The generational change seen up close: perspectives and strategies

Can you tell us something more about the process that characterizes the generational transition?

The process, as I said, is complex and can be divided into several phases. It can even last for decades And ends with the new generation taking over the company.

In particular, four distinct phases can be identified:

Phase 1. The process of growing young people

In this phase it is necessary to assist the children in choosing the training path to undertake, supporting their studies more in line with their vocations and encouraging new professional experiences also in other companies, in such a way as to allow them to better define their own character and personality; these are important factors in the path of growth and formation of a successful leadership.

Phase 2. The entry of young people into the company

This is one of the most critical and delicate moments of the generational transition. In fact, the outgoing generation has the arduous task of avoiding repeating its path in the company, but rather encouraging the new recruits so that they are the lifeblood for change with an eye ever more turned to the future and to renewal. Entrusting the new generations with clear and precise tasks, concisely defining positions and figures and entrusting gradually increasing responsibilities.

Phase 3. Coexistence between parents and children

During the period of coexistence between parents and children it is important for the success of the generational transition to set up a healthy dialogue between them, to reduce conflicts and facilitate a constructive comparison between the two different generations, encouraging self-criticism and avoiding rigidity.

Phase 4. Taking over the command

In this phase it will be necessary, on the one hand, for the parents to share the expected results, progressively give up their role as head of the company and accept the process of renewing the business model of which the children show themselves to be promoters.

On the other hand, that the children communicate their expectations and opinions to their parents, but at the same time make an effort to find a new role for their parents within the company, so that no one feels excluded or set aside.

Are there common features that characterize the various generational handover processes?

Well, there is no single model: every reality has its particularities and often the generational change is “a dress to be sewn on the individual company”. However, four underlying conditions can be confirmed in any process: planning, openness, co-presence and equity.

Just like planning a new product launch, the same way for a generational handover it is necessary to draw up a plan, with precise deadlines, which defines to whom and by when the rights and responsibilities will be transferred.

It is commonly believed that a successful generational transition must take place within the family circle. In reality, what matters is to ensure that the company remains equipped with sufficient human capital to compete successfully, regardless of the surname of the person who contributes it.

The generational change is a process that requires care, patience, flexibility and consistency. The Senior generation fears a step backwards with the new generation taking over, but it would be more correct instead to identify it “a step to the side”. In fact, thanks to the co-presence, often distinctive skills and values ​​built over time are transferred that must not be abandoned.

Care, patience, flexibility, constructive exchange between generations. But what are the most suitable tools for reducing risks and therefore for conserving and transmitting heritage from generation to generation?

It is certainly possible identify a set of tools that allow planning and programming in the management of both corporate and personal assets, from a conservative, productive and transmission point of view to future generations, contrasting as much as possible the risks associated with uncontrollable events. Here are some examples:

– The Family Pact

This tool provides the possibility for the entrepreneur to transfer inter vivos own company, also in the form of a shareholding, to the spouse and/or to one or more descendants, within the limits and in compliance with the company rules and those on the family business, providing for the beneficiary the obligation to settle in cash or in kind the other heirs to the equivalent of the value of the heirloom.

Operation which, with reference to inheritance taxes, allows, in particular, the transfer of the company or of the controlling interests in commercial companies under an exemption regime.

– The Simple Society

The simple company is the most basic form of corporate organization envisaged for the exercise of a non-commercial lucrative activity (articles 2251 – 2290 of the civil code), but not for this reason unsuitable to play a perfect role in certain cases as a family holding company.

The use of this corporate model is mainly due to the limited presence of formalisms and the flexibility of the structure, which also manifests itself in the lack of an obligation to keep accounting records.

From a fiscal point of view, it is primarily characterized by the transparent attribution of the various types of income to the shareholders, as well as the non-applicability of IRAP.

– The family holding limited liability company

One of the most practiced ways to encourage the generational transition is the establishment of a family holding company.

The advantages achievable through the creation of a family holding company are corporate, fiscal and financial.

As for corporate advantages, the advantage consists in obtaining the rationalization of corporate control, creating a company placed indirectly at the top of all companies; moreover, in the event of conflict between family members, any corporate legal battles are fought at the level of the holding company without the activity of the operating companies being damaged by direct involvement.

The tax advantages are identified in the possibility of planning the generational transfer, in order to limit the impact of direct and indirect taxes only once and only at the highest level of the corporate structure as well as in the possibility of using group taxation for tax purposes direct and for VAT purposes.

The financial advantages, on the other hand, are the rationalization of the distribution of profits; in fact, the holding company collects the dividends of the subsidiaries and distributes them to the shareholders, after assessing the financial needs of the entire group, as well as the possibility of using flexible intra-group financing instruments.

One of the most widespread holding models in Italy, especially after the reform of the art. 2468 of the civil code is that of the Srl by virtue of the possibility of modulating the governance and/or property rights differently between the various shareholders, whether they are members of the same family or any new shareholders.

– The fiduciary mandate

Pursuant to art. 1 of Law 1966/39, fiduciaries are companies that propose, in the form of a business, to administer assets on behalf of third parties, to deal with the organization and auditing of companies and to represent the holders of shares and bonds . Trust companies carry out static or dynamic administration and management of goods and assets, even if they are not the owners.

Ownership, in fact, remains with the third party who has placed trust in the company.

– The Trust

The trust consists of a legal relationship established by a person (called settlor or settlor), through an act inter vivos or mortis causaby virtue of which a given subject, called trustee (or fiduciary), who is assigned the rights and powers of a real owner, manages a separate patrimony from that of the settlor and from that of the trustee for a pre-established purpose, provided that it is lawful and not contrary to public order.

The trustee is required to administer, manage and dispose of the trust assets according to the indications set out in the trust deed and observing the particular rules imposed on him by law. He must account for this power-duty.

The trust can respond to different needs, such as, for example, the separation between company and family assets, the management of the generational handover of the company, the protection of personal assets from the attack of creditors, the safeguarding of assets owned by incapable subjects.

From a fiscal point of view, after the recent issue of Circular 34/E by the Revenue Agency, further aspects of primary importance have been clarified, providing, among other things, that the assets placed in trust will be subject to inheritance tax only when the assets will be attributed to the beneficiaries of the trust themselves, applying only the levy in a fixed amount at the time of the establishment and endowment of the trust.

– Private Equity

Private equity refers to the acquisition of long-term and significant shareholdings in the capital of unlisted companies, carried out by specialized financial investors, with the aim of increasing their value in the medium term and realizing an adequate capital gain from the disposal.

In order to obtain a return on investments consistent with the high levels of risk, the private equity operator must aim at a significant increase in the economic value of the target company.

To pursue this objective of economic valorisation of the investee, the private equity investor is very often called upon to play an active role in the management of the same, in differentiated forms and with degrees of involvement which vary according to the characteristics of the investment. Therefore, for the target company, the added value that can be contributed by a private equity investor lies not only in obtaining risk capital with a medium-long term time horizon, but also and above all in the support of managerial know-how that the investor puts at disposition of the company management, for its own interest in enhancing the value of the investee.

A punchline. In his opinion, how can the choice of consultant make the difference for the success of the generational handover processes?

From what has been described it is clear how much of primary importance throughout the process is the role of the entrepreneur’s trusted advisor. The consultant, as if he were a “guardian angel”first yes supports the entrepreneur in planning the route and then eventually joins his children; as if he was involved in a mentoring processthe trusted advisor will know intervene at the right time to identify the best tools (including fiscal ones) to manage estate planning and allow, also through a composite use of different options, the achievement of the expected results.

The generational change seen up close: perspectives and strategies