B’lore: KE organizes Presentation on Mitigation of Legal Disputes in Family

Media Release

Bangalore,28 Feb 2014: Kanara Entrepreneurs (KE), Bangalore organized a presentation on ‘Mitigation of Legal Disputes in Family Businesses and Estates,’ for its members and their spouses during their members meet held here recently.

 

Dr Aditya Sondhi, advocate at Supreme Court of India and the High Court of Karnataka, and a well-known legal luminary was the resource person.

 

Dr Sondhi delved in depth about successions in Private Limited Companies, Partnership Firms and family businesses and explained the differences in succession between a business and an estate.

 

Dr Sondhi also highlighted the impact of death of one of the partners in a partnership business.  He said that people often had the misconception that their businesses would automatically pass on to their legal heirs, but this was not always the case, especially in the case of Partnership firms, the interests in the firm, on the demise of one of the partners, may pass on to his legal heirs or the other surviving partners and/or stakeholders of the business depending upon the Partnership Deed.

 

Dr Sondhi gave the examples where some businessmen in order to avoid payment of income tax or as a tax planning measure take on board their servants and employees as partners but eventually pay for it to the detriment of their family members and true successors. He said succession in business is different from succession in personal estates. Succession in business depends on the entity and is governed by the law under which it is established whereas the personal estate is governed by the Succession laws.

 

Dr Sondhi explained why a Will needs to be made; the importance of making a proper Will availing the help of competent and experienced persons especially when one wanted to deviate from the normal chain of command, i.e., when one chooses to disinherit the family members for any specific reason and pass it on to others. He said such a will would stand valid only when it is backed by solid reasons as to why hechooses to disinherit normal successors to his estate.  He said that it is possible for the legal heirs to ignore a valid Will and allow the normal succession to take place as per the provisions of the Indian Succession Act.

 

 

Dr Sondhi mentioned the case of a Christian male who had divorced his wife as per the provisions of the Canon Law, and thereafter chose to live with his two sisters till his death and left a very small estate without making a Will.  His two sisters had taken great care of him after his divorce and till his demise.  However, his divorced wife, who had never seen him after the church divorce, staked a claim to his property on the ground that the earlier church divorce was not valid as there was no legal divorce as per the Indian Divorce Act and she had continued to be his legal wife and was entitled to succeed to his property.  As a result, the two sisters who had looked after their brother throughout his life after his church divorce got almost nothing.  Avoiding jargon, Dr Sondhi made his talk relatable, informative and insightful.

 

Later, Soman Nambiar, CFO of Hebron Properties Private Limited explained the importance of investing in real estate. He presented data and demonstrated as to how investment in real estate fetches more returns than gold and shares in the long run.

 

Rajendra Prashad, sales head of Hebron Properties spoke about Hebron Enclave, a new project of Hebron. He informed the offer of a special package for KE members. Hebron Properties Private Limited sponsored the event.

 

KE president Mark D’Souza in his introductory address said as per the survey on family businesses, it is estimated that 70 percent will not survive into the second generation and 90 percent will not make it to the third generation. These alarming statistics raise the question: What is going wrong with the family businesses and the succession process?  He also mentioned that the owners of family businesses cannot be held solely responsible for succession failures. It is that the professional advisers to family-owned and operated businesses focus too much attention on to the technical component of succession (example , tax minimization,  family trusts, buy-sell agreements, wealth management, etc) with far too little attention being paid to the people or non-technical component (family communication, family expectations, family values, family competencies, family dynamics, etc) of the succession process, known as  ‘Family component’ of  family business succession process.

 

Mark said that Three Circle Model which is often used to illustrate the interaction/impact of the family component on the management and ownership of family businesses. The Ownership Circle, the Management Circle, and the Family Circle represent the Three Circle Model.

 

Mark D’Souza welcomed the gathering.  Sunil Rego proposed the vote of thanks.  Anil Rego compeered the programme.