INDIA Law and Practice Contributed by: Rishabh Shroff, Kunal Savani and Chirag Shah, Cyril Amarchand Mangaldas
4. Family Business Planning 4.1 Asset Protection
4.3 Transfer of Partial Interest There is no applicable information in this jurisdiction with respect to the transfer of partial interest.
Trust structures are undisputedly the most popular method for asset protection and offer beneficial gov - ernance mechanisms to Indian families with Indian residents and non-resident members. A key benefit of trusts is that such structures ring-fence assets from potential creditor claims or matrimonial claims. Any claim on one’s estate in the event of insolvency or any other dispute can be curbed by setting up a trust as that would entail relinquishment of control and owner - ship by the owner. By virtue of such relinquishment, the assets held in a trust are safeguarded from being contested during litigation or claims from creditors. Trusts can be used for preservation of business assets as well as family wealth. 4.2 Succession Planning India is increasingly adopting private business trusts as a core structuring tool for promoter sharehold - ing and succession planning, with promoter-owned shares now routed through trust structures in approxi - mately 878 out of 2,757 listed companies. Trusts are widely used by both business families and new-age founders, with their presence in IPO structures rising materially (from approximately 12% of DRHPs in 2015 to approximately 37% by 2025). Interestingly, India has also started embracing the concept of family constitutions (also known as family charters) which are set up by the patriarch or branch heads of powerful business families which set out the family and business governance aspects and also eli - gibility criteria and the succession of the next-gen of the families entering into the family business. Along with the aforementioned documentation, more and more companies have also started adopting family shareholders’ agreements which record the understanding between promoters/respective pro - moter branches qua their shareholding in an entity. Such shareholders’ agreements lay down the rights and obligations such as exit obligations, rights of first offer/refusal, voting rights, etc.
5. Wealth Disputes 5.1 Trends Driving Disputes
Inheritance of wealth by the mechanism of a Will can be subject to various forms of challenges. A Will can be challenged on grounds of not being freely made or unjustly enriching one branch of the family over another. This is the most common type of wealth dis - pute in India. Informal governance standards, desire for control and equal ownership in family-run companies often lead to conflicts, allegations and lengthy court battles. Mis - aligned ideologies of the next generation of business families also trigger disputes and disharmony affect - ing the day-to-day affairs of their business entities. While the majority of family businesses have proven to be inherently resilient, many next-gen family members are now keen to start independent entities rather than attempting to carry forward past legacies. The increasing generation gap may result in a loss of communication between family members, which could prove detrimental to the business(es). As fami - lies grow, ownership fragments across members and generations. The unwillingness of families to talk about succession is slowly fading away, which is a positive sign. Trust disputes in India are not very common and are often dealt with discreetly within the family. Recent trends which have been driving trust-related disputes are: • ambiguity in the terms of the trust, particularly in relation to tenure of the trust; • lack of clarity regarding trustee succession; • settlor’s conflicting wishes to trustees expressed in various documents; and • possibility of tax implications if settlor and benefi - ciary are the same.
293 CHAMBERS.COM
Powered by FlippingBook