Entrepreneur’s will

In many cases, an enterprise represents the efforts and achievements of several generations. The more incomprehensible is that many entrepreneurs postpone the decision of succession and thus possibly endanger the future existence of this value after their death.

Succession planning - as early as possible!

Preparations of corporate legal succession are of crucial importance with regard to the economic development of the company. Mortgage and loan criterias of banks still take largely into account  whether the legal succession is secured by a reasonable arrangement. In the event of inheritance, a lack of preparation concerning succession or tax issues can lead both to payment difficulties (e.g. due to high compulsory portion burdens) and to inability to act (e.g. in the case of disputed co-heirs) and thus endanger the existence of the company in total. Credit risk is therefore rated higher, with the result that loans to such companies are only granted at higher interest rates. In addition, questions of inheritance tax and gift tax should be considered as early as possible.

Legal succession - no static solution!

Preparation should start at an early stage and be constantly adjusted to changing circumstances. For example, an entrepreneur with minor children should consider different arrangements than an entrepreneur with grown up children.

The entrepreneur's will - is this sufficient?

Due to the complexity of this topic, only a few points can be given to trigger the necessary awareness for the whole problem. First of all, it should be pointed out that the entrepreneur’s will is only one aspect of a holistic succession planning. Further steps such as the setting up of a resonable marriage contract, the regulation of compulsory portion claims and the granting of general powers of attorney are additionally necessary in order to regulate the succession in a complete way. The necessary measures depend strongly on the legal form of the company.

What does the sole trader have to consider?

If the entrepreneur has not drawn up a will, all assets, legal positions and liabilities are transferred by law to the family as a community of heirs upon the death of the entrepreneur. It is therefore advisable to transfer the business by will to one specific person in order to avoid winding up of the business or other management disputes. This can be done, for example, by appointing one child as the sole heir in the will, while legacies are made for the other relatives.

Problems with partnerships (GBR, OHG, KG)?

Please note that the company agreement overrules the dispositions in a last will. Before drawing up a will the company agreement should be brought into accordance with the intended inheritance regulation. There are different clauses in company agreements in the event of the death of a shareholder. These range from the possibility of the heir’s entry into the company to the withdrawal of the company share against compensation. Otherwise, the company agreement should be adapted to the will. In any case, it should be avoided that the succession regulation triggers high compensation claims of the excluded heirs, which can endanger the cash flow of the company. When appointing an executor, it must be taken into account that some shareholder rights are non-transferable and regularly prevent the executor from exercising those rights. Then he is not able to comply with his duties.

What happens to shares in a corporation (Limited, )?

As the shares in a public limited company are freely inheritable, there are few problems specific to the company for succession planning, apart from the compulsory withdrawal of the shares. Several heirs can exercise their rights under the shares only through a joint representative. Until a joint representative has been appointed, the administrative rights are suspended, but not the profit subscription rights.

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