ALRUD Experts Explain How Private Foundations Can Support M&A Strategy and Succession Planning

Maxim Alekseyev, Senior Partner and Head of the Private Clients and Tax practices at ALRUD Law Firm, together with Kristina Goncharova, Senior Associate, and Anna Mikeladze, Junior Associate of the Private Clients practice, have published an article in The Law Magazine, Moscow edition. The article, «The Intersection of M&A Strategy and Succession/Family Wealth Planning,» examines how Private Foundations can help business owners prepare for future sale, restructuring or acquisition of their companies.

Succession risks for future transactions

The authors note that the key question of succession planning is no longer simply who will inherit the business, but who will be authorized to decide what the business should become. Without proper planning, succession can create fragmentation at the very moment a transaction requires clarity: the death of a founder before closing, disputes among heirs, the involvement of minor heirs and marital property issues can delay a deal, change its terms or put it at risk.

Foundation structure tailored to the asset

Introduced in Russia in 2022, Private Foundations now number over 600. According to ALRUD Research cited in the article, more than 85% of surveyed founders have contributed shares in LLCs and JSCs to their Foundations. A Foundation separates different aspects of control typically concentrated in a single person – ownership, voting rights, management, financial benefits and the right to sell, – and allocates them among different parties within a single governance structure.

The authors stress that there is no universal approach and outline three models based on the founder’s strategy and the expected life cycle of the business:

• Built to Preserve (for example, industrial enterprises): a lock-up period protects key assets from the premature sale and gives the family a predictable income.

• Built to Last (for example, retail and family businesses): economic interests are distributed among descendants, while voting rights are concentrated through representatives of family branches.

• Built to Exit (for example, technology businesses where realising value in favourable market conditions is a key factor): the bylaws set out a controlled exit mechanism, including valuation requirements, approval procedures and sale triggers.

Foundation as an M&A counterparty

A Foundation can act as a seller or a purchaser. The article points out that a deal with a Foundation does not simplify due diligence but changes its focus: because the bylaws are confidential and highly tailored, the counterparty must verify not only the signatory's authority but also that all internal procedures were followed and approvals obtained.

"The next generation does not necessarily need to inherit the operating company. A well-designed Foundation can outlive both the founder and the business, reinvesting sale proceeds and preserving economic value for future generations". Maxim Alekseyev, Senior Partner and Head of the Private Clients and Tax practices, ALRUD

The full article is available here.