The creation of a family holding has become an increasingly discussed option in the development of strategies within business succession planning. Holdings are companies created to manage a group of other companies or to hold assets and equity participations.
In the context of succession planning, the main goal of a holding is to facilitate the transfer of assets from the patriarch or matriarch to the heirs, offering a series of advantages, which include:
Centralization of Management: The holding allows for the centralization of the management of assets and family businesses, which can simplify administration and decision-making, especially after the founder’s death.
Asset Protection: By separating personal assets from business assets or investments, the holding helps protect the family’s assets from possible financial issues of individual companies.
Succession Facilitation: The transfer of assets through a holding can be done gradually and planned, without the need for an inventory process, which can be lengthy and costly.
Tax Savings: With the holding, it is possible to achieve savings on taxes such as the Tax on Transmission Cause Mortis and Donation (ITCMD), as the transfer of holding shares can be done based on asset value, which is often lower than the market value of the assets.
Corporate Governance: The holding can contribute to establishing clear corporate governance rules, which are fundamental for the long-term sustainability of family businesses.
Conflict Prevention: With a well-defined holding structure, disputes among heirs can be avoided, since the rules of succession and management are clear and pre-established.
Business Continuity: The existence of a holding can facilitate the continuity of family businesses after the founder’s death, as the heirs will have a stake in the company without necessarily being involved in direct management.
Tax Planning: A holding allows for more efficient tax planning, as taxation on dividends can be lower than the tax incidence on other types of income.
Flexibility: The structure of the holding can be designed to meet the specific needs of the family, which includes defining rules for the entry of new family members into the company and the distribution of profits.
Corporate Aspects Types of Holdings: In Brazil, family holdings are usually constituted in the form of limited liability companies or corporations. The choice of corporate type will depend on the size of the assets, the objectives of the controllers, and the characteristics of the involved assets.
Social Contract or Statute: The social contract or statute of the holding must be well elaborated, detailing corporate governance, the decision-making process, profit distribution, the alienation of participations, and other relevant rules for the administration of assets and the relationship between partners.
Shareholders’/Quotaholders’ Agreement: Besides the social contract, the elaboration of a shareholders’ or quotaholders’ agreement, detailing the rights and duties of family members, including preference clauses, tag along, and drag along, among others, can be interesting.
Family Protocol (or Family Agreement) Although not strictly a corporate document, it is fundamental in family holdings. It contains the guidelines agreed upon by family members about the relationship between family and company, the inclusion of new family members in the business, conflict resolution, among others.
Donation of Shares with Reservation of Usufruct: A common practice in succession planning through holdings is the donation of holding shares to the heirs with the reservation of usufruct for the donor. This allows control and income to remain with the donor until their death.
Tax Aspects ITCMD: The issue of the Tax on Transmission Cause Mortis and Donation is central in succession planning. The transfer of holding shares can be taxed at lower rates than would be the direct transmission of real estate, for example, depending on state legislation.
Depending on the value of the assets, the tax can represent a significant portion to be paid by the heirs or donees. For this reason, many families opt for the constitution of family holdings as a way to manage and plan the succession of assets efficiently.
In the context of holdings, the transfer of shares can still be made during the lifetime through donations, often with a lifelong usufruct to the donors, which can mean a lower ITCMD, since the value of the donation for tax calculation purposes tends to be lower than the value of the assets at the time of death.
ITBI: ITBI is a municipal tax that applies to the transfer of property rights over real estate and related rights. Therefore, when a real estate is transferred to a holding, in principle, this transfer could be subject to ITBI payment.
When a property is transferred to a holding as part of the capital social integration (i.e., the asset is being used to pay the shareholder’s share of the capital that they commit to deliver), most municipalities do not charge ITBI, as it does not constitute a buy-sell transaction, but a contribution to the company’s capital.
According to the federal Constitution, in its article 156, § 2º, I, there is no incidence of ITBI “on the transmission of assets or rights incorporated into the patrimony of a legal entity in realization of capital, nor on the transmission of assets or rights resulting from merger, incorporation, split-up, or extinction of a legal entity, except if, in these cases, the predominant activity of the acquirer is the purchase and sale of these assets or rights, rental of real estate or leasing.”
The exception to the non-incidence mentioned above is if the predominant activity of the company receiving the property is the purchase and sale, rental, or leasing of real estate. If this is the case, ITBI can be charged.
For the non-incidence of ITBI to be applicable, it is essential that the constitution of the holding and the transfer of assets comply with the legislation and that the planning is not considered a simulation or a purely fiscal scheme. In other words, there must be economic substance in the operation.
Governance Aspects Family Council: The holding can be a way to establish a family council, which will function as a decision-making body for issues affecting the business and family assets, contributing to the professionalization of management.
Profit Distribution Policies: The holding allows the family to establish clear policies for profit distribution, aligning expectations and avoiding conflicts.
Challenges in Implementation Complexity: The structuring of a family holding requires specialized knowledge to ensure that all legal and fiscal aspects are in compliance.
Initial Cost: The creation of a holding involves initial costs with professional fees, registration fees, and possible tax costs related to the transfer of assets to the holding.
Maintenance: Holdings require legal and accounting maintenance, which implies recurring costs for the family.
Final Considerations Succession planning through family holdings should be seen as a continuous process that goes beyond mere tax savings. It is a tool for organizing and perpetuating family wealth, but also an instrument for conflict prevention, ensuring that the generational transition occurs in a harmonious and structured way.
Therefore, it is essential that families interested in this structuring seek multidisciplinary advice, capable of addressing all the nuances involved in this type of planning. This involves lawyers, accountants, financial consultants, and in some cases, even psychologists and family conflict management specialists.