03.06.2021 | KPMG Law Insights

Clever succession planning through successive business transfer

Clever succession planning through successive business transfer

Business does not need to be handed over in one fell swoop + Different models possible for gradual transition + Well thought-out design allays business owners’ concerns about transfer to the next generation

Dealing with age, passivity and death discourages many business owners from addressing the issue of succession planning in a timely manner. In addition, there is not infrequently the notion that a company handover must be “all or nothing”. However, German law offers a wealth of opportunities and great flexibility to gradually introduce successors to future tasks and the responsibilities that go with them. This can also be attractive from a tax perspective.

Here are some examples of succession design:

Maintain entrepreneurial influence

Depending on the wishes and possibilities, the entrepreneur can continue to exert influence during the gradual handover. In the case of succession within the family, this can be done, for example, by only partially transferring the assets, taking advantage of the gift tax allowances. Through a multiple voting right or an irrevocable proxy by the donated children, the donor still retains his strong position.

Further profit sharing possible

In many cases, entrepreneurs may wish to transfer shares to the next generation during their lifetime, but the profits are not yet to flow to the donees, or not in full. Here, for example, the donor can have usufruct granted on the company shares given away and thus receive the profits after the gift. Pension solutions are also conceivable, in which the donor receives a recurring monthly payment regardless of the company’s success.

Ripcord recovery right

German law offers the possibility of being able to pull the “ripcord” in the event of a transfer by agreeing a right of recovery. This has several advantages for the Schenker. In this way, the donees will take the agreements from the gift contract and their new role as shareholders seriously. Otherwise, there is a risk that they would have to return their shares in the company. In addition, the entrepreneur can relax when it comes to succession planning. Because if things turn out differently than hoped and agreed, he can correct his decision.

Conclusion: By wisely structuring the transfer of the business, the parties involved can ensure that the next generation is gradually involved. In this way, entrepreneurs can make provisions for the future without suddenly having to hand over all the reins.

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Lars-Alexander Meixner

Mannheim Site Manager

Glücksteinallee 63
68163 Mannheim


Mark Uwe Pawlytta

Head of Succession and Foundation Law

THE SQUAIRE Am Flughafen
60549 Frankfurt am Main

tel: +49 69 951195012

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