A large number of small and medium-sized businesses are going to have to make arrangements for business succession in the near future. There are various possible approaches to organizing succession.
According to a study conducted by KfW Research, approximately one in every six small and medium-sized businesses will be planning for business succession by the year 2018. The study states that around 620,000 businesses will be searching for a suitable successor. For a lot of businesses, a change at the management level represents a considerable challenge. We at the commercial law firm GRP Rainer Rechtsanwälte have the experience required for weighing up the various options and finding a suitable solution to a business’s transition.
Generational change is something many family-run businesses are set to be faced with in the coming years. Often the desired solution is for the business to remain family-owned and the next generation to carry on the business. Having said that, this is not automatically the ideal solution, as the children, for instance, might not have any interest in the company or be suited to continue the business. In these cases, other options such as the sale or partial sale of the company need to be considered. In doing so, it is also important to take taxation and family aspects into account in addition to economic factors.
Selling a business requires intensive preparation, which is why business succession ought not to be kicked into the long grass. The order situation, balance sheets and existing employment contracts play an important role. Another key aspect is, of course, the valuation of the business to ascertain an appropriate selling price. Depending on the corporate form, it might also be a good idea to sell one’s company shares to one of the other shareholders.
It is equally important to consider inheritance claims. The rules of intestate succession kick in in the absence of appropriate arrangements, and this can give rise to problems. For this reason, it Is advisable to prepare what is referred to in German as an “Unternehmertestament” (entrepreneur’s will). With this kind of will, the testator can prevent a community of heirs from pursuing different interests and thus avoid the business’ continuity being put at risk. It is possible to make arrangements in an entrepreneur’s will that already apply during the testator’s lifetime. Another possible option may be to set up a foundation.
Business succession should be planned in advance with due regard to all legal aspects as well as factors pertaining to taxation. Lawyers who are experienced in the field of company law can ensure that the handover of the business runs smoothly.