How to Keep the Shares of a Family and its Business Together

Wealth Management Foundation

make the operation of a family business impossible. If the owners and managers of the company cannot work together, the firm will soon suffer. Problems between the stakeholders of family companies are often even more challenging to solve due to emotional relationships.

Due to the format and complexity of wealth (asset) management foundations, which have existed for a relatively short time in Hungary, this is primarily recommended for families with high value (HUF 600 million plus), diversified assets, many family members and a long-term asset management plan of up to 50 years. Such a foundation can be an excellent basis for the asset management of a diversified “dynasty” in terms of assets and relationships.

Private Holding Structures

The holding structure is probably known to all entrepreneurs and used by many. It s a good solution for families where the next generation is also an experienced owner and/or manager who is not unused to making complex business decisions and where there is inter-generational experience of working together effectively without significant conflicts.

Family Constitution

This is not something we expect to happen in the near future. Additionally, we would be happy to see a decrease in the number of tax types that cannot be categorized simply as direct or indirect taxes, as some Hungarian special taxes are based on turnover rather than profit. The classification of such tax types is also problematic in crossborder transactions involving doubletax treaties.

GyF: Hungary is at the forefront of developing digital tax administration processes. This can generate significant savings in resources and money. VGD Hungary’s team of tax experts was involved in developing and piloting these digital solutions. As an auditor, I can honestly say that reducing the financial administration of companies represents a very positive direction for Hungarian legislation, and companies react positively to all such changes. I trust that the coming years will also see many new developments and simplifications.

BBJ: Are the tax and accountancy fields still attractive to young graduates? Are you able to source the workforce you need and retain it?

Business owners must look at a company’s operations from a different perspective than company managers or employees. The responsibility of ownership is no less than the responsibility of management, which must be learned in the same way as the professions required for specific jobs in the company. Therefore, the responsibility associated with company ownership should be passed on to the next generation when they are experienced enough to exercise ownership rights. In addition to the professional field, the owner’s experience may also help with financial, legal and management knowledge.

How to Transfer?

Many family companies are structured by their owners so that the next generation also has a stake in the business. Typically, these shares are given to the younger generation as a gift and have the same ownership rights in the company as the founders. The ownership role comes with difficult decisions (downsizing, restructuring, liquidation, etc.), which are difficult even for an experienced entrepreneur but can be even more burdensome for a young person at the beginning of their career.

The family constitution is a somewhat euphemistic name for a “family regulation” in which the first generation lays down the basic principles of the family’s functioning. This is not a solid, unchangeable “law,” but rather a guideline from the older generation covering family, business, social and cultural relationships. Over the years, the experiences of the following generations are integrated into it, continuously improving it. The family constitution can be given an enforceable legal framework, but it is more about writing down the common family values, which the family members claim as their own.

Fiduciary Asset Management (Trust)

Fiduciary asset management is a tool that can be used when someone wants help regarding the succession of the family business or estate and succession planning. Hungarian fiduciary asset management is a type of contract that can be applied flexibly locally but also holds its own in international contexts.

We have already sent our proposals for amending legislation on the abovementioned issues to the Ministry of Finance’s

IN: Modern tax and accounting solutions, such as automation and system integration, make the profession more attractive, but accountants must be more prepared to analyze data. The overall problem is that even fresh graduates have no proper level of English knowledge. Our company invests considerable resources into language training for employees. no exceptions. However, the expected fundamental changes in this industry (digitalization, reshaping tax systems) could still make these areas attractive to young people and offer exciting career opportunities.

Owners running a family firm have a particularly difficult job if the next generation is not interested in the business. Most Hungarian businesses are not self-operating companies but the workplaces of their owners, who cannot be excluded from the activity. Therefore, if you want to involve the next generation in the ownership of your business, you should do so only if they are interested in active participation in the company’s life.

Each of the following four solutions is well suited to maintaining control over a family business, passing on the experiences of the older generations and sharing ownership responsibility.

If the main goal is to “keep” a family business together, it also provides a very effective solution for families in several circumstances. These include when the next generation is a minor, if there is a large age difference between generations, when the next generation will not continue the family business operating as a company, if the foundation generation has also built significant private wealth from the income extracted from the firm, or there are also beneficiaries with special care / educational needs who require lifelong care, and so on.

PH: This has been the most challenging area in our business life in previous years. The tax and accountancy fields are changing, and this transformation should be presented in a more attractive way to young graduates. The borders between different professions (accounting, controlling, taxation) are fading, and a more complex approach and attitude are necessary. These could also be selling points for graduates since they seek interesting and challenging positions. Companies need to recognize that the new generation should be managed and motivated in a totally new way.

ASz: Yes, although the competition in the labor market to source and retain talent remains intense despite the recent economic slowdown.

BBJ: Is there anything else you would like to add?

IN: In the tax and accounting field, there are many challenges due to the increasingly demanding requirements for efficient data services (online invoices, online cash register, online communication, etc.) This implies there is, or will be, significant IT development in our sector.

GB: Finding new talents is a common issue in consultancy, and tax and accountancy are

LB: These fields are still quite attractive. Regarding accounting, we can source the necessary workforce (however, the fluctuation rate is relatively high, and the work experience may be troublesome). However, finding employees specifically for the taxation and audit field is quite challenging. The government is keen to help by introducing a PIT-free status for young employees under 25.

Our Market Talk Panel:

• István Nemecz, managing director, Accace Hungary

• György Boár, partner, Andersen Tax

• Péter Hajnal, partner and managing director, Moore Hungary

• Lajos Bagdi, partner, Niveus Consulting Group

GF: Generally speaking, although it is also specifically relevant to the financial sector, the biggest issue is the need to improve our education system. More well-trained graduates are required with English knowledge. We would like to see more attention and financial resources provided to improve education. PRESENTED

• András Szalai, partner and managing director, Process Solutions Kft.

• Gábor Fajcsák, partner and head of tax service, RSM Hungary

• Zoltán Lambert, managing partner, WTS Klient Business Advisory Ltd.

• Gyöngyi Ferencz, partner, VGD