UBS AG is looking to tap into rising demand for succession planning from Taiwanese family businesses.
Fewer than 40 percent of family-controlled businesses worldwide have drafted succession plans, and fewer than 8 percent can be expected to survive the transition to the third generation, the Swiss bank said.
Among Taiwanese family businesses, fewer than 8 percent were found to have succession plans in place, UBS said, citing findings by the International Institute for Management Development.
At the same time, more than 70 percent of Taiwan’s listed companies are family-run, of which more than 75 percent are still being led by their founders.
At an average of 62 years old, Taiwanese company founders are among the oldest — and older than the average age of 47 of their peers in China, UBS said.
Succession planning in Taiwan involves additional challenges, as relevant laws are not as comprehensive as in other regions, UBS Taipei vice chairman of wealth management Alex Liu (劉瑞霖) said.
Most Taiwanese family-run businesses have adopted passive succession planning, which might not be sufficient to ensure the preservation and growth of their fortunes across generations, Liu said.
Most succession plans are limited to once-off measures, such as drafting a will, which are not designed to cope with the needs of the founders’ family, as the number of heirs grows larger with each generation.
Foundations — another commonly used vehicle — have been under increased scrutiny by the government, which had rather that the organizational structure intended for nonprofits not be used as a holding company for family fortunes, Liu said.
He suggested that families draw up a “family constitution” and register a closely held corporation that would carry out the heirs’ will and would be overseen by family-appointed officers.
Such an organization would make succession planning simpler, as regulators and tax authorities would be able to review and enforce the plans under the terms of the Company Act (公司法).
In the absence of more comprehensive legislation on succession planning, the Company Act could likely prevent more than 90 percent of disputes arising out of loopholes and misconduct, Liu said.
In the case of family-run financial companies, Liu said that closely held corporations could be designed to assure regulatory compliance in the heavily regulated sector.
The ideal succession plan can be adapted to an ever-evolving regulatory landscape, Liu said.
“We could not have predicted the regulatory shift toward the separation of ownership and management, or the separation of banking and commerce,” Liu said.
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