By Robert Surcouf Director - Private Client Services, Jersey Trust Company
Running a successful family business is hard work and leaves very little time to plan for the ownership and management changes that will inevitably occur. Historically less than 30% of family owned businesses survive to the second generation and less than 12% to the third. In the GCC, there is a strong desire to maintain businesses as family owned, rather than to focus on alternative exit plans such as listings. Importantly, with nearly 90% of all businesses in the GCC being family run, maintaining long term family ownership requires a creative approach to develop a succession plan that will allow the family and the business to flourish together.
Discretionary trusts have, historically, been a successful element of succession planning. However the concept of a trust does not always sit comfortably with the Shari'a rules of inheritance, as there is an expectation of direct ownership and a level of day to day management that is not always possible when a trust is in place. In response to this, Jersey advisors have developed alternatives such as Private Trust Companies, Reserved Powers Trusts and Foundations. There is also a lesser well known solution, the Jersey Family Limited Partnership (JFLP), which particularly has great potential in the GCC.
The JFLP has a General Partner, normally a Jersey limited company, which is responsible for managing the partnership and its underlying assets. Family members can be on the Board of the General Partner in accordance with the associated family constitution, which would form part of the succession plan. This can help to create a family meritocracy for those who are involved in strategic decisions, in addition to any ongoing involvement in the day to day management of the underlying family businesses.
The Limited Partners of the JFLP, commonly the second or third generation family members, will often have a clearly defined direct interest in the JFLP and have limited liability similar to that of a shareholder. They are not, however, involved in the strategic decision making process unless they are specifically appointed to assist with the management of the General Partner.
A growing number of advisors now appreciate that to assist GCC families with their succession plans they must first take account of family culture and expectations. Trusts are not the only answer. Evolving entities such as the JFLP ensure that Jersey continues to play a leading role in assisting GCC families and their businesses.
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.