Family Business Structuring & Demerger

Family Business Structuring

Do you own a business legalistically? Or own shares in a trust? Then, you are Infact a part of a family business enterprise. Next comes, who gets to be the owner? What does ownership mean to you? What are your rights and responsibilities? If these are few questions that you can resonate to, you are a part of the very famous Family Business Dynamics. To top it all, most of such businesses do not even started with the intent of being a family enterprise!

Structuring and Governance is the principal in every enterprise. Though, it may mean a whole different scenario for a Family Business. Primarily because, given the unpredictable mix of personal dynamics, questions relating to business strategy as well as ownership criterion seldom arise. And even if they do it may lead to cascading concerns if not dealt with utmost care.

The Challenges and What YFC has to offer

Technical feasibility

Ownership and Governance

Are you struggling with Ownership and Governance questions alone?

  • Want to pass on the business ownership to next generation yet afraid to loose control at strategic level?
  • More than one successor, who gets be the next leader?
  • Paying some a little too much while others are underpaid?

Find Lucrative Solutions made easy by Your Finance Coach!

We can employ family governance rules to ensure there is lesser conflict. Just to mention a few:

  • Set policies for family actions, and decisions
  • Address compensation rules
  • Articulating common and agreed upon vision and mission
  • Establishing a framework to promote learning together, sharing decisions, and communicating
  • Determining family ownership policies
  • Resolving conflicts
  • Fostering family education and information

Financial or economic feasibility

Apprehension Recruiting

Are you hesitant in establishing Roles and Responsibilities of Family and Non-Family members?

  • Family member not performing as expected. How to clearly demarcate family ties and business relationships not to impact business performance and agendas?
  • In need of a senior management role in the business, how do you choose outside the family?
  • How do you ensure fair treatment to the family members who are not employed in the business?

Consult YFC for all your Hiring Policies.

Family dynamics aren’t the same as business dynamics, and a combination of the two can be a disaster or a blessing— depending on how proactive and transparent you are. We could help you

  • Identify Your Business Philosophy; is it family first, Business first or Family Business Enterprise
  • Predefine Employment policies, we can help you develop a ‘family employment policy’ that specifies the criteria and the process of joining the family business addressing the process of applying for family employment, mentoring, training and assessment.
  • Determine Power Limits for all operating philosophies, and ensure that family as well as non-family members know their power as well as the fact that they are valued team members.

Legal feasibility

Untimely Demise: Poor Succession Planning

It’s well documented that just 30% of all family businesses last into the second generation, and only 12% make it to the third generation. Why? It’s often the result of poor talent management.

Wondered why your empires collapsed an immature way?

  • Loosing revenues while transitioning from one generation to another?
  • Sibling rivalry leading to unattended tasks and poor revenue generation?

We at YFC work towards establishing steps to help you run a sustainable business, but feel like a family!

  • Create a Mission Statement to identify the family’s vision for the future, documenting its dreams, hopes and ideals.
  • Choose the Right Successor, many family business owners are not comfortable allowing a non-family member to assume the CEO role
  • Clarify Roles and Responsibilities; demarcating ownership from management is a must.
  • Put down a Strong Foundation includes implementing the best business practices cited above and ensuring you’re guided by principles and values that best define your family.

At Your Finance Coach, we can address the above mentioned and many other to assist you structure your family business from holistic approach. If your business has just started and you seek assistance from a family member or your work is expanding or you are facing challenges pertaining family dynamics.

Amidst all this drama we invite you to spare a couple of minutes and write to us. Together we can bring about excellence in Business as well as harmony in the family!

Concept, Implications and Measures

Family enterprises are rarely premeditated completely in advance. Are we not adding is entities and activities without any real thought of their long term consequences? When we create, we often ignore the possibility of restructuring or destruction. Demerger is nothing but a form of business reorganisation. It can also be termed as a vertical split of an existing company into two or more companies, with same shareholders, and is subject to certain prescribed conditions under the Income tax Act. Unfortunately, restructuring a family group invariably results in unwanted tax implications. On the face of it, using a demerger to extract wealth from a family company may be more tax effective than simply selling equity in the parent entity or conducting a share buy-back.

There are usually three main scenarios and ways a demerger can be achieved tax efficiently:

01

Statutory or Exempt Demerger

The Statutory or Exempt Demerger was introduced into legislation as the government recognised that corporate groups should be able to restructure without adverse tax consequences. However, this form of demerger has a number of strict conditions making it unsuitable for many business scenarios especially family business enterprise.

02

Liquidation Demerger

Liquidation demergers have been widely used where a Statutory Demerger was not possible but involve the costs of liquidation.

03

Capital Reduction Demerger

The Capital Reduction Demerger is now increasingly popular and usually the escape route if the above mentioned ways prove ineffective. It is often the last resort. Here, with the support of a director’s statement of solvency, one can reduce the share capital which is a fairly simple procedure. Previously a company would have required the consent of a court for this procedure.

Equity demands that like other forms of business reorganisation split of family-owned businesses should ordinarily not trigger adverse tax implications and impose extra burden on family members

Technical feasibility

The Staunch Implications remain

Unfortunately, when it comes to split of family businesses by law of section 47 of Income Tax, exempts from capital gains any complete or partial distribution of property of a Hindu Undivided Family is just about the sole manifestation of the equity philosophy in Indian tax laws.

  • Do you share ownership of a holding company or a group structure, and want to split?
  • Statutory demerger ruled out on basis of non trading business?
  • Want to take the reconstruction under Insolvency Act but scared of the disruptive and expensive formalities of liquidating assets?
  • Do you attempt to achieve a tax neutral demerger at the investment or holding company level?
  • Bogged down by the complex court procedure, coupled with numerous compliance requirements and potential stamp duty costs involved with demerger?
  • Suffering value decretive results and require heavy consensus from the External shareholders involved?
  • Does your mode of restructuring involve several share transfers, probably on barter basis, to achieve the desired results?
  • Vertical split is not feasible given the complexities of the shareholding pattern across a chain of investment companies?
  • Want to divide stake along with demarcation of management control but too much litigation involved?

In summary, given the uncertainties and complexities involved, implementation of a family split requires careful and extensive planning to mitigate unwanted tax costs. Without a protective mechanism under the Income tax Act, the split up often involves a series of opaque share and business transfers which are not necessarily based on an arm’s length. If you are asking these questions, let us assure you are not alone!

Financial or economic feasibility

Our Reliable Measures

Demerger could be brought to affect by either of these ways:

  • Demerger by agreement between promoters
  • Demerger under the scheme of arrangement with approval by court
  • Demerger under voluntary wining up and the power of liquidator

The demerger may be partial or complete, we here at Your Finance Coach are experts in providing careful demerger relief provisions in the context of restructuring or demerging family groups. We provide intricate services like:

  • Demerger Division 125: gain direct ownership in an entity owned indirectly.
  • Establishing, A demerger group comprising the head entity of a group of companies or trusts and at least one demerger subsidiary. A company or trust is the head entity of a demerger group if no other member of the group has ownership interests in the company or trust
  • Differentiate between Roll-over or No Rollover in favour of owners interest
  • Establish and list down Consequences and measures of roll-over well in advance
  • Consider Excluded capital gains and losses that are made by members of demerger group for disregard
  • Plan Demerger dividends
  • Tax consequences, planning of Capital Gains Tax

Legal feasibility

Conclusion

Although we understand that demergers are essentially undertaken either as an exercise of corporate restructuring or to give effect to kind of partitions in case of family owned enterprises. Whatever be the situation, often we forget the underlying fact that a demerger should eventually lead to smooth functioning of each segment with as much less tax and other litigations.

We can help you make this demerger a win-win for both the undertaking company as well as the resulting company.

Want to know how? Drop us a message and experience it for yourself.

Accounting Advisory

In today’s competitive business environment, having an efficient finance department carries utmost importance to the business. Responding to rapidly growing market opportunities and maintaining compliance with accounting and financial reporting changes has become mandatory for running a successful venture. Also, with regular changes and updates been incorporated in the financial reporting structures, the job of managing the financial department is becoming a challenge for the entrepreneurs.

In order to accounting activities and operating decisions to follow the best norms and practices, accountant consultants can provide expert advisory notes on financial reporting and control, compliances, standards and operational data completeness. Organizations must optimize their capabilities with external knowledge and experience in areas like complex accounting advisory, transaction advisory, finance, actuarial and insurance, and financial analytics.

To manage the complex accounting issues related to treasury, acquisitions, the management has to understand the importance of having financial transparency and accountability in their business. Along with suggestions, it’s also important for the owners to come forward, look into the daily financial activities, and fill the loopholes by implementing the account advisory recommendations. That’s how the objective of having an Account advisory will be completed.

Some of the key benefits of hiring accounts advisory team are listed below:

Technical feasibility

Result Oriented

The job of advisory firms is to analyze the financial data and prepare a comprehensive report by monitoring the current financial situation of the venture. Advisory firms are focused to deliver the best results for their clients by re-shaping the financial report of the business.

Financial or economic feasibility

Innovative approach

Advisory firms specialize in taking an innovative approach to derive the best solution for the venture. Advisory firms have the required knowledge and competency to resolve the financial query and discrepancies arising at the business front, which generally business owners are completely unaware of.

Operational feasibility

Increasing Productivity

The basic objective of every business is to increase productivity and maximize their revenues. However, often, businesses do get stuck due to any mis-operations within the financial department which leads can lead to incur losses for long periods. Advisory firms can study the economic report of the firm and draft healthy ideas which can help in stabilizing their financial activities and maximize their productivity.
A ‘clear-concise’ accounting SOP is the best way to assess your operating performance as it allows you or the investors to have a transparent look into the daily finance activities. It’s crucial to have an organized accounting structure to ensure you have a smooth flow. This post enlists some of the components of your accounts department and helps you understand why this ‘Accounting Advisory’ is so important for any business.

Legal feasibility

Accounts Department

Developing the SOP directly helps you to focus on your business and streamline your accounting operations. The Inclusion of procedures increases efficiency and uncovers outdated or ineffective practices from the department. The corporate accounting department is often limited by ‘age-old’ tradition. Complex processes like AP and AR have to be simplified in order to attain the best financial results.

Schedule feasibility

Purchase Department

Managing the Purchase department can be one of the most daunting tasks with a huge scope of significant financial gains by designing an effective work policy. Purchase department is the only major function which liaises with the internal team and alongside outside vendors. Most of the daily functions include planning and executing financial deals as per requirement. As a core of accounting process, streamlining the activities helps to keep the ‘heath’ of the business in good colours! An effective and sustainable SOP will be able to cover the below points:

  • ensure purchase transactions are carried in a transparent manner.
  • purchase department to have clarity on all purchases in terms of cost, quality of goods and services. and every purchase should be recorded.
  • people associated with purchase department should not indulge in unfair practices by favouring business orders to their known suppliers or vendors.
  • procurement of Goods and Services are subject to contract.
  • Determine the environmental impact of the procurement process across the life cycle of products.

Market feasibility

Standard Accounting Practices

The Inclusion of ‘Standard Account Practices’ or ‘Accounting Standards’ by drafting an accounting SOP ensures that you are aligning to the best practices using the technology to your advantage. Accounting standards are the set of rules which are applicable for financial reporting purposes. Their objective is to prepare the financial statement based on the financial measurement and disclosures available with the department. Accounting Standards provide a framework for accounting and reporting practices and help the officials to implement the best practices to attain success for the organization.
Your company must abide by the set of rules when reporting information in its financial statement. As an owner, it’s mandatory for you to follow the proper method for recording different transactions of your business. Not just to achieve business operations, it further helps you in meeting regulatory standards and building external goodwill. Below is a list of the key benefits you get by following the standard practices.

Market feasibility

Transparency

Implementing the accounting standards eases the level of understanding of the financial statements. An investor or a prospective buyer would prefer looking at a statement which is as per the accounting standards.

Market feasibility

Guidance

Whoever in your business is trying to record the events, be it an accountant or other employees, can easily take the guidance from the published accounting standards. This creates trust and builds confidence within the finance department and the owners as everyone is united to help each other.
Maintains compliance: Use of accounting standard comes very handy and beneficial while following regulations and in meeting compliances. Following the practices avoids any issues with the Audit teams or during the checks done by the Govt officials at regular intervals.

Market feasibility

Account Analytics Reports

You can’t sustain a business if you are unable to gauge or monitor your activities. The dynamics of business operations keeps changing and hence it’s imperative for you to have a stringent system in place which can actually show you the progress. If you fail to generate appropriate accounting reports, then handing business turbulence will be a challenge. Along with framing the network, it’s important to check the execution to ensure that your hard work and the procedures you have derived are giving you the best results. Having ‘Account Analytics Report’ helps you to measure and analyze business conditions and market. An analytic report is also beneficial in optimizing your procedures and overall business statistics. Having access to real-time analytic reports helps you to oversee how your business plans are working which makes your business more agile. By taking advantage of the customizing the financial pages and using multiple reporting options, you are able to figure out the exact financial condition of your business.

Market feasibility

Performance

Tracking your accounting transactions on a weekly, monthly and yearly basis will give you the true picture of your finance. This will help you to analyze your progress from the past years and also help you to derive new strategies for the coming financial years. Reporting uncovers all the accounting sheets to you so that you can evaluate the performance of the internal teams. This is also helpful in correcting any flaws or wrong-doings so that the performance graph can go upwards and help the business. For sure, if you are tracking the progress and maintaining the performance every quarter through the analytic reports, you can be assured that your finance team is consistent in their work and you don’t need to worry about.

Business Valuation & Exit Strategy

As an owner of a business entity, you have to be constantly on your toes to manage any unforeseen situations. Even if you have tasted success in your venture, business involves huge risks and ‘Business Valuation’ is one good way to mitigate that risk. To make it easier for you, ‘Business Valuation’ provides facts and financial figures regarding the actual worth of the company in terms of market value and asset valuation.

There are several approaches to evaluate a business. A market approach measures the worth of your company against several comparable public companies. Financial buyers, on the other hand, take the income approach, which is actually dependent on discounted future financial returns. The cost approach, which rarely comes in use, calculates the replacement cost of assets, adjusted for depreciation and obsolescence. Based on the presumption that few businesses are worth more “dead” than “alive,” it is often used by liquidators.

In a very generic term, evaluating the business at periodic intervals is a basic fundamental activity which highlights the current growth and holds the future prospects of the company. Only when you are aware of the real worth, you can plan your strategies accordingly for the years to come, minimize the risk factors, control tax liability and even have a transparent audit system introduced in your organization. Additionally, from the investor’s point of view, finding the actual worth is vital to gain early success in your business journey.

Below, we have highlighted some of the major benefits of performing Business Valuation

Why Business Valuation
is important

01

Settling legal disputes and litigations

02

Increases your business value

03

Helps in mergers and acquisitions

04

Attract investors

05

Better decision making

A business valuation is
required in scenarios

01

Planning to buy a business or ownership interest.

02

Planning to sell your business or transition ownership.

03

Planning for retirement.

04

Planning to buy out a partner or shareholder.

05

Buy or sell an Agreement which requires a valuation.

06

Require an appraisal of an estate tax return.

How to determine the value

Determining the worth of the business is totally dependent on the type of entity you have! For a start-up venture, where there is no background the valuation process relies on the financial projections which gives a picture of how much money they expect to bring in the next 1 or 2 financial years. Now for enterprises which are there for a long time, they use past and forward projections on the basis of their present-day valuations.
Every addition to your business- be it marketing plans, training, hiring new employees, opening new branches can ensure a rise in valuation. Hence, smooth functioning along with steady growth plays a key role in evaluating the process.

Now that you have an idea of how does ‘Business Evaluation’, impact your venture, selecting the right valuation team also matters a lot.

Few points to consider while choosing the right valuation team is listed below:

Technical feasibility

Managing business relation

In business, having a good relationship in the markets helps a lot in creating goodwill which can assist to increase the valuation to a certain extent. The evaluating team has to have a process through which they can convert the goodwill in monetary terms. Having a comprehensive and comfortable channel of communication with the owner is quite important.

Financial or economic feasibility

Business study

It’s vital for the team to study the nature of the business beforehand they start the evaluation process. A detailed study and analysis help the evaluation team to learn about the key factors or the ‘USP’ of the business which shall be useful in scaling up the valuation.

Operational feasibility

Experience

The evaluation process requires deep knowledge and experience in gathering the scattered pieces of information and presenting them to the prospective buyer or investor in a perfect business case. Here the ability of the team counts a lot to showcase the strengths and positive side of the business which will boost the valuation.

Legal feasibility

Conclusion

As an entrepreneur you have to be ready to encounter the unforeseen situations like succession planning, resolving business disputes, raising equity, establishing shareholder value, handling divorce and financial reporting to name a few. When the actual time comes, doing a guesswork can prove to be a costly move which can land you in big trouble. A comprehensive valuation is the best investment which highlights the genuine financial worth which can help you to take the best foot forward when you actually need it.

Schedule feasibility

Exit Strategy

The life of an entrepreneur is quite synonymous to a roller-coaster ride. As the dynamics of market changes so does the fortune of the business and here’s when a well-crafted ‘Business-Plan’ can be a life saviour. However, one key point which business owners often miss out is writing the ‘Exit Strategy’. Although it might not be a ‘positive’ phrase at the start of a business, Industry experts and analysts believe that anticipating an ‘exit strategy’ can save you millions. HOW? This post covers the life-cycle of an exit strategy and answers why it’s an integral part of every business plan.
Formulating an exit strategy at the start of your business helps to be focussed and have a clear vision for your business. The motive is to determine how a business can maximize its value, rather than being sold in a haphazard way or in a simple loss. Ideally, it allows the business

Project Feasibility Study Report

Before embarking on a new business or an expansion project, a project feasibility study is quintessential to ascertain the viability of the project on various feasibility parameters like technical, financial, operational etc. In other words, a project feasibility study or report provides a window to envision the future of turning a business project into reality.

A project feasibility report is a detailed projection of the sustainability and operability of a proposed business project on certain key feasibility areas.

Technical feasibility

Technical feasibility

Technical feasibility study assesses the requirement and availability of technical resources, expertise, infrastructure and technologies involved in the execution of a project. This includes assessment of production technologies, physical business infrastructure like stores and warehouses, quality of raw materials, availability of required manpower, transportation solutions etc.

Financial or economic feasibility

Financial or economic feasibility

There’s no point in carrying out a business project which is financially unsustainable or would turn out to be a loss-making one. That is why a financial or economic feasibility study is conducted to ascertain the viability of a project from a financial perspective. This study involves consideration of various critical financial factors like capital requirement and capital structure, cost and sources of capital, return on investment, repayment period, break-even analysis, cost analysis, working capital management etc.

Operational feasibility

Operational feasibility

Operational feasibility study assesses the operability and problem-solving abilities of a new project. This study tries to ascertain how smoothly a new project will run once it is implemented. It considers the organization structure, design, culture, processes and people.

Legal feasibility

Legal feasibility

Business or industry in any part of the world is regulated by the law of the land in which it operates. Various permissions and licenses from the concerned authorities are required to conduct business operations. Business operations may be also affected by specific regulatory restrictions. A legal feasibility study analyses the impact of legal and regulatory environment in the execution of a business project. This could include environmental laws, laws pertaining to anti-monopoly and restrictive trade practices, rules and regulations governing company registration and trade licenses, labour laws and so on.

Schedule feasibility

Schedule feasibility

Can the proposed project be completed within a time-frame necessary for it to fulfill its purpose? Project delays may also lead to cost escalation. Failing to make a project operational as per its schedule may render it ineffective and uneconomical. Schedule feasibility study analyses whether a project could be made operational within a reasonable and objective time-frame.

Market feasibility

Market feasibility

The targeted size of the market must justify the degree of efforts and investments involved in undertaking a new business project. Market feasibility study involves an extensive research and analysis of the general economic conditions and the concerned industry, market segmentation and total size of the market for the concerned product, competition and targeted market share and customer demographics.

Initial Coin Offering ICO Consulting

Technology

Technology

  • Create ERC20 compliant Tokens / Smart Contract
  • Smart Contract Validation
  • Wallet Development
  • Token Type Consulting (Utility Tokens/ Security Tokens)
  • Exchange Listing Advisory
  • Ongoing technical support until ICO ends
Legal

Legal

  • Legal Advice & Agreements
  • Terms of Use
  • Privacy Policy
  • Warranties and disclaimers
  • Work closely with your accounts team for required documentation
  • Preparing Accounting & financial Reporting required for listing
Business

Business

  • Business Model Validation for ICO
  • Whitepaper Content Development (Multiple Languages)
  • One-time review of the final versions of White Paper, landing page, and ICO announcement press release
  • Bonus Structure Designing
Finance

Finance

  • Financial Model Development (required for Private Sale)
Marketing

Marketing

  • Website Content Development
  • ICO Launch Marketing Advisory
  • ICO Listing on Top Crypto sites
  • Press releases on Top Crypto Sites
  • ICO review by Top YouTubers
  • Pitching Project to Top Pool Managers
On-Going Support

On-Going Support (Price given for 30 days)

  • Website Chat Support (24×7 support)
  • Investor Technical Queries Solving via email

Initial Public Offering IPO Advisory

Launching an IPO is a tedious task. There are many stakeholders involved who help in the process of launching the IPO. YFC Team can ease this process of IPO launching and make it a hassle free journey for you. We shall act as an CFO to launch your IPO

Our CFO Support Services Include

01

Investor Coordination and Representation

02

Setting up business processes and systems

03

Multiple agency coordination

04

Work closely with your accounts team for required documentation

05

Preparing Accounting & financial Reporting required for listing

With YFC as Financial Advisor on-board, clients’ can focus on other elements in the IPO process where their input is critical.