Unlike other regions around the world, a very high percentage of private sector Middle East businesses are family-owned. Many of the successful businesses are still managed by first generation founders, often the family patriarch. As these businesses have matured and grown, there is an increasing need to protect the core business assets, and the families’ personal assets. As such succession planning and wealth distribution should be an important consideration in the founder’s plans for the future.
For many years, family businesses in the region enjoyed substantial growth and prosperity, so it is not surprising that in a positive and buoyant economy, the notion of longer-term asset protection has previously not been high on the agenda. Now though, amid the political and economic challenges successful founding patriarchs are now treating succession planning, wealth and asset protection as important considerations.
The PWC Middle East Family Business Survey 2019 highlights that succession planning is a key issue for 53% of respondents, and the report highlights the importance families are now placing on establishing better family and corporate governance and organisation of succession planning for a smooth transition from one generation to the next.
As the Middle East often has extremely complex family structures, succession planning for the family patriarch or business founder can be challenging. Alongside this wealth creation comes aspirations for future generations and many of the second and third generations have enjoyed, or are enjoying superior educations. This growing international awareness is also adding to the growing diversification of investments and new assets in new areas. It is not unusual for personal assets to be confused with business assets, particularly when you have multiple generations investing separately. For the founder, all of these evolutionary, political and social changes add enormously to the complexity of the family business and its succession planning, which is why the Family Office, based around the principles of governance and asset protection, has become increasingly popular. It provides the structure that is often lacking and ensures the founder’s wishes for wealth distribution, asset protection and succession planning are met.
There are various ways to pass assets and hand over control of businesses to the next generation – some families may keep the wealth together; some may wish to see it separated amongst inheritors. Some may wish for it to be held in trust under different dispensation and beneficiary rules; some may wish to see full command and control inherited with the wealth. Some may wish only to hand over personal assets, others confer their businesses. In all these cases, governance structures and plans must be in place – and best practice is to get them in place before the family head reaches old age.
Please contact us if you would like to discuss succession planning and asset protection options that may be available to you.