RIL chief Mukesh Ambani has already done his succession planning. How ready are you?

Billionaire Mukesh Ambani has laid out an extensive succession plan at India's most valuable company Reliance Industries Ltd (RIL), identifying his children Akash, Isha and youngest son Anant in leadership roles.

Certainly, succession planning is crucial for assuring any company’s long-term success by identifying the successors and ensuring a plan in place in case a change happens quickly. Early planning can ensure availability of right people for key roles and giving enough time and opportunity to nurture them into the roles and responsibilities of leadership. A good succession planning can also avoid reduction in expenditure when transitions occur suddenly and people are ready to take on the roles without training planning.

"One of the most notable steps taken by Mukesh Ambani was to involve his children in the business since the very inception. Eventually, this paved way for Mukesh Ambani’s children to learn from the finest businessmen in the organization and are now being entrusted with taking over the empire as well. The key factor of Mukesh Ambani’s succession plan is his focus on the upcoming generation that has allowed him to appoint his own children on the board of several companies under Reliance Industries Ltd," says Himesh Thakur, Senior Associate, PSL Advocates & Solicitors.

Thakur believes that Mukesh Ambani has certainly learnt from the mistake of his father who, despite being one of the biggest business tycoons of his age, with such foresight and entrepreneurship, yet failed to leave a clear line of succession and transfer ownership. He has been restructuring the business to consolidate family control.

In cases of individuals succession planning allows a smooth transition of financial and other assets to the legal heirs without facing muddy waters

For businessmen, succession planning is a strategy for identifying and developing future leaders for their business, not just at the top but for major roles at all levels. 

To successfully do succession planning, Thakur says that one should keep in mind the following points: 

1. Start with keeping the end in mind. Identify the core competencies, skills, abilities, and other required criteria for someone to be successful in a specific role. It is necessary to ensure that one is as inclusive as possible.

2. Be clear about the roles that will need to be filled in at the time of succession planning and also the roles which will not be required to be filled in.

3. Engage everyone actively in the succession planning process to ensure their contribution and understand their outlook on the whole transition.

4. Plan at least 5 years ahead with clear short term goals as well for any uncertainties.

What are the different ways of passing on your wealth? 

Thankur explains one of the most preferred ways to pass-on the wealth is by way of making a will in favour of the legal heirs. A will lays down the basic groundwork of distribution of assets, including both, movable and immovable and allows for a seamless transition of the assets to the legal heirs. However, many individuals tend to leave behind multiple wills that were executed by them, that often leads to legal complications for the legal heirs.

"Another popular way of passing on the wealth is by way of creating a Trust. These can be formally set-up as a private trust under the Indian Trusts Act, 1882. The downside to setting up of a trust is the payment of stamp duty that increases the costs for setting up the trusts. Gifting is another option available for passing of wealth during the lifetime. Both moveable and immovable property can be gifted by executing a gift deed and need to pay the registration charges and stamp duty on the market value of the property. It may be important to point that even gifts can have tax implication on the recipient unless the gifts received during a financial year does not exceed rupees fifty thousand, it is not to be treated income of the recipient," says Thakur.

Under a gift, transfer of ownership happens immediately on acceptance of the gift by the recipient whereas vesting of rights under a Will does not happen as long as the person making a Will is alive. "

Under a will you are free to enjoy such assets during your life time. A will is neither required to stamped nor is it required to be registered unlike a gift deed.  Moreover, as we do not have any inheritance tax in India, the beneficiary under the will does not have to pay any tax on the assets so inherited making bequeathing of assets through a will the cheapest way to pass on your assets to the desired person," adds Thakur.

Also read: What will decide the future of RIL stock? Ambani's speech at Reliance AGM were filled with hints

Also read: Mukesh Ambani handover plan: Jio to Akash, Retail to Isha, new energy biz to Anant