A common theme in Asia is the topic of ageing founders and the
corresponding issues that arise around succession. Last week
we attended Taipei's AVCJ forum where it was reflected that
Asian entrepreneurs have traditionally looked to pass on ownership
and management of enterprises to their children. However, a
founder may find that his children lack the interest or indeed the
talent to take up the reigns. For these reasons the founder
may want his children (or certain of his children) to benefit from
his wealth but not necessarily be involved in the future of the
Trusts are a popular tool for succession planning. They
provide for the separation of legal and beneficial interests in the
trust fund, thereby providing flexibility as to how trust assets
can be applied and enjoyed by a number of persons, whilst
protecting against fragmentation of ownership. The Cayman
Islands allows for reserved powers trusts, which are particularly
useful in the family business context. These types of trusts
can allow for the powers relating to the management of the business
to be reserved to e.g. a management committee, so that the trustee
is not tasked with the management of the business itself.
Such a trust maybe established when a founder is looking to
IPO. The risk with having an individual controlling
shareholder is that that person may die or become incapacitated in
the potentially long lead up period to the IPO. Such an event
could halt the IPO as the key voting shareholder is no longer
around to exercise his vote. Pre-IPO trust structures are a
popular method to mitigate this risk. The controlling
shareholding can be transferred into a trust so that the shares are
held by the corporate trustee but with controlling powers granted
to a management committee who will vote on the IPO.
This is also an opportunity for the founder to consider how to
transition his wealth to subsequent generations (and/or charities)
and to potentially take advantage of lower business valuations,
pre-IPO, when effecting the transfer into the trust. To keep
the company's employees incentivised during the lead up to the
IPO, the founder may also put aside a portion of the company shares
into a trust for employees. The shares and/or proceeds of sale
can then be distributed to employees at the relevant time in
accordance with the tailored employee benefit trust.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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