Succession

Succession refers to the transfer of a company to new owners or new management. Typical routes are a handover within the family, a transfer to employees and a sale to an external buyer. If no viable solution can be found, closure may follow. Succession is particularly relevant to the Mittelstand, where ownership and management often rest in the same hands.

Preparation should begin early because finding a successor, arranging financing and completing the handover can take several years. A central task is reducing dependence on the owner. Customer relationships, know-how and decision-making need to pass to other responsible people. A business that cannot function without its existing owner is harder for a buyer to take over. Separating private from business assets, producing reliable financial information and preparing a credible business plan are further steps.

A third-party sale connects succession to the conventional M&A process. Prospective buyers assess earnings, risks and development opportunities and must be able to finance the price. A common obstacle is the gap between an owner's expectations, which may reflect a life's work, and the value a successor can fund from future earnings. Seller loans or a temporary continuing equity investment can help, but also allocate risks between the parties.

A family handover adds questions about the former owner's financial security, fair treatment of other family members and tax planning. Tax relief may be subject to conditions that need early examination. Whatever the route, the transition requires clear responsibilities: who will run the business, how long will the former owner remain involved, and when will the successor take full responsibility? An agreed transition plan covering employees, customers and financing helps protect operations and build confidence in the new management.

Note: This explanation is for general information only and does not constitute tax advice. Tax treatment depends on the individual case and may change with new legislation. For a binding assessment, please consult a qualified tax adviser.