India: Succession Planning In Real Estate Business

Last Updated: 30 January 2015
Article by Sunil Tyagi and Jayshree Navin Chandra

In a dynamic economic climate, sudden and unexpected change in the ownership and management of a business is a cause for concern for both internal and external stakeholders. To inspire confidence in an entity's long-term prospects and protect continuity and performance of the business, entities engaged in real estate business and development must adopt a strategic approach to succession planning. In fact, one of the most crucial governance responsibilities of a Board is to implement best practices in the area of succession planning.

As there is no universal or uniform approach to business succession planning, numerous factors must be considered including practical and commercial aspects of the business concerned and circumstances that are unique to an entity. An effective succession strategy balances and harmonizes the interests of all stakeholders. Unfortunately, such efforts are often ignored or improperly executed. The main issues can be broadly categorized under three heads – ownership and passing on of business to second/third generation; takeover of management responsibilities; and Tax planning.

As far as succession planning is involved, family-owned businesses in the real estate sector face unique challenges. The important question that needs to be addressed in succession planning is the role of family members – what shall be the nature and extent of each member's ownership as well as width of responsibilities, and whether these individuals possess the requisite skills and acumen to run the business competently. Families who consider themselves unequipped/under-equipped to handle the day-to-day running of the business, may opt for external management for executive roles. However, key portfolios as well as managerial positions are generally retained within the family.

It is desirable to involve family members from the very outset, to disentangle family feuds from succession planning and to recognize that ownership and management do not have to be necessarily combined. For instance, it may be viable in some cases that ownership of an entity be transferred equally to some family members, even though only one/few are given managerial responsibilities. As family members may have different long-term business aspirations for the entity, drawing up the succession plan in writing and involving them in open dialogue can help prevent misunderstanding leading to bitter disputes and breakdown of the family business. The aim is to ensure the continuity of family's welfare as well as wealth and business legacies.

The first step is determination of the most efficient mode of transfer of family stakes (whether wholly or in part) to the next generation. Succession of family-owned assets and interests in a business can be effected through various modes depending on the goals to be achieved and the challenges thrown due to sensitive family dynamics. If desirous of completing the transfer during one's lifetime, outright sale, making a gift and setting up a trust are some popular modes employed. On the other hand is the more traditional mode of bequeathing one's assets under a Will, where the transfer takes effect upon the testator's demise. The Will should clearly set out the specific bequest to each beneficiary and appointment of a competent executor. In the absence of a Will, succession of one's assets is governed by the rules of intestate succession under personal law – these rules may/may not be favorable from the point of view of competency and leadership ability of the beneficiaries.

Family trusts are increasingly being used as a more secure vehicle to protect wealth, especially since one can be both Settlor and one of the beneficiaries at the same time. This mode also does away with the apprehension of long-drawn legal disputes on alleged authenticity/validity of Will. Creating a trust fund can act as a buffer against unforeseen contingencies and business failures. A trust can be revocable or irrevocable. Revocable trusts are ideal where the Settlor is desirous of retaining control over the income and/or assets of the trust. Such a trust can be dissolved once it has achieved its stated purpose. Revocable trusts are a popular mode employed for separating one's personal wealth from the business. On the other hand, if the objective is to permanently transfer one's assets in favour of legal heirs, an irrevocable trust is preferable. Other issues to keep in mind include objects of the trust, appointment, remuneration and removal of trustees, powers of trustees, trust property, etc. Keeping in view the complexities of the business of real estate and the family hierarchy as well as the goals proposed to be achieved by the family unit, an effective succession structure is required in place and necessary documentation to effect smooth transfer must be drawn up by legal experts. For example, conflict situations amongst family members and management can be prevented by executing a well-drafted Shareholders' Agreement.

Choosing the best option is also intricately linked to undertaking the valuation of a business – whether it is a purely family-owned business or only part of it is family-owned and the remainder is held by public or other outside entities. A comprehensive business valuation shall take into account numerous factors including financial history, current and projected performance, debt liability and investments, existing and projected industry and market conditions. Though there are numerous models and methods in place for valuing a business, it remains a subjective exercise, depending largely on judgment and projections.

Succession plans are equally about efficient transfer of managerial responsibilities to the next generation. The first step should be to identify the challenges that the real estate business is facing and is likely to confront in the near future. Potential successors can be then identified whose competencies and skill sets are closely aligned to the entity's long-term strategic goals. These individuals must have a sound understanding and appreciation of all business verticals – finance, legal, human resources, operations and management, marketing, etc. The search for prospective successors can be conducted either internally (within the promoters' family) or within trusted and long-serving employees/directors. Prior to the handover, the potential successors should be given the opportunity to work alongside and under mentorship of the present leadership. They must also be exposed to the working and challenges across different business verticals. The earlier the prospective successors are identified, the longer their training period which facilitates steady handover of the leadership.

Tax implications must also be taken into account when framing a business succession strategy. The choice of a mode of transfer of family stakes is also affected by direct tax implications. Long-term and short-term capital gains tax implications as well as tax exemptions/reliefs that are available are some factors that must be considered. For instance, capital gains tax is leviable on transfer of assets by sale, but is not leviable when such transfer is by inheritance/upon death of the benefactor. Further, there are differential tax implications on what is being transferred – whether it is a transfer of shareholding or a transfer of business assets. Though the concept of estate duty/inheritance tax does not exist in India, beneficiaries in certain countries may be liable to pay the same on their inheritance. Further, stamp duty is payable on setting up of Trusts and by transfer of assets by gift or sale. In India, stamp duty rates applicable may also differ from State to State. Keeping such factors in mind, tax-efficient succession structures can significantly reduce tax liability, and the entity can invest its tax savings back into the business or in other avenues.

It is never too early to start planning. Given the crowded real estate market, the creation of trust and security amongst customers definitely gives a competitive advantage. Moreover, second generations have often infused fresh ideas and innovative approaches into the business. Timely succession planning of a business can help mitigate family/stakeholder discord and public acrimony. It promotes frictionless operation of business affairs during the transition period, makes entities less vulnerable to takeovers and prevents damage to value and brand image. By projecting security, a real estate business can also maintain its relationships with suppliers, protect the morale of employees and garner stakeholder support.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions