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To ensure business stability and continuity in the event of the death of the founder as well as preserve intergenerational wealth, business owners/founders have been urged to prioritise estate planning.
Estate planning, according to Sim Katende, Corporate & Commercial lawyer and Partner at Katende, Ssempebwa & Co. Advocates, Solicitors & Legal Consultants (KATs), “encompasses determining how your assets will be preserved, managed, and distributed after your death or if you become incapacitated”.
“Every family business needs to undertake succession and estate planning to ensure their businesses Will survive from one generation to the next,” Sim Katende told stakeholders at a Succession Planning Breakfast organised by enjovu Family Business⏤ a Kampala-based organisation, dedicated to helping family businesses thrive through generations.
The breakfast was organised under the theme: “Succession Planning: Preserving Your Legacy And Protecting Your Family With An Estate Plan”. The event was headlined by a panel of experts from I&M Bank Uganda, l&M Burbidge Capital, Katende, Ssempebwa & Co. Advocates (KATs) and Ernst & Young – EY Uganda. Held on the 15th March 2024 at Protea Hotel, Kololo – Kampala., the event was sponsored by I&M Bank Uganda, in partnership with Katende, Ssempebwa & Co. Advocates (KATs).
Sim Katende, also the Head of KATS’ Banking & Finance, Corporate & Commercial, Energy, Oil & Gas, M&A, Capital Markets and TMT practice told audiences that there are two basic ways of estate planning- making Wills and /or setting up a Trust(s).
He said that timely estate planning takes care of concerns by business founders such as what happens to the founder and the business in case of old age and medical incapacitation sets in; fears of children mishandling or selling off the business as soon as the founder dies or fears of inequalities in estate distribution amongst siblings and the subsequent wrangles. It also answers questions on how to smoothly transition to second generation and generations after. And for children working in family businesses, it also answers, early enough, questions on transition by enabling the children to ask the right questions.
“Parents who are particularly working with their children, make the mistake of saying “I paid your school fees, I called you to work, I gave you a job and therefore, the child should be eternally eternally grateful for twenty-five years of working with the father. parents always have this thing of saying, but I am doing these things for you and then twenty years later, the child realises that there is another brother elsewhere, who has not even been part of the business who you are handing over to. Parents, please be honest with your children, and make it clear with them. And for the children working in family businesses, please have those discussions with your parents so that you also don’t invest 30 years of your life and then wake up and realise that this is not what was intended,” Katende advised.
Seek proper legal and financial advice
Robin Bairstow, the CEO of I&M Bank Uganda, said improper or lack of succession planning can cause businesses to die very rapidly. He said, leaving the business in incompetent hands, “the business can be run down in a very, very short space of time”.
“That’s extremely unfortunate, especially when it’s taken years of sacrifice, to build something up⏤ without proper, legal and financial planning, it can disappear very rapidly,” he said, adding: “Good succession planning starts with having a plan and understanding of where the assets are”.
He also emphasised that good succession planning is incomplete without the services of financial advisors and where necessary the support of competent financing partners.
“As I&M Bank, we are glad to be part of this conversation because in succession planning and wealth creation, you need a financial partner and we believe that we are that financial partner for your growth,” Bairstow said.
“I&M Bank can assist you in bolstering the growth and reorganisation of your family enterprises. Besides financing, sometimes the planning process might require the need for a financial advisor that’s where I&M Burbidge Capital comes into play,” he added.
“As a bank, we remain steadfast in our commitment to supporting family businesses through knowledge sharing, bespoke financial services and strategic practices,” he reiterated.
I&M Burbidge Capital is a corporate finance advisory firm and a member of the I&M Group Plc.
I&M Burbidge Capital specialises in advising businesses in the region on significant capital raising through IPOs, private equity, debt and Mergers & Acquisition transactions and mainly focuses on mid & large-sized companies with typical transaction sizes of USD5 million – USD300 million.
Some of the transactions that the company has recently worked on in Uganda include advising Chims Uganda Limited, a mobile money agent for MTN in Uganda on the sale of equity and equity capital raising as well as Guardian Health shareholders on their exit. I&M Burbidge Capital also advised on the I&M Bank acquisition of Orient Bank.
Speaking at the succession planning breakfast, Edward Burbidge, the CEO said that sometimes when the shareholders get to the age where they can no longer run the business and the second generation is not interested or able to run the business, it may be prudent to sell part of or the entire business to a strategic and like-minded partner.
“If the equity value in your business is entirely tied up with the profit-generating ability of the business, to be honest, the older you get, the less energy you have and the less ability you have to keep generating that profit. If the buyers see that ability go downhill, so does the value they are prepared to pay for it. And if it goes too far, then you can lose the value altogether. We’ve advised on several transactions where the kids don’t want to come into the business for one reason or another⏤ they want to do another business, they want to go a different country or there’s no succession plan. So we come in early, and we help in selling the business and you can get a USD10- $20 million cheque, which you can then do something else with or give to your kids instead of just losing the whole thing,” said Burbidge.
Preserve inter-generational wealth with trusts
Sim Katende said that over and above wills, trusts are the best way of preserving wealth across generations.
“A Trust puts a Settlor (owner)’s assets under the control of a Board of Trustees who can act in his/her place for his/her beneficiaries once he/she passes away. The Trustees hold the legal title to the assets for the benefit of the beneficiaries. Trusts provide legal protection for the settlor’s assets, ensuring those assets are distributed according to the wishes of the settlor and are governed by the terms of the Trust Deed and the governing local law which in Uganda is the Trustees Incorporation Act Cap 165 (as amended), in Kenya the Trustees Act Cap 167 and in Tanzania the Trustees Incorporation Act No. 10 of 1999,” Sim Katende said.
“Putting your assets, if you’re looking at generation wealth, is one of the smartest things to look at. If you leave it to an individual, it’s not very easy. If you ask the people who are working in your companies or your businesses, they may not have the same confidence in your children that they have in you as the founder,” Sim Katende advised.
“I will not give you examples, but I think everybody here in this country knows businesses where the founders, have done something and the next generation does not do as well and by the third generation, the business has left. So if you set up a system that will protect these people (the children) from themselves, then you will have actually done a good job. My personal recommendation is if you pick nothing from here, go speak to your lawyers and please find out more about trusts,” further said.
“The best time to make a will or a trust or your estate planning would have been 10 years ago. The second best time is now. Put your affairs in order, make a will or think of a trust, if you have sufficient, assets which you want to pass on. If you do those two things, at least you will have minimised, probably 60-70% of the problems that will arise and you will have made life easy- not only for yourself but for your children. If you don’t, as everybody in this room knows, we can guarantee a fight in your family and sometimes even worse. Some of the fights will take place while you are still alive. There is nothing as painful as a parent, as having your children fighting for your assets, while you are still here, just because you were not clear as to what everybody will be getting. As long as there is clarity, you will ensure succession planning and intergenerational wealth. As long as you keep it opaque, you’re guaranteed there is going to be a fight and your estate, two or three years after you pass away will be no more.”