family assets so that the business can continue to operate a generation down the line, we cover this topic in detail in the Highgate Talks podcast:

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