Thais Cordero
Lawyer at Marcos Martins Advogados
The Covid-19 pandemic is claiming more and more victims in Brazil. Faced with the realization of how perishable life is, more and more people are looking for ways to draw up a will or even family succession planning, in the case of entrepreneurs. The result is that, according to surveys by registry offices, the search for this type of documentation increased by more than 50% in 2020.
According to IBGE data, more than 90% of Brazilian companies are family-owned. However, more than 70% are not passed down from father to son. Only 5% of them make it to the grandchildren of their founders. To change this reality and increase the perpetuity of companies, careful succession planning is needed. This avoids family squabbles and helps to preserve assets, which can last for generations.
There are usually two major problems surrounding this issue: the successors’ lack of interest in taking over the business or their lack of preparation and knowledge to manage the company, its demands and needs. In both cases, the consequences can be devastating if there is an insistence on appointing a family member to this position without the necessary skills.
This is why it is essential to seek to professionalize management. We often see companies operating in ways that are still analog in the 21st century. We need to modernize operations, automate processes and broaden our knowledge of the fundamental aspects that determine the success or failure of a business.
With this in mind, it is necessary to identify heirs who have the theoretical and practical knowledge to guarantee the company’s good performance in the medium and long term. It is recommended that the successor not only has total mastery of the company’s operations, but also market experience, having accumulated experience outside the family spectrum. Academic knowledge, through degree courses and specialization in and outside the country, is also important, especially for companies with international operations.
If it is not possible to identify any direct heir or family member with the necessary skills, it is best to look for a professional in the market. Hiring a CEO or CFO may be the best alternative to ensure the preservation of family assets and thus the perpetuity of the business, as well as the smooth running of the company. In these cases, it is common for family members to be part of the board of directors, having full knowledge of the company’s situation and the possibility of directing business guidelines.
Another option in the absence of heirs who are interested and prepared to take over the management of the business is a total or partial sale or a merger with another company, in the latter case to maximize business. In all these cases, it is necessary to map out the operational and legal situation of the business, assessing risks and opportunities, assets and liabilities in order to arrive at a fair valuation for everyone involved.
Once the decision on the future of the company has been made, it is important to map out all the assets, both those of the entrepreneur and those of the company. Financial investments, movable and immovable property, shareholdings and rights need to be mapped out. Then you need to understand the family situation, such as the marriage regime, the age and involvement of the heirs in the family business, among other particularities. Once the mapping has been done, the best organizational structure can be chosen, the most common of which are donation, a will or the creation of a family holding company.
Donations are common for transferring property, distributing shares or equity stakes. In this case, ITCMD – Imposto de Transmissão sobre Causa Mortis e Doação – must be paid. As this is a state tax, the rate varies from state to state. Another alternative is a will. This document sets out the will of the testator, making it clear to whom each of his assets will go. If there are no heirs, the testator can freely dispose of all their assets in the will and do so according to their wishes, including donations to charities.
However, in the case of entrepreneurs, the most recommended option is to set up a family holding company. In this case, a legal entity is set up with the aim of safeguarding the concentration of the family’s assets. In a holding company, the assets of the individual are transferred to the legal entity and the share capital must be paid in, so that the new company has control of the assets transferred, whether by one person or by the whole family. In addition, each person will have their share of the company, represented by their respective stakes in the company.
In order to guarantee the legality and fulfillment of the wishes of the family patriarch or founder, it is essential to have adequate legal support to avoid unpleasant surprises in the future. All decisions must be recorded in documents that reflect the wishes and aspirations designed for the future, avoiding family conflicts. These documents provide all the necessary security for family businesses, enforceable before banks and creditors, guaranteeing the legality of the operation.
Although it may seem complex, succession planningtakes an average of just 60 days, depending on the level of complexity of the assets and the company’s line of business. This is a precaution that every entrepreneur needs to take in order to guarantee the perpetuity of their company and the financial security of their family.
About Marcos Martins Advogados:
Founded in 1983, Marcos Martins Advogados is highly regarded in the areas of Corporate, Tax, Labor and Business Law. Based on values such as commitment, ethics, integrity, transparency, responsibility and the constant specialization and improvement of its professionals, the firm positions itself as a true partner for its clients.
Published by: Lex Prime
