The issue of business succession in Germany is acute and causes significant distress for many entrepreneurs and families. Imagine the challenge: You’ve invested decades in your business, built it up, and made it successful, but now you’re faced with the difficult task of finding a suitable successor. The reality is sobering—a growing number of potential successors are hesitant to take on an entrepreneurial role. This creates a dilemma in which established companies without clear succession plans risk losing their long-term viability. Added to this is the emotional component: How can one ensure that one’s life’s work is carried on in the founder’s spirit while also protecting the family’s wealth? This painful uncertainty and the need for a viable solution weigh heavily on many entrepreneurs.
This problem is supported by concrete data: The DIHK Report 2022 reveals an alarming situation: Despite a large number of companies ready for a takeover, the number of potential business successors is steadily declining. This trend, exacerbated by the effects of the COVID-19 pandemic and other crises, is taking its toll. The statistics also paint a grim picture when it comes to inheritance disputes: According to Statista data, one in five inheritances results in a dispute. Can this problem be solved? The answer is: Yes! Through a simple approach, a solution can be devised that bridges the gap—between the need to preserve the value of the family business and the difficulty of finding suitable successors.
Solution: The Family Foundation
A family foundation makes it possible to keep the company’s assets and control within the family while also bringing in professional management. This solution not only offers tax advantages but also provides a structured, long-term approach to ensuring the company’s continued existence in accordance with the founder’s wishes.
Specifically, a holding structure is established consisting of a parent company (in our case, a family foundation) and a subsidiary company. The main advantage of a foundation holding company compared to a GmbH holding company lies in the comprehensive protection of assets. In a foundation holding company, the capital is protected from personal risks such as insolvency, divorce, or the death of the founder. In addition, a foundation holding company offers considerable tax advantages. While a GmbH holding company is subject to corporate income tax, the solidarity surcharge, and variable trade tax, a foundation holding company generally pays only corporate income tax and the solidarity surcharge. This reduces the effective tax burden to 15.825 percent. With a taxable income of one million euros, this results in an annual financial benefit of 147,000 euros.
Long-Term Control and Planning
In the area of business succession, the foundation offers uniquely broad scope for customizing the estate and provides the founder with robust control mechanisms. These mechanisms function flawlessly, even after the founder’s death. A prerequisite for sustained control is a clearly formulated charter. A distinctive feature of the foundation is that amending the articles of incorporation retroactively is very complicated and time-consuming. It is therefore important, on the one hand, to address all necessary elements, while on the other hand, not to close off any possibilities and to keep as many options open as possible.
When drafting the articles of incorporation, it is therefore important to look not only at the status quo but also toward the future. Various future scenarios should be carefully considered and incorporated into the articles of incorporation. Once all points have been clarified, documented, and signed, the foundation supervisory authority is responsible for safeguarding the founder’s interests. Through this oversight, the foundation authority guarantees that the foundation is managed in accordance with the founder’s wishes, that the provisions set forth in the articles of incorporation are observed by the foundation’s governing bodies, and that the foundation’s assets (in our case, the company) are preserved in the long term, i.e., even beyond the founder’s death. And that is actually what most founders want: to have state oversight aimed at preserving the founder’s life’s work in the long term.
Every foundation, whether public-benefit or private-benefit, is established for the long term (ideally in perpetuity). Unlike an inheritance, which is often limited to just a few heirs, a foundation can exist across many generations and thus secure a family’s assets for the long term. If a family foundation acts as a holding company and controls a business as a subsidiary, the foundation’s purpose may be to preserve the business along with the jobs it provides. In this case, the purpose will not be lost, even if all family members have passed away. If no such company exists, the foundation’s articles of incorporation can alternatively authorize the board of directors to amend the foundation’s purpose by resolution so that the family foundation continues to exist as a charitable foundation in the future. The prerequisite for this conversion can also be stipulated by linking the eligibility for charitable status to the condition that there are no longer any family members. It should be noted that any change to the foundation’s purpose requires the corresponding approval from the supervisory authority.
Examples of Successful Foundation Structures
A well-structured foundation framework makes it possible to secure the company’s value for the future and to carry on the company’s values and goals. Numerous examples of successful foundations demonstrate how this solution can be effectively implemented. The following section presents some of these examples to illustrate the logic and benefits of foundation structures.
Diehl-Stiftung & Co. KG
The renowned German Diehl Group is a Stiftung & Co. KG that acts as a holding company and is wholly family-owned. Key governing bodies include the Supervisory Board, the Executive Board, and the five sub-groups: Metal, Controls, Defense, Aerosystems, and Metering. The corporate foundation has a clearly defined purpose: to regulate corporate succession, preserve capital, and ensure the continuity of the company. The patriarch of the Diehl dynasty, Karl Diehl, passed away in 2008 at the age of 100. His life was marked by ups and downs. But in the end, he could be certain: the life’s work he had built up over a century would endure.
The Körber Foundation
Kurt Körber, founder of the Körber Group and one of the world’s leading manufacturers of cigarette-making machinery, achieved impressive successes during his lifetime. But he faced a problem: He had no children who could carry on his business. To preserve his life’s work, he established the Körber Foundation in 1959. After his death, this foundation became the sole shareholder of the Körber Group. The foundation is funded by real estate investments and, above all, by dividends from the company. It uses these funds to support nonprofit projects in the fields of education, science, and politics. However, its primary mission is to oversee the group’s business policies.
The Siepmann Family Foundation of Aldi Süd
Karl Albrecht, founder of Aldi Süd, recognized early on the importance of a stable and transparent structure for intergenerational wealth preservation and established the Siepmann Family Foundation as early as 1973. This foundation controls a large portion of Aldi Süd’s assets and ensures that the company and the family remain protected in the future. While the heirs of his brother Theo Albrecht were confronted with inheritance disputes and conflicts, Karl Albrecht avoided such problems through his forward-thinking planning and the establishment of a clear structure. The Siepmann Foundation aims not only to preserve and promote the Aldi Süd company but also to provide financial support to the family without jeopardizing the company’s assets.
Behind these examples lie different personal stories and visions of the entrepreneurs, but they have one thing in common: the foresight to use the family foundation as a powerful tool to safeguard their life’s work and carry on their values across generations. These entrepreneurs have recognized that a family foundation is not only a means of protecting family assets but also provides a platform for realizing their entrepreneurial and social visions over the long term. These examples teach us that proper planning and structuring can create a future-proof foundation for businesses and families, regardless of life’s challenges and uncertainties. With a foundation, issues related to asset protection, tax savings, predictability, control, and stability are resolved once and for all. Anyone considering how best to arrange business succession would be well advised to take a closer look at the foundation option.
