Business life is complicated. It can be even more complicated when family relationships are added into the mix. At Turcan Connell, our approach to family business legal advice is different.
The majority of our business has been built around families and, as a result, advising on family business matters is in our DNA. Our Family Business Team comprises solicitors across a full range of legal and tax services, including corporate lawyers, tax and succession lawyers, employment and dispute resolution, property and family lawyers.
Family Business Counsel Through the Generations
While our Business Law Team regularly advises on the disposal of family businesses, we are not focussed on churning a large volume of corporate transactions. Instead, we provide focussed and long-term advice to the owners of family businesses across the broad range of issues which arise over a lifetime. Indeed, many of our relationships with family business clients stretch back generations. A number of our Partners effectively hold non-executive positions with family companies, providing sound commercial and contextualised advice to the family in relation to their business affairs. Very few Scottish law firms have the capacity or experience to provide this type of advice and consequently our lawyers, particularly at partner level, are in high demand.
Not surprisingly, we have a deep commitment to the family business sector in Scotland. We work closely with Family Business United (FBU) and are founder-directors of its Scottish arm, FBUS. The principal aim of Family Business United Scotland is to provide a voice for Scottish family businesses, and to provide a strong support network for family businesses as well as helping to build the community in Scotland. We have been partnering with FBUS for several years now, and regularly support events like the annual Scottish Family Business conference through sponsorship and the provision of speakers. We also support the UK-wide Family Business of the Year Awards and provide substantial time commitment, considering each of the categories in detail with the other expert judges.
Succession Planning and the Next Generation
We also believe in the power of the younger generation coming through into family businesses and understand they require support and nurturing. That is why we launched our Next Gen Skills programme in 2016. This is a wide education programme aimed at sharing key legal pitfalls we have learned from our experience advising entrepreneurs and family businesses. The training is provided in a practical way and also has a strong social element to it to allow delegates to build their own networks. We invite a high-profile family business owner to each of our events to share their knowledge and experience.
One of our core areas of legal advice is helping entrepreneurs and family business owners in evaluating the options available to them for the succession to their business. The process is complex with many aspects including tax considerations, funding, the skills set internally of the people in the business, whether a family member can take over, the possibility of an employee buyout, customer relationships and timescales.
Our lawyers have in-depth understanding of the process and have implemented the full range of possible outcomes which include:
- Effecting the departure of one or more of a group of shareholders through a share buyback or capital reduction.
- Partial Exit involving bringing in external equity ahead of a full exit by the enlarged shareholder base.
- Demerging a business through a capital reduction demerger to allow a retiring generation to exit the business with a group of business assets, leaving the trading business behind with the next generation.
- An Employee Buy Out (EBO). The outcome here can involve direct ownership or indirect ownership by the employees through an employee ownership trust and there are potentially significant tax savings for the departing shareholder in the utilisation of an employee ownership trust. Our team were involved in effecting the EBO of West Highland Free Press in Skye in the late 2000s.
- A management buyout (MBO)/Vendor Initiated Management Buy Out (VIMBO). Our team implements a significant number of management buyouts every year and are fully conversant with the legal and tax issues as well as the wider skills and issues required to manage the transition process.
- Dynastic Succession. Choosing a family member to succeed to the ownership of the business can be fraught with difficulty even before the implementation of the process from a legal and tax perspective. Because of the high concentration of family business clients we have and have advised over a significant period, we are very familiar with the processes and issues.
- Trade sale. The number of entrepreneurial and family owned businesses making it to the second or third generation is not terribly high in proportionate terms and this results in a number of sales to competitors or financial buyers. Our business law (corporate) team is very experienced in this area of work and it does require not only the technical legal and financial skills and but a complex array of soft skills to carry a transaction across the line.
STEP Family Business Advisory Award
Our Family Business team has gained recognition nationally by being shortlisted at the prestigious STEP 2017 awards for Family Business Advisory Practice of the Year. We were delighted to be shortlisted alongside two of the Big 4 accounting practices who have an international footprint. We were the only Scottish firm to be shortlisted amongst what were largely international practices.
Our approach to advising family business owners is not process driven; while there may be some common issues, each family is different and bespoke legal solutions are required rather than a box ticking exercise. The real skills of our solicitors are listening attentively to the situation, working out a range of options and considering with our clients which of the options might work best for the situation, given the particular family dynamics. Because we have been doing this for such a long time, our solicitors really do carry broad experience into these situations and have the skill to judge how to present and deploy solutions for a wide range of legal issues.
How We've Helped Family Businesses
We have worked with one branch of the family over a long running dispute around ownership and control of a substantial business. We considered very detailed legal solutions through the governance structure, but ultimately negotiated the exit of the disenfranchised family branch.
One of our senior lawyers has chaired the family council of a substantial business over a long period of time, gaining a deep understanding of the family’s values and priorities and helping to smooth a number of substantial issues which have arisen over the period of appointment, providing a sounding board to the family and a firm directional steer from an independent standpoint.
Working with a large family which owns a substantial business, to identify policies for adoption by the family and to record these policies in a Family Charter. The Family Charter is non-binding but sets out clearly a number of fixed policy decisions around matters such as provision of learning experience in the business, spousal participation on the business, succession to shares, protecting the ownership of the business through prenuptial agreements and so on.
We advised a senior family member on certain protections which would come into play in the event of their death or incapacity and how the next generation should be supported were they to inherit this substantial business sooner than expected. The advice extended to protection of the shares through trust arrangements and ensuring that the board of directors had appropriate composition so that the business was properly organised and protected against an unduly quick sale following death/incapacity.
We guided a substantial business through an options appraisal to consider whether an employee buyout or form of management buyout would be better than a trade sale. Ultimately, a VIMBO was chosen as the best option. We worked up the proposal for our client, assisted with the tax clearances, pitched it to the management team and led on the transaction document architecture and drafting. We have undertaken several of these assignments.
We assisted our clients, a family owning a substantial business, with an options appraisal which included dynastic succession, EBO and MBO options. Ultimately, our client chose to go down the route of a disposal to an overseas purchaser. We assisted with the appointment of appropriate investment bankers (sales agents) and project managed the transaction to completion. Our clients had not undertaken a deal of this nature before and relied heavily on us to provide sensible commercial advice – not simply identifying options but proactively taking the lead in coming to a conclusion on issues.
Following the disposal, the family were exposed to significant inheritance tax (IHT) issues on the cash from the sales proceeds. This change in circumstances arose because the shares in a private company are currently exempt from IHT as a result of Inheritance Tax Business Property Relief “IHT BPR”. This scenario is typical following a disposal in that our Tax and Succession teams can provide detailed advice to family members in advance of and following a disposal, rather than our relationship simply ending at the point of disposal of the business.
We frequently find that family members, while not falling out, simply arrive at a point where they no longer agree how to take the business forward. Circumstances may change such as a divorce in the family, a larger requirement for cash to cope with school fees or a move from the business location for other personal reasons. The process of dividing a business can be difficult even if the commercial principles are agreed. The very difficult area tends to be tax. Our tax partners are very knowledgeable across these complex taxes and how they interact and our business law team together with our property team are very skilled at implementing this particular type of separation which usually occurs through a Capital Reduction Demerger.
Our Legal Services for Family Businesses
The full range of services we provide are:
- Shareholders agreements
- Partnership agreements
- Family Constitutions or Charters
- Succession – family buyouts/succession
- Establishment and maintenence of trusts
- Employee buyouts
- Management buyouts
- Joint Ventures
- Tax, including IHT
- Family law and prenuptial agreements
- Construction Law
- Corporate Social Responsibility (CSR)
- Operational support to the business:
- Commercial property advice
- Employment law – contracts and disputes
- Contracts – commercial contracts, franchising, agency, terms and conditions
- Brand protection
- IP/IT contracts
- Banking issues and documentation
- Company Secretarial
As well as providing these services individually or in combination, we often provide integrated advice to family business clients pooling our legal and tax expertise to develop a comprehensive perspective and deliver a fully integrated service.