Causes And Effects Of Equity-based Family Trust Dispute

Family business is a common form of business organization,providing a large number of jobs and tax revenues,driving the economy forward.As family business owners age,the question of how to pass on family wealth becomes an important issue for business owners to address.They want to maintain control of the family business while passing on their wealth,and family trust becomes an ideal option.With the advantage of a trust,family assets are placed in a trust,held and managed by a trustee,and family members enjoy the benefits and manage the family business,thus achieving long-term inheritance of family wealth and control of the business and avoiding dispersion of family wealth.For most entrepreneurs,the equity of the family business is their main asset,which also provides a broad market prospect for equity-based family trust.Foreign equity-based family trust has a hundred-year history,yet dispute issues arise frequently,bringing serious negative impact to family trust,family business and family.The domestic family trust business started in 2012 and is still at an emerging stage of development,so it is foreseeable that equity-based family trust disputes will inevitably arise in the future.Therefore,it is important to study the causes and effects of disputes in equity-based family trust to provide reference for further improvement,optimization and development of domestic equity-based family trust.Y Group’s family trust is an equity-based family trust,which has been established for 38 years and has rich experience in operation and practice,and has smoothly completed the succession of the first generation of founder to the second generation of family members.However,when the third generation of family members entered the management stage,a7-year-long family trust dispute occurred,which is typical and representative of the case study.Therefore,taking Y Group’s equity-based family trust as a case study,we adopt literature research method,case study method,event study method and comparative analysis method,and combine enterprise life cycle theory,principal-agent theory,incomplete contract theory,efficient market theory and Z-score model theory to explore the causes and effects of disputes arising from Y Group’s equity-based family trust and gain insights accordingly.The results of the analysis show that the causes for Y Group’s equity-based family trust dispute are: in terms of trust company,the control right is not clearly defined in the trust purpose,the family trust’s intergenerational inheritance scheme is imperfect,and the family trust’s flexible adjustment mechanism is missing;in terms of Y Group,the separation of three powers model of corporate governance is incomplete,and the combination of trust and personal shareholding model has the risk of control contention;in terms of family,conflicts between family members have increased and family members have misconceptions about family trust.The effects of Y Group’s equity-based family trust dispute include: the impact on the trust company is reflected in the increased agency costs and management difficulties of the family trust;the impact on the family business is reflected in the withdrawal of core members from the management of the company,the decline in the profitability of the family business,the decrease in Z-value indicates the increase in financial risk,and the increase in annual dividends in the face of declining profits;the impact on the family is reflected in the breakdown of relationships between family members and the obstruction of family culture transmission.Finally,based on the case of Y Group’s equity-based family trust dispute,three insights are obtained from the perspective of preventing and reducing the impact of the dispute: in terms of the trust company,it can prevent the equity-based family trust dispute by embedding a charter in the family trust agreement and introducing an independent third-party protector system,and reduce the impact of the dispute by improving the mid-stage and late-stage operation of the family trust.In terms of family enterprises,disputes can be prevented by improving the procedures of family business succession and reducing the impact of disputes through the management of enterprise de-familying.In terms of family members,dispute can be prevented by participating in customized family trust agreements,and the impact of disputes can be reduced by establishing family committees.The results of the study enrich the research literature on the practical application of family trust at the theoretical level,and at the practical level,by analyzing the causes and effects of the disputes of Y Group’s equity-based family trust and obtaining corresponding insights,provides reference for family business owners in selecting and customizing family trust,provides ideas for family trust to prevent and reduce the effects of disputes similar to those of Y Group’s equity-based family trust,and provides a case study for improving domestic equity-based family trust and has important practical significance for the development of the domestic financial market.