For example: a family business founded by a father in Kuala Lumpur, with a subsidiary in Melbourne, has traded for thirty years. The eldest son has always worked in the business, the daughter is a doctor in Sydney, and the second son’s wife has recently become involved in management. The father has long had a plan in mind but has never written it down or discussed it openly. When he suddenly falls ill, the family discovers there is no answer to who can sign, who takes over, or how the shares should be divided.
The saying “wealth does not last beyond three generations” is well known in Chinese communities. Succession usually fails not because the business is weak, but because family relationships, control and legal documents were never sorted out in advance. This article looks at the common difficulties Asian family businesses face in cross-border succession, and the legal tools and communication methods available.
1. Why succession is especially hard for Asian family businesses
Common reasons include: founders used to making every decision alone, so governance rests on personal authority; the value of family harmony leads families to avoid sensitive topics; siblings’ expectations clash between “equal shares” and “reward to those who contribute”; boundaries blur once in-laws join the business; and a next generation educated in Australia, the UK or the US often has its own career plans and may not want to come back.
We understand this first-hand. Chua Tan Associates is itself a second-generation family firm, with Kin Wee Chua and his son Justin Chua practising together. Handing over is not just about documents; it is a conversation between generations about roles, expectations and trust.
2. Family constitutions and family meetings
A family constitution (or family charter) is a written set of rules agreed by family members. It can cover the family’s values and vision; the conditions for family members to work in the business (such as qualifications or outside work experience); dividend policy; whether in-laws may hold shares or office; and how disagreements are handled. It is usually a moral agreement rather than a legally binding one, so its key terms should be carried into the shareholders’ agreement and company constitution.
The process of making the constitution matters as much as the document. Regular, facilitated family meetings give every member a chance to be heard, and often bring problems to the surface before they escalate.
3. The legally binding documents
Company constitution: an Australian company can rely on the replaceable rules in the Corporations Act 2001, but a family business usually needs a tailored constitution covering appointment and removal of directors, share transfer restrictions and pre-emptive rights.
Shareholders’ agreement: deals with what happens to shares when a shareholder dies, divorces, loses capacity or leaves the business, along with deadlock resolution and valuation methods.
Buy-sell agreement funded by insurance: provides that if an owner dies or suffers serious illness or injury, the other owners buy their shares, with life or disability insurance funding the purchase. How the policies are owned and the tax consequences must be settled with a financial adviser and accountant.
Trust control and enduring powers of attorney: if the business is held through a family trust, succession to the appointor role must be planned, because it does not pass automatically under a will. Business owners should also sign an enduring power of attorney under Victoria’s Powers of Attorney Act 2014, so someone can manage financial matters if they lose capacity. Note, however, that an attorney generally cannot act as a director in your place, so director succession under the constitution needs to be planned as well.
4. Cross-border structures: an Australian company owned from overseas
Many families hold their Australian company through a holding company in Malaysia, Singapore or Hong Kong. Succession then often takes place at the holding company level, under that country’s company and succession laws: the founder’s Malaysian or Singapore will and the local probate process will affect who controls the Australian company. Documents in each country must work together rather than give conflicting directions.
In Australia, a proprietary company must have at least one director who ordinarily resides in Australia, and every director must have a director ID before being appointed. If the only Australian-resident director dies or leaves, the company may face an immediate compliance problem. A foreign-owned company buying residential property in Victoria may also be a foreign purchaser liable to surcharge duty and land tax, and the tax treatment of dividends paid offshore must be handled by your accountant.
5. Mediation before litigation
Once a family business dispute goes to court — for example, a shareholder seeking an oppression remedy or applying to wind up the company — it is usually slow and expensive, and a public hearing can make the family relationship very hard to repair. Mediation is confidential, with a neutral mediator helping the parties find a workable outcome. It suits many Chinese families’ preference to keep family matters private, and gives a better chance of preserving both the business and the relationships.
Justin Chua is an Accredited Family Business Advisor, trained through the Family Business Association and the University of Adelaide, and a Nationally Accredited Mediator. When acting as a mediator he must remain neutral and cannot also give legal advice to any one party; each party remains free to obtain their own legal advice.
6. How we can help
We can draft and review company constitutions, shareholders’ agreements, buy-sell agreements, trust deed amendments, wills and enduring powers of attorney, coordinate documents in Australia and overseas, and facilitate family meetings that help family members raise difficult topics in Mandarin, Cantonese or English.
Practical checklist
- Map the full ownership structure, including offshore holding companies and trusts.
- Confirm the directors, shareholders and signing authority at every level, and who the Australian-resident director is.
- Check whether the constitution and shareholders’ agreement deal with an owner’s death, divorce or departure.
- Review an insurance-funded buy-sell agreement with your financial adviser.
- Sign wills and enduring powers of attorney in Australia and overseas, and make sure they are consistent.
- Hold a first facilitated family meeting about who wants to take over and what everyone expects.
Frequently asked questions
Is a family constitution legally binding?
Usually not, or only in part, depending on how it is drafted. Its value is in getting the family to agree on the rules. Anything that needs to be enforceable should be put into the shareholders’ agreement, company constitution or trust deed.
I already have a will. Do I still need a shareholders’ agreement?
Yes. A will only decides who receives your shares; it cannot bind the other shareholders or resolve how the family member who inherits will deal with them on valuation, control and exit. The agreement and the will should be drafted together.
My children all live overseas. Can the Australian company keep operating?
Yes, but a proprietary company must have at least one director who ordinarily resides in Australia. If no family member lives here, a suitable person needs to be arranged in advance and planned for in the constitution and authority documents.
Can an enduring power of attorney let my son run the company for me?
An enduring power of attorney can authorise him to manage your financial affairs, such as acting in your capacity as a shareholder, but it generally does not let him act as a director in your place. Director succession should be dealt with separately in the company constitution.
Can a family meeting be held in Chinese?
Yes. We can run meetings in Mandarin, Cantonese or English, and family members overseas can join by video.
The earlier succession planning starts, the more options you have. Whether your business is in Melbourne, Kuala Lumpur, Singapore or Hong Kong, call Chua Tan Associates on 03 9602 3988 or contact us online. We have practised in Melbourne since 1990 and can meet at our Melbourne CBD office or by video, including with family members in different countries.
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This article is general information only and is not legal advice.
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