Building a business requires hard work, expertise, business acumen, and sometimes a bit of luck. At some point, however, the entrepreneur asks himself how much longer he can and wants to continue running his business, whether he wants to step down entirely or gradually, who might be a potential successor, and what ownership and influence rights he would like to retain—at least temporarily.
The succession options are diverse. Timely planning is crucial—whether for a sale to a younger successor, a competitor, a strategic investor, a financial investor, a managing director, or for a transfer within the family.
Even when the options seem clear, the requirements for an orderly succession are often underestimated. First and foremost, the entrepreneur needs a clear vision of how they envision their exit. This raises the question of whether the necessary conditions for this are even in place. For example, how realistic is it that the desired successors will be ready by a specific date? Particularly in the case of succession within a family, it is often by no means certain that the chosen successor even has the competence and the willingness to take over the reins. In addition, the legal requirements for the desired succession should be established early on—taking tax implications into account.
This applies, for example, to the company’s legal form, holdings in other companies, the articles of association, the shareholders’ agreement (if there are multiple shareholders), and other contracts related to day-to-day business operations, such as those involving so-called “change-of-control” clauses. These clauses typically grant the contracting party a special right of termination if the company is transferred to a new owner. One factor to consider here is that legal adjustments can be complicated in cases where the consent of third parties—particularly a co-owner or a contracting party—is required.
Navigating the Tensions with Skill
In the case of transfers within the family, it is also important to maintain internal harmony, avoid or compensate for injustices, and manage the implications for inheritance and statutory share rights. To take advantage of inheritance and gift tax exemptions, it is often advisable to make certain transfers to the next generation without consideration during one’s lifetime
Finally, timing is also crucial in succession planning. Succession processes often require more than a year of lead time. Legal and tax issues must be clarified, and the succession process often needs to be communicated to the family, co-owners, employees, and other contractual partners. Entrepreneurs should therefore address the issue of succession as early as possible to avoid jeopardizing their achievements due to insufficient preparation.
