Wealth management for business owners
For a business owner, business wealth and private wealth are closely intertwined: the company is often the principal asset, but also the principal source of risk. Structuring, protecting and preparing the transfer of this mixed estate is an exercise in its own right, one which Harlington supports in Luxembourg and in Paris.
What wealth issues does a business owner face?
The business owner faces a singular equation: a preponderant share of their wealth is tied up in their company, which is illiquid and exposed to economic uncertainty. To this are added the personal liability attached to management duties and a succession issue — within the family or by way of a transfer — which is often insufficiently anticipated.
How should the succession or the transfer of a company be prepared?
Succession is prepared several years in advance. Depending on the objective — passing the company on to one’s children or transferring it to a third party — the tools differ: a pacte Dutreil to reduce transfer duties, a gift before transfer, an apport-cession in order to reinvest, or a fiducie (the French-law fiducie) to organise a gradual transition.
Early preparation makes it possible to reduce the tax burden, to secure the price and to ensure both the continuity of the business and the peace of mind of the family.
What legal support is available to a business owner?
Managing the wealth of a director-shareholder draws on company law, tax law, private wealth law and, often, litigation. Harlington, a firm of avocats à la Cour (members of the Paris and Luxembourg Bars) and a Fiduciaire, brings these areas of expertise together. Discover our fiduciary mandates and our asset management solutions.
Frequently asked questions
When should the succession of a company begin to be prepared?
As early as possible. A well-prepared succession is ideally organised over five to ten years, so as to make calm use of the available tax arrangements (pacte Dutreil, gifts) and to ensure a controlled transition.
Is the pacte Dutreil still relevant?
The pacte Dutreil remains one of the main levers for reducing business transfer duties, subject to holding commitments. Its relevance depends on the ownership structure and on the objectives pursued; a prior analysis is essential.
How can a family be protected in the event of death or incapacity?
Combining a fiducie, a mandat de protection future and a life insurance policy makes it possible to ensure the continuity of management and the protection of one’s relatives. These arrangements must be coordinated with the governance of the company.
Five practical situations in the management of business owners’ wealth
Case no. 1: securing the company’s cash position and the director’s remuneration
Mr and Mrs DUPOND run a thriving industrial SME, but the bulk of their wealth remains tied up in the company. Their concern is twofold: preserving the company’s cash position should difficulties arise, and building regular income, independent of the vagaries of the business, for themselves and for their family. They wish to avoid a situation in which the dependence of their standard of living on the company’s performance alone weakens both the business and the family.
We therefore structure a controlled distribution policy, backed by a wealth holding company and by liquid financial vehicles. The balance between remuneration, dividends and cash upstreaming is calibrated to smooth the director’s income while preserving the company’s investment capacity. Part of the business wealth is gradually converted into diversified private assets, in order to reduce overexposure to business risk and to secure the family’s standard of living on a lasting basis.
Case no. 2: diversifying and consolidating the director-shareholder’s wealth
Mrs DURAND holds several equity interests and cash spread across different accounts, banks and investment vehicles. Her adviser has pointed out to her that this fragmentation impairs overall performance, complicates the management of risk and increases the tax burden on her reallocations. Like many business owners, she has built her wealth as opportunities arose, without any overall view.
We put in place a consolidated wealth structure: the assets are brought together within a holding company and suitable vehicles, allowing for a coherent asset allocation, greater negotiating power with financial partners and a unified reading of risk. This consolidation optimises the net return and simplifies the future transfer of the estate, while respecting the logic of each pocket of assets, business and private alike.
Case no. 3: protecting the company on a family transfer
In the context of a donation-partage (lifetime gift with division among the heirs) of the shares in their family company, Mr and Mrs PICHEGRU wish to pass them on to their children without compromising the stability of governance. One of the heirs is not involved in the business, and the director fears that the dispersal of the capital may paralyse strategic decisions or expose the company to deadlock in general meetings.
We combine a Dutreil pact, a partners’ agreement and a carefully considered split between full ownership and the division of ownership between usufruct and bare ownership, in order to reconcile fairness between the children with continuity of management. Governance is secured by tailored voting rights and exit clauses, ensuring that the transfer of the estate goes hand in hand with the preservation of the business as a going concern and the company’s long-term survival.
Case no. 4: anticipating the incapacity or absence of the director
Mr and Mrs JARDIN fear the impact that a sudden incapacity of the director would have on their company. Without prior arrangements, the unavailability of the business owner can bring day-to-day decisions to a halt, unsettle partners and employees, and threaten the very value of the company.
We combine a mandat de protection future (future protection mandate), a fiducie (the French-law fiducie) and a back-up governance structure (delegations of authority, identified representatives) in order to ensure continuity of management and the management of assets, business and private alike, whatever the circumstances. This arrangement, coordinated with the company’s articles of association and with key-man insurance, constitutes a genuine safety net which is triggered only on the day the covered risk materialises.
A bespoke strategy for each company director
Managing the wealth of a business owner is not a mere juxtaposition of financial or legal tools. It is an approach in its own right, which articulates business wealth and private wealth within a single strategy, designed for the director as an individual, for the family and for the company.
The need for an overall wealth approach
Structuring a director’s wealth requires coordinating the holding of the shares, remuneration, private savings, real estate and personal protection cover. Taken in isolation, each decision may appear sound; poorly articulated, it exposes the director on the contrary to tax risks, to governance deadlocks or to vulnerability in the event of a transfer. Only an overall view makes it possible to reconcile performance, protection and transmission.
That is why the wealth strategy of a business owner must withstand contingencies: a market downturn, a dispute between partners, incapacity or death. The arrangements put in place, from the holding company to the pacte Dutreil and including the fiducie (the French-law fiducie), are designed to preserve the continuity of the business while durably securing the situation of the family.
Yet no single tool suffices on its own: it is their combination, reviewed regularly as the company and the life of the director evolve, that ensures genuinely effective and lasting wealth management.
Case No. 5: preparing the transfer and giving meaning to one’s wealth
The last case, and a particularly telling one, is that of Mrs DUBOIS, the founding chief executive of a group she is preparing to transfer. With no direct heir, she does not wish to see the fruit of a lifetime of enterprise dispersed at the mercy of taxation; on the contrary, she wants to put it to considered use, serving her own security, her family and the causes close to her heart.
She sets us three objectives: to prepare the transfer of her company on the best possible terms so that she wants for nothing and may dispose of the proceeds freely (i), while growing the proceeds of the sale within a prudent and diversified allocation (ii) and, in due course, to organise the transmission of part of her estate to projects and beneficiaries of her own choosing (iii).
She is also keen to ensure that, after the transfer, her wealth continues to be employed in accordance with her wishes and that regular monitoring is carried out, so that the funds may be redirected should the objectives pursued no longer be met. In this instance, Mrs DUBOIS wishes to support entrepreneurship among the younger generations and to assist the taking over of businesses in her region.
Ahead of the sale, we therefore structure an arrangement combining apport-cession, a wealth-holding company and dedicated vehicles, ensuring that each investment is precisely allocated to the objectives pursued. We monitor performance and oversee the commitments given, as Mrs DUBOIS would have done herself.
In this way, the chief executive extends the spirit of enterprise beyond the transfer and makes virtuous use of the wealth she has built over a long working life, while securing her own peace of mind and that of her family.
There are, naturally, many other schemes and structures designed to meet the needs of each business owner, according to the nature of the business, the family situation and the objectives for passing it on. Please do contact us so that we may examine your situation in detail and design a bespoke wealth strategy commensurate with what is at stake for your company and your family.
Frequently asked questions about wealth management for company directors
Why must a company director separate business and personal wealth?
For a company director, the business is often the main asset but also the main source of risk. Separating and structuring business and private wealth (holding company, SCI, matrimonial regime) protects the family from the vicissitudes of the business and prepares for its transmission.
How can a company director’s remuneration be optimised?
Optimisation involves the trade-off between remuneration and dividends, the setting up of an active holding company, employee savings and retirement schemes (PER), and the choice of social security status. The aim is to improve net income while building future wealth.
What is the apport-cession and what purpose does it serve?
The apport-cession (article 150-0 B ter of the French General Tax Code) consists in contributing the shares of one’s company to a holding company before the transfer, in order to defer taxation of the capital gain, subject to reinvesting part of the proceeds. It is a major lever for company directors who transfer their company.
How can a business be passed on while reducing duties?
The Dutreil pact allows an exemption of 75 % of the value of the shares transmitted, which may be combined with a gift of bare ownership and with a donation-partage. Planning the transmission several years before the transfer sharply reduces the tax cost.
Should a wealth holding company be set up?
A wealth holding company facilitates the management of shareholdings, the tax optimisation of dividends (parent-subsidiary regime), reinvestment and transmission. Its relevance depends on the size of the business wealth and on the director’s objectives, and is to be examined on a case-by-case basis.
The House of Harlington since
2006