Securing the family silver

Spooked by domestic tax and regulatory changes, many wealthy Indians are shifting capital overseas. Vandana Chatlani reports

In India, business is personal. An estimated 95% of companies are run by families. Promoters of companies would often dip into company accounts to fund everything from their children’s school fees to gardeners’ salaries and the houses they are living in, simply because they didn’t know any better. The lines of ownership have been blurry, and sometimes still are, as personal and business finances are considered one and the same.

But as high-profile battles between family industrialists hit news headlines, some promoters are beginning to question whether they have put their businesses and most prized assets in the wrong hands. The potential reintroduction of inheritance tax has also set alarm bells ringing, resulting in panicky promoters rushing to set up appropriate structures to safeguard their wealth.

“The state of succession planning decades ago was dismal,” says Abhijit Joshi, the managing partner of Veritas Legal in Mumbai. “People are a little more conscious now, given the awareness and the social chatter surrounding inheritance tax and the concept of wealth creation.”

Haigreve Khaitan, a senior partner at Khaitan & Co in Mumbai, has observed a more organized approach by private clients in recent years, with high net worth individuals (HNWIs) and families proactively thinking about the succession of both their wealth and businesses. “There has been a clear separation of family wealth, assets and business control,” says Khaitan. “We have seen a lot of Western influence and concepts being introduced through trusts, family constitutions and family understanding. We have also started learning and researching how large family businesses, particularly in Western Europe, have managed their wealth and businesses, and how this could be applied in the Indian context.”

“A lot of substantial Indian wealth is very mobile now,” adds James D’Aquino, a partner in the London private client team at Penningtons Manches Cooper, an international firm where a third of the practice is devoted to private wealth. “They all still maintain strong connections with India, but they are looking further afield and making sure their global wealth is considered and administered in a very professional way, which was not the case 10 years ago.”