Planning Steps for Successful Business Succession in Germany

German Inheritance, Corporate and Tax Lawyers

Planning Steps for Successful Business Succession in Germany

German Inheritance, Corporate and Tax Lawyers

Safeguarding a successful company for future generations is essential to maintain prosperity and entrepreneurial growth in the long term. Therefore, careful succession planning should always be kept in mind. If the business succession is not carefully planned, there is a considerable risk of financial losses, in which part of the family’s and your security can be lost. Careless dissolution of hidden reserves can also result in income tax losses.

To enable our clients to implement the desired succession planning in the best possible way, Schlun & Elseven Rechtsanwälte offers comprehensive legal assistance. Our German inheritance, corporate and tax lawyers ensure that all requirements for a successful business succession are met and work with you to develop an economically viable solution that is precisely tailored to the goals and specifics of your business and ensures its prosperity across generations.

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Execution of Wills to Secure the Succession of the Company

Since the legal succession often does not correspond to the testator’s wishes, regulating the succession in advance in the event of the entrepreneur’s death is advisable. It is of particular importance that the entrepreneur’s will creates clear conditions for inheritance by specifying who will succeed the entrepreneur. In this way, disputes among the heirs can be prevented.

Careful preparation is required to comprehensively secure the succession of the business in the will. Therefore, not only the regulations under German inheritance law should be considered. In particular, the articles of association must also be comprehensively examined and, if necessary, adapted to the testator’s will. For example, it may be required to insert a succession clause.

However, it is not possible for every heir to immediately assume responsibility for the inherited company share. This is the case, for example, if the heirs are minors. Furthermore, it is not uncommon for disputes among the heirs to stand in the way of an orderly company succession. In such cases, execution of the will is often ordered over the company share. The executor is supposed to enforce the testator’s will and thus ensure the company’s succession. The execution of the will can be limited to a short time and only serve to settle the estate (settlement execution). However, it can also be permanent and serve the administration of the estate (administrative execution). In this case, the heirs are deprived of their power of disposal over the estate for a certain time.

The admissibility of the arrangement of an execution of a will depends on the legal form of the business. Furthermore, the execution of a will can be excluded by the articles of association. However, alternative possibilities exist for such cases, such as the so-called trust or power of attorney solution. The German lawyers at Schlun & Elseven Rechtsanwälte will be happy to outline which arrangements for the execution of a will or the trust or power of attorney solution should be made. They will support you in every further step.

Business Succession through Inheritance

Business succession in the event of inheritance depends above all on the corporate form of the respective company, as the inheritability of company shares is regulated differently for partnerships and corporations in Germany.

Shares in Corporations

The inheritability of shares in a corporation is generally unproblematic in Germany. For example, shares in a limited liability company (GmbH) can be inherited without further ado (Section 15 para. 1 of the German Act on Limited Liability Companies, GmbHG). The same applies to shares in a stock corporation (AG), a partnership limited by shares (KGaA) or a European Company (SE).

Partnership Shares

Shares in a partnership are, in principle, not inheritable. However, this principle can be deviated from using succession clauses in the partnership agreement. For example, a partnership under civil law (GbR) is dissolved by the death of a partner unless the partnership agreement provides for a deviating regulation, a so-called continuation clause (Section 727, paragraph 1 of the German Civil Code, BGB).

In the case of a general partnership (OHG), only the deceased partner ceases to exist (Section 131 paragraph 3 No. 1 of the German Commercial Code, HGB). The deceased partner’s share then passes to the remaining partners, who are obliged to pay the heirs a corresponding settlement (Sections 738, 740 BGB, Section 105 para. 3 HGB). However, deviating contractual provisions (succession clause) may also apply here.

If a general partner of a limited partnership (KG) dies, the partnership (as with a general partnership) is continued among the remaining partners. However, the partnership is dissolved if they are the only general partner. If a limited partner dies, the KG is continued with their heirs (Section 177 HGB).

Participation in a partnership company is not inheritable in principle (Section 9 paragraph 4 sentence 1 of the German Act on Partnership Companies of Members of Independent Professions, PartGG). The death of a partner leads to their withdrawal. The remaining partners receive the partnership share proportionately. Succession clauses only apply to persons with the required professional licences (