Menu of services for business succession within the family
Countermeasures against devaluation
【Valuation of company stock】
Methods of valuing stock of privately held companies are specified in the National Tax Agency’s Basic Instructions on Evaluation of Assets. There are two methods available: standard valuation by comparison with similar businesses and net asset valuation. The valuation of stock will decrease when a company’s earnings have fallen or its net assets have decreased in value.
【Support for establishing a holding company】
If you own multiple companies, establishing a holding company through exchange of shares and other means could reduce the valuation of the companies. Use of a holding company also could keep down future increases in stock prices.
Outline of shifting to a holding company
Transfer of assets
【Gifts or sale】
When stock prices have been decreased through decreasing valuation, the stock needs to be transferred at the same time. Methods of transfer before death include gifts (gifts taxable in the calendar year, gifts subject to taxation in settlement upon inheritance, and the system of deferral of payment of gift tax) and sale (such as sale to the successor or an asset management company). We’ll advise you which method is optimal in your case.
In some cases the timing is right for transfer of company stock before death because its valuation is low, but from the perspective of company management, it may be too early to transfer management authority to the successor. Such a case can be handled through means such as use of different stock classes.
Depending on factors such as the state of the company, we will consider issue of golden shares or shares without voting rights.
Securing funding for payment of tax
【Calculating inheritance and other taxes】
We estimate inheritance and other taxes after ascertaining all subject estates, including those other than company stock, to check for any issue related to tax payment. We will consider solutions for cases in which a shortage of funds for payment of taxes is expected.
【Use of life insurance and executive retirement benefits】
If there is a shortage of funds for paying taxes, we will consider measures such as taking out life insurance or use of executive retirement benefits as sources of funding. We also can help in areas such as setting up rules on retirement benefits if no system of executive retirement benefits is in place.
【Purchase of treasury stock】
When the successor lacks funds to pay taxes but the company has funds, or loans are available from a bank, funds for payment of taxes by the successor can be secured by having the company that issued the inherited shares purchase them as treasury stock. Exceptional treatments (suspension of quasi-dividends taxation and addition of inheritance tax on the cost of acquisition) are available for sale of inherited stock to the issuing company within 3 years and 10 months from the start of inheritance, which can help reduce the taxes on such sale.
【Use of the tax system of deferral and waiver of inheritance tax for privately held stock etc.】
Under this system, if certain conditions are satisfied, payment of 80% of inheritance tax on succession of company stick can be deferred (or waived when company stock is inherited by the next generation). While use of this tax system can greatly reduce the inheritance tax burden, there are numerous points requiring caution, so we consider its use and provide support for its using it.
Division of the estate
【Support for preparing wills】
A will must be prepared in order to pass along company assets to the successor and leave other assets for other children. We listen closely to company owners’ thoughts and provide support to prepare the wills with consideration for the tax burden and asset balance.
Wills Advantages Disadvantages Notarized will No worries about invalidation of the will
No risk of loss
Troublesome to modify
Holographic will No fees
Easy to modify
Risk of loss
Possibility of invalidation of the will
Sealed will Highly confidential Risk of loss
Possibility of invalidation of the will