Why You Need a Succession Plan
Passing on capital and passing on a business are two different tasks. Cash, securities and real estate reach the heirs and are divided without much difficulty. A working business does not behave that way: it has employees, counterparties, obligations and daily decisions that cannot be put on hold for six months while the estate is settled. If the owner leaves no instructions, the shares split equally among the heirs, no single centre of decision emerges, and the company gets stuck in corporate conflict.
That is why succession is planned in advance, ideally years before the hand-over. The plan answers three questions: who will own the business, who will run it, and what happens if the owner is suddenly out of the picture. The answers determine the toolkit — a shareholders' agreement, a holding, a personal foundation or a foreign trust.
Concept
A family business is the hardest asset to inherit: it cannot be divided equally like cash, and it loses value quickly without management. The statistics are unforgiving: about 30% of family companies survive to the second generation, only 12% to the third, and around 3% to the fourth. The main cause of failure is the absence of a succession plan thought through in advance — heirs receive shares, but with them neither agreements about control nor any preparation to manage.
Ownership and Management Are Different
The key mistake is to conflate a share in the business with the right to manage it. Heirs can own shares and receive dividends, but management should belong to whoever is capable of it — not necessarily all the children in equal measure. A sound structure separates these rights: the economics are distributed fairly among everyone, while control is concentrated in one or two people or in a governing body. This is done with two classes of shares — voting and non-voting — a management company at the top of the holding, or a foundation holding the controlling stake.
Tools
A shareholders' agreement sets the rules of the game: who sits on the governing bodies, how and to whom shares may be sold, what happens on the death or exit of a co-owner, and how deadlocks are resolved. A holding gathers scattered assets into a single structure and simplifies the transfer — what is inherited is a share in the holding company, not a dozen separate businesses. At the top there is often a foundation or a trust: it retains control and keeps the shares from fragmenting with each new generation. Options and vesting keep key non-family managers in place.
Typical Scenarios
The most common set-up: the business rests on one person, there are several heirs, and not all of them want or are able to manage. The working solution is to give management to one and secure an income for the rest. One heir receives the controlling stake or the director's seat; the others receive non-voting shares and a right to dividends. So that this does not become a source of resentment, the proportions and payout rules are fixed in a shareholders' agreement, and the family arrangements in a family charter.
Sometimes no one wants to manage. Then the family keeps ownership and hires a professional CEO, or the business is sold — to management through a management buy-out, or to an outside buyer. A sale mechanism written in advance (valuation, right of first refusal, tag-along and drag-along) turns a forced deal from chaos into a managed process and protects the minority heirs.
Russian Instruments: The Personal and Hereditary Foundation
Since 2018 Russian law has offered the hereditary foundation: it is created by will and begins operating after the owner's death, taking in the assets and distributing income under rules set in advance. From 1 March 2022 the personal foundation appeared — it is established during the founder's lifetime, so the founder has time to test both the structure and the management personally. For a lifetime personal foundation there is a threshold: the value of the property transferred may not be less than 100 million roubles; the hereditary foundation has no such threshold (Civil Code, art. 123.20-4).
The tax regime makes the foundation convenient for succession: income of the founder and their close relatives — Russian tax residents — is exempt from personal income tax, while other beneficiaries receive the relief after the founder's death. The foundation itself enjoys a reduced profit-tax rate of 15% where passive income exceeds 90%. In 2025 the regulation was tightened significantly, so any specific model should be run against the current version of the law. A detailed analysis is in the material on the personal and hereditary foundation.
Foreign Instruments
When the business or the heirs are tied to several countries, the classic Western constructions come into play. A discretionary trust separates ownership from control and distributes income flexibly; a Private Trust Company gives the family its own trustee and keeps decisions inside the family; a foundation — the civil-law foundation (Stiftung in Liechtenstein, the private foundation in Panama) — combines features of a trust and a company. Such structures retain control and outlive the change of generations, but they demand attention to the recognition of trusts (Hague Convention 1985), to substance, and to the automatic exchange of information (CRS).
Next Generation
Succession is both a legal and a human task. The legal part is solved by structures; the human part is harder. Heirs are prepared over years: gradually brought into the business, with the roles of "active" members (those who work in the company) and "passive" members (those who only receive income) separated, and mutual expectations talked through in advance. Often the family keeps ownership but hands operational management to a professional manager — more reliable than putting an unprepared heir at the head just to keep the family name at the helm.
🧭 Check your case: Inheritance Navigator — which law applies, where the forced share bites, and the taxes.
This material is for informational purposes only and does not constitute individual legal advice.