A business built over forty years by one man passes, on his death, to a widow, several sons and daughters, and — depending on the family — grandchildren through a predeceased child.
Some of them run the business. Some have never been involved. Some live abroad. All of them now own part of it.
This is the most common cause of business failure in Pakistan, and it is entirely foreseeable.
What actually happens on a death
The shares pass by inheritance. Shares in a company are property, and on death they devolve on the heirs in their Shariah shares. The founder's intention that "the business goes to the sons who ran it" has no effect unless it was structured during his lifetime.
The heirs become shareholders — including those who have never worked in the business and have no interest in it beyond a return.
Nobody can act until the estate is regularised. Transmission of shares requires succession documentation, and until then the company can be paralysed: the board may be incomplete, bank mandates fail, and decisions cannot be taken.
Non-participating heirs want liquidity. Those running the business want to reinvest. That conflict, unresolved, is what produces the litigation.
See who inherits what in Pakistan, succession certificates for overseas heirs and transferring property after a death.
What can and cannot be done
Be clear about the limits, because a great deal of bad advice circulates on this.
Inheritance shares cannot simply be varied by a will. Under Islamic law a bequest to a legal heir is generally not effective without the consent of the other heirs, and testamentary disposition is limited to one-third of the estate in favour of non-heirs.
What can be done is lifetime planning. A gift (hiba) made during lifetime, complete and effective — declaration, acceptance and delivery of possession — transfers ownership then and there, and the gifted asset does not form part of the estate. Gifts of shares and property to particular children are lawful, and are the principal tool used.
But there are real cautions. A gift must be genuine and complete, not a paper transfer with the donor retaining full control — incomplete gifts are challenged successfully after death. And gifts that disinherit some children entirely generate bitter litigation, whatever the technical position.
Non-Muslim Pakistanis are governed by different succession rules. See succession for non-Muslim Pakistanis.
Structural tools that work
Shareholders' agreement and articles. Pre-emption rights, so shares cannot be sold outside the family; transfer restrictions; a defined valuation mechanism; and how deadlock is broken. This is the foundation and most Pakistani family companies do not have it. See shareholders' agreements and deadlock.
A valuation mechanism agreed in advance. Almost every family buy-out fails on price. An agreed formula or a named independent valuer removes the argument.
Buy-out funding. A mechanism is useless without money. Options: keyman and life insurance written to fund a buy-out, a sinking fund, or staged payment over years, secured.
Separating ownership from management. Not every heir needs to run the business. Dividend policy for non-participating heirs, salaries and roles for those who work — defined, so that "he takes a salary and we get nothing" does not become the family grievance.
Holding company structure, separating operating businesses from real estate, so that heirs can be given different assets rather than fractions of everything.
Family constitution. Not a contract, but a written statement of how the family will run the business — who may join, on what terms, how a family member is appointed to management, how disputes are handled, dividend philosophy, and how in-laws and the next generation are treated. Its value is that the conversation happens while the founder is alive to lead it.
A will, for what it can do — appointing executors, dealing with the disposable portion, expressing wishes, and identifying assets. See making a will where assets are in two countries.
Get the basics in order first
Before any of the sophisticated planning, most Pakistani family businesses need this:
- Know what is owned, and by whom. Assets held in the name of an employee, a relative or "the family" must be regularised — and note the benami risk. See benami transactions
- Get title documents in order — properties, vehicles, leases, licences
- Separate personal and business assets and accounts
- Document intra-group and related-party arrangements, properly priced. See transfer pricing and related-party transactions
- Bring corporate filings up to date, with a clean share register
- Resolve tax exposures, rather than leaving them for the next generation
- Identify personal guarantees given by the founder, which do not die with him and will be enforced against the estate. See guarantees and indemnities explained
- Record who has access to bank accounts, digital assets, records and passwords
Point 8 is mundane and it matters enormously. Families are routinely locked out of their own business systems after a sudden death.
Bringing the next generation in
Define it rather than letting it happen: entry criteria, whether outside experience is required, how roles are allocated, how performance is assessed, and how someone leaves. Employment terms for family members should exist on paper like anyone else's.
See employment contracts and ESOPs and employee share schemes for retaining senior non-family managers, who are frequently the people actually running the business.
When it has already gone wrong
Where the founder has died and the heirs are in dispute, the sequence is:
- Regularise the estate — succession certificate or letters of administration, and transmission of shares
- Secure the company: filings, bank mandates, and a functioning board, so the business survives the dispute
- Value it independently
- Negotiate a division or buy-out, which resolves most of these matters
- If necessary, statutory remedies — oppression and mismanagement proceedings, partition of jointly held property, or winding up as a last resort. See dividing jointly owned property and closing a company
Litigation between siblings over a business destroys value quickly. Where a negotiated division is achievable, it is almost always the better outcome, and we say so.
For overseas heirs
Heirs abroad are frequently the last to know and the least able to act, and their shares are sometimes transmitted without their involvement. Establish your position early, obtain the corporate records, and act through counsel here under a power of attorney rather than waiting for a visit. See powers of attorney from abroad, property scams against overseas Pakistanis and limitation and the deadlines that end claims.
How the firm can help
We plan family business succession — lifetime gifts, holding structures, shareholders' agreements, valuation and buy-out mechanisms and family constitutions — and we do the unglamorous groundwork of getting title, filings and related-party arrangements in order first.
Where a founder has died, we regularise the estate and the share register, keep the company functioning, and negotiate or litigate the division.
Established in Karachi since 1959, we have acted for families across more than one generation of this exact problem. See corporate and commercial or family and succession, or contact the firm.