Classified pages of Mumbai edition of The Times of India There was an interesting advertisement on 4th of July. It was a regular notice and didn’t have a big name, but it did contain clues as to how India Inc manages its inter-generational ownership transfers. For example, Reliance’s recent management changes in some new-age companies were seen as succession planning; Did this also mean a change in the shareholding structure?
Back to the public notice that was required during probate of a will and final testament. In the notice, a deceased person’s will and last testament designated a person—perhaps unrelated by blood—as sole executor but the law requires that there is no dispute or challenge in the will before granting probate. A public notice was therefore issued in the form of a classified advertisement to “all related” as well as any other specific person residing abroad (perhaps a blood relative), asking whether anyone should be allowed to hold the deceased person’s property. Anyone interested in or wants to oppose granting probate.
Why was this classified ad important? One simple reason: India Inc. avoids this process when managing a change of ownership, usually in a group of companies or a single company, usually from father to son. If anything, there is a huge risk involved in this process; Legal risk, if you want a specific category.
Suppose the father wants to hand over Company A to the son through a will. It is duly written, the draft is approved, the final version signed by the testator (dad) and two witnesses, the document registered and then finally presented to the courts for the grant of probate. Now along comes a disgruntled cousin who feels he should be the rightful heir and owner of the company. He challenges probate in court and then, just like that, 5-10-15 years elapse before the case is settled legally or otherwise. Or not resolved at all.
Meanwhile, the company suffers from a management vacuum and indecision. Any major decision—large capital expenditure or profit-sharing—requires promoter sign-off and becomes difficult to achieve when company ownership is embroiled in legal nuances.
There are many surviving examples. There is a well-known case where a business owner and her husband, who had already died, had no children. He bequeathed the entire group, including major infrastructure companies, to the son of a senior associate of the group through will and final testament. It has been more than 18 years since his death and the discovery of the will but the legal cases are still ongoing.
Most family-run companies want to avoid this ongoing risk.
In most cases, the transfer of ownership takes place during the lifetime of the Chancellor. The ownership structure of group companies and assets has always been mired in controversy through future litigation and multiple (and impenetrable) layers of special purpose vehicles, be it joint stock companies or even family trusts. could. The ownership of these SPVs can always be transferred to the chosen son through various mechanisms. One option is to gift control of these SPVs because any gift between blood relations is tax-exempt. Another option is to incorporate the son as an equal shareholder in the controlling companies and then write off the patriarch’s shares, leaving the son’s share as 100% of the written-off capital, and some taxes. Transfer the ownership with elegance.
There are as many family-owned businesses as there are ways in the country. There is a whole army of lawyers, accountants, tax experts and consultants who specialize in this type of structure and restructuring. Based on the nature of the asset (which includes the asset), the risk, individual cash flows, personal liabilities and tax issues, a structure is drawn up. Transfers are generally protected by an ironclad contract or shareholder agreement to avoid disputes raised by third parties.
So, is there no desire? Of course, there is. But it is usually limited to only a portion of the testator’s personal assets: some cash deposits, some fixed deposits, mutual fund investments, some jewelery and perhaps some art. But core assets – controlling shares in group companies and various real estate properties in cities – are almost always kept out of will.
There is intense speculation about the recent management changes in the Reliance Group. Mukesh Ambani recently resigned from the board of Reliance Jio Infocomm and his son Akash took over as the chairman and managing director of the company. This gave rise to some speculation whether Akash’s twin sister, Isha Ambani, would also be promoted to the top position at Reliance Retail, where she is on the board. Or the situation is being prepared for the youngest brother, Anant Ambani. There was also general comment about succession plans.
There is only one hitch in the whole story. Father Mukesh Ambani is still the chairman and MD of two important companies in the group: Reliance Industries, which is the mother ship, and its subsidiary Jio Platforms, the holding company for all digital ventures. In a sense, he still controls the monetary levers of the group. This has led to some confusion about the changes that will take place: whether the new position in Akash Ambani’s wireless company Jio Infocomm is a part of a management restructuring without any change of ownership, or is it in a complex series of transactions set in motion. is the first step. Transfer of ownership of specific parts of the group to specific heirs?
As the cliché goes: Watch this space.