The Existential Importance of Succession Planning for Entrepreneurs
The absence of a tailored testamentary disposition often leads to statutory succession, which rarely meets the specific requirements of a business. Without a Will, a community of heirs is frequently formed, where the principle of unanimous decision-making can paralyse the company’s ability to operate. A Business Will (Unternehmertestament) prevents such deadlocks, secures liquidity by mitigating compulsory share claims, and protects the business from liquidation. It is therefore the duty of every entrepreneur to make early provisions to preserve the business as a viable economic entity.
Synchronising the Will with the Articles of Association
One of the greatest risks in succession planning is a lack of alignment between the Will and the Articles of Association (Gesellschaftsvertrag). In German law, the principle applies: Company law overrides inheritance law. If, for example, the Articles of Association contain a so-called "continuation clause" or a "qualified succession clause" that only allows specific individuals as successors, a testamentary appointment of an unqualified person will fail. DR. SCHMIDT LEGAL analyses your existing contracts and ensures the necessary legal coherence. Only when inheritance law and company law go hand in hand can a smooth transfer of shares be guaranteed.
Tax Optimisation and Preservation of Liquidity
Upon death, the tax authorities are often the greatest threat to the preservation of a business. Heavy inheritance tax burdens can put such pressure on a company’s liquidity that investments are halted or parts of the business must be sold. A sound Business Will makes optimal use of tax exemptions and reliefs for business assets. Through clever structuring—such as the granting of usufruct rights or the strategic distribution of private and business assets—tax liabilities can be minimised. The goal of DR. SCHMIDT LEGAL is to make the transition as cost-effective as possible, ensuring that capital remains where it is needed: in the business.
Compulsory Share Strategies and Settlement Agreements
Compulsory share claims from disinherited or overlooked relatives pose a significant risk to business continuity, as these are monetary claims due immediately. A Business Will should therefore incorporate strategies for compulsory share reduction. This can be achieved through waiver agreements in exchange for lifetime settlements or by arranging legacies that secure the claimant without jeopardising the substance of the company. Proactive planning prevents the heir from being forced to take out loans or sell the business to pay out co-heirs.
The Role of Executorship in Business Succession
Particularly when heirs are minors, inexperienced in business, or in conflict, the appointment of an Executor (Testamentsvollstrecker) is an indispensable component. A professional executor secures the management’s ability to act and oversees the implementation of the testator’s wishes. They act as a buffer between the interests of the heirs and the operational requirements of the company.
DR. SCHMIDT LEGAL advises you on the selection and the precise definition of an executor’s duties to guarantee a professional transition phase.