Lars-Göran Sund

Strategic Decision Making in Intergenerational Successions of Small- and Medium-Size Family-Owned Businesses

This paper deals with intergenerational successions of small and medium-size enterprises (SMEs). Entrepreneurs face an unavoidable succession dilemma: they must make either explicit or implicit strategic decisions about transitioning ownership of the family business. The main alternatives are to sell the company to someone outside the family or to make arrangements for an interfamily succession. In the latter case, there are many transition modes, e.g., through a gift of shares or a will. This paper uses decision trees to analyze intergenerational successions problems. One conclusion of the paper is that it is important for a society to provide a legal system that facilitates transitions of family companies within the family because the legal system will, among other positive factors connected with family businesses, preserve idiosyncratic knowledge of family character.

A Transaction Cost Rationale for Transition of the Firm within the Family

This paper is about the transition of ownership of shares in small and medium-sized enterprises (SMEs) within the family (i.e. from parents to children). In spite of the fact that such successions are rather prevalent among SMEs, there are no explanations in the literature as to why transitions are preferred to outright sale.In this paper we assume that the decisive factor in the choice of succession mode is the desire for efficiency expressed as the highest possible firm value. A firm should stay in the family if this is the most profitable transition alternative. One reason for intergenerational succession to be the most profitable alternative is knowledge idiosyncrasy.However, the benefits of knowledge idiosyncrasy cannot be reaped without an institutional framework that constrains human activities in a proper way. A part of an institutional framework are the laws that act as constraints in successions. Do these laws foster or prevent efficient transition of family firms? This question is addressed in a study of the Swedish inheritance and inheritance tax laws in the light of the policy recommendations on succession made by the European Commission.

Organization of transfers of small and medium-sized enterprises within the family : Tax law considerations

The succession process of small to medium enterprises (SMEs) creates lifelong dilemmas for entrepreneurs. Who would like to be reminded of his or her imminent mortality by the childrens claim on the family company? One way to enhance the value of an enterprise is to ensure that family ownership remains, since this will preserve idiosyncratic knowledge. However, there are several important considerations of a transaction-cost character that hamper the transfer of ownership of the firm. Especially, considerations of tax consequences can make it very complicated to plan a transfer of the ownership of a SME during the lifetime of the owner. Sweden serves as an interesting illustration of the implications of different tax laws on the choice of succession arrangement since it recently decided to abolish the gift and inheritance tax starting January 1, 2005. This article reports on the tax-induced contractual difficulties. These difficulties are compared with the relatively less complicated situation that occurs when a country such as Sweden abolishes taxes on inheritance and gifts. Case vignettes are used to illustrate the legal dimension of transfer of ownership. A number of recommendations are provided for how to enhance the family succession process of SMEs. A case study supports these findings.

Striving for Happiness and Its Impact on Family Stability: An Exploration of the Aristotelian Conception of Happiness

In Western countries, the ideal of a stable nuclear family is becoming a feature of the past. Instead, families comprising couples living together with their children have become increasingly complex units, as have the multitude of factors impacting on individuals and their relationships. Economic changes and secularization are two examples of dominant causes of instability. In light of these complexities, this article explores the Aristotelian conception of happiness and its association with family stability. It is argued that it is not the endeavor to be happy that contributes to unstable relations, but the current relative unwillingness to support and share in the interest of a partner.

The Rights of the Child as Legally Protected Interests

The subject of Children’s Rights is blessed with series of articles, books and, not least, conferences. It is also fortunate to have a UN Convention of 1989, with near universal ratification, as a sort of backbone. It seems, however, that progress has come to a turning point. Will we see the area become a subject in its own right, like Contract Law? Such a development would be enhanced by a theory that ties together the most important loose ends in this complex area of Law. This paper proffers such a theory, drawing on findings by Neil MacCormick and influences from Rudolph von Ihering as well as Jeremy Bentham. A legal right can be seen and analyzed from many angles. In the footnotes in Section 3 I briefly outline a few examples.

Divorce in the family business: unfolding the legal problems by learning from practice

Purpose – The purpose of this paper is to explore the case of divorce in family business from a legal perspective and highlight the problems of applying family law in the family business context. Design/methodology/approach – The authors rely on legal analysis and interviews with estate distribution executors to discuss problems with the legal rules and how they are practiced. Findings – The findings show that the law is ill fitted to the situation where there is a family business included in the division of marital property. In divorce, family law dictates the division of marital property and the family business is reduced to an asset to be divided like any other. Critical issues are identified and elaborated. Research limitations/implications – Divorce and other disruptions to the family system should be considered in family business consultancy among other threats to the business. The legal perspective on divorce in the family business offered here primarily concerns ownership issues. The impact of div...

The Interest Theory, Children's Rights and Social Authorities

The principle of ‘the best interests of the child’ (art. 3 of the Convention on the Rights of the Child) is sometimes put forward as being the leading guide, i.e. it will in the long run – via, e.g. court cases and legal writing – give accurate and detailed information on the scope of children’s rights and the responsibilities of, e.g., parents. We claim that this principle does not provide us with the necessary analytical tools to enhance the legal rights of children. To this end it is more efficient to accept the explanatory power and apply the elements of the Interest theory, i.e. the chain of children’s interests and rights, obligations of e.g. parents and sanctions against failures. In this context we also illustrate that rights can have different strengths by briefly examining the role of social authorities in relation to the rights of children.