The Process of Restructuring and Generational Succession: Consideration and Preparation of a Generational Succession, Based on a Case Company

Mathias Rasmussen

Student thesis: Master thesis

Abstract

This master thesis concerns the process of restructuring and generational succession planning, including consideration and preparation of a generational succession. To combine theory and practice, the thesis will be based on a fictional case company. The thesis will focus on the process and analyse the opportunities, requirements and risks for a company with only one shareholder. The case company will analyse the possibilities when generational succession takes place to either a daughter or a close employee. It is important to have control of the whole process in a generational succession. Complications might occur, but with preparation and time, the effect of the complications can be reduced. It is therefore important to prepare the company so it is ready to be transferred when the generational succession process is launched. The valuation of the company depends on the person taking over the company. The valuation must follow the valuation directions and circular issued by the Danish tax authorities. These valuation directions and circular have been issued to assure that the valuation is performed as close to the market value as possible. The thesis has focused on two restructuring models: demerger and share exchange. Both restructuring models can be done with or without permission from the Danish tax authorities. When done without permission, there is a hold-on requirement to the shares for three years, which means that the shares cannot be sold before after three years. When done with permission, the Danish tax authorities will require that all change made after the demerger or share exchange is reported back to them for a given period, typically around three years. The thesis has focused on three different generational succession methods: sale of shares, tax succession and the A/B-model. Sale of shares will result in taxation of share premium for the seller and a high purchase price for the buyer. Tax succession triggers no tax for any of the parties and it is possible to reduce the acquisition cost with a gift. The model is good if there has to be a rapid transfer. The A/B-model ensures a high transfer price without a high down payment from the buyer because the transfer and payment is mainly made through an advance dividend rights. The A/B-model can be risky as it is dependent on the company's performance. The conclusion is that the right process of restructuring and the right generational succession method depends on the parties involved and their decision on which parameters that are most important to them. Essential to the choice of model and method is the seller’s wishes for whom his/her successor should be and how much the seller wishes to obtain in transfer price.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2016
Number of pages97