Family businesses must undertake a comprehensive 360-degree review of their operations and succession plans to identify the most effective path forward.
Entrepreneurship is at the core of the economic growth and development of any country. It holds the potential of transforming economies through creation of employment opportunities, and payment of taxes among other positive aspects.
Family businesses form a substantial proportion of businesses across the world. According to the G500FB Index, in 2025, the 500 largest family businesses collectively generate $8.8 trillion in revenues and employ 25.1 million people worldwide. The report also noted that 84 percent of companies are older than 50 years and one-third are over 100 years old.
Globally, there is a massive transfer of intergenerational wealth that is as the first generation or the second generation of families transfer the control and management of the businesses to the next generation.
There are notable differences in the approach and strategy of the new generation of family members compared to the previous generations. For instance, the first or second generations have kept family businesses largely private with very minimal, if any, involvement of external parties. They also relied on natural organic growth and expansion of the businesses.
The younger generation, on the other hand, are more open to inviting external parties who bring strategic value to the businesses.
This involves ceding a majority or minority stake to larger multinational enterprises that have the capacity of providing room for inorganic growth.
Private equity funds have also become active players by acquiring stakes from existing shareholders or injecting capital thereby diluting existing shareholders.
Another notable trend is shareholders selling 100 percent of their shares to multinational corporations, private equity funds or through a management buyout.
This, in some instances, is informed by changing preferences of the younger generation who are either not interested in running the family businesses or where their business interests are in other areas.
According to the G500FB Index, at least 47 percent of the businesses were involved in at least one M&AÂ [merger and acquisition] transaction over the past two years, indicating that M&A is core to their business strategy.
The Index noted that generally, many of the world’s leading family businesses are actively pursuing or considering M&A transactions. The scenario is replicated in Kenya and East Africa where there is a substantial uptick in M&A activities involving family businesses.
The current economic and tax policy environment requires well thought out strategies to ensure effective and tax efficient succession planning and to get optimal benefits from M&A transactions.
A case in point, globalisation has opened up mobility. People are therefore relocating around the globe for work or residency. This could be in the form of a complete change in residency or getting a second or third residency in other countries.
This is more so affecting the younger generation which has been educated overseas and may prefer a relocation or acquisition of an additional residency. The issue of residency for tax purposes therefore takes centre stage which could trigger a myriad of tax issues from a transaction or the operating aspects of a business.
The introduction of non-resident capital gains tax regimes across many countries in the world has created another complexity that businesses need to manoeuvre as they structure their M&A transactions.
Additionally, the limitation of benefits that are granted by Double Tax Agreements under certain circumstances as part of global tax reforms efforts also create a challenge that requires careful analysis.
Tax transparency has also grown over the years with requirements to disclose beneficial ownership of companies being a key requirement in many countries.
There are also additional reporting requirements following legislations such as the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS).
Revenue authorities, through certain channels, are now capable of getting visibility of the beneficial owners and the flow of transactions across multiple jurisdictions that may be structured through holding companies, trusts, foundations, family offices among other special purpose vehicles.
By and large, businesses must perform a three-sixty degree analysis of their current business operations, envisaged succession planning activities and planned M&A activities to determine the most optimal route as well as the available business and tax structuring opportunities.
The writer is an Associate Director at Ernst & Young LLP (EY). The views expressed herein are not necessarily those of EY.
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