Family business inheritance has always been a worldwide problem. There are many successful models like the Rockefeller family, and many family businesses have quickly declined after the prosperity. We can sum up the experience from the both success and fail cases of inheritance. Speaking of cases of failure in inheritance, most of the chinese people can’t help thinking of a sad story- Haixin Iron and Steel Group.
In early 1987, Li Haicang raised 400,000 yuan to establish Haixin Steel in Wenxi County, Yuncheng, Shanxi. After that, it developed smoothly and gradually grew into the second largest steel company in Shanxi Province and the largest private enterprise in Shanxi Province. On January 22, 2003, bad luck suddenly fell, Li Haicang was shot and killed in his office. At that time, his son Li Zhaohui, who was studying in Australia, had to stop studying Australia. Under the dominance of his grandfather Li Chunyuan, he became the successor of Haixin Steel and he was 22 years old.
For Li Zhaohui, who has not graduated from university and had no experience, this challenge was undoubtedly a heavy burden. In fact, the most popular successors at the time were Li Tianhu who was general manager of Haixin Steel, and Li Haicang’s younger brother, as well as Xin Cunhai, the vice chairman, but Li Chunyuan focused on the direct succession and drove them away.
After successfully taking over, Li Zhaohui was not interested in the “family business” steel business. He started as a hands-off shopkeeper and put his eyes on the capital market. He began to engage in investment businesses such as funds, securities, and film and television. Haixin Steel has gradually become a capital market business “Automated Teller Machine”. In addition, Li Zhaohui was a spendthrift. For example, his century wedding was held with the female star Che Xiao, and the scene was grand with 500 tables and more than 200 wedding cars. However, the marriage lasted only one year and three months, and it ended with Li Zhaohui paying 300 million yuan in compensation. In the end, Haixin Steel’s capital chain broke, triggering a large number of debt disputes, and was declared bankrupt by the court in 2014. The iron empire, which once had assets of ten billion, disappeared in just ten years.
From the inheritance case of the Li Haicang family, with the help of the family office, their fate might be different. This is mainly reflected in three aspects:
First of all, the Li family lacks advance planning for family inheritance. The sudden death of Li Haicang is the beginning of Haixin Steel’s death. If Li Haicang makes plans for family inheritance in advance, establishes a complete inheritance plan through the family office, makes arrangements for the management and inheritance of the enterprise,it will not happen the chaos when an accidents come. Moreover,Li Zhaohui was not interested in the family business. If there was a complete inheritance plan, with the help of professionals, perhaps while ensuring the longevity of Haixin Steel’s foundation, it will also allow Li Zhaohui to open up a new world in his field of interest.
Second, the marriage has changed, leading to the outflow of family wealth. Li Zhaohui has no awareness of marital risks. The breakdown of the marriage cost him 300 million yuan. With the assistance of the family office, he might use family trusts and prenuptial agreement to prevent possible marital risks.
Third, Li Zhaohui confuses personal property with company finances, provides guarantees for business operations in his own name, and ultimately assumes joint and several liability for the company’s debts, resulting in the loss of family wealth. The family trust has the function of asset isolation, which can avoid personal property debt risks and prevent it from being used for debt repayment, liquidation and bankruptcy.
It can be seen from the case of Li Zhaoxian that family inheritance includes not only the inheritance of corporate equity, management rights, cash and other wealth, but also the inheritance of spiritual wealth such as core values, family style, and business philosophy. This is a complex system. Such a set of inheritance system and plan requires the intervention of professionals, and a complete set of inheritance plan is customized according to the specific situation.