Family Business Succession Planning

• Published date: 03 January 2022
• Author: Cristina de Alba
• Law Firm: Blogs Alemán, Cordero, Galindo & Lee

A family business succession plan should con-

template the personal succession planning

of each of the principal shareholders of the

company.

The dream of every family business founder is for his or

her company to last, and to continue being the pride and

family sustenance for the next generations. This is possible

to achieve through a family business succession plan.

Every Family Business Succession Plan should contemplate

the personal estate planning of each of the shareholders

of the business. In Panama, a shareholder can organize his

or her patrimony in an estate planning vehicle, such as a

private interest foundation or trust, and transfer his or her

shares of the company to be managed for the benef‌it of

his/her family members. The shareholder can designate the

rules for the holding of the shares by his/her family mem-

bers after the shareholder’s death. In addition, the share-

holder should execute a will for the succession of all those

personal assets not included in the private interest founda-

tion or trust.

In very general terms, a trust is an act by which a person ca-

lled a settlor transfers his or her assets to a trustee to admi-

nister them according to the instructions contained in the

trust instrument, in favor of the benef‌iciaries designated

therein. The private interest foundation, on the other hand,

is a separate legal entity to which the founder transfers his

assets to be managed pursuant the instructions contained

in the foundation’s regulations by the Foundation Council,

in favor of the benef‌iciaries.

Trusts are not considered separate legal entities. Legal ow-

nership of the assets in the trust is in the hands of the trus-

tee, who manages these assets in favor of the benef‌iciaries

of the trust. Foundations are considered to have a separate

legal personality. They are considered the legal owners of

assets they hold, and not the founder, the council, or the

benef‌iciaries.

In the case of a family business, each of the shareholders of

the business should identify and appoint a family member

or a family council, who will succeed him or her in the bu-

siness and in whom the responsibility of working and ma-

king the pertinent decisions will be deposited. Similarly, it

should be clarif‌ied whether or not the company’s shares

may be subject to transactions, such as a sale, a pledge, or

other similar transactions.

For this reason, in addition to organizing the personal suc-

cession of each shareholder, it is important to have a sha-

reholders’ agreement between the shareholders in which

sensitive operational issues such as the sale of the shares,

or the succession plan for key positions within the com-

pany, are contemplated. This will allow the shareholders to

safeguard wealth, leverage internal talent, maintain good

business practices, and secure the valuable legacy acquired

over the years.

In conclusion, a family business succession plan should

contemplate the personal succession planning of each of

the principal shareholders of the company. The principal

shareholders should also have a shareholders’ agreement

between them to regulate corporate matters, and the sale

of the company’s shares. In addition, the succession of key

roles in the company should be considered, for which it will

be important to understand the par ticular needs of the bu-

siness, review key areas and roles that require continuity,

and leverage internal talent to f‌ill these vacancies.

Visita: www.focusalcogal.com

Family Business

Succession Planning

Author: Cristina de Alba