gma Business Protection and Succession Planning
Business Protection and Succession Planning

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You put in a lot of effort and personal sacrifice to build and run a business. Delivering goods or services, watching the costs, getting the right connections and the right people in place are keys to success. Your wealth is generated and often locked up in your business. Business Succession Planning is most important.

Business Succession Planning

The 3 risks entrepreneur investors / business partners are exposed to in the UAE. While the country is expat-friendly and treats all residents equally, that doesn't mean it's not important to know what happens to your savings, assets and business in the country in the event of untimely death, especially there is no Succession planning in place. Many businesses forced to shuts down their operations in UAE for not planning their succession when they are at peak. Worst situation they might end up losing all they earned over years and go with empty hands.

“Succession planning is the process of identifying the potential risk at every stage and creates possible solutions.”

Business owners have no formal Succession plan in place, leaving the potential for confusion and disorganization on the part of both employees and family members. The most distressing consequence of this lack of planning may be total dissolution of the business

Business is not a child play

Every business faces a range of challenges. As a business grows, different problems and opportunities demand different solutions - what worked a year ago might now be not the best approach. Business might be increasingly at risk unless you take steps to ensure your intellectual property is properly protected. Investors are more focused towards business development but not much focused to create Succession Planning.

Business owners have special needs and critical questions when growing and preserving the wealth of their businesses, including inheritance plans, succession matters, and transfer of assets and maintaining the interests of business partners and other beneficiaries. It is also likely that a significant portion of private wealth is tied up in the family business, so special consideration needs to be given to the various issues that can arise. This often results in lengthy processes that affect the operations and profitability of the business. Business needs to create appropriate solutions through Succession planning that address all key issues pertaining to business ownership and protection.

Legal Risk

The law does not treat the Estate planning with sympathy in the event of death; complications can still arise, especially if there is no valid WILL in place.

The law does not treat the Estate planning with sympathy in the event of death; complications can still arise, especially if there is no valid WILL in place.

As for business interests, such as share ownership, in the event of a shareholder or director’s death, Sharia law would again apply and his/her shares do not pass automatically by survivorship. Therefore your business interests can end up in the hands of family members you did not wish to have a stake in your business. This would apply to both mainland and free-zone companies.

In the event of a shareholder or director’s death, both individual and joint bank accounts in the country will be frozen. This applies to local and international banks where deposits are placed in UAE accounts (as opposed to offshore accounts)

A surviving spouse/ business partner will not have immediate access to money bank accounts in the UAE, even money bank accounts held jointly in the names of both individuals.

These accounts will remain frozen until probate is granted by a UAE court and all the deceased's debts in the UAE (including parking tickets and other fines) are repaid.

Without a will, the surviving family members or business partner of the deceased will have to present every conceivable piece of evidence of their relationship. All documentary evidence will have to be presented to the Sharia court and evidence of clearance of all debts.

This doesn't mean the government will take over the assets if no will has been written. Ultimately, the assets / businesses will be handed over to family members, but there's a chance it may not be allocated as the owner would have wished. Sharia provides for specific allocations of rights in real property. If there are multiple heirs who are entitled to inherit under Sharia, the heirs will own the assets jointly in accordance with the percentages established under Sharia.

Business risk

However, even will are written, shared assets will be frozen until the issue of inheritance is determined by the local courts. .[It's] difficult to say how long the process [will take] but the weaker the documentation, the more difficult and time consuming this will be.

"Existence of a will is almost certain to speed the unfreezing process".

All business owners and their families are exposed to various forms of risks. The key is to identify these risks and address them according to the gravity of the risk and its priority. What risks is your business and family exposed to? And create the succession plan to address them.

The key questions to ask for a business owner in relation to business risks are below

If a business owner dies, dependent visa get cancelled in 30 days how will the family get the money that was invested in the business?

If a business accounts is frozen, where will the money go?

How will ownership be transferred?

Will your business even carry on or will you sell it?

Do you have a business partner?

Is your business partner allowed to run the business?

If successor / partner behind to operate business, how long the process will take to reclaim your business from sheria court?

How will the bank financing be paid back without disturbing your private wealth?

How will the suppliers be paid the amounts due to them?

What happens to the outstanding debt in the market due from customers?

In a tragic situation, key person / partners should plan for Keyman insurance, that gives the company some options other than immediate bankruptcy.

Financial Risk

Re-Opening Business

Restructuring organization is always challenging. Once a company stops function its operations for few months that can affect the business in many ways. While you may be keen to reopen the business as soon as possible after a few months shut down, there are key steps that to give your business the best chance of recovery.

A contingency fund is cash or other assets reserved to address unforeseen circumstances or losses in a business. The role of the contingency fund is to improve a company's financial stability by developing a safety net that the firm can use to fill emergency needs.”

The key areas of concern to the business

  • New successor have to face down the negativity of well-meaning friends and family members who think that they'll end up bankrupt if they follow their business dream. Following your dream of restarting your own business requires a lot of strength and determination.
  • Along with all of this, there are some specific financial challenges that new successor have to contend with which don't affect older business as frequently. Here are some challenges listed below.

Lack of Personal Capital

Every restarting business idea is almost starting from scratch, no matter whether it's for products or services, requires one vital thing: Money it can take years before a new business making a profit, but that doesn't mean it won't succeed. Every entrepreneur needs to begin with a certain amount of seed capital to pay for the cost of hiring staff, renting premises, buying or leasing equipment, marketing, etc.

Business owners often built up some savings, but crisis had taken up all of them. In contrast, new successor are just at the beginning of their earning days. Not only do they not have any savings, they are frequently still paying off their overhead expenses. They don't have any nest egg to use as emergency funding.