Entrepreneurs face particular challenges in estate planning. Aligning the articles of association, the will, and tax requirements is crucial for the company's continued existence.
Why an Entrepreneur's Will?
Statutory inheritance law is often unsuitable for entrepreneurs. It provides for the participation of all heirs in the estate, which in the case of business interests can lead to a community of heirs. A community of heirs in a company means:
- Any co-heir may demand partition
- Decisions generally require unanimity
- The company's ability to act may be jeopardised
- Heirs entitled to a compulsory share may assert monetary claims that burden the company
An entrepreneur's will must therefore clearly regulate the succession in the business and be aligned with the articles of association.
Interaction between Articles of Association and Will
Partnerships (OHG, KG, GbR)
In partnerships, the articles of association govern what happens upon the death of a partner:
- Succession clause: The partner's position passes to one or more heirs. The will must determine which heir receives the partnership interest.
- Entry clause: The partnership continues with the remaining partners. The heir has a right of entry.
- Continuation clause: The partnership continues without the deceased partner. The heirs have a right to compensation.
GmbH
A share in a GmbH is generally inheritable (§ 15 Abs. 1 GmbHG). However, the articles of association may contain restrictions:
- Vinkulierung clauses: Transfer and inheritance require the consent of the shareholders' meeting
- Redemption clauses: The company may redeem the deceased's share
- Transfer obligations: The heirs may be obliged to transfer the share to specified persons
The will must take account of these provisions in the articles of association. A conflict between the will and the articles of association regularly results in the articles of association taking precedence.
Essential Elements of an Entrepreneur's Will
1. Designation of the Business Successor
The entrepreneur should clearly determine who is to take over the business. The question arises whether the successor should be appointed as heir or legatee:
Appointment as heir: The successor enters into the entire legal position of the deceased as universal successor. Besides the business, the heir also receives the remaining assets (if sole heir) or must participate in the partition as co-heir.
Legacy: The business is allocated as an individual asset. The successor acquires a contractual claim against the heirs for transfer of the business. This solution separates business succession from the remainder of the estate.
2. Regulation of Compulsory Share Claims
Compulsory share claims of disinherited heirs can endanger the company's survival if they must be satisfied from business assets. Structuring options:
- Compulsory share waiver agreement: Non-succeeding heirs waive their compulsory share in return for compensation (during the testator's lifetime, notarially authenticated).
- Deferral provision: § 2331a BGB permits deferral of compulsory share claims where immediate satisfaction would impose an unreasonable burden on the heir and the company.
- Lifetime transfer: The earlier the transfer takes place, the lower the supplementary compulsory share claim (tapering under § 2325 Abs. 3 BGB over ten years).
3. Partition Direction
Through a partition direction (§ 2048 BGB), the testator may determine how the estate is to be divided among the co-heirs. This enables the business to be allocated to a specific heir, while the other heirs receive compensation from the remaining assets.
4. Executorship
The appointment of an executor can safeguard the transition:
- Administration executorship: The executor implements the succession arrangements.
- Continuing executorship: Where successors are minors or inexperienced, an executor may manage the business for a defined period.
5. Substitute Successors and Contingency Provisions
Provisions should be made for the eventuality that the intended successor predeceases the testator, or is unable or unwilling to assume the succession:
- Designation of substitute heirs
- Provisions for the case that no family successor is available (e.g. sale to management)
- Transitional arrangements for the period until final succession
Tax Aspects
Inheritance Tax Relief Rules
§§ 13a, 13b ErbStG provide substantial reliefs for business assets (85 per cent standard relief, 100 per cent optional relief). The entrepreneur's will should be structured so that the conditions for these reliefs can be met.
Valuation
The tax valuation of the business is generally performed using the simplified capitalised earnings method (§ 199 BewG). Alternatively, an individual valuation report may be obtained where the simplified method leads to overvaluation.
Income Tax
In partnerships, the death of a partner may trigger income tax consequences, particularly where hidden reserves are realised.
Regular Review
An entrepreneur's will should be reviewed regularly and adapted to changed circumstances. Relevant changes may include:
- Changes in the shareholder composition or articles of association
- Family changes (births, divorces, deaths)
- Legislative changes in inheritance or tax law
- Changes in the company's financial situation
Summary
The entrepreneur's will requires close coordination of inheritance law, corporate law, and tax law. Considering only one area of law in isolation can lead to contradictory provisions and ultimately jeopardise the company. Interdisciplinary collaboration between lawyer, tax advisor, and notary is therefore essential.
