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GRP Rainer LLP

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Making timely arrangements for business succession

June 2017

The demographic trend poses a serious challenge to medium-sized businesses, particularly in relation to the unavoidable issue of making arrangements for business succession.

A study from the year 2015 conducted by KfW, the Kreditanstalt fĂĽr Wiederaufbau (Reconstruction Loan Corporation), shows that around 1.3 million owners of mid-sized businesses were 55 or older at that point in time, with this trend set to continue in the coming years. The problem is compounded by the fact that the baby boomer generation is slowly but surely reaching retirement age, only to be succeeded by age groups with a lower birth rate. The resulting gap is not only reflected among professionals but also at the management level, which does not make it any easier to find a suitable replacement for company director.

The issue of business succession ought therefore to be near the top of the agenda among a large proportion of owner-managed family businesses. Even if the company owner has not yet given thought to retirement, arrangements for business succession should be made in good time. This is not only critical for the future of the business but also the present. This much is clear from the KfW study, according to which the type of planned business succession also has a significant impact on the willingness to invest. If the intention is for the company to be carried on by a family member, the willingness to invest is considerably higher than in the case of an external successor. However, this might mean the brakes being put on important innovations and the business becoming less competitive.

That is why we at the law firm GRP Rainer Rechtsanwälte consider timely planning for business succession to be of elementary important. Particularly in the case of family-run businesses, it frequently comes down to preserving one’s life’s work and positioning the company for the future. For this reason, there is often a desire for the successor at the helm of the company to come from within the family or be some sort of relation. However, this does not always prove possible for various reasons. In that case, a successor may be sought from within the company, or externally sourced and prepared for the position. Business succession often involves establishing new structures and responsibilities within the company.

All in all, business succession represents a complex challenge in relation to which aspects of taxation and succession law ought to be taken into account. To ensure that the transition is as smooth as possible, lawyers who are versed in the field of company law can be consulted.

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