Family Business Succession: Why a Will Is Rarely Enough

Many family businesses in Malaysia were built by a founder who is still involved, and whose plans for the future live largely in their own head. When those plans are finally written down, it is often in a will. A will is essential. On its own, it is rarely sufficient.

Ownership and management are different questions

A will deals with ownership: who receives the founder’s shares. It does not decide who will lead the business, how the family will make decisions together, or how a family member who does not work in the business will be treated alongside one who does. Leaving shares equally to three children may be fair as a matter of inheritance and unworkable as a matter of governance.

Succession planning separates the two questions. Who should own the business, and in what proportions? Who should run it, and how will they be held accountable to the owners? The answers may be different, and that is often how it should be.

What a will cannot do

Shares in a private company are often subject to restrictions in the company’s constitution or in a shareholders’ agreement — rights of pre-emption, for example, or a requirement for board approval of transfers. A will cannot override those restrictions. If the founder’s shareholders’ agreement requires that shares be offered to the other shareholders on death, the beneficiaries of the will may receive the value of the shares rather than the shares themselves.

Timing matters too. An executor generally needs a grant of probate before dealing with the deceased’s assets, and obtaining one takes time. A business cannot always wait. Arrangements for who may act in the meantime — signatories, directors and powers delegated in advance — should be in place before they are needed.

Which law applies

In Malaysia, the law that governs an estate can depend on the deceased’s religion. For Muslims, the distribution of an estate is governed by Islamic law, which limits what may be left by will. For non-Muslims, wills are governed by the Wills Act 1959, and estates without a will are distributed under the Distribution Act 1958. Assets held in other countries may be subject to the law of those countries as well.

These differences are not obstacles, but they mean that a plan which works for one family may not work for another. They should be identified at the start.

The tools that sit alongside a will

• A family shareholders’ agreement, settling how family shareholders make decisions and what happens when one wishes to leave.
• A family constitution or charter, setting out values, roles and how family members may join the business.
• A holding company, keeping the family’s interest in the business together rather than dividing it among individuals.
• Trust arrangements, where appropriate, to hold assets for the benefit of family members over time.
• Arrangements for decisions to be made if the founder is unable to make them personally.

Succession is about people before it is about documents. The documents come last, and they work best when the family has already had the conversations they are meant to record.