“Simple share distribution is the seed of conflict; designing a family business succession structure by business and area is essential.”

Daeryun Future Family Business Succession Center launched... Interview with Accountant Park Soo-jin

“If shares are simply distributed equally or differentially, disputes over management rights and inheritance rights are frequent in later generations. Therefore, it is essential to design a structure in advance that divides business areas or divides domestic and overseas areas.”
On the 17th, accountant Park Soo-jin of Daeryun Law Firm pointed out the key to family business succession. Daeryun, which recently launched the Future Family Business Succession Center, is accelerating its support of inheritance and succession strategies for wealthy individuals and entrepreneurs. In addition, we plan to provide a double taxation prevention solution in conjunction with the US partner company ‘SJKP LLP’.

Accountant Park, a core member of the center, is a veteran who has accumulated expertise in the domestic and international tax and financial fields by working for over 17 years at companies operating overseas, including Samil Accounting Corporation and LG Chem Europe GmbH. Currently, at Daeryun, I am in charge of family business inheritance, gifting, and tax saving strategies for corporate managers.

Below is a Q&A with Accountant Park.

-Why a detailed financial and tax diagnosis must be conducted before establishing a family business succession strategy.

▲The essence of family business succession is the transfer of shares. Many managers think of the family business succession inheritance deduction system to save taxes, but if they take over without recognizing hidden tax liabilities, the successor may suffer fatal blows such as a liquidity crisis due to massive taxation. Therefore, it is important to conduct a ‘health check’ to detect company-specific diseases. You may think of this as a simple choice. However, if you prioritize a thorough diagnosis, you will be able to not only discover structural risk factors but also explore business strengths and expansion opportunities for future generations.

-Do you have any specific strategies or know-how to optimize succession costs?

▲Listed corporations are often relatively well-prepared, but small-scale unlisted corporations are often unaware of the valuation regulations under the Increased Tax Act, such as the fact that the sale price is applied first. Traditionally, the management of net asset value and net profit and loss value has been the key, but as courts are recently recognizing the Discounted Cash Flow (DCF) method, it is necessary to establish a tax minimization strategy by analyzing corporate types and precedents. We also recommend managing the size of small and medium-sized businesses. When a company grows beyond a certain size, tax benefits disappear and it suffers a premium assessment disadvantage. In this case, a strategic corporate restructuring scenario is essential. In the case of families with multiple children, it is recommended to distribute funds separately to each specialized business field.

-What is the mindset that managers must have for successful family business succession?

▲It is common to concentrate shares to management successors. However, economic equity must be guaranteed both quantitatively and qualitatively to non-heir children. During the family business succession process, we often see cases where shares were distributed evenly or differentially. Nevertheless, the reason for seeking out a law firm in the end is because of the exercise of minority shareholders' rights and the intensification of management rights disputes between shareholders with equal shares. Based on this work experience, we recommend going beyond simply guaranteeing oil decentralization and designing a structure that makes it difficult for disputes to arise. To achieve this, it is important for managers to have an open mind to communicate two-way with family members rather than just unilaterally designate a successor before planning.

-Recently, as the number of wealthy people holding overseas assets has increased, interest in succession of overseas assets has also increased. Are there any tax issues that these people tend to miss?

▲If you have a certain level of assets, you will turn your attention overseas due to fatigue from high rates of domestic taxation. However, even in this case, you may face unexpected tax burdens due to differences in tax law systems between countries. In particular, in the United States, assets around the world are included in the scope of taxation not only for citizens or permanent residents, but also for those with domicile status under tax law. In addition, there are frequent cases where advance gifts are made hastily without understanding the U.S. Step-up Basis (a system in which the acquisition price is readjusted to the market price upon inheritance), which actually increases the tax burden. Inheriting overseas assets requires an integrated solution regarding the taxation and reporting systems of both countries, rather than simply comparing tax rates.

-What field would you like to develop a specialized succession model in the future?

▲We plan to systematically strengthen the ‘cross-border inheritance and gift integrated solution’ that encompasses the overseas assets of domestic wealthy individuals. Tired of high rates of taxation, they are considering off-shoring, but due to insufficient review, they also go through the trial and error of reverse flipping (moving an overseas corporation back to Korea). Based on Daeryun's global network and information power, we will focus on minimizing clients' unnecessary cost waste and tax expenditures by supporting design and implementation from the beginning.

Reporter Kwon Byeong-seok (bsk730@fnnews.com)

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