A successful business succession: your guide to a secure transfer

Succession planning for your own company is a long-term and complex process that requires careful planning and legal protection. A successful company succession is planned for the long term and involves the company’s managers and the entrepreneur’s family members. Economic, tax and legal issues have to be taken into account as well as the emotions of those involved.

Company managers are responsible for minimizing the risk to their company at all times. This also includes considering what will happen if they themselves lose their mental capacity, for example as a result of an accident, serious illness or old age. An advance care directive is a suitable instrument for ensuring preparedness in the event of an emergency. It stipulates who should act on your behalf in the event of a loss of mental capacity and to what extent all matters should be dealt with. This also includes the representation of shareholdings in the company.

Regulation of participation rights in the company

The advance care directive must stipulate that it is issued in the event and with the effect of the occurrence of the person’s loss of mental capacity and which possible areas it covers. The individual areas of responsibility must at least be generally designated and described. The responsibilities can be limited to certain areas.

In addition to corporate, contractual and organizational solutions, an advance care directive is an important instrument for minimizing risk and for succession planning, especially when it comes to ensuring that participation rights in the company can be taken over quickly once the advance care directive has been enacted by the child and adult protection authorities (KESB). Entrepreneurs can determine who is to exercise their property rights in their place in the event of both temporary and permanent loss of mental capacity. Depending on the constellation, companies may, for example, determine who should represent them as a partner or shareholder at general meetings or on other committees. Entrepreneurs can also issue instructions regarding the exercise of voting rights in an advance care directive. Entrepreneurs are also free to make proposals for staffing the positions they held in the company. Depending on the respective legal form and specific situation (e.g. majority of voting rights), entrepreneurs have the right to determine the successor on the Board of Directors.

Creation and form of the advance care directive

An advance care directive must either be written, dated and signed by hand or be notarized. The tasks to be assigned to the authorized person must be clearly defined. Specific tasks can also be assigned and instructions issued for the implementation of orders. Handwritten amendments to an advance care directive can be made at any time. However, these amendments must be clearly labelled, signed and dated.

Prepared for contingencies: the emergency plan

An emergency plan is a comprehensive and well-thought-out plan that protects both businesses and the private life of entrepreneurs and their families. It regulates representation relationships and safeguards the company’s ability to act in the event of a crisis. In legal terms, this requires regulations in company law, commercial register law, adult protection law and inheritance law. Financial safeguards must also be reviewed and potential loopholes must be identified.

The advance care directive is an important part of the emergency plan. However, the emergency plan also provides more specific instructions in the case of emergencies. This includes the transfer of account and access data, passwords, authorizations and important contacts and contact persons. The emergency plan should be designed in such a way that the interim successor can easily obtain an overview of important customers and suppliers, current orders, offers, calculations and any legal disputes.

A will or a contract of inheritance can specify how the assets and estate are to be distributed following the death of the owner. It can also regulate the succession of a company. A contract of inheritance involving all family members in particular helps to determine company succession in a transparent and dispute-free manner, thereby ensuring a successful continuation of a company.

Clarity and unambiguity

A testamentary succession plan should be formulated precisely and unambiguously. In the worst case, unclear instructions could lead to inheritance disputes. Entrepreneurs should clearly define who should acquire the company or the company shares and continue to run the company. This can be an individual, a group of people or a legal entity such as a foundation. The preparation of a succession plan often includes the conclusion of a shareholders’ agreement between the current shareholders. Practical experience shows that there are always challenges involved in valuing a company. Here too, the potential for disputes can be reduced by mutually agreeing on a valuation method or by defining a valuation technique. It is also important that succession plans are regularly reviewed and, if necessary, adapted so that they are kept as up-to-date as possible.

Consideration of co-heirs and other estate regulations

If there are several heirs, there must be clear rules on how the company shares are to be divided among them and how any compensatory payments are to be made. In order to ensure the company’s capacity to operate, it may make sense to stipulate that certain heirs receive compensation instead of company shares. A succession plan for married entrepreneurs should always take into account the matrimonial property law situation. In addition, there must be a clear understanding of how advance inheritance payments to descendants are to be taken into account and valued in the settlement of the estate. Where assets are held abroad, it is advisable to have the feasibility of an estate plan drawn up in the relevant country examined.

Tax situation optimization

It is advisable to plan for company succession at an early stage. This allows, for example, assets that are not essential to the business to be transferred to private assets over several tax periods, thereby reducing the tax burden. Possible inheritance and gift taxes must also be taken into account. In Switzerland, these are regulated on a cantonal basis, meaning that the tax laws of the entrepreneur’s place of residence must be observed.

Legal advice

The organization of a company succession can be very complex, depending on the size and composition of the company and the desired succession plan. It is therefore advisable to obtain information about the various options at an early stage and to seek advice from a specialist. A non-binding initial consultation offers the opportunity to get to know the consultant and clarify important questions.