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  • Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 5/14/2014

Planning transmission of the business – one of your most difficult tasks 

Planning transmission

Here’s what Luc Darbonne, fourth generation leader of Daregal, a world leader in aromatic herbs, says: “I think that a leader needs to start working on their succession aged around 50 years old, well ahead of time. Afterwards, the emotional charge becomes too strong.”He shared his thoughts with us back in 2007 and he had already started a couple of years before. It was only in 2013 that his son Charles was formally installed to succeed him.


Assuming that you are the sole owner, you probably have many options open to you. If other family members are involved in the business, as owners or employees, or are getting ready to enter the business, it’s crucial to have open discussions with them about whether the business should stay in the family. Business strategy, financing, family talents and commitment, are some of the factors that will come into play in this decision.

Selling the business

This seems an easy option; however you may have preferences regarding the type of investor that will take over the business. You may wish to reflect on the question: who or which organisation would be the best owner for this business? One of your efforts in coming years should be to ensure that your business can survive without you, to ‘de-personalise’ it, particularly by building a stronger Board of Directors. Such a Board can also help you through the steps needed to prepare the business and to arrive at a ‘good sale.’


You might consider selling the business to your managers and employees. It has the benefit of bringing in new owners who already know the business well and are committed to it. However, it’s important to make sure that you are as rigorous in this process as you would be with an outside investor – and that you don’t lose valuable employees in the process through the failure of negotiations. You could sell to one or several key managers, and/or use an employee stock ownership plan, making all employees partial owners of the company.

Transferring the business inside your family

This option is a given for some businesses that have already been through several generations of family ownership. These individuals may feel like Charles Darbonne, fifth generation family business owner: “A family business is not entirely yours. It does not belong to you. You’re here to pass the baton on”. However, family transmission is not an obvious choice for many entrepreneurs. Some prefer to cash out after all their efforts; others – like Bill Gates – wish to see their children create their own professional life.


Discussion inside the family is important to discover whether some family members (leader’s children, nephews or nieces) are interested and have the talent to take over the business. Such transition will require many years to be effective, as the following questions need to be addressed:


  • Who’ll lead the business? Family or non-family? How do we make sure that we have the best leadership?
  • When and how will ownership be transferred?
  • How will governance be organised in the new ownership configuration?
  • How shall we ensure that conflicts don’t arise?

One often overlooked possibility is the purchase of some of the shares by the successors. This demonstrates the commitment of those who are ready to take over and provides the current leader with greater financial security.


Family transition is a long road, but can bring a great deal of satisfaction to all when properly handled. A family business is a meaningful project, which family members can identify with, and the family can bring commitment and a long-term view to the business.

Further considerations

While one shouldn’t underestimate the efforts that family transferral may require, neither should you underestimate the challenges that wealth can bring if you decide to sell the business: managing wealth is very different from managing a business; new meaning will need to be created (including philanthropy, or new ventures), and your children’s (or grand-children’s) education will be affected by the new environment.


We’ve already mentioned several factors to take into account when planning for business transition: the business needs, the family’s commitment and talents, the owner’s future needs, etc. Tax issues will also have an influence on this decision, but we would argue that they should not be the determining factor.


In any case, it’s best that you start early: it will leave you time to ponder the various options, to discuss them with the family and to prepare for the change!

Christine Blondel

Christine Blondel
Christine Blondel is adjunct professor of Entrepreneurship and Family Enterprise at the Wendel International Centre for Family Enterprise at INSEAD.
 

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