In order for heirs to be able to enter a business in the future, lawyers recommend that all corporate documentation be synchronized in advance with the inheritance instruments. For example, the charters and agreements of the firm’s members may contain prohibitions on third parties joining the business. “Such clauses are often written by lawyers without regard to the wives and heirs,” warns Olesya Petrol, partner at law firm Petrol Chilikov. And the owner, who wants to transfer the company, should analyze the corporate documents and revise them, if necessary. “A healthy corporate structure – a real board of directors, a well-thought-out distribution of competencies between the management bodies, a system of checks and balances in decision-making – is what can help a business to function normally after the death of the beneficiary,” adds Ms. Petrol.
Sometimes the legal heirs receive significant assets in the absence of not only corporate structures, but also a simple will. The result of such a transfer is deplorable: the value of the property during the distribution between the heirs may decrease by at least half. If the inheritance occurs under Russian law, one of the reasons for this outcome is that the heirs acquire a share in each of the assets inherited. “If real estate or business is divided and there are many heirs and they are in conflict, assets are blocked for many years: there is no adequate mechanism for getting out of deadlock in Russian law. The business may collapse during this time,” Olesya Petrol says.
Another headache in the transfer of business is the use of relatives and friends as nominee holders of assets. “Often this happens without making any arrangements at all,” Petrol laments.
There is still no ideal mechanism for transferring a business by inheritance in Russian law. And the owner who plans to pass his fortune to the next generation is faced with a choice: either give the heirs a specific property with the ability to manage it as they wish, or place assets in foreign funds and trusts – then the heirs will receive payments from these structures, but the property will not be disposable. “If the testator will not allow the heirs to quickly squander assets, the option with the foreign structures remains a priority, if not the only one,” she says.
In addition to the fact that art investments mark an investor’s membership of a certain cultural elite, they can generate a high income. “A huge amount of art is in private hands, lying ‘in trunks’ and not being used commercially. With a certain agenda and media support to multiply the value will be enough to shake off the dust from them and organize an exhibition,” Petrol states.
Art investments, like any others, require security checks and competent due diligence, especially if the object was purchased from a private individual, rather than an auction house. Lawyers advise to examine the value and authenticity of the piece, check the seller’s rights, exclusive rights to the works and identify third-party claims. It is also worth determining how the transaction will be structured (the buyer will purchase the object personally or through a specially created structure). “Mistakes in the purchase of, say, a painting, presumably created by a world-famous artist, can lead to millions of dollars in losses,” Petrol warns.
Read the full article here (in Russian).