Succession planning: When a family breaks up, how does the business survive?

Succession planning often assumes that the next generation will continue to run a family business together. But what happens when siblings have different ambitions, disagree over control or want independent financial lives? How can families plan for separation, divide wealth fairly and protect businesses from disputes?

A Grant Thornton Bharat Entrust Family Office report titled ‘Custodians of Change’, released in October this year, drew on conversations with business families representing wealth ranging from Rs.100 crore to Rs.10,000 crore. It found that nearly 80% of custodians rated protecting family wealth and continuity as their top priority. It also found that 24% of the next-generation members feel less obliged to join or run the legacy business than their parents did.

These two observations reflect a growing problem: while families are planning to preserve, an increasing share of the next generation may not want to preserve it together.

A different question

Succession planning, as conventionally understood, asks who will take over. “On the other hand, separation planning answers what happens when family members no longer want to run it together,” says Xerxes Antia, Partner at law firm BTG Advaya.

Traditionally, the most common trigger for a family dispute was the death of the patriarch, with no clear plan in place. Increasingly, disputes are erupting during the lifetime of the family head—be it over the proposed distribution that some beneficiaries view as unequal, control of individual businesses within a group, or differences in business vision.

“It’s worth noting that there is a growing trend of aggrieved family members actually taking steps to resolve their grievances, whether through litigation or mediation. In the past, an aggrieved family member may have chosen to remain silent, but members are no longer wary of seeking to assert their rights,” notes Antia.

Aspirations within families are changing faster than succession plans can accommodate. Zeel Jambuwala, Co-founder and Partner at Aurtus, says parents often assume their children share similar ambitions for the family business. She suggests families ask direct questions before designing any structure: “Do you genuinely want to work in the family business? Do you want to manage a business, own it, or simply participate financially? Would you be comfortable owning businesses jointly with your siblings for the next 20 or 30 years? Would you prefer a smaller business that you control independently or a minority interest in a much larger family enterprise?”

Where families stand on leadership transition

What triggers setting up a family office

Equal is not equitable

The most persistent confusion in family business succession is between ‘equal’ and ‘equitable’. Families assume that fairness means an equal division of shares. Advisers say this is often where the problem begins.

“Equality and fairness are not necessarily the same thing,” says Jambuwala, add ing, “An equal division of shares may appear fair, but it can create difficulties where one child is actively building the business, while another has chosen a different path. Equal voting rights can also create deadlocks and blur accountability.”

The cleaner framework separates three questions that families routinely conflate: who owns the business, who manages and controls it, and who receives its economic benefits. These need not be the same person, or be divided in the same proportion.

Kanchi Gandhi, Managing Director at Kotak Mahindra Trusteeship Services, explains that a family member can own shares without being involved in day-to day management, while a successor who controls the business may be given adequate decision-making authority without necessarily receiving a disproportionately large share of total family wealth.

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“The objective should not always be mathematically equal at the cost of commercial viability,” she says. “A business that is fragmented among multiple owners with competing interests may become difficult to manage and ultimately lose value for everyone.”

A family trust, governed by a properly drafted deed, can separate these functions, preserving ownership continuity while distributing financial benefits differently, and giving management authority to the family member best equipped to exercise it. The family’s wider asset pool, real estate, investment portfolios, other businesses and legacy assets can also be used to achieve balance without fragmenting any single operating enterprise.

One question deserves early attention: if one sibling grows a business substantially over a decade, while another manages a slower growing asset, how should a family treat the incremental value? Jambuwala says this conversation is far easier before the gap opens. “It is much easier to agree on what is fair before one business is worth several times the other,” she says.

The price of parting

The financial mechanics of separation are often harder than the family conversation that precedes them. Most family wealth in India is locked in operating businesses, property and other illiquid assets. When a split becomes necessary, neither branch typically has the cash to buy out the other.

Valuation, the necessary first step, is itself contested territory. Gandhi cautions that a single valuation date may not capture fairness when one party is receiving a fast-growing business while the other receives stable assets of the same present value. The person inheriting the business also inherits its execution risk, its obligations to employees and customers, and its dependence on capital.

Mechanisms that go beyond a one-time division can help: deferred payments, peri odic valuation resets, contingent payments tied to a future liquidity event, or internal buyouts structured over time.

Manjit Bhimajiani, Associate Partner at Dhruva Advisors, notes that the real challenge is slicing the pie carefully. “The obvious solutions can be expensive. Selling a business or non-core assets may trigger capital gains tax. Taking money out of a company may affect its growth and working capital, while raising additional debt could put pressure on the business.”

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One option is to raise funds at the promoter or holding company level rather than burdening the operating businesses. Families can also explore demergers, share swaps between branches or the allocation of different businesses to separate family branches. “The real challenge isn’t dividing the pie but slicing it carefully without losing a portion of it to tax,” says Bhimajiani.

Antia adds a point of caution: layered ownership structures can make valuation more difficult. “The more complex the structures, or the greater the number of business entities that have to be divided, the greater the probability of a family dispute, as valuation is more an art than an absolute science.”

When interests don’t align, keep in mind...

*Ownership mapping

Identify who owns what.

*Independent valuation

Value businesses and assets fairly.

*Legal documentation

Align wills, trusts and agreements.

*Tax assessment

Evaluate tax and stamp duty.

*Business continuity

Protect employees and operations.

*Stakeholder protection

Consider lenders and investors.

*Exit arrangements

De ne buyouts and exit rights.

*Dispute resolution

Agree on mediation and arbitration.

Build the legal structure early

Once families agree on what and how they want to divide, the arrangement must be reduced to enforceable documents. This is where many settlements unravel—not because the family lacked goodwill, but because the documents are inconsistent, incomplete or untested.

Anoj Menon, Senior Partner at Desai & Diwanji, says the best time to build these structures is while the founder is still ac tive. “Succession and separation planning should be undertaken while the founder is active, in good health and commands the respect of family members. At this stage, the founder is best placed to secure acceptance for the plan, even from those who may not be entirely satisfied with its terms,” he says.

A family charter should set out owner ship principles, decision-making processes, exit arrangements and dispute resolution. Shareholders’ agreements, articles of as sociation, trust deeds and family settlement agreements must all be aligned.

Gandhi emphasises that a will may state one intention while company ownership records point in a different direction. All documents must give effect to the same strategy.

Prashant Thacker, Partner, Thacker & Associates, points to the value of specific exit safeguards: buyout clauses, rights of first refusal, tag-along and drag-along rights, put/call options and agreed valua tion mechanisms. “The best exit provisions are those that are tested for fairness and commercial practicality when relationships are cordial, rather than being negotiated when a family split has become inevitable,” he says. He recommends mediation as the first option for disputes, arbitration next, and litigation only as a last resort.

Sonam Chandwani, Managing Partner at KS Legal & Associates, warns against settlements designed in an environment where one party controls all the information. “Family settlements should never be negotiated in an environment where one individual controls all the information, appoints all the advisers, and dictates the terms to everyone else. There is a fundamental difference between a settlement that is voluntarily accepted and one that is signed because a family member has no realistic bargaining power,” she says.

She recommends independent legal representation, complete financial disclosure and independent valuation as non-negotiable safeguards, and a review of agreements every two to three years or after any major event—death, divorce, a significant acquisition or a large change in business valuation.

Asha Kiran Sharma, Partner at King Stubb & Kasiva, says information asymmetry is often the most damaging element in a dispute. “Information asymmetry is often a major source of conflict in family business separations, particularly where one family member exercises greater control over management, financial records or day-to-day operations,” she says. She advises a formal disclosure framework giving all branches access to audited accounts, related-party transactions and key contracts, supported by standstill provisions that restrict major asset transfers during negotiations.

Is a family-business dispute brewing? Watch out for these signs

1. Communication through lawyers

Family members stop resolving issues directly.

2. Information is withheld

One branch loses access to financial information.

3. Decisions are contested

Board and shareholder decisions face resistance.

4. Unilateral management changes

Key appointments and bank signatories change.

5. Independent valuations begin

Family members seek separate legal or financial advice.

Keep the business running

A separation should not become an operational crisis. Antia draws a clear line between a healthy planned separation and a breakdown in governance.

“A breakdown in family governance typically also ends up negatively impacting the family business, its overall profitability and governance as professional employees are caught between the disputing sides of the family. A well-planned family separation may not necessarily create value, but it can prevent a significant value destruction,” says Antia.

Directors remain bound by statutory duties under the Companies Act 2013, regardless of family disagreements. Existing employment contracts, customer commitments, financing arrangements and supplier obligations must continue to be honoured.

In cases where shared infrastructure cannot immediately be separated, Transitional Services Agreements allow the continued use of shared resources for a defined period. Thacker adds that lender consent, change-of-control provisions and stakeholder communication require attention before any restructuring is finalised.

Family-business dispute? Choose the right resolution route

First preference

Mediation

When communication is possible.

*Resolve differences amicably.

*Use a neutral facilitator.

*Minimise cost and disruption.

Next option

Arbitration

When mutual agreement fails

*Resolve contractual disputes.

*Address buyout valuations.

*Avoid public court proceedings.

Last resort

Litigation

When disputes escalate.

*Address serious legal violations.

*Seek court or tribunal intervention.

*Resolve matters when other routes fail.

Plan while it is still peaceful

The most important lesson is timing. The rules of separation are easiest to adopt when family members still trust one another.

According to Menon, a robust continuity plan does not require siblings to stop being co-owners simply because they find it difficult to work together. “One may continue managing the business, while the other may be entrusted with another family business, supported in pursuing an entrepreneurial venture, or provided such other assistance as may be appropriate. This flexibility can preserve family ownership and business continuity while accommodating individual aspirations and minimising conflict,” says Menon.

The Custodians of Change report found that while most families have a broad sense of where they are headed in succession, only 36% have committed it to a documented plan. A separation clause is rarer still. Antia says it must be built-in from the start. “The best time to agree on the rules of separation is when the family is still united, not when relationships have already broken down.”

The objective of succession planning, properly understood, is not to keep every generation working together indefinitely. It is to ensure that when they choose different paths, they do not destroy what previous generations built in the process of separating.