The sale of a family business is not the end. Whilst, as far as the family are involved, it may be the end of that businesses' lifecycle, it often signifies a new chapter for the family themselves.
There are so many different options that are available to the family members, both as individuals but also as a collective. As we noted in our last article, the key is not to rush into making any decisions. Sometimes doing nothing but simply weighing up your options is the most constructive thing you can do.
However, as is often the case, dynamic families that have grown and managed a business are not ones to let the grass grow.
We don't intend to try to list all of the options available to the family once it has sold the family business; it would result in a very long article and we'd no doubt fail to catch everything that an existing family has undertaken or could undertake. However, we detail below some of the more popular:
Distribution to individual family members
Where the sale hasn't resulted in individual shareholders receiving cash, an option that the family may wish to consider is distributing the proceeds to individual family members to enable them to pursue their individual interests. Whilst the family will have been unified in running or supporting the family business, upon its sale, individuals may have very different goals or pursuits. Distributing the proceeds into the hands of the individuals will allow them to pursue their own aspirations and ambitions.
Family Trust or Family Investment Company
The family may decide to set up a trust or investment company so that the proceeds can be retained for the benefit of the family members without distributing it to individuals. This can often be useful where there are minors in the family or where the family want to retain the benefit of the proceeds for future generations as well as current ones.
Build another business
Having built up and managed a successful business, family members may want to roll the dice again. They will have knowledge and skills which will, no doubt, be transferable to another business. Whilst restrictive covenants included in a sale and purchase agreement may restrict the family from opening a competing business, there may well be connected businesses or, indeed, completely unrelated businesses that the family wishes to pursue and, provided the family remain aligned and are clear on strategy, roles and expectations, working together again can be an attractive option.
Investing into other businesses
If there isn't the appetite to grow another business from scratch, another popular option is to invest in established businesses, whether those in the start-up phase or those that have more of a proven track record. Picking the right business or businesses can be complicated. It is not just about what the business does, but what shareholding you may be expecting and whether you believe in the strategy and the people driving it. These may have been (although may not have been) easier conversations to have with family members who you know and love!
Philanthropy – of course, it is not only about business opportunities. The family, or its individual members, may want to pursue some philanthropic activities. This could be through the establishment of a family philanthropic organisation or may simply be through backing already established organisations through charitable donations of money, time or both.
Whatever you elect to do, being clear as to your objectives and seeking advice is imperative. Whilst the decision as to what to do next will be driven by many factors, getting good tax advice before you start down any particular road cannot be underestimated. Nor can advice regarding structure and how to put your best foot forward, wherever that foot may be taking you.
How we can help
We have extensive experience advising family businesses at all points in their lifecycle, including through the process of transition to the next generation.
We can assist with reviewing existing governance arrangements and ensuring that that are fit for purpose, providing stewardship and governance training to existing and incoming family management, and acting on your behalf as an intermediary in the context of discussions regarding the future of your business.
We are also well experienced in advising on corporate and business restructurings, including with respect to the tax.